Tata Motors Limited
Q4 2015 Earnings Call Transcript

Published: 26 May 2015

[Unidentified Company Representative:]

Good evening everyone. Welcome to Tata Motors’ Annual Analyst Meet for Fiscal Year 2014-15. Just a quick round of introduction, we have the senior management team from both Tata Motors and Jaguar-Land Rover. We have Mr. Ravi Pisharody who is Executive Director, Commercial Vehicles; Mr. Mayank Parekh who is President, Passenger Vehicles; Dr. Ralph Speth, CEO, Jaguar-Land Rover; Mr. Abhijit Gajendragadkar, Senior Vice President, Business Planning & Controlling; Mr. Asim Mukhopadhyay, Vice President, Business Planning; Mr. Raman Mani, Senior General Manager, Accounts & Taxation; Mr. Ben Birgbauer, Treasurer, Jaguar Land Rover and Edwin Bolton, Deputy Treasurer, Jaguar Land Rover. So, whole host of senior management team from Tata Motors and Jaguar Land Rover. Mr. C. Ramakrishnan has not been able to join us here today because of the bereavement in his family. So, as you'll know, we start this event with a presentation from Mr. Ramakrishnan. So, that today will be done by Mr. Vijay Somaiya, who is our Vice President. As you all know, he is Vice President and Head Treasury & Investor Relations. So, I will request Mr. Vijay Somaiya to come and give the presentation and then floor will be open for Q&As.

[Vijay Somaiya:]

Thank you, Prakash. Good evening to all of you, and thank you for taking out time to attend FY '14-'15 financial result analyst presentation. I will start with the consolidated financials. Starting from Tata Motors consolidated Q4 Financials, the net revenue in Q4 '14-'15 has gone up to 67,576 crores as compared to 65,317 crores last quarter last year, on the back of higher revenues from both, India business and Jaguar Land Rover. The EBITDA has come in marginally lower at 9,250 crores as compared to 10,777 crores. This is because of the adverse mark-to-market on unrealized hedges. The EBITDA margin has come in at 13.7% as compared to 16.5% last year. The PBT has come down consequently to the adverse mark-to-market and higher interest and depreciation to 2,771 crores as compared to 5,000 crores last year. And profit after-tax has come in at 1,700 crores as compared to 3,900 crores last year. Moving over to the Full Financial Year Presentation. The net revenue comes in at 2,62,796 crores as compared to 2,32,834 crores. EBITDA is higher consequent to the higher volumes and revenue at 42,114 crores as compared to 37,419 crores. The EBITDA margin for the full financial year is flat at around 16% and profit after-tax is also flat at 13,986 crores. Moving over to the balance sheet. For the financial year '14-'15, the spend on CapEx and product development is around 37,912 crores. The gross debt or the consolidated balance sheet is 73,600 crores and we had a cash and bank balance of around 46,000 crores. And if you remove the debt of the finance subsidiary, the net automotive debt equity on a consolidated basis, comes it at 0.19. Moving over to Tata Motors India standalone business. The Q4 net revenues has come in at 10,784 crores, a higher than 8,545 crores last year on the back of continued M&HCV volume growth, and on the back of the higher ZEST and BOLT sales, which came in. EBITDA has turned positive after five successive quarters, and has come in at 299 crores with an EBITDA margin of 2.8% this quarter as compared to minus 6.2% last year. The PAT has come in lower at around 1,164 crores as compared to 817 crores last year. For the full year, on the back of the M&HCV and the passenger car sales, the net revenue is higher at 36,295 crores as compared to 34,288 crores last year. EBITDA has come in at negative 800 crores, slightly weaker than 467 crores last year on back of the continuing weak operating environment. EBITDA margin for the full year is minus 2.2% as compared to minus 1.4% last year. And profit after tax has come in at 4,739 crores as compared to a gain of 335 crores, which is there. On the standalone balance sheet; the spend on CapEx and product development last year was 3,287 crores; the gross debt on the India balance sheet is 21,130 crores; and the net debt equity has come in at 1.36. As you are aware, we had concluded the rights-issue of 7,498 crores post the March and if we take that on a pro forma basis, the net debt equity comes back drastically down at 0.57. If I look at the commercial vehicle business, Q4 volumes were marginally higher at 95,825 vehicles, 0.5% higher than Q4 of last year. The full year volumes on commercial vehicles had dropped by around 16% from 420,000 to 364,000, which is there. As you are aware, in last financial year, we have seen wholesale volumes of M&HCV go up by 15% while LCV showed a decline of 29%, which is there and commercial vehicle, as a whole, has been grown by 16%. The recovery in M&HCV vehicles has come mainly out of fleet replacement demand in the big truck segment and on the back of improved freight availability and improved profitability. For the full year, our market share for commercial vehicle business stood at 49.7%, which is there. The variable marketing expense for Q4, while it is high though lower than the peek, which we have seen in the past and we expect that it would continue this way; in Q4, financial year '15, the new launches in commercial vehicles business is the new Super Ace Mint and also followed by Prima LX range of Multi Axle trucks and the new JNNURM buses, which are there. On the passenger vehicle business, the industry volumes in Q4 grew by around 4%, which is there. But for Tata Motors, on the back of the launch of ZEST and BOLT, our car segment volumes grew by 33% and passenger vehicle business grew by 19%. Our market share has also increased, in passenger car by 150 basis-points to 7.1% and for entire passenger vehicles by 80 basis points to 6%, which is there. Year as a whole, our volumes have declined by around 3% from 148,000 to 140,000. For the full financial year, the market share for passenger vehicles stood at 5.3 percentage points. Moving over to Jaguar Land Rover business. Q4 FY 2015, these are IFRS results and in GBP million. The net revenue came in over £5.8 billion on back of higher volumes and better product mix, as compared to £5.3 billion last year. The EBITDA was also higher at £1 billion as compared to £920 million, which is there. The EBITDA margin came in slightly stronger at 17.4% as compared to 17.2%. The PAT, however, was slightly weaker at £302 million as compared to £449 million last year, mainly on the back of adverse mark-to-market exchange fluctuations because of the loan-book and also for mark-to-market on hedges, which were not eligible for hedge accounting. For the full year, as a whole, the net revenue has come in at £21.9 billion as compared to £19.4 billion last year. EBITDA is stronger at around £4.1 billion as compared to £3.4 billion last year. EBITDA margin came in much stronger at 18.9% as compared to 17.5%. And profit after tax is also stronger at £2 billion as compared to £1.9 billion last year. If you look at the balance sheet of JLR, the spend on CapEx and product development for JLR last year was £3.1 billion, and even after spending this amount, JLR continues to be free cash flow positive with an amount of £791 million, which is there. The gross debt at the JLR balance sheet is £2.5 billion. And after subtracting the cash and equivalent of £4.3 billion, the net cash is £1.7 billion at the JLR balance sheet. If you look at a year as a whole, we have seen an increase in wholesale volumes from 430,000 going up to 470,000. The retail volumes are also higher at 462,000, which is there. The Land Rover volumes has grown 9% in the full financial year and comes in at 385,000, while the Jaguar retail volumes are marginally lower by 4.5% and has come in at 77,000. EBITDA, as I said, has grown 1.5% from 17.5% to 18.9% and has come in at £4 billion. This is on the back of the higher wholesale volumes, what I spoke, 430,000 becoming 470,000; a solid product mix on the back of the new Range Rover, the Range Rover Sports and the Jaguar F-TYPE; a strong market mix across China, U.S., UK, and other parts of the world, which was slightly offset by realized hedges, which were there. The profit before tax came in slightly stronger at £2.6 on the back of higher EBITDA and lower net finance expense. This was offset by higher depreciation and amortization, and unfavorable revaluation of the foreign currency debt and mark-to-market of unrealized hedges. The pie-chart on the right side shows the geographical distribution of JLR vehicles across the world. And it shows as to how the volume share has grown in different geographies. In last quarter, the new exciting products which JLR has launched; the first one was Discovery Sport, which went on sale in November 2014. Thereafter, in February 2015, we saw the launch of Evoque from the China joint-venture. The Ingenium factory started operations last quarter. Initially, we will use these engines in Jaguar XE. But over the course of financial year ‘15-’16, we’ve plan to make it available on Discovery Sport and also Range Rover Evoque. And last week, the Jaguar XE was launched in UK, which is there. If you look at other developments on JLR, JLR also received the 2015 Queen's Award for sustainable development, which reflects the investment in lightweight aluminum engineering; the Ingenium engine technology and reducing energy consumption waste and water usage at the manufacturing sites. We have also announced £600 million of new investment in UK. Out of which, £400 million are to support the manufacture of all new Jaguar XF. As we had said earlier, we’re also be investing £100 million in National Automotive Innovation Centre, which will open in 2017, and plan is also there to double the size of advance engineering and design centre in UK. We've also announced 1,300 new UK jobs to support the growth and expansion in Solihull for the launch of XE and the F-PACE. And in the last quarter, we had also had a very successful debt-to-capital market issuance for £400 million for a period of eight-years and $500 million, which came in at record low interest rates of 3.875% and 3.5% per-annum respectively. If you look at other key subsidiaries in Tata Motors Group, Tata Motor Finance, in last quarter, they took new subsidiary. And if you look at the consolidated results, the net revenue for the full year came in at 2,743 crores, slightly weaker than last year which came in at 3,034 crores. The profit after-tax was a loss of 611 crores as compared to 101 crores last year. Tata Technologies has shown good performance. Net revenue coming in at 2, 594 crores as compared to 2,341 crores. The profit after-tax is also stronger at 334 crores as compared to 273 crores. Tata Daewoo, these are in Korean billion, which is there. And as per the Korean GAAP accounting, the net revenue was higher at KRW988 billion and the profit after-tax came in stronger at KRW54 billion. The other subsidiary, TML Drivelines, also showed an improvement in the net revenue to 526 crores and profit after-tax coming in at 47 crores for the full year. If you look at Tata Motors Group, way-forward, starting from the India business, we do expect the volumes in FY16 to increase on the back of improved economic outlook and business environment. In M&HCV -- in commercial vehicles, we expect the M&HCV growth to strengthen and become more sustainable in FY16. The HCVs are still de-growing at this point of time, but the rate of de-growth is slowing. We expect the recovery in HCV to come in after a couple of quarters in second half of financial year ’15-16. We expect JNNURM Phase 2 orders to drive bus volumes for Tata Motors. And the new launches, which have already been done and in the pipeline, namely the Prima and Ultra range of vehicles, the refresh and variance of HCV, the Ace Mega and Super Ace, we think will provide us a strong foundation for growth. We will continue to focus on export growth for higher volumes. On the passenger car business, the new products and mid-cycle enhancements will drive growth. We will have the full year of ZEST. As you are aware, we had launched ZEST in August last year. And BOLT came-in in last week of January. So, you would have 12-months of, both the ZEST and BOLT for this year. And very recently, last week, we had launched the GenX Nano, which will help us drive volume growth. Further, we are expecting exciting model launches this year. And from next financial year, we would see new generation models from new platforms which would come in, which would help us drive future growth in volumes and also market share. As we had said earlier, the strategy for passenger car business has already been defined till the year 2020. And we'd expect to come out with two new vehicle launches each year. Like in commercial vehicles, we'll continue to focus on passenger vehicles for exports to show growth volumes. Way forward in Jaguar Land Rover, as we have just launched the Jaguar XE in UK last week, the focus would be to ramp-up the sales of XE and take it to different parts of the world. This would be followed by the launch of the new Jaguar XF in the middle of the year. And which will then be followed with 16 model year Evoque, along with a convertible variant, and F-PACE in early 2016. We will continue to invest in more new products, powertrains, technologies and manufacturing capacity in UK and overseas. We will continue to generate robust operating cash flows to support ongoing program of investments. As you are aware, the planned spend on CapEx and product development this year for JLR is in the range of £3.6 billion to £3.8 billion. We will continue to monitor macroeconomic developments, mainly China, where the market conditions are a bit soft. Other emerging markets, like Brazil and Russia where the economy is not doing well and also the Greek debt negotiation, which is coming up on 5th of June and as to what kind of consequential impact it may have on the Euro zone. Overall, for the financial year '15-'16, we believe the launch of new products and the new China joint-venture will support the continued growth of JLR and the strong EBITDA margins. As we had announced in the Q3 results, we do expect the EBITDA margins for '15-'16 to be slightly weaker than 2014-‘15 on the back of the mixed macroeconomic condition; the new model launches, which are coming in; launch cost, both at China as well as the new engineering plant; and as the way we account for the China JV in the JLR consolidate results where we will do that as equity method of accounting. If we look at the new products which we are -- which Jaguar Land Rover is planning to launch this year; the new Jaguar XF goes on stream middle part of this year which will followed by the Evoque convertible which will be a 2016 model year product; and also the F-PACE on Jaguar, which goes on sale in 2016. With that, I would stop and we'll be happy to take any questions that you may have.

[Kapil Singh:]

This is Kapil from Nomura. Couple of questions from my side; firstly, we've seen a strong improvement in gross margins in both JLR as well as the stand alone business. So, if you could help us get some color like what’s really happened there, and is this sustainable?

[Unidentified Company Representative:]

On the Jaguar Land Rover side, if you look at as the year as a whole, the margins have increased from 17.5% to 18.9%. As I said in my presentation, partly it has come from volumes; 450,000 volumes on wholesales increasing to 470,000 volumes; very solid product mix on the back of the new Range Rover, Range Rovers Sport and F-Type in Jaguar; and growth allover in all the parts of the geography, which is there. So at EBITDA level, we have seen a strong growth in the EBITDA margins. On the India balance sheet, the financial numbers for Q4 show first time we have become EBITDA positive after five quarters. This is on the back of the growth in M&HCV volumes, which has come in for the full year at 15% and launches on ZEST and BOLT, which is there. So, what you're seeing, on a consolidated front, is an impact of both these businesses, which are there.

[Kapil Singh:]

The question is not related to the raw material cost to sales ratios. So, is it that discounting has come off, is it that the raw material cost themselves have fallen this quarter, where are we in that RM cost cycle in both domestic as well as JLR?

[Unidentified Company Representative:]

If you look at JLR, you are aware the commodity prices have remained benign, which is there. And if you look at the raw material cost, as a percentage of selling price, you have seen an improvement, both quarter-on-quarter as well as year-on-year, which is there. Similarly, on the India business, the raw material cost, as a percentage of sales, have come back again on the strong M&HCV sales and slightly lower variable marketing, which we have spoken.

[Kapil Singh:]

And secondly, I just wanted to check. What was the MDM loss or gain on current asset and liabilities that sitting in other expenditure for JLR?

[Unidentified Company Representative:]

I'll request Mr. Ben Birgbauer, the Treasurer of JLR to…

[Ben Birgbauer:]

Was the question on what ran through the income statement, just to clarify?

[Kapil Singh:]

Yes.

[Ben Birgbauer:]

So, in the quarter, we had £220 million of mark-to-market run-through P&L below EBITDA. And that basically just reflects the fact that the pound was significantly weaker against the dollar. So the pound weakened about 5% against the dollar in the quarter. And as a result, we've seen dollar debt. We have about £1.7 billion equivalent of dollar debt that would have revalued. And in addition to that, we have certain hedges that are not eligible for hedge accounting purposes, and those revalued as well through the quarter.

[Kapil Singh:]

No, I wanted to check on the other expenditure. In the other expenditure also, above EBITDA, there would be some item, the presentation mentions that. So, if you could help us understand that, was there any item in other expenditure as well above EBITDA?

[Ben Birgbauer:]

You are speaking of consolidate number…

[Kapil Singh:]

Just for JLR.

[Ben Birgbauer:]

For the quarter or full year?

[Kapil Singh:]

For the quarter...

[Ben Birgbauer:]

Okay, so for the quarter, actually net-net foreign exchange was good. We actually said in the presentation that for the full year foreign exchange was slightly bad news. And it all has to do with what the average exchange rate is during the period. So, for the full year, the average exchange rate actually was unfavorable year-over-year. So, for the full year, in FY'15, we actually saw an exchange rate of over 160 and dollar pound where it was below 160 and dollar pound for the prior year. In the quarter, it’s a slightly different story.

[Kapil Singh:]

Would you be able to share the amount in pounds?

[Ben Birgbauer:]

Well, for the full year, I think you'd be looking net of hedges somewhere between £100 million and £200 million negative.

[Kapil Singh:]

And for the quarter please.

[Ben Birgbauer:]

For the quarter, it's slightly positive between, let’s call it around 50.

[Unidentified Analyst:]

I have two questions one is for the domestic business and one if for JLR. On the domestic side, if you could give us some color on how your passenger vehicles are doing, the new vehicles ZEST and BOLT? And how do you see that going forward? And on JLR, if you give us some color -- we keep reading about China and the ramp-up in Chery, and whether it's happening up to, like whether it's up to your standard or less, or you're discounting more or you're doing more dealer incentives. So, we just keep reading things. Like see if you could just give us some color on exactly what is happening, and what kind of volumes and the reception you're seeing for your [25.14] baby Jag [ph].

[Unidentified Company Representative:]

I'll take the domestic market first, NPV market. First I will give overall picture of how we’ve done in last quarter-on-quarter last year, and then specifically on BOLT and ZEST. Last year, if you see first quarter Tata Motor NPV had de-growth of 29%. Next quarter, that is July September, we had de-growth of 10%. Things have started improving after that, October to December quarter, we had a growth of 5% and Jan-March quarter, we had a growth of 25%. April it was 37%. So every quarter, we've shown improvement. And this is much more than what market has shown. Yes, this has came on a good performance on BOLT and ZEST both models have done reasonably well. And more importantly, the reaction from the customer is very good because that goes a long way in building long-term brands. So, answer to your question is yes, both these models are doing reasonably well.

[Unidentified Company Representative:]

May I take over the other two questions concerning China and then XE. Let’s first come to China. Overall, together with our joint venture partner, Chery, we are ramping up at the moment there, Range Rover Evoque, and we’re ramping up, in principal, faster than originally expected in terms of quality, but also productivity because we really can launch that vehicle in a brand new latest technology plant. The plant is exceptionally performing. And although the vehicle delivers exceptional good quality, and therefore, the ramp up is going according plan. From an XE point of view, I'm really fascinated by this new product. This product does have unbelievable drivability, and very-very good product substance. And last but not least it's styling and designed from Ian Callum, who has done a great job, so it's also very-very desirable and this desire is really all generic in the order book, so we have a very good start for this new vehicle.

[Unidentified Analyst:]

Thanks. Could you give us some indication of the volumes you’ve expected for the current year and next?

[Unidentified Company Representative:]

Sorry, you know already the answer. We’re not really fighting for the very last volume we want to create sustainable profitable growth. And therefore, it's not in our policy to talk about volume at all. Sorry about it.

[Unidentified Analyst:]

The Tata Motor's domestic business, as far as commercial vehicles are concerned, is closely linked to the improvement in the GDP. Now since the GDP is I think improving at a faster rate, can you throw some light on what is the improvement we are expecting on the commercial vehicle front and how fast we feel that the Company can come into the black from whatever the decimal picture in the current year which we've incurred? And you already mentioned that from January to April onward, the things have been improving faster. So, if you can give some overall idea on the domestic front?

[Unidentified Company Representative:]

I think the medium and heavy commercial vehicle segment is accepted probably by most people, including most of the analysts as a lead indicator for the economy. So, in a sense the year-on-year performance started dropping from January 2012 for nine consecutive quarters we had the M&HCV total industry volumes dropping. And now we've had four quarters continuously where the numbers had started growing. So, clearly, it is seem to be sustainable. Yes, there is a link to GDP, I would say that beyond the GDP. There is manufacturing and mining element of the GDP this is linked to unfortunately -- that still remain somewhat weak compared to the services part of the GDP. But clearly, the replacement cycle on M&HCV we’ve skipped in, we expect that to continue in a sense that is good because you would have seen, from the standalone numbers last year ’14-’15, despite the drop in volumes, our top-line actually increased which means M&HCV growth more than offset the drop in SCV and NCV. So I think, as Vijay said, we expect that to continue. Jan-March quarter was the first quarter after five quarters where the EBITDA turned positive. It would be fair to say I think you people know as much as I do that economic recovery is still not very clear. There are still a lot of questions, so while fleet replacement has happened and is expected to continue. If I go beyond ’15 and ’16 to a slightly longer-term prime timeframe, we need to see some more solid recovery in the state of the economy, which we hope will start coming-in in the later part of the year.

[Hitesh Goel:]

This is Hitesh from Kotak. Can you just give us a sense on the start-up cost in, which is sitting in the income expense right now? And what was the production in the China JV in the fourth quarter?

[Unidentified Company Representative:]

Let's start from the real. We will not give, as also previously already mentioned. We will not announce forecast figures, sales forecast figures at all that’s what our policy. Nevertheless, it's quite clear that we want to deliver a solid business. The overall start up cost for the business this year I guess we have to come back to figure.

[Unidentified Analyst:]

Yes, I was just asking, in fourth quarter, what the production in China, can you give that number?

[Unidentified Company Representative:]

That was production of round about 4,000 units.

[Chirag Shah:]

Chirag here from Edelweiss, wanted to understand on China. Where are the issues in production ramp-up, you highlighted productivity and quality. But what is really holding on? And related question is, if I look at the general ramp up for new launches that JLR has been doing over last two years, it seems to be slower versus it peers, be it big-three -- their ramp-up program seems to be much faster. These launches from UK or be from new geographies. So who are you evaluating next two years in terms of ramp programs, can you show some light over there?

[Unidentified Company Representative:]

Just, do you refer to make it clear do you refer just the Chinese ramp-up or the overall ramp-up, the other vehicles also?

[Chirag Shah:]

Yes, both, Chinese as well as overall, because the ramp from UK seems also to be…

[Unidentified Company Representative:]

I believe, I know, how I should answer it, because on the one-hand side, whenever we ramp up too quickly and there is something happening then we get a lot of principle complaints that we are doing to cross. And as I mentioned all over the time, we are not completely trying to ramp-up in speed but we ramp up whenever the vehicle is ready, and we do it quality and we ramp-up in a matured way. And that’s our policy. Therefore, we are going to ramp-up slower in China. Why? It's a new team; it's a new plan; and it's a new car. And therefore, we want to make absolutely sure that we deliver the quality. So that at the end of year in the Chinese product, is the Land Rover quality the customers they ask to. In terms of the ramp-up in the UK, you probably referred to the XE launch, that’s the vehicle on the totally new architecture in this segment with a totally new light-weight body with a totally newer chassis system so even with an integral and rear-axel. And with a new engine out of a new engine plant and you see also in that context it's a huge complexity and we want to make sure that the customer gets a product, which is reliable, which has a high quality and which is the best in terms of drive ability. And I guess we have achieved this goal, and we are ramping up now so that we can deliver the demand. I have to say I am deeply impressed by the performance of the team, the Jaguar Land Rover team who has delivered outstanding results based on this very-very good product substance. We are now able to step ahead.

[Chirag Shah:]

And last question on pension revaluation, there is a note which highlights that the reasonable amount of charge has been made to reserve. Can you shade some light over there, and when the valuation likely and what is the kind of increasing contribution you are looking at cash contribution? Any change in the initial -- versus the initial assumptions over there?

[Unidentified Company Representative:]

I can answer that. So, the net balance sheet position at the end of the quarter was about a deficit of £808 million, and that compares to the prior quarter being £740 million. And the difference is basically just the fact with the discount rate, which is the AA bond rate fell about 37 basis-points. And on half of that, we did have some more, or we did have some contributions going through the pension plan in the year.

[Unidentified Analyst:]

You mentioned that next year, margins could be slightly lower than this year, which is around 18.9%. Now this quarter margins -- if I look at the hedging gain, is around 16.5%, 16.6%. So, how do you see margins improving from here? Will it be mix or operating leverage? And kind of related to that, other expenses are very high in the quarter. So is it where the leverage will come?

[Unidentified Company Representative:]

Maybe, we can split your question. I think about taking over the operational margins, we've one amongst last year with a really top performance and very favorable, as already mentioned, market mix but also product mix. And I assume that this market mix can continue. But also the Range Rover and Range Rover Sport, we just introduced Range Rover Sport, and the effort that we'll continue. In addition, we are going to launch additional vehicles on a lower positioning with lower margins, that clear. So, it looks like that overall the margin will go down slightly.

[Sonal Gupta:]

Hi, this is Sonal Gupta from UBS. Couple of questions again on the JLR side, so one, I wanted to understand in terms of, I mean JLR is investing a lot of money to engines, and doing it on its own. While globally we're seeing a lot of collaboration happening. So, I mean any plans in terms of longer term looking collaboration, because isn't JLR sort of creating more legacy assets because you're moving more towards electrification in the longer-term. So that was one question. And secondly, where are you in terms of your 2015 emission targets in Europe for JLR, if you could just talk about that?

[Unidentified Company Representative:]

Again, give you just, to brief and very short answers. First of all, in terms of collaborations, you should know that we are open really to discuss with everybody about collaborations. I guess we're meanwhile also very interesting partner from a technology point of view because we deliver high-tech in many areas. In terms of emissions, we're on our glide path to fulfill the -- and we're fulfilling now, but also we'll fulfill in the future. Our emission targets that goes without saying and by the way that's anyhow I think we said the offer, cost in the market.

[Sonal Gupta:]

And just one more question again on JLR strategy. You're launching, I mean like on the Land Rover side, you were trying to have three families, Range Rover, Discovery and I think Defender also is what's seen in the media. I mean which is a sort of a unique strategy, because within the same brand you're trying to create three overlapping families of products. I mean, I just want to understand how does this really -- I mean because nobody else even on the luxury side seems to do it. How does this work in terms of profitability, given that you'll have a substantial overlap in terms of pipeline or products sharing same platform, so does this really make sense in that sense?

[Unidentified Company Representative:]

Yes, I think it makes very much sense of. Why? These are three pillars, pillars anchored in the one brand, Land Rover, and Land Rover is really anchored in capability and product substance. The vehicles don’t overlap because the attributes vehicles and the specification of the vehicles are totally different. And therefore, we offer really tailor-made solutions for the respective customers, and again deliver hierarchy of products and the spread and scope of products, that which give us in this kind of segment, a very attractive and desirable product range.

[Sahil Kedia:]

One question on China, we're hearing reports of pricing environment in China becoming slightly weaker. Can you please comment, or whether you're seeing anything like that at JLR? Also, would you like to also comment on where your distribution strategy is going to move over the next one year in China please?

[Unidentified Company Representative:]

There is so many questions so I'll try to answer one after the other. First of all, I still believe that China is a very interesting market. China from a GDP growth might slow down a little bit, maybe even below 7%. But last year, the overall world wide global GDP was round about 74 trillion, 75 trillion, and China is third biggest region with round about 11. And that means if you calculate 7% or whatever percent, then on 11 driven, that's a huge absolute growth range. And given that and giving our very-very thin market share, we just sell round about 100,000, 120,000 units there in a market which is 24 million, 25 million, already. However, you count, and it's very close to growing up to 30 million, And, I assume we still have an opportunity really to grow also in China. Now it’s quite clear that we see also like you can read in your own newspaper probably that we will see a certain slowdown in the market, and we’ve read that many competitors are going to reduce prices. I can assure you that we'll not be the very first one to reduce prices because we are convinced from our -- that we bring color to the Chinese market, that we bring technology to the Chinese market, that we bring really desirable products to the Chinese market. And therefore have a good product substance also to offer for the Chinese customer.

[Abhishek Gaoshinde:]

This is Abhishek from Sunidhi. Just two-three questions, one is that last year we have seen some production constraints and maybe because of the phase-out of the earlier products or the launch of the new models. Can you foresee that kind of production constraints in the coming year? And second on the China JV site, as you said that, we have produced roughly 4,000 units. So in that, we have also booked some royalty income or technical support income in this quarter? And third, just a repetition, is there any one kind of expenses included in other expenses in JLR site?

[Unidentified Company Representative:]

Maybe I’ll take the first one concerning the product constraints and then would like to ask Ben to prepare in the meantime the remaining two. Product constraints, yes, we will see product constraints out of supplier base. We are not really able to deliver all of our demands because we don't have the right, the one or the other component available. Overall, we are -- our utilization rate and the production is quite high, so that we are really also constraint from an overall production point of view. Maybe, Ben.

[Ben Birgbauer:]

Sorry, what was the second question?

[Abhishek Gaoshinde:]

Is there any one-off included in the JLR expenses, and have you booked any royalty income or technical support income from China JV in over quarter four number, JLR site?

[Ben Birgbauer:]

I think, I mean, there're always one-off expenses of one magnitude over another. I can't say that there is any one particular one-off that I can think of that's reflected in other income.

[Unidentified Company Representative:]

And also in royalty, there is -- I don't think that we have booked really royalties in the last quarter, at least not a big amount otherwise I would know about it.

[Pramod Kumar:]

Hi, this is Pramod from Goldman Sachs here. My first question pertains to the China luxury car market. Where would you put the growth for this particular fiscal for the luxury car industry in China in totality, and how was the last-year?

[Unidentified Company Representative:]

Overall, not only in China but also around the world, normally the automotive market is growing at a certain percentage and at even higher percentage point the premium car market is growing. And I think at this time, let's say, small formula still is valid. And even in the segments where you normally only expect mass production, I expect that more and more premium manufacturers are stepping in and delivering premium products even in this kind of lower segments. Therefore, I am quite optimistic that overall the premium business, as a whole and grow also in the future.

[Pramod Kumar:]

So, basically, what I want to get at is, are you seeing any moderation in luxury car demand, especially for the SUVs, where you dominate?

[Unidentified Company Representative:]

I don’t think any reduction in SUV demand. In contrary, the consumer, I guess, is changing more and more to SUV. And even where the normal conventional and [three box] design not so far was more or less predominant, more SUVs are taking over even in smaller and smaller segments.

[Pramod Kumar:]

And related question is when do you see, because we are currently losing some volumes to China otherwise we should done out of UK for Evoque, because of the ramp-up being in the initial stages. So, by when do you see this normalizing, where there is no negative hit on the volume front, leading from loss of volumes in Evoque?

[Unidentified Company Representative:]

I think it will run-off throughout this fiscal year, because when the whole processes are trained, learned and we are also, we are doing it the very first time please. And starting a production that brought into the transition of the partner, the very first time is one thing in terms of operations but it's also another thing if you think about of organizes respective process and sales and marketing and all these kind of things. So, this has to be trained, this has to be learned. But it will run-off this year.

[Pramod Kumar:]

And finally on XE, just wanted to understand have you booked any expenses in this particular quarter related to the productionization of XE? And be it related to employee expenses on the plant related side. And basically want to understand that will there be a further step-up increase in employee and other expenditure led by launch of XE in May?

[Ben Birgbauer:]

I think you will start to see some large cost related to XE that come through, and going forward, with XE now coming into production, you'll start to amortize the D&A related to that.

[Pramod Kumar:]

On the operational side, in a way have you already accounted for the employees who you have hired so far for the XE production, as in for the…?

[Ben Birgbauer:]

Yes, we would have.

[Pramod Kumar:]

Even the same for the engine plant as well, I presume.

[Ben Birgbauer:]

Yes, we will have.

[Pramod Kumar:]

Okay, that’s helpful. I’ll come back.

[Unidentified Company Representative:]

I only can tell you, it’s unbelievable vehicle, you should try to, it's just under trail, it's so convincing it's such a good car.

[Vijay Somaiya:]

The review seems to suggest that our segment beat here.

[Sanjay Parikh:]

This is Sanjay Parikh from Reliance Mutual Fund. On go-to-market strategy, we have this China JV. We’re also thinking on the Brazil JV. And there are talks of similar plant in Saudi Arabia. So, over next three to five years, if you can give us some perspective of maybe how many more plants near to the markets? And if you can give that perspective will help us. I have two more follow up questions.

[Unidentified Company Representative:]

Overall, we have to say, we are a British company and we will stay British. So, engineering, design, all our core functions likely will also grow in the UK. Nevertheless, we see huge demand around the world by the way nicely spread across the regions. And therefore, we intensively think about the new production site. And we look out all around the globe to find the most attractive production site for Jaguar Land Rover. And we are in discussions with several governments and whenever we are closer at least to the kind of decision we will come back. At the moment, it's not appropriate to release statements.

[Sanjay Parikh:]

And another two question is one of them is margins, like this quarter we saw, because of hedges impact of say £220 million. But on the operational side, certainly, there had to be a positive impact because pound had depreciated. So, if you can explain this why would this not have happened? We certainly took a hit on the hedges but then to some extent we could have, I mean, why is it not shown up in the operating margins, if you can guide us please?

[Ben Birgbauer:]

So the question was why hasn’t exchange shown up in the operating margins in the fourth quarter.

[Sanjay Parikh:]

Yes sir.

[Ben Birgbauer:]

Well, what I actually said earlier is within EBITDA, we do have the effect of operating exchange as well as realized hedges. And operating exchange net of realize hedges actually mentioned was a positive in the fourth quarter. So, I actually said previously the sort of 250 million buying?

[Sanjay Parikh:]

And the last one is just in JLR the size of hedges that we have over longer duration, is that -- do you think of whether we need such large hedges, I mean just it’s -- or you think that the business does require such large size of hedges?

[Unidentified Company Representative:]

I think we undertake a hedging program because we actually think its beneficial over-time. I think we try to maintain a consistent policy where basically we hedge in descending percentages over a five year horizon. So for the first year, we'll hedge say 65% to 85% out that for sure and then descending percentages thereafter. And we do think that that actually does protect us from fluctuations in cash flows. I would differentiate there are two different things, some of them we talked about [50.33] what we talked about today it’s been what's the profit effective mark-to-market of hedges in both unrealized and realized. But from a cash flow perspective, these are real economic hedges that are actually protecting us from volatility in fluctuations in cash flow going forward.

[Unidentified Analyst:]

Some questions on the domestic side. One, I wanted to understand on the passenger vehicle side, I know that you are launching two new products every year. But in terms of strategy, I mean do we -- what’s the strategy there in terms of returning to profitability? Do we see reduction, room for reduction in cost as well? Or this is just going to be more about operating leverage with volumes coming back?

[Vijay Somaiya:]

First, to return to profitability, first thing will be the volumes, volume should definitely come. And as you rightly said, we've committed that every year we launch at least two new products. Last year first time after, in fact after long time, we launched two new products within a same fiscal year and this will continue. So that will help us in building our volumes, which in term will help us in increasing our plant utilization that will help us in reducing cost. Also parallelly lot of programs are going on right now as we talk to work on the cost reduction. So together this will help us in returning to growth.

[Unidentified Analyst:]

I just wanted to understand the consolidated numbers, how the hedges show up there? Do they show up above the EBITDA? And what would be the amount that would be there?

[Vijay Somaiya:]

In the consolidated amount, the mark-to-market, the unrealized hedges show up above EBITDA which is there and the approximate amount is around 1,500 crores.

[Unidentified Analyst:]

Can you just give a break-up of in the other expenses, the break-up of the ForEx impact between the current assets and on the hedges? And finally, also the same break-up on that below EBITDA of £220 million. So what was the debt impact and what was impact on the hedges, so that we get more clarity in the JLR business.

[Vijay Somaiya:]

In the JLR business of the £220 million, which is below EBITDA as Ben had declared because of the GBP USD movement of around 5%, the impact is around £88 million. And the mark-to-market of unrealized hedges, which did not qualify for hedge accounting, was £115 million.

[Unidentified Analyst:]

And same break-up for the impact above EBITDA in other expenses, what is the break up for revaluation of current assets and also on the hedge side, hedge book?

[Unidentified Company Representative:]

I just think that question gets very confusing, we can tell you -- we could tell you exactly how much there was realized gains in the line but it's more difficult to say what was the gain on the revenue? So, I think I would stand by the fact that for the quarter the net of the improvement in operating results net of the hedges was £50 million.

[Unidentified Analyst:]

Just last clarification on that, so can you give me the effective rate on which the revenue was booked in the fourth quarter. So for example the last quarter you gave that rate at 1.58 GBP USD. So can you give that number?

[Unidentified Company Representative:]

I think I don't want to give you exactly that number, but what I would say is that on dollar pound that yes broadly the average hedge rate would be something below 160.

[Unidentified Analyst:]

Just on hedging side, so if I have to understand the benefits of the favorable currency, we’ve not yet seeing the benefit because we’re still running the old hedges that we’re having. When can we see the recent currency benefits flowing in the P&L? Could it be more of a FY17 onwards where we can see a significant benefits coming from that? Because even if I look euro GBP even that has been depreciating in -- its favorable at least on the RM side for you, raw material side for you. So, how should one look at your, this long hedge book and the benefits flowing in P&L?

[Unidentified Company Representative:]

I would come back to the point that I said before that really our hedging program is more designed around cash flows and intended to protect the stability of cash flows going forward. As we said in the quarter, maybe what I should just say is, as I said, we hedge 65% to 85% of our exposure to one year out. So we’re significantly hedged in the near-term. So for example, we did see significant movement in pound dollar and we saw it go down to 147 versus the end of the prior quarter, it would have been more like 155. And in the end of day that could generate good news for the business. But actually the actual realized hedges would have had some losses on them. And so that net £50 million that I referred to for the fourth quarter has a variance that reflects the good news on the operating side of the business versus bad news on the maturing hedges. So you are seeing good news come through that net. It works the opposite too, there could be other times for examples it wasn’t so long ago that we saw pound dollar over 160 and in that instance we were seeing bad news on the operating side of things but good news on the hedging side of things.

[Unidentified Company Representative:]

Maybe I may add, because we mentioned it's the last question. I may add that Jaguar Land Rover more or less exports round about 80% to 85% of all our products around the world, and we are really exposed. And based on this exposure, our treasury team is really doing a great job, and has hedged. And now I assume whenever the exchange would be expected the other way around, we wouldn’t have all these questions. But it is us that at this very moment and I guess we continue because we want to protect the Company and have clear also calculation scheme behind in order to not fall in a trap with this currency exposure.

[Unidentified Analyst:]

And in Q4 with other expenses are on the top line, is there impact of support that you would have given to the sales to various emerging economies, which hedge in huge currency troubles. And because of which your realization or your other expenses are looking depressant I think. Or there is no major impact on that side, because the way Brazil had behaved or the way Russian currencies had behaved, and various other currencies. Was there a big support activity that is aligned in this Q4 numbers for JLR?

[Unidentified Company Representative:]

We have supported the one of the region because it's quite clear that we keep our dealer and dealer network profitable. And therefore, we are supporting our dealer network.

[Unidentified Analyst:]

But there is no major one-off in that sense this quarter?

[Unidentified Company Representative:]

No, there is no major one-off. I think you maybe what you might be looking at in other, in the income statement is the fact that as we said before, hedges do go through -- the realized hedges do grow through the income statement in other. And the reality is that if you looked at the same quarter a year ago, you would have seen actual gains on the hedges whereas this time around, you saw some losses coming through. So it's that non-recurrence of gains actually that you're tending to see come through that line.

[Unidentified Analyst:]

Thank you. So just one question related to CapEx, we've done around £3.1 billion, which is lower than what we were guiding of around £3.5 billion to £3.7 billion. And again, next year the guidance is around the same number. So, are we hitting a plato rate in terms of CapEx and is there some postponement or are have we sort of shared some plans as far as CapEx is concerned? Just some color on that please.

[Unidentified Company Representative:]

That’s a question I've always asked for the financial team anyhow. But you can be quite sure that the engineering team and the design teams have a lot of ideas to even increase. There is no plato effect and we are spending if you -- related to the turnover although proportionally. But at the end of the day, we want to grow and growing means also to spend more for innovation for the future and to make in more investment also for the future.

[Unidentified Company Representative:]

Thank you. I think we are done for the day. And thank you once again ladies and gentlemen for participating in the Analyst Week. Thank you.