Tata Motors Limited
Q2 2015 Earnings Call Transcript

Published: 14 Nov 2014

[Operator:]

Ladies and gentlemen good day and welcome to the Tata Motors Limited Q2 FY ‘15 Earnings Conference Call hosted by JPMorgan India Private Limited. As a reminder all participants’ lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Makharia from JPMorgan. Thank you and over to you.

[Aditya Makharia:]

Thanks, Moshin. Hello everybody. We have with us the Group CFO of Tata Motors, Mr. Ramakrishnan, and Mr. Ken Gregor, the CFO of Jaguar Land Rover. Initially Mr. Somaiya, the Head of Investor Relations will give the present – will give the investor presentation and then we will open the floor to question-and-answers. Over to you sir.

[Vijay Somaiya:]

Thank you, Aditya. Thank you everyone for taking out time to attend the Q2 FY ‘15 investor call. The copy of the presentation is available on our website and you could refer to that. If we move over to the financial highlights for the Q2 results starting with the Tata Motors Group consolidated performance, the net revenue in Q2 FY15 was Rs.60,564 crores up from $56,800 crores same period last year. EBITDA at 17% for this quarter compared to 16.3% in previous year and profit-after-tax came in at Rs.3,291 crores as compared to Rs.3,542 crores which is there. The net automotive debt/equity as of September 14 was 0.10. I will skip the H1 results and only concentrate on the quarterly result. Moving over to Tata Motors Group India business, Q2 FY ‘15 the net revenue was Rs.8,750 crores as compared to Rs.8,868 crores last year. EBITDA was negative Rs.145 crores as compared to Rs.178 crores positive last year. EBITDA margin came in at 1.7% as compared to positive 2% last year and profit after tax because of the tax provisions reversal came in at negative Rs.1,800 crores as compared to Rs.800 crores negative last year. If we look at Jaguar Land Rover’s Q2 FY ‘15 presentation, the net revenues came in at £4.8 billion up from £4.6 billion last year last quarter. EBITDA margins came in at 19.4% higher than 17.5% last year and profit after tax came in at £450 million as compared to £500 million in the previous year. The net debt equity as of September 14 was negative minus 0.28. Moving over to the India business the positive business sentiment, firm freight rates and extended lower excise duty provided support to the M&HCV industry in India. However subdued infrastructure and manufacturing activities, lower level of financial availability and high interest rates continued to impact the demand for commercial vehicle industry mainly in the LCV segment. For the company Tata Motors the MHICV segments saw a growth rate of 14.1% which is much better – which is the first reversal which we have seen in last ten quarters. The new launches, Prima LX and Ultra range continued to lead the improvements in the market and our market share from commercial vehicle increased by 60 basis points to 54.5 in Q2 FY ‘15. In the passenger car business the industry showed a growth of 10% in Q2 FY ‘15 on the back of improved GDP and IIP growth. From a Tata Motors perspective we have launched ZEST and it has received a very strong and encouraging response from the customers and today the demand is higher than what we can supply and we are ramping up the production to meet the customer demand. It has 29 segments – 29 segment leading features ZEST has and that has been very well received from the consumers. Our market share for Q2 in commercial vehicles business stood at 50.3% and in passenger car business stood at 5.1 percentage. Moving over to the performance of Jaguar Land Rover, from a volume perspective the wholesale volumes compared to previous year was up 2% at 104,000 units while the retail volumes at 110,000 units were 8% higher than last year. EBITDA came in at £933 million at a margin of 19.4% reflecting the volume increase, richer product mix on the back of Range Rover Sport, Range Rover and Jaguar F-TYPE, a robust market mix especially in the emerging markets and which was offset by the foreign exchange and unfavorable foreign exchange realized hedges. Profit before tax came in at £609 million which was offset by unfavorable revaluation of foreign currency debt of around £85 million in Q2, FY15 as compared to positive £87 million previous year and on the back of higher depreciation and amortization. In H1 of this financial year we have spent £1.45 billion on CapEx and product development and even after spending this amount we are free cash flow positive to the extent of £500 billion. Jaguar Land Rover has substantial cash and financial deposits of £3.75 billion and they have also undrawn long-term committed lines of £1.32 billion. In this quarter we had showcased the Jaguar XE and the Discovery Sports in the Paris Motor show which will go into production in early 2015. Moving ahead way forward on the India business with positive investment and business sentiment, reversal of the diesel and petrol prices, lower inflation rate which would lead to a lower interest rate, the automotive sales are expected in show improvement from the later part of H2 FY15. M&HCV has already started showing improvement on a low base and we expect the improvements to pick up progressively from Q3 FY ‘15. The orders which we have received for JNNURM Phase 2 would help us drive bus volumes. On the passenger car side the new products which we have launched, the Nano Twist, the Vista, the All new Tata Aria and Tata ZEST and the upcoming products Tata BOLT and Safari strong facelift will drive volumes on the passenger car business. As had been mentioned earlier we have s product portfolio plan which is in 2020 with a very clear defined strategy and we would continue to add vigor to this program. The way forward on the Jaguar Land Rover side the strategy to continue to build the sales momentum of the two brands, successfully launch new Discovery Sport and the new Jaguar XE as well as the new Ingenium family of engines, successfully launch and start production at the China JV manufacturing plant, invest in few more products and technologies to meet consumer and regulatory requirements, build manufacturing capacity in UK and internationally for growth flexibility and matching global demand, generate robust cash flows to support investments in the region of £3.5 billion to £3.7 billion this year. With this I will hand it over for Q&A.

[Operator:]

Thank you very much. We will now begin question-and-answer session. [Operator Instructions]. We have the first question from the line of Jayesh Gandhi from Motilal Oswal. Please go ahead.

[Jayesh Gandhi:]

Hi sir. I have a couple of questions of standalone business, one is standalone tax, you indicated there was some prior period reversal, is that correct?

[C Ramakrishnan:]

Ramakrishna here. Yes that’s right. It’s credit that we had taken in the past years, it’s a reversal of credit, an accounting entry and not a cash flow.

[Jayesh Gandhi:]

Okay, and secondly what was the impact in JLR in the – margins on account of ForEx.

[C Ramakrishnan:]

Yes, it is an adverse movement of £85 million roughly in valuation.

[Jayesh Gandhi:]

Sir, I meant above EBITDA, below EBITDA is £85 million if I am not mistaken.

[Kenneth Gregor:]

It’s a slightly complicated answer, EBITDA actually the impact of exchange didn’t significantly move the EBITDA margin year-on-year although it is the case that the pounds millions EBITDA did reduce by in the region of £70 million year-on-year due to foreign exchange and the reason the percentage EBITDA margin didn’t move because the revenue also reduced.

[Jayesh Gandhi:]

Okay. But on QoQ basis how big impact could be?

[C Ramakrishnan:]

Compared to Q1?

[Jayesh Gandhi:]

Yeah, compared to Q1.

[Kenneth Gregor:]

Just bear with me for a second. I’ll answer back. Q1, it’s less than a point.

[Jayesh Gandhi:]

Less than a...

[Kenneth Gregor:]

One point of EBITDA margin.

[Jayesh Gandhi:]

Less than one percentage point, okay. Okay sir, thanks. I’ll come back in queue.

[Operator:]

Thank you. We have the question from the next line of Amit Tharani [ph] from Deutsche Bank. Please go ahead.

[Unidentified Analyst:]

Thank you, sir for taking my question. Sir my question was on JLR profitability obviously you managed to maintain 19% to 20% rates through good geography and product mix. But over the next 12 to 14 – 12 to 24 months if we are able to get good volumes of the Jaguar XC plus if you are going to have local production in China, directionally do you think that profitability would be under pressure just as directionally, I know you don’t give guidance but directionally could that be that profitability could be lower?

[C Ramakrishnan:]

It’s difficult to genuinely comment here. We had these discussions in the past and I have given the opportunities that we have and also the challenges that we have. The couple of things that you mentioned are quite very valid and right. As we get into smaller products it will be logical the margins maybe not be as we have in the Range Rover or Range Rover Sport. Similarly once the China production starts there will be some one or two quarters there will be some in shift in products shipment that also will have an impact. On the other hand the new products and the continuing momentum for the current products will also improve the volumes and the operating economics. So I think there are pluses and minus I am not touching on the foreign exchange.

[Unidentified Analyst:]

Okay.

[C Ramakrishnan:]

So it’s difficult. We have an endeavor to maintain healthy profit margins. We’ll continue to do that. So there are too many variables, the one on volumes, the volume growth, regional mix, successful launch on the new products and the operating scale economics that comes in and the modularity and the sharing of components and the platforms the configurations across models, a lot of this is part of it.

[Unidentified Analyst:]

Fine sir. And sir just on your capacity post the production alignment that you have done recently, what is your capacity in the UK plants right now and what is the number that you’re expecting say by the beginning of FY ‘16?

[C Ramakrishnan:]

Right now. Ken correct me if I’m wrong, right now we are operating at about 450,000 plus capacity in UK next. For the two to three years I would expect.

[Kenneth Gregor:]

I mean I think by the end of this fiscal year it will be more like 500,000 units and clearly we also add in China joint venture which we talked about in the past 130,000. So those would be immediate movements and looking forward when you add modules you tend to need to add capacity at the same time, so that something more.

[Unidentified Analyst:]

And just lastly the Jaguar XC will start production by the beginning of next calendar year or will it start in this year itself.

[Kenneth Gregor:]

It will start production in the first quarter of the next calendar year with retail sales following quarter, that’s our present plan.

[Unidentified Analyst:]

Thank you sir. Thanks a lot for taking my questions.

[Operator:]

Thank you. We have the next question from the line of Rakesh Jhunjhunwala from Rare Enterprises. Please go ahead.

[Rakesh Jhunjhunwala:]

Good evening, sir. What I wanted to know is that the $80 million loss that you have – 5 million pounds loss that you have had have you charged it to your interest cost or have you charged the devaluation of loans to the profit loss account, so how have you charged the loss?

[Kenneth Gregor:]

The re-valuation of – so it’s two things it’s the 85 is the two major pieces is about $50 million revaluation of foreign currency loans. No, that doesn’t go through the interest line. It just goes through a revaluation line and the balance, the largest single item is foreign currency hedge instruments and again no that doesn’t go through the interest line. It just goes through the separate line on income statements.

[Rakesh Jhunjhunwala:]

So therefore it is debited to the profit and loss account

[Kenneth Gregor:]

Yes above PBT but after EBITDA.

[Rakesh Jhunjhunwala:]

After EBITDA but before PBT and it’s debited on profit loss account.

[Kenneth Gregor:]

Yes.

[Rakesh Jhunjhunwala:]

It’s not only a balance item, it’s a P&L and balance sheet item.

[Kenneth Gregor:]

You are right, yes.

[Rakesh Jhunjhunwala:]

Another thing I wanted to ask you is that there have been reports of some fallen volumes because of your product, you mention the fact that you are changing the models and going to [indiscernible] when is this going to – this disruption in production going to end?

[C Ramakrishnan:]

Normally, Mr. Jhunjhunwala, any year we too have a month long shut down in August, which is the vacation, the off period.

[Rakesh Jhunjhunwala:]

That’s past us now.

[C Ramakrishnan:]

That is past us now. Along with that as you prepare yourself for the launch of completely new models like XC you tend to take advantage of the shutdown period and start enabling the plant to produce a newer models.

[Rakesh Jhunjhunwala:]

Right, sir that is understood but when will this disruption related to November-December when you will come to the normal production levels?

[C Ramakrishnan:]

It’s not in that sense a disruption. If at all there is any production constrain I would say it is more within the – it should be more in the month of August for which you start preparing in advance and manage the inventory levels.

[Rakesh Jhunjhunwala:]

Another question I have is how is the demand scenario, you are coming out with cars which have been praised to the sky, at least in India we cannot get your cars, we have to wait, in fact worldwide in most countries are in waiting list. So how is your demand scenario?

[C Ramakrishnan:]

Sorry the question is about Jaguar Land Rover?

[Rakesh Jhunjhunwala:]

Jaguar Land Rover.

[Kenneth Gregor:]

I will answer with a simple statement but I think we see solid demand for the products across most of the markets which we compete there are some markets that are – that have moved ahead more than others and the some that have moved backwards. So for example in the quarter we see in the first half we see economic situation in Brazil caused the volumes to be lower. We see that political situation in Russia caused our Russian volumes to be flat. We see South African volumes down year-on-year because of economic situations by and large. We see solid demand in the UK and Germany in the US our China volumes up year-on-year. So overall we see a decent picture in terms of the level of overall demand but it’s…

[Unidentified Analyst:]

How do you see India I mean what is the level you are losing, 1,100 crores quarter so when can we as a company at what level of volumes can we see that we will have a breakeven in India. We are losing a billion nearly – $800 million [ph] here in India. So as a company you’ll have some plan that if my volumes grow by 30%, 20%, 10%, 40% I’ll breakeven and start making money.

[C Ramakrishnan:]

That’s a wide range of percentages you have given me.

[Rakesh Jhunjhunwala:]

So but I don’t know the percentage, sir, I mean the range can be anything, what is your feeling at what range will you breakeven?

[C Ramakrishnan:]

Without getting to the breakeven I think in India as we said earlier we are beginning to see the growth slowly coming back although slowly then we would have liked at this stage I think we see some growth momentum beginning to happen in medium and heavy commercial vehicle, that is the big trucks which is an important lead indicator and it’s also the most attractive from the company point of view in terms of margin top line and bottom line. We have seen some handsome growth in this quarter itself, continuing momentum but of course I must caution saying that when we talk about growth we are also comparing it with the small base earlier but having said that after many, many quarters we’re seeing some growth and increase in numbers in this segment.

[Rakesh Jhunjhunwala:]

And also related question, earlier we have done a $9000 crore turnover [indiscernible] and had EBITDA loss of 145 crores and interest and depreciation 900 crores so at what level of turnover 10,000, 14,000, 13,000 any ball mark figure within a range will you breakeven at the PBT level?

[C Ramakrishnan:]

It’s difficult to give one magic number because a lot depends on the mix and the range of product that we have. We have products from 8 ton plus [ph] to Tata Ace and half a ton trucks and we have a range of products in our passenger vehicles as well. Without specifically talking in terms of the company generally in the industry I would say for breakeven if we target at least 50% to 60% capacity utilization.

[Rakesh Jhunjhunwala:]

That’s the only calculation [ph] today.

[C Ramakrishnan:]

In commercial vehicles we’re almost at that level, about 50% plus and in passenger vehicles it’s much lower, more like 25-30%.

[Rakesh Jhunjhunwala:]

Right, okay sir thank you and congratulation on the fine performance, but sir [indiscernible] everything at Jaguar Range Rover if you can get operational don’t mess up [indiscernible] 1,100 crore loss is big loss sir.

[C Ramakrishnan:]

Yeah it is, we’re indeed concerned. Several actions are underway we are significantly excited that the commercial vehicle range covering more segments and much more compelling projects the newer products are receiving very good attention, very good demand. It shows that we have the best value proposition that we can offer to the customers. As growth comes in as the business in commercial vehicles with the range and the ability of the products I think we are fully prepared to take advantage of the growth that will happen. Passenger vehicles just at the beginning, I think you will see more models on the ZEST lines, more excitement, more attractive to the customers hopefully. I think we have made a very good beginning in ZEST after couple of launches which did not meet our expectations. I think it’s beginning to happen. Hopefully the external environment will continue to be positive and we will see more growth momentum in the country as well. But as far as commercial vehicle is concerned I think we are very sure that we emerge stronger from this downturn than when we entered it, passenger vehicles the journey has just begun at ZEST, there is more to follow.

[Rakesh Jhunjhunwala:]

Thank you sir, thank you everybody.

[C Ramakrishnan:]

Thank you very much. Thanks for your time.

[Operator:]

Thank you. We have a next question from the line of Kapil Singh from Nomura. Please go ahead.

[Kapil Singh:]

Yeah hi sir. Couple of things from my side, firstly did we received any local incentives in this quarter like we did last year in same quarter?

[C Ramakrishnan:]

You’re talking about Jaguar Land Rover?

[Kapil Singh:]

Yeah that’s right.

[C Ramakrishnan:]

No, last year we did have incentive in some of the regions in which we operate. This year that’s not there.

[Kapil Singh:]

Is it expected to come soon in the future quarters?

[C Ramakrishnan:]

Yes it will, it’s an annual work, we will take in our accounts at that time.

[Kapil Singh:]

Okay and just to understand this number clearly above the EBITDA we have talked about the MTM losses on current assets and liabilities, how much was that number for this quarter MTM of current assets and liabilities?

[Kenneth Gregor:]

It’s about £30 million.

[Kapil Singh:]

£30 million okay and how much is the realized gain on matured FX and commodity hedges?

[Kenneth Gregor:]

That would be – one second. Yes it’s in the region of £80 million.

[Kapil Singh:]

Okay got it. And just wanted your views on the volume, especially in the U.S. market we’re seeing some declines in last few months in retail and also Jaguar volumes have been a bit weak this year. So some thoughts on that how we’re being affected because industry growth is being noticed in the U.S. even now.

[Kenneth Gregor:]

Yeah I think on the Jaguar side it’s a little bit of a year transition for Jaguar because we’re clearly in a phase the whereabouts commence really substantial product renewal starting with the all new product of Jaguar XE which as I mentioned which should start production in the first quarter of calendar year coming. And then thereafter we got plans to refresh and replace the Jaguar XI and we showed an SUV compact for Jaguar at an Auto Show sometime last year and we’ve got plans for that as well. And so it’s a little bit of a year of transition Jaguar as the products age a little bit. So the U.S. market is – middle of next year and as the products age a bit in the marketplace and we did also take some production adjustments on Jaguar at the beginning of the year to make sure we have the right level of stock in the marketplace that’s caused the volume to be a bit flatter this year. So I think for Jaguar it’s the year of transition as I think we’re in but we’ll seek to build upon with the fresh product next year. And on the Land Rover side the volumes were flat year-over-year in the quarter and that was primarily down to balancing the available production to other markets but I think we’ll be able to address that with some of the capacity actions that we have been taking those will come to provision over the next six months or so. So I think we’ll able to address that.

[Kapil Singh:]

Okay. And just one more question on India we have seen a steep increase in raw material cost as a percentage of sales so if you could give some color over there as well what exactly changed from last quarter to this quarter?

[C Ramakrishnan:]

That’s affected by certain amount of model mix as well if you see margins at the level in 2014, naturally the corporate as a percentage of turnover the turnover is reported net of variable marketing expenses and certain other provisions. Therefore it will look somewhat adverse. there has been no significant movement of the cost as far as raw materials are concerned they have been fairly okay but it’s more the top-line effect that is causing those destruction partly the model mix.

[Kapil Singh:]

So sir model mix is the major reason or have you also seen a change in incentives or discounts as well?

[C Ramakrishnan:]

Year-on-year I would say perhaps party both.

[Kapil Singh:]

Okay. I mean I wanted more color on the truck side, how has the discounting changed from previous quarter or if you have taken any price increases after the end of the quarter or before that?

[C Ramakrishnan:]

October, after the end of the quarter October we have taken the price increase which is in line with the past approximately about 1% across different models, weighted average basis about 1%. In terms of discounts yes we have seen some high discount levels in the industry as our discount and variable marketing activities have also been going up in the past. My overall comment on that would be in the last couple of quarters I think we have since I think January, March would have been the highest in terms of general level. Since then we have seen it either stabilizing or marginally coming off, but too soon to talk very strongly about that. It continues to be high compared to two years ago or three years but on a quarter-to-quarter basis somewhat slightly low.

[Kapil Singh:]

Okay. So how high would be to say two, three ago number in terms of percentage of sale or something if you’d compared with that?

[C Ramakrishnan:]

Can’t give you a sense in terms of percentage to sales, I’m talking much about in terms of industry and some anecdotal transactions that we have seen not necessarily Tata Motors but generally in terms of the industry what used to be somewhere between Rs.25,000 to Rs.40,000 has gone up to even Rs.200,000 or Rs.240,000.

[Kapil Singh:]

Okay, that’s helpful, thank you, thanks a lot sir.

[Operator:]

Thank you. We have the next question from the line of Sonal Gupta from UBS Securities. Please go ahead.

[Sonal Gupta:]

Hi, good evening sir. Thanks for taking my questions. So just I mean just wanted to understand on the Jaguar Land Rover side if I adjust for the FX hedging gain that you have realized this quarter, I mean year-on-year we’re still seeing the other expenses actually being lower on a year-on-year basis and I were to understand that I mean you had certain marketing expenses also this quarter in terms of showcasing the new Discovery Sport as well as XE. So just wondering as to how that cost line item is moving is there. I mean what are the factors which are keeping it depressed?

[C Ramakrishnan:]

Probably the effect that you are seeing is related to the positive product and market mix that we have in the quarter compared to the same quarter a year ago. So what you are seeing is that driving strong revenue and then as a percentage of revenue the material and other cost are little bit lower. So you get that as a trend of the numerators changing as well as of the denominators changing as well as the numerator.

[Sonal Gupta:]

But okay. And just on the rollout of the XE I mean two parts to it one is and I understand that it will be launched in U.S. only much later during the year or probably early in CY’16 because you want to introduce all-wheel drive variants and the other thing is when you would be launching the XE in China because you will have a locally produced access which will obviously be cheaper. So will you launch imported XE in China or will you have I mean how does that – you for XE rollout and really which country you will you roll it out?

[Kenneth Gregor:]

Yes I mean you are on the right track with most what we said but we will launch in China but it’s too early to comment on the pricing as we all have in China.

[Sonal Gupta:]

And just lastly from my side any comment that you can make in terms of your inventory levels on the JLR side and specifically for China what sort of inventory levels are we seeing because my understanding is that inventory levels for even premium manufacturers are going up?

[Kenneth Gregor:]

By and large that ebbs and excellent flows I think that’s fair to say but by and large inventory levels have been fairly stable for us over the past year or so. We do ebb and flow month-by-month for various reasons as models age and models run in and models run out but I don’t necessarily have anything specific to say about it.

[C Ramakrishnan:]

I would just say the continuity at the low end rather we have been operated in the past, including for the vehicle, overall including for the – yes including for the dealer.

[Sonal Gupta:]

So we should end the financial year [ph] around four weeks or something will that be a good range to think about?

[Kenneth Gregor:]

Typically for the business as a whole its inventory at dealers being one and two months on a global basis and yes we have been at the lower end of that range from October time.

[Sonal Gupta:]

And then it would be similar in China right?

[Kenneth Gregor:]

China has tended to be in the lower end of that range.

[Sonal Gupta:]

Okay fine, thank you. Thanks a lot.

[Operator:]

Thank you. We have the next question from the line of Robin Joel [ph] from Bernstein. Please go ahead.

[Unidentified Analyst:]

Hi, thanks for taking the questions. The first question is on just wanted to clarify something that was said earlier by – did you say the £80 million is the negative realized [indiscernible] in this quarter so like if on the old EBITDA versus there was a difference between the new and the old EBITDA would be minus £80 million is that correct?

[Kenneth Gregor:]

Yes so on the recognized [ph] percentages and all the numbers have the potential to confuse. But if I go year-to-year from Q2 last year to Q2 this year there is a net negative effect in EBITDA in the region of I think I said £70 million in EBITDA and that year-to-year effect is the net effect of the operating exchange rates being modestly less favorable offset by the gain on hedging instruments in the quarter those things netting out to a net negative effect of about £70 million in EBITDA year-on-year. What I also said was that actually didn’t move the EBITDA percentage very much because the revenue came down as a result of the FX rates being less favorable for most of the quarter. And then the final thing I said was there was a revaluation of foreign currency debt and other hedging instruments in the quarter minus £85 million that’s between EBITDA and PBT.

[Unidentified Analyst:]

Okay. So on the old EBITDA basis EBITDA this quarter has been what exactly what is a £93 million plus £70 million is that correct?

[Kenneth Gregor:]

I am struggling to understand your question about the old EBITDA basis.

[Unidentified Analyst:]

On the EBITDA definition of last year where you recorded realized on FX under the – below EBITDA.

[C Ramakrishnan:]

Yes if nothing has happened on the exchange rate compared to the same period last year, this year EBITDA would have been a bit higher than £87 million to £90 million.

[Unidentified Analyst:]

About £87 million to £90 million so – versus the last quarter when you guided 78 million plus.

[C Ramakrishnan:]

Last quarter or last year?

[Unidentified Analyst:]

Last – in Q1.

[C Ramakrishnan:]

We’ve been talking about in comparison to the last year same quarter.

[Kenneth Gregor:]

What I should say is that the figures for the prior quarter in the presentation have been all adjusted to reflect the present treatment of hedging gains above the line in EBITDA that previously have been below the line. So in the prior periods that we’ve adjusted all the comparables. As I said the hedge gain in the quarter was in the region of £80 million. So therefore if we didn’t have that up in EBITDA, EBITDA would been £80 million lower.

[Unidentified Analyst:]

Lower so okay, it would have been lower than this?

[Kenneth Gregor:]

Yeah and I think we said same thing in the prior quarter. What I say is one of the reasons that we’re – going back a few quarters when we made this change, one of the reasons we’ve decided this was appropriate was because in comparison to other companies, other premium automotive competitors we believe that to adopt this treatment and of course the hedge gains, the hedging instruments are there too as a hedge against movements in the operating exchange movement which obviously also happened in EBITDA so we think it’s actually more correct to have the hedge gains in EBITDA if we go with the operating effect.

[Unidentified Analyst:]

Okay it was more on year-on-year basis then given they can’t actually flow, though on a quarter-on-quarter it can’t flow so year-on-year…

[Kenneth Gregor:]

So if you take what happened in the quarter I started the quarter right about 170 dollars to the pound and it finished the quarter roundabout 163 for the pound. So you’re right if the pound fell during quarter but for the majority of the quarter was in the upper end of that range. And that upper end of that range compared to the same quarter a year ago, the same quarter a year ago the pound rose from 153 to 161 in the middle of that range for most of the quarter. So year-to-year the effective exchange rates in the quarter was followed by the end of quarter [indiscernible] the pound was at 163 yes.

[Unidentified Analyst:]

Okay, got it and second question very quickly in China, investigations in China and then there was this issue of China legalizing parallel imports where you can ship a car anyone can buy a car in the U.S. and ship to China so it’s allowed? Do you think that had an impact on your China pricing yet?

[Kenneth Gregor:]

It’s difficult to say I think is the honest answer. I think as and when [indiscernible] that situation that when one could say more about it. I mean we did adjust the pricing of three of our mobiles in this banner, sort of working in collaboration with the NDRC but have made no further adjustments since. But it’s difficult to figure I’m not trying to be vague, it’s a bit difficult to give a precise answer to your question.

[Unidentified Analyst:]

And you must have your retail pricing [ph], has there been any decline sequentially?

[Kenneth Gregor:]

They do – retail prices do vary overtime yeah they do ebb and flow and we do watch those but I don’t really have anything to add.

[Unidentified Analyst:]

That’s cool, thank you.

[Operator:]

Thank you. We have the next question from the line of Ashish Modi [ph] from Morgan Stanley. Please go ahead.

[Unidentified Analyst:]

[indiscernible] Congratulations on good set of numbers. I have two questions roughly could you talk a little bit about the demands for Range Rover and Range Rover Sports businesses both in terms of – is there any other backlog phase and secondly what kind of elevated values, have we move to lower derivatives already on these models. The second question is on currency do you feel currency will move favorably [indiscernible] so when do you start seeing benefits of currency or if you could give us a blended average on the performance with all [indiscernible] just give an idea.

[C Ramakrishnan:]

I didn’t all of the questions but I think you asked about demand for Range Rover and Range Rover Sport and which type of variants. That’s quite a hard answer to be honest but we introduced a long wheel base of Range Rover beginning of the year and we’ve seen good demand for that. I think that’s going to move our sales forward and on Range Rover Sport we’ve got a full range of engine lineups and we see similar demand, it’s quite difficult to give a precise answer in that. So on demand levels – for Range Rover and Range Rover Sport. You asked about…

[Unidentified Analyst:]

Is the demand now probably lines of supply?

[C Ramakrishnan:]

Sorry. I don’t know if you have the speaker phone and your voice is coming with a bit of an echo in the background. Can you speak louder?

[Kenneth Gregor:]

We’ve been taking actions I alluded to earlier to address some capacity bottlenecks at [indiscernible] in order for us to have a three year level of supply and address the available demand. So we will find out going forward as to what the exact balance between supply and demand is, but I think it will be in better balance going forward with the capacity actions we have taken. And on the FX again hard to answer your question because but in general, we got a hedging policy which hedges different proportions of our expected revenue one year out, two years out, three years out and as a result the rates at which we hedge are determined by the rates that existed in the market at the time of the hedge and therefore varies.

[Unidentified Analyst:]

Just trying to get a sense when do we start seeing some benefits from the pound weakness?

[Kenneth Gregor:]

Well it depends clearly at what rates that we trade that through quarters. So if it sustains at present lower level than we would, all other things being equal expect to see a favorable effect in Q3 compared to Q2 from foreign exchange rates but the important thing I just said was all other things being equal because it depends. We trade on a whole basket of currencies, pound against the dollar, pound against the Chinese Renminbi, also against the euro, also against the Brazilian real, the ruble which has been very weak, so that’s a negative effect in term of South African Rand is weak, so there is a basket it affects but all other things being equal and then it’s a question of where – it depends at what rate is through the remained of the quarter, the remainder of the fiscal year to what the exact type will be. I am happier with the 160.

[Unidentified Analyst:]

And just last question in the coming quarters we are going a bit of contraction, you are starting your engine facility, you are starting production in China, there is a lot of rescheduling happening at existing facilities. Do you expect any kind of one off ramping up cost in the coming quarter because of that?

[Kenneth Gregor:]

Yes that’s a facts of life in the car business is when you launch a new facility or a new model you get launch costs as those facilities ramp up and as you’ve got the people there learning how to build engines or the new cars and so you do have proportionately higher cost for the period during ramp up than you do when you get into the period of full run rate production. So I think that’s what leads something to look forward to at some level and over the next couple of quarters.

[Unidentified Analyst:]

Great. Thanks a lot and congratulations again.

[Kenneth Gregor:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen due to time constraints that was our last question. I now hand the conference back to Mr. Aditya Makharia, forward to you. Please go ahead.

[Aditya Makharia:]

Once again we would like to thank Mr. Ramakrishna and the team for taking the call and thank you to the investors for dialing in this late in the hour. Thanks and have a good day.

[C Ramakrishnan:]

Thank you very much everybody. Aditya thank you very much.

[Operator:]

Thank you. On behalf of JPMorgan India Pvt. Ltd. that concludes this conference. Thank you for joining us and you may now disconnect your lines.