Tata Motors Ltd (TATAMOTORS) Q3 FY22 Earnings Concall Transcript

Tata Motors Ltd (NSE: TATAMOTORS) Q3 FY22 Earnings Concall dated Jan. 31, 2022

Corporate Participants:

P. B. Balaji — Group Chief Financial Officer

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Girish Wagh — Executive Director

Shailesh Chandra — President, Passenger Vehicle and Electric Vehicle Business

Thierry Bollore — Chief Executive Officer, Jaguar Land Rover Automotive Plc

Presentation:

Operator

Good day. Welcome to Tata Motors Q3 FY ’22 Earnings Conference Call. I hope you and your loved ones are keeping safe. I’m joined today by, Mr. Thierry Bollore, CEO, Jaguar Land Rover; Mr. P.B. Balaji, Group CFO, Tata Motors; Mr. Adrian Maredell, CFO, Jaguar Land Rover; Mr. Girish Wagh Executive Director, Tata Motors; Mr. Shailesh Chandra, President, Passenger and electric vehicle business, Tata Motors; and my colleagues from the Investor Relations team.

Today, we plan to walk you through the earnings presentation followed by Q&A. [Operator Instructions]

I now hand over to Balaji to begin the presentation.

P. B. Balaji — Group Chief Financial Officer

Thank you. Thanks, Sneha. Thanks all of you for taking the time to attend our session. We will spend about an hour going through the deck at reasonable pace and then subsequently open it up for Q&A. So Safe Harbor statement, Anish. Just one call out in the — apart from the traditional Safe Harbor statement, do draw your attention to the discontinued operations accounting treatment, which is identical to what it was last quarter. The numbers that we are going to talk about today do not consider that, but in the reported numbers accounting will force us to show that differently, so that’s the only difference that is there. What is, what we are discussing today in terms of the slides or do not take into account that numbers to ensure like-for-like comparison, and this QR setup will disappear from Q4 onwards because the PV business is now subsidiarized.

Next slide, please. A pretty intense period of action both in Tata Motors, as well as in JLR. Commercial vehicles, we had un-launched — unleashed rather more than unveiled, almost 21 commercial vehicles across all segments on one day, received very well. We then introduced the CNG technology in Tiago and Tigor called iCNG, I’m sure Shailesh will want to talk about it a little bit more. We touched and made for a brief moment in December we’ll be the second largest car maker, but I think the gap is with the second player is now closing quite well. In JLR, chip suppliers have started to improve with production of 41% over the previous quarter and the order bank is now sitting at a very strong 155,000, and will talk about –Adrian will want to talk about it a little bit more. And of course, Range Rover continues to win many more awards, including the World Car Award.

Next slide, please. Overall, the quarter saw INR72,000 crores of revenue, decline of 4.5%. PBT before exceptional item of INR700 crores improved over the last quarter, but definitely lower compared to the same period last time. EBITDA of 10.2%, sequentially improving, but year-on-year down 460 bps, and EBIT also improving sequentially, but declined over the previous year, and free cash flows was positive at INR4,000 crores for the quarter, both JLR and Tata Motors being FCF positive.

Next slide, please. Components of growth, the big decline, of the 4.5% growth decline that you saw, 22.7% is related to volume and mix. Pricing, we have tried our level best to put through, including managing VME, VME is efficiently in JLR, but that could only give about 14%. So there’s a fair bit of price still to be recovered, which is impacting the margins, we’ll talk about later and all other businesses are pretty quiet. Profitability declined from 6.4% to 1.7% on a year-on-year basis, JLR contributed about 420 bps out of it, Tata Motors about 50 bps, others were flat. Net automotive debt, the external debt that you see out there is sitting at INR36,000 crores. Working capital related impact is now at INR17,000 crores. We expect to see that reversing with every passing quarter as growth comes back. And of course, the leases continue to remain about INR7,000 crores.

Next slide, please. Let me hand this over to Adrian to take us through the JLR performance. Adrian, over to you.

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Many thanks, Balaji. Good afternoon, so good evening, everybody, on the call. Next slide, if you would, please. So these are the JLR direct results. You can see standard format for us. Retails are down in this quarter versus previous quarters. We did signal that last time, the stock pipeline, finished vehicle pipeline is it all time lows and the actual big data going forward will be production, which we’ll take you through later.

Revenue is actually up quarter-over-quarter, although down 21% versus the same quarter last year and we’ll take you through those details in the presentation. Also, we basically optimize the revenue base available to us. We were close to breakeven bottom line in the quarter, just GBP9 million adverse significant better than quarter two as we signaled we would be in October, EBITDA 12%, back into double digits. We’ll obviously continue to be above double digits going forward and the two commitments we actually called out in October. EBIT positive for the second half we said, while actually we’re EBIT positive in quarter three 1.4% and cash flow positive in half, two, also while we were cash flow positive in quarter three, a GBP364 million. So we are making good progress. We’re back in stabilization and growth period now.

Next slide, if you would, please. So these are the key highlights that we show, actually in words. The couple of items not called out on the last page was the refocus program did another GBP400 million EBIT in the quarter, and I’ll take you through more details of that later in the presentation, and Balaji referenced a 155,000 order bank, which has grown by 30,000 units from the end of September, and I will take you through those details also later in the presentation.

Next slide, if you would, please. Okay, so these are the details in quarter three retails and wholesales. I’m going to tell you to wholesales first, bottom of the page, up 8%, 69,000 units, and slightly ahead in the UK of previous quarter, also in North America, and also in Europe and China. Just a little bit lower in the overseas markets. When you see the next page on the families, you, you’ll understand why that is so. Retails have said we’ll be down versus last quarter. The big data here is the production levels and I will take you through those levels of production. They did grow significantly Q3 to Q2, and our pipeline will begin to build from this point forward.

Next slide, if you would, please. So this is the family slides. It was super important to us on taking you through wholesales again first of all, obviously, drives our revenue base. Super important to us that we build out our old Range Rovers in the quarter. Of course, quarter three was the last quarter up build for the Range Rover. We managed to do that. You see that within the wholesale data here. Clearly, there were customer orders and this was the final chance we had to build those units. So we were successful building those old Range Rover units in quarter three, and we had to make compromises elsewhere on the other families you see at the bottom there. So we prioritize those customer orders at others simply because we can build those other cars later from quarter four onwards.

Retail, as you can see there, our bias in Range Rover, again because of the — the wholesale position and production position, we were able to slightly be ahead on those Range Rover retails in the quarter also as we managed to maintain that pipeline level. Electrification, on the far right, up to 69% of our vehicles were electrified, that was up 3 percentage points from quarter two at 66% and significantly higher than last year. The step change, of course, was a the ’21 model year vehicles that were introduced in quarter four last year.

Next slide, if you would, please. Okay, so we’ve actually got two profit bridges for you today and what we’ve done on this one. This is a quarter-over-quarter profit bridge. What we’ve done on this one is we’ve tried to show you the progress we’ve made in the semiconductor constrained environment. So you can see, quarter two we lost just over GBP300 million. And in the volume and mix, volumes were higher, 8% higher, GBP106 million positive because of that, but a significant shift, as I mentioned early in the year — in the production of the vehicles to the Range Rover family drove a significantly more value in Q3 than over Q2.

Our China business actually, that there was a — production were low there in Q3 versus Q2. There were some discrete supply challenges we had within the China business, including some of our suppliers impacted by snowfalls in the Northern region later in the quarter. Emissions is all about quarter, quarter three — quarter two, excuse me. We completed our emissions positions for the year earlier this calendar year at the end of September, hence why that negative actually is compared to a benefit last quarter.

The VME environment continues sub 2%. I think that’s a key indicator for us going forward and over this period of supply constraint, you will see variable marketing closer to that 2% level. Contribution costs, I’d say we were flat on material cost quarter-over-quarter. In this environment of low supply, it’s obviously impacting our suppliers as well. We are looking to offset the cost increases coming out just with cost and manufacture was a little bit higher. Utility costs, of course, come into there and there and lot of you ask about those input costs, you’ll see some of those coming through, and we did have, we did have increased campaign provisions in the quarter and I’ll take you through more details on a later slide specific to warranty.

Structural cost, we are at the low point of our engineering capitalization cycle as engineers come off completed — completed programs on MLA [Phonetic] highs of the Range Rover, they move on to new platforms, which haven’t yet hit our capitalization points later in the year. We talked about this for the last three years and we’re now at the low — the low piece of our cycle around just above 30% of the engineering cost is capitalized and we’ve talked on average over a cycle it will be 50% plus, but it will grow to around 60% at peak. So, at the low point of the cycle here and you will see when I compare year-over-year, it had a dramatic impact on the year-over-year results. The [Indecipherable] life was all about Q2 and the — and the removal of those reserves at the end of quarter two and on an FX and commodities, again, that’s all really about activity that happened in the prior quarter, which hasn’t repeated this time and therefore those are really swings in the sterling relative to our overseas European and dollar denominated loans and liabilities. So that’s the walk from last quarter’s 4.7% EBIT negative margin, you see that 1.4% this year.

Next slide, I want to land on just a couple of points. This is our traditional one full year-over-year. I mean, it could simply be said, look the complete difference versus last year is all in volumes. I mean, look at it’s minus GBP432 million. So it’ll be easy for me just to — just makes this a volume story, but there are real things happening, offsetting themselves, which is important to draw out the mix. I’ve talked about it already. I’ve also talked about the emissions we closed out earlier this year.

VME, you can, were 3 percentage points lower. We will continue to be that over the period of supply constraints. And what we’ll really be looking for is where that normalizes beyond our belief is it will normalize, but lot beyond below 5%, but that will be a discussion, we’ll come back to in later quarters. Those contribution cost year-over-year, you see there in the manufacturing cost, particularly GBP40 million, two or three things happening in the utilities. I mentioned pay awards and also the duty costs relevant to the changes in our relationship with Europe from January the 1st of last year, were prevalent in quarter three So that’s about a third of that number.

Material cost down is maybe the marketing cost increases year-over-year. As I’ve said, our intention is to find ways to offset those cost increases in this relatively low production environment for suppliers. We are a little bit short in quarter three and the campaigns, again, I’ll get into it more detail, but you can see they had a significant impact in the value of our quarterly — our quarterly business in quarter three. The other one I wanted to reference I just mentioned, the capitalization. Look, we are capitalizing more than GBP100 million less than the quarter than we were last year and that’s the difference between being in the high point of the cycle and the low point of the cycle as those engineers come off our MLA, hi platform, and move on to other platforms, EMA, which we’ve talked about, of course, hard to reimagine, and [Indecipherable] Jaguar electrification. So that capitalization will raise again going forward. So if you think about our underlying results, 1.4%, there are a lot of one-offs in there, but the true negative pieces on campaign — on capitalization are really low points and worst points for us, but we do expect those to improve going forward. So a true in the line with stronger than 1.4% on just 69,000 units. The FX in the commodities is all about this time last year. There wasn’t much happening on those currencies between September and December this year.

Next slide, if you would, please. Okay, this is quite dramatic. Don’t forget that were just 69,000 wholesales in the quarter and our underlying cash flow — the piece of cash we’ve talked about for the 11 quarters I’ve been in this role was significantly positive, more than GBP200 million on just 69,000 units. There was a one-off in the cash tax there. You can see that normally isn’t, a receipt. But we did have some tax receipts in the quarter for that GBP50 so million, but even so our underlying cash in 69,000 units was close to GBP70 million, which was dramatic.

Working capital, again negative. Most of that negative after the year, after ebbs and inflows of payables, receivables, and inventory net them self at much of that negative was the repayment of the payment of those claims, which we’ve referenced for the MLA made cancellations 12 months ago. Go to the bottom of the page, that’s the year-to-date data. It’s very, very clear what’s happening now, a GBP1.5 billion, GBP1.496 billion cash outflow for the year is all working capital. So we are in the super low point of our cycle, building just 23,000 cars a month, and all of that will come back to us as the semiconductor challenge start to free themselves up going forward. The worst of those, of course, are behind us. So we’re actually cash breakeven for the first nine months on just 218,500 units. So our average cash breakeven point for the quarter is just 73,000 vehicles, which is probably the richest per unit data we’ve had for more than 11 years.

Next slide, please. Okay, investment. We still at the lower point in the investment cycle and that will increase as we finalize those Range Rover and Range Rover Sport Products and pay the suppliers for those tools, a GBP512 million in the quarter, year-to-date GBP1.56 7 billion. So we are actually lowering our full-year guidance to GBP2.2 billion this year, you will see one of our final slides. It’s been just over GBP500 million every quarter. We expect it to tick up a little bit in Q4, but not substantially.

Next slide, please. Okay, the business update in the key things driving that data. Look, we’ve shown you, I think for the first time at least three years production volume. That’s the key data here, even though obviously our revenue and our cash is determined by wholesales, what we were able to do in our quarters two through to September is really the lower the stock pipeline, which meant wholesales were quite a bit higher than the 51,000 cars we actually built in quarter two. There has been a step change in production in quarter three, from 51,000 to 72,000 units, so, up 40%, but obviously there is a small pipeline build in that quarter and we only wholesales 69,000 of those units. But the key point here is the production level is going to be commensurate for the wholesale level going forward. We are signaling, because the questions will come about Q4. We are signaling an increase in quarter four versus quarter three. You can see there is a range there rather than a single point. And particularly, as we go through into the second half of quarter four, we are increasing our confidence, but again there’ll be another step improvements in production levels. A lot of that may actually manifest itself for increased revenues in the back end of the quarter and in quarter one. Anymore details, I’ll leave to the Q&A. Thierry [Phonetic] has been leading a lot of this information with his equivalents in a lot of the supply base. So if you wish you will, I’m sure we had to provide nice texture around where we actually are with those key discussions.

Next slide, if you would, please. Okay. So, supply has been low, production has been low, and customers continue to order. Our vehicle has grown from a 125,000 order bank at the end of September to 155,000 at the end of December. Again, I could easily dismiss this just to be new Range Rover car sales 30,000 units [Phonetic] But don’t forget in the new order bank, the old range Rover orders are falling and so the Range Rover Sport orders, both of those vehicles will be replaced over the next six to nine months. So the order bank is growing both in Defender and in the Range Rover and in other nameplates, even though we consciously — we’re consciously not allowing customers to order the lowest value derivatives here because they were the last units to be built. We do not want customers be waiting 12 months or more for their vehicles. So we have plenty of an opportunity not only to fill this order bank if supply comes back, but to reopen other derivatives, which we believe will increase the order pace going forward. So we are in a very nice place on the customer order position, but we do need — we do need to obviously increase production to avoid this continuing to grow.

Next slide, if you would, please. Refocus, so the refocus program is either an environment we wouldn’t have anticipated to operate in an environment where net revenue improvements, obviously, and the techniques we use, particularly the digital transformation techniques, win-by-win analysis, market-by-market and analysis, so we’re building the cars that’s how quickest and most value be — valuably, that environment has worked really well with the supply and demand. We’ve seen our cost reduction environment not as well. You’ve seen that in the earlier slides, clearly with supply factors like our factories being 60% full, it’s more challenging to get cost efficiencies, cost through to us. However, we did manage our best quarter since the program began in Q3, GBP500 million in this data set to the techniques and methods we’ve been using since the transformation program, started GBP100 million and that was EBIT related, GBP100 million was investment and we’re signaling the EBIT related to continue into quarter four even if the investment reductions do not continue through the end of the fiscal year. So if new guidance is GBP1.4 billion for the quarter beyond the billion, we signaled at the start of the year. The program continues to build momentum is a big point, and we’ll continue to do so through FY ’23.

Also next slide, if you would, please. So this is the warranty position. I’ve shown you a lot of the information here. In fact, I’ve shown you the information to the 11 quarters that have actually been in this role. One of the first things I did say to you is that warranty was close to 6% in the quarter. You see it include in the campaign costs in the first column and I referenced that close to 6% on several costly cars. I then talked about an environment moving into sub 4%. In fact, with new target which we’ve drawn across the page at 3.5% and we’ve — I think hopefully broken out the underlying, i.e., the warranty on the vehicles in the current warranty period, obviously differs by market. three, four or five years and the one-offs, which are the campaign costs, which actually show the total number in gray there. You can see over the last five quarters the 3.5% is pretty close actually. No, because the gray line is for most of those quarters, for three of them anyway, then below the underlying level as we release campaign reserves for the period through quarter three through two quarter one, you see or the gray lines less than that. This quarter, we’ve agreed to put in place additional campaigns. One of them is a top up to a program TDV6, which I last told you about in quarter two. You can see the gray line there. We’re coming towards the finalization of those programs that are actually in China, Taiwan and South Korea. There’s been a lot of work over the course of the last three months and final evaluations, of course, we’re asked to test each of those, each of those powertrain units. We are substantially through the program. We’ve taken the — we’ve taken the direction here to increase our provisions through to program finalization and we’re signaling additional two programs, which we’re working actually with the different regulators on at the moment. Most of these are customer protection programs. So, one of which actually relates to an extended warranty program we had in place and we’ve agreed actually to bring the customers in ahead of any potential failure point. So three additional campaigns are put in place. It has increased the optical number this time. But I would encourage you to look at that 3.5 percentage line. Now the gray line which is the total cost ebbs and flows around that and we believe it will continue to ebb and flow around that in the future even though it will be below and above on any given quarter.

Next slide, if you would, please. Breakeven points of the date has been even more dramatic is the power of our techniques and refocus kicked in. So if you look at half to second from the right, I’ve lowered the guidance for breakeven in half two, down to 300,000 units annualized or 75,000 units a quarter. It was just under 70,000 in quarter three. It will be higher in quarter four. We had a very rich Range Rover mix as we produced and passed out our old — loss of our old Range Rovers through to December. We now in the changed quarter for Range Rover why we stopped building the old one and we’re making sure that the new one is ready to go before we ramp up builds, so we will have a weaker mix of new Range Rovers in quarter four, which will work itself through into the first half of next fiscal year. So we’ll increase our breakeven in Q4 to around the 80,000 units. But you know, our second half average of 75,000 is the lowest breakeven point we’ve had for 10 or 11 years. So we’re super proud of the work that the team’s done under the refocus program, which really has helped us optimize our position in periods of low supply. If you want to — the guidance going forward is still around that 350,000 units. Of course, we will allow spend levels to increase somewhat to drive demand as supply reduces in FY ’23 and going forward, that’s about 50% lower than the guidance we would have been giving just over 12 months ago.

Next slide, if you would, please. So our outlook page is quarter four, revenue will be above Q3. We are expecting a positive breakeven point EBIT margin as well even the breakeven point would increase, investment will be a bit higher, up towards the GBP600 million, but not breaching it, and we do expect positive cash flow in quarter four also. That would be the full year position that would result of the back of that revenue, of course, down around breakeven EBIT margin slightly short as I see the data today, but there’s a lot of time to go. Investment around that GBP2.2 billion and negative four year cash flow, all of which will be working capital, all of which will come back to us as we build more cars. The guidance on FY ’24 and FY’26 continues. FY ’24, of course, will very soon be in sights and we will give guidance on ’23 when we next meet at the May announcements for the full year FY ’22. And of course, you would expect it to be somewhere between FY 22 and ’24. That’s and the key issue, you see, the key parameters that continue to work really, really hard on those bottlenecks we have on the supply chain. We’re definitely breaking through, but we’re not at the end of these challenges yet, nor is anyone else as you would know and continuing to execute our electrification strategy under reimagine and modern luxury, which will be personified in the new Range Rover, which will be in dealers during the quarter four. The refocus program has gone beyond the 1 billion [Phonetic] target level. So we will reset that for FY ’23, and then positive EBIT going forward. We are now in the — in the stabilization growth phases of this difficult last two years. I think that’s my last slide, Balaji, so it will be back to you.

P. B. Balaji — Group Chief Financial Officer

Thanks, Adrian. Moving on to Tata Motors. Next slide, please. Overall, a INR21,000 crore revenues from pickup in wholesales and retails, and you will also see that sequentially, unlike JLR, we have had a few challenges and I’m going to talk about that in the coming slides. We see strong revenue recovery, but margins from our commodity cost as well as a few one offs have created a challenge for the quarter, cash flow being positive, of course.

Next slide, please. Overall, if you just pull out the volume and revenue piece, I think CV and 19% growth with market share gain across product segment this year has been a very strong performance. PV, of course, has had a standout year and continues the swing, highest ever growth in — of highest ever volumes this quarter over the last nine years. Full calendar year was the highest volume that we have delivered, touching distance between number 1 and 2, and EV, of course, penetrations are now touching almost 5.6%. So a very, very strong performance in volume and revenue coming through.

On the profitability side, commodity inflation is knocking off almost 430 bps, which for the CV is almost about 500 bps of margin is going away because of inability to price to the extent of the inflation. We have taken up prices. So over the last, since March of last year, almost 26% price has gone through. It is not that we have not taken prices, but the steel inflation has been there. But the good news is steel is now starting to stabilize. So therefore I expect things to improve year on. PV, of course, EBITDA of 4.2% higher than last year by about 40 bps, and the subsidiarization related one-off costs impacted margin by 200 bps, without which this would have been more like 6.2%. Free cash flow is strong with operating cash funding capex very similar to the JLR story.

Next slide, please. Numbers, the way they play out. Volume, this is compared to last year same time. Volume mix and realizations stepping up quite significantly. But see the variable cost line which leaves an unrecovered price of almost 430 bps between realizations and variable costs. Passenger vehicle related one-offs is on 80 bps and the fixed cost is basically coming from FME as we step up growth as well as higher depreciation and amortization with the new cars being launched. So that’s the story there.

Next slide, please. On the cash flow side, operating cash profit after tax is now more or less taking care of the investments and as profitability steps up, we believe this number should really start stepping up further. On a full-year basis, now working capital is more or less normalized to about INR750 crores negative, and all the out flow that you see is basically finance costs and therefore as the operating cash picks up, we expect this number to step down as well.

Next slide, please. Investment spending is about INR900 crores this quarter. We expect to end the year anywhere between the INR3,000 to INR3200, down from the INR3,5000 crores that we had earlier. So capex is under control.

Next slide. We’re going to commercial vehicles. On the market share side we see market share improving across all segments, particularly reassured. We have been calling out SCV market share as an area of focus for us of. Glad to see that picking up as well. I’m sure Shailesh is going to talk about it. Sorry, Girish, is going to talk about that. And also what is heartening to see that SCV salient has really gone out of whack, now starting to normalize again. So overall business from a competitive growth perspective has performed particularly well.

Next slide. Volumes have been, those are CV numbers. The key number which I’m sure all of you are been keen to understand is why is despite significant increase in volumes we are not seeing the margins improve, 540 bps is the EBITDA drop and almost entirely explained by the commodity cost increase that we’re seeing. So that is the challenge that we have in front of us. And the good news is that as October was our worst month. As November-December started coming out, we are starting to see those margins pick up and therefore I do expect to see steel now stabilizes and the next round of pricing has gone in January Q4, the should start turning again.

Next slide, please. Girish, can I hand this over to you?

Girish Wagh — Executive Director

Yes. Thanks, Balaji. So highlights for the quarter gone by. The volumes increased by around 15% over quarter two and around 19% over the last quarter. And as we saw the Omicron third wave on the horizon, we also pulled back some of the production and offtake and therefore retail was marginally ahead. As Balaji mentioned, we have been able to gain market share across all the segments and the gain this year in nine months is almost 300 bps.

To counter this commodity increase impact, we have been increasing vehicle prices across. I mean, all the quarters we have taken a price increase and we also have been continuing our efforts on the cost reduction. As Balaji also mentioned in the beginning, we launched 21 new products in Q3. It’s a simultaneous launch event that we did, wherein we got very good response. So it was right from a 750-kg payload vehicle to 55-tonne GBW vehicle and also buses were launched together, a very good response.

We do continue our actions on the debottlenecking, specifically in two areas, semiconductors for engine control units and CNG components because the CNG demand has gone up. Jf you see now, the CNG salience has gone up for to almost 45% for intermediate and light commercial vehicles and upwards of 30% for the small commercial vehicles. So it’s almost more than doubled over the previous year. Looking ahead, while we entered this quarter with the Omicron third wave, but generally as we talked to most of the stakeholders, I think the impact seems to be kind of short-lived and the economic activity is getting back depending on the regions, so the wave is at different points of time in different parts of the country. But generally the economic activity is coming back and the customers seem to be coming back.

We did this trucker sentiment Index, which we do every quarter. So this was done in the month of November, the field happened in the month of loan when the market was doing well and we have seen very good improvement trend continuing across all the segments, so whether it is M&HCV, ILCV and small commercial vehicles, has been employed. Gradual demand recovery is seen across the sectors, but led by e-commerce and infrastructure. The only thing is I think the growth that we were seeing over the previous year has been tapering off because of the base BS effect.

In service and spares penetration, one of the focus areas for us, I think we have been seeing consistent improvement month over month and we, in fact, achieved record number of job cards in the month of December. On the electric buses, in addition to whatever buses we have been running, we operationalize 16 new electric buses at Ahmedabad for Ahmedabad Janmarg Limited. And now considering all the buses running across the country, we’ve crossed more than 25 million kilometers and across the country and uptime of about 95% and above. So I think we have been getting very good experience on running this electric buses and also on the gross cost contract model, wherein we are also operating the business, not just the maintenance, but operating the business through the day. So this is one good experience that we are now having under the belt. Looking ahead, yes, commodity inflation has been impacting our margins. We, while we have been taking price increases, the pass through has not been full, and also the price increases have been trailing the commodity increases, which have been happening quarter-over-quarter. Now from first January as Balaji mentioned, I think the steel prices seem to be flattening and stabilizing. So that’s a good thing and we have deployed a comprehensive margin improvement plan across all the levers to ensure that we get back to the required levels.

There has been some uncertainty in demand in the immediate term due to the third wave of COVID. But as I said, I think generally the economic activity is coming back and therefore we should see towards the end of the quarter the demand coming back to the original levels. We have activated the business agility plan, wherein we are looking at fortnightly products and planning and also aligning production with the retail.

On vehicle financing, most of you must be aware, there has been a change in NPA — NPA recognition norms by the RBI, and we do see likely impact not in the immediate term, I think this quarter should be fine, but maybe in the following quarters there could be some impact on the small commercial vehicle funding which we have been monitoring along with the NBFCs.

On buses, vans sector, I think the demand does remains sluggish, but there is a good news now. The schools seem to be starting in some parts of the country and you started getting some inquiries in that area. Semiconductor availability is still below requirement, but we have been managing it through daily monitoring and also through wearing the product mix to ensure that we are able to meet the market requirement to the maximum. So that’s an update from CV side. Balaji back to you.

P. B. Balaji — Group Chief Financial Officer

Thanks, Girish. Next slide, please. Moving on to passenger vehicles, passenger electric vehicles. Next slide. The key highlight for this quarter has been the market share increase that has been extremely strong now at 13%, and also a quick call out on the powertrain mix, such as now EVs are now nearing almost 6% of the portfolio is just about 2% was there about a year back. So significant shift that we’re seeing in this one.

Next slide, please. Performance in terms of numbers, wholesale and retail is growing at almost 40% plus and revenue is now at — in this quarter is now a multi-year high high. EBITDA increasing to 4.2% on a reported basis, and of course, once you adjust for those one-offs that other, it’s almost 6.2%, and business is now a touching distance of an an EBIT breakeven, and we are confident of achieving that pretty soon. So all the commitments that we made in terms of winning sustainably now playing out exactly as we had planned for.

Next slide, please. EV, let me hand this over to Shailesh, because the growth drivers are probably the most interesting part of this. Shailesh, this one or the next one would you want to take?

Shailesh Chandra — President, Passenger Vehicle and Electric Vehicle Business

Yeah, thank you, Balaji. So this just shows the trend on the left slide if you see, the lighter green one shows the industry trend and the dark bar shows the VME volumes. And essentially if you see, we have been the main driver of the vehicle EV industry growth, which has been increasing 3.5 times on a year-to-year basis. We started with a very moderate market share, being the second player in the market at 11% in FY ’18, as of last quarter we have reached 81.6% year-to-date.

Few things which are really driving this growth. One is 12,000 13,000 customers who have already bought the vehicle. They have are spreading positive word of mouth. These people are very expressive, the earlier person or the majority, posting their experience on the social media, which has really attracted a lot of fence sitters and just one data point which I want to share is that when we had launched Nexon EV, we had only 30% of the buyers who were using EV as their primary car or the only car. This number has increased to 65% today, which means that it is already being seen as a mainstream car. Second big change which has happened is that the concern around public charging infra is going very fast because these 12,000, 13,000 customers, based on the telematics data that we have 95% to 96% of the banks they’re charging at home. So this whole issue around public charging clearly is coming out to be an overstated thing and that sort of comfort is increasing.

Two states, Maharashtra and Gujarat came with demand incentives on top of the centers incentive. Remember that personal segment did not had the benefit of FAME, and are these two governments have extended 50% of that, I would say what FAME incentive was to the personal segment buyers also and this has really [Indecipherable] up the demand in these two states and this is [Technical Issues] the major driver for electric vehicles.

Also EVs are proving to be better value proposition in terms of performance, driving cost, of course, maintenance cost and that is being realized today. A fleet segment, which was pretty much non-existent after the onset of COVID has strongly come back and also the increase in petrol and diesel prices are helping shift towards the EVs and in the last few months we have really ramped up the supplies of EV, which is also one of the big factors.

Next slide, Balaji. Quickly giving you an update on the BV and EV new business, starting with the quarter’s highlights. For the industry, the industry de grew by 15% year-on-year, primarily because of the semiconductor shortages. Otherwise, the demand was pretty much similar to the last festive season, Q3 demand wise I would say booking generation in the industry was as good as last quarter of the the financial year. We are seeing a structural shift continue towards SUV on the back of new launches and this has increased from 32% to 40% now and the loss of our share of hutches primarily and to some extent sedans.

As far as our performance is concerned, Tata Motors 13% market share which Balaji covered, which is 44% growth in BV and 264% growth in EV. We did the highest every retail in our history in quarter three, 109,000 K. We also emerged as number one SUV manufacturer in Q2 after the launch of Tata Punch. Before this, we used to be player number five in SUVs, so there is a major change in the quantitative brands get us where as SUV is concerned. Balaji already mentioned that we have narrowed the gap with number two player. Nexon became the highest selling SUV in the last quarter, and we also attained a monthly sale of 13,000. This used to be around 4,000, 4,500 in FY ’20, and over a period of time we have not taken to 14,000 and 13,000 as of last month. And as I said, number one SUV, now out of 45 models that we have in the industry.

EV sales touched a new peak of 5,500 unit. And in fact, in quarter three, we were 93% market share and this helped us take our EV penetration to 6%. Going forward, in quarter four, the industry outlook is better as compared to quarter two and quarter three. Pending bookings are strong in the industry with very low channel inventory, less than 10 days. Semiconductor supply situation is relatively better as compared to quarter two and quarter three. As far as Tata Motors is concerned, we have a very robust booking pipeline and lower channel inventory, less than six days actually as we started the quarter four. The new launches that we had in quarter three, Punch was the main one, has very strong response and we our good booking pipeline, which is available with us despite ramping up our suppliers we are yet to meet the requirement of the market.

This month, we also launched the Tiago and Tigor iCNG models. Clearly differentiate versus what was existing in the industry and which has been taken very well, and we hope to see some very strong bookings in just a matter of 14 days. For the last two quarters, we have been working on capacity debottlenecking options and this is going to continue to help us improve our supplies from where it is. You have seen in the chart that Balaji had shown that every quarter we have been improving our supplies, very well mitigating all the factors around the semiconductor situation and we hope to improve it further, given a better outlook of semiconductor that we see.

Critical electronic part of look as I said better. EV demand remains strong. We have the highest spending booking in terms of number of weeks, I would say, and we are very fast ramping up the supplies. Talking about the challenges for the industry, semiconductors remains a big problem because while t is improving in quarter four as compared to quarter two to quarter three, but cannot still unleash the full demand potential.

Third wave of COVID infection was an issue at the start of this quarter, I would say, but I would say the worst is behind us. It has not led to any significant impact this month and from next month on what we expect that this should be better. As far as challenges for Tata Motors is concerned, pretty much the same challenges, what is for the industry. We have not got impacted at all, I would say this month also because of COVID third wave we’ve managed it very well with business agility, plan and now the challenge remains to bring down the waiting period for the strong pipeline of bookings that we have, and including the EV, which remains a priority for us. So that was the update on BV and EV. Back to you, Balaji.

P. B. Balaji — Group Chief Financial Officer

Thank you. Thanks, Shailesh. Next slide, please. I want to take a little bit of time on this because probably normally we don’t spend too much time on this, but maybe it’s worthwhile given the changes in the RBI regulation there. Tata Motors Finance, the intrinsic business fundamentals are in a good place with disbursals growing, market shares remaining strong, cost to income ratio remaining low at 29 and NIM expanding to 5.3, continuing assignments happening and good liquidity, but we have two issues to deal with. One is the restructured as well as the MSME portfolio, we are seeing increased stress and even though we are not seeing changes to the expected credit loss, we have taken additional management overlays this quarter and that is reflected in your Stage 3 assets, sitting at almost 10.4%. On top of it, there has been a change in the RBI regulations which some of you may have noticed, where it has got two angles. One is identification of NPAs on a daily basis. And second, ensure in order to get an asset back to normal, all overdues have to be cleared and not just the GNPA overdues.

We have always been calculating GNPA on a daily basis for the last for years. So, therefore that is not an issue, but this recognition of nil overdues before you can taken account out of GNPA meant that the GNPA shot up to 17.5%. Obviously, this is unacceptably high levels of GNPA, therefore we believe it’s going to take us about 18 months to cure this. It will call for our behavior change at the, this is particularly coming from retail MSME, mostly SCV customers and therefore making the behavior change with them will require to strengthen the collection team focused on the 60-day collection bucket instead of the 90-day bucket. At the same time, we will also see growth as a key lever because these are from a return perspective, it’s in a good place and therefore we would want to drive growth further to ensure we fund this particular shift and use technology to deliver to manage risk even better. There are some — lot of interesting idea that we’ll share with you in the coming quarters. And of course, continue to forge the asset partnership that we have been doing successfully. So this is something which is we are well seized of it as a company and is Tata Motors Finance, it enjoys full promotor support as Tata Motors as it navigates this GNPA challenges and also growing profitably. So this is something which we will keep a close watch on.

Next slide please. So overall outlook, we see demand is remaining strong, supply situation gradually improving, but inflation worries do persist and we do expect to see this resilient performance that we have been now turning in the last few quarters to improve further in Q4 FY ’22 and beyond. And JLR already talked about it’s focused actions and so have Shailesh and Girish. So let me maybe add one last piece on the EV [Indecipherable] where we are in final stages of completing the CPs, for drawing down the tranche one. So we hope to do this in this quarter, drawdown should happen. Work is underway to complete the final stages on that. And of course, both the businesses were aimed to target to deliver EBIT margin that’s positive, and positive free cash flows and which we are reasonably confident.

So that’s what we have to say in the presentation. Let me quickly move on to the Q&A.

Questions and Answers:

P. B. Balaji — Group Chief Financial Officer

What I’ll try and do is spend the first section of Q&A around JLR. There is a series of questions there, then we’ll do the next set of questions on CV’s and then we move to PVs, and then once the first main set of issues are covered, we will then mix it up as it goes along.

So starting with the first question that is there. This Jay Kale from Elara Capital. To secure better chip suppliers going forward, especially with the onset of EVs at JLR, has there been any meaningful cost increase that JLR has committed to the suppliers? That’s question one.

And two, how is Tata Motors India PV manage the chip shortage? What has it done differently that JLR has not been able to do? Adrian, Thierry, can I hand this to you.

Thierry Bollore — Chief Executive Officer, Jaguar Land Rover Automotive Plc

Yeah, I can take that question, Balaji, with pleasure. Well, first point, you can imagine that we’ve such tension between demand and supply globally speaking for all the industry, there are some tensions on prices as well. But this is not our real problem at first. The real one is really the availability of our semi — semiconductors, which is really what we are looking for permanently.

If I may also give an insight about the specificity of the situation of JLR,it is the following. The first point is that we have little margin of maneuver in terms of mitigation between lower — lower end cars up against higher and cars, because we only have high end cars, that’s the first point, which is different when you look at some of the OEMs, very different.

The second elements you have to know is that we have mostly very complicated, sophisticated proprietary chips, which means that I having the second source, for example, is much more complicated, long lasting, if not sometime impossible. That explains, these are the two key reasons why we may be a bit more impacted visibly, especially compared to Tata Motors.

P. B. Balaji — Group Chief Financial Officer

Thank you. Thanks, Thierry. Next question, again for JLR. Can you give an update or an indication on the expected production for fourth quarter as well as FY ’23. The chart seems to suggest only a marginal improvement. Second, the breakeven point is expected to substantially increase from 70,000 to 85,000in FY ’23. What is driving it? Mix improvement has been very impressive. Do you expect this to sustain. Adrian?

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Yeah, of course, Balaji. Thank you. Look, we’re not going to put specific numbers on Q4, was confident its going to be stronger than quarter three. But this is a gradual improvement at this point and that’s why we shaded this, right? We are progressing with certain supply bottlenecks and we do anticipate step changes at points going forward, but only gradual improvement at this point in Q4 over quarter three, and I’m not going to put a specific number on it because frankly it changes towards the back end of the quarter, particularly. And if I give you a number, I have guess, what you’ll go to ask me may, why didn’t to hit that number, right? So let me not pretend that I have a specific number in mind. I’m very confident the work the teams are doing and I’m confident it’s going to overcome some more bottlenecks in quarter four, which will lead to greater supply.

In terms of the point around the breakeven. Look, don’t, don’t look FY ’23 as a specific. Actually, it says FY ’23 plus, if you go back to that slide. And what we’re really saying is once we move towards a more normal environment, when we move towards a more normal environment, we won’t — we won’t continue after buyers [Phonetic] particularly run out vehicles like Range Rover. So you would have seen also if you read the data by carefully, 55% of our wholesales in Q3 were Range Rovers, that is not a normal business for us. We will move towards a normal environment. That means that we will be building more of the other families and that means that the mix average will actually start in a normal circumstances to reduce, which means, our breakeven point will naturally get higher.

There was another question around would you breakeven be different if you build quarter four levels in FY ’23. I saw that one. I think all I’ll say is at lowest levels of production and volumes, you would expect our breakeven point to be lower for the reasons we’ve just articulated and explained in quarter three, which is why I point to those reason instead. Mix, apart from product change over which we have two product changeovers, the big Range Rover and the Range Rover Sport, mix going forward again will weaken as we drive incremental volume, that won’t be for all of FY ’23, and we’ll continue to update you on that on a lighter course. Thanks, Balaji.

P. B. Balaji — Group Chief Financial Officer

Yeah, thanks, thanks, Adrian. One more coming down your track from Stephanie Vincent, J.P. Morgan. Thank you. Can you verify that the UK financing is all unsecured, one. And then you had about GBP230 million of restructuring provisions in the balance sheet as of last quarter-end, what is it at the end of December? And third while orders of Defender look very solid, wholesale seem to be down versus last quarter. Why was that? And any feedback from the potential RR customers about not having a bell for launch and what would you estimate would be the potential customers who are waiting for that?

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

So, Stephanie, the answer to your first question is, the UK financing is unsecured. Yeah, Defender, unfortunately that was a symptom of the prioritization of Range Rovers, right, when we — last time we could build the Range Rovers and all the families actually did suffer from reduced production because of that and you will see within the order date of the range — the Defender orders, excuse me, rose off the back of that. So the Defender orders are solid. We expect to build more Defenders in Q4 that we built in quarter three.

Wholesale, is that vehicle going forward, what increased, that’s pretty clear as soon as the point we can actually build them and don’t forget, we will at some point over the course of the next 12 months, extend the Defender family with an extension of the 130 range, which basically means no a bigger body on the Defender going forward. So we are, have even great offerings in that family as we go through the course of 2022. Range Rover customers and BEV, there’s no date of the life seen at this point around BEV, only Range Rover customers. We’re just starting to open the order books on PHEVs for the new Range Rover, which early orders have come in over the last week or so. I’ll be well placed to explain to you in May as that order bank is going. We expect the PHEV to be super successful, that’s what I see of the derivatives we’re issuing in quarter four. But at the moment, the orders are new BEV. No, I don’t have any sight of that data.

And by the way, even if I did, it’s pretty reasonable to assume they would just continue to be more appealing and growing before the release date, in any event. That’s all I have to say, I think on the questions. And yes, I missed one, Balaji.

P. B. Balaji — Group Chief Financial Officer

The restructuring provisions, would you remember it.

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Excuse me. Yeah, they dropped to about GBP200 million at the end of quarter three. We won’t pay all of that in quarter four. So I suspect our finalization on some of those will continue into FY ’23.

P. B. Balaji — Group Chief Financial Officer

Okay. Next question is strong Raghunandan M.K. On JLR, can the company collaborate with other OEMs for licensing of EV platform so that EV launches can happen sooner? And second is what is the R&D capitalization rate expected for FY ’23?

Thierry Bollore — Chief Executive Officer, Jaguar Land Rover Automotive Plc

I can take that, Balaji. Well, we are permanently big solicitated and also exploring any type of partnership opportunities for the future. At the same time, and I think it’s interesting when you look at the picture after our new Range Rover, you can — you can understand that we are absolutely unique and it’s not by chance, and the MLA platform it’s a unique platform. It’s a platform which is bringing all these proportion that you can see on our cars, but also all the extraordinary capabilities which make them completely unique and that’s a difference — a different situation that we, we continuously want to enhance.

So, the consequence is that we are — we are creating at the moment we speak to, the new EMA because it’s going to bring a unique proportion and capabilities to our — to the cars that we’re going to manufacture with that that for. And concerning a new Jaguar, we have put the priority of the unique proportion of car as well and that’s the reason why for the moment we do it by ourselves.

P. B. Balaji — Group Chief Financial Officer

Thank you. Thanks, Thierry. Adrian, want to…

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Yeah, on the capitalization. Look, I think the best way to think about this rather than give precise numbers at this point, the best way to think about this is recognize what’s happening, engineers are coming off, both Range Rover and Range Rover Sport, they will increasingly do so over the next three to six months and then they will go into the new platforms EMA and the Jaguar platforms, which will meet their capitalization points as we go through into FY ’23. If you think about this in blocks of capitalization, of 30% to 40%, 40% to 50%, 50% to 60%, there the three blocks. You should have in mind when vehicles come up to maturity will be in the 50% to 60% range when they are earlier in their stages in the 30% to 40%. You should expect the 30% to 40% range to be predominant over the next quarter to two and then we’ll move into that 40% to 50% range and I will start to signal to you as we go through the quarters and through FY ’23 when we have a site for a change from that 40% to 50% upwards, which it will do in in the latter stages of those new platforms, EMA and — and the Jaguar platforms. So over this next phase, we are in the 30% to 40% range.

P. B. Balaji — Group Chief Financial Officer

Thanks, Adrian. One more or JLR, then I’ll move to CV. Is the FCF target for fourth quarter taking into account the one off of GBP500 million outflow for restructuring?

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Well, the GBP500 million outflow isn’t an outflow for restructuring. Originally, they were the reserves we’ve set most of those. I think I’ve just said to the previous question, we have about GBP200 million still left to settle with the suppliers. It’s reasonable to assume less than half of that we paid in quarter four. But of course, you know that will ultimately be determined by the dialog and discussions we have, given that these are non-contractual claims.

P. B. Balaji — Group Chief Financial Officer

But the positive cash flow is net of restructuring, can we confirm that?

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Yeah, the positive cash flow, we intend to be restructuring it.

P. B. Balaji — Group Chief Financial Officer

Thanks. Okay, just switching gears in the CV, so that we are able to cover all the areas and then I’ll come back to JLR towards the end. Girish, a lot coming down your tracks, In India, most of the demand enablers in terms of improving fleet utilization, fleet profitability recovering, replacement aged seven plus years, how and when do we see the M&HCV demand recovering in FY ’23, ’24?

Girish Wagh — Executive Director

Right, right, so, yes, you are right, I think the freight utilization has gone up, the freight rate has also gone up towards the end of Q3. But If you look at the total industry volume, I mean this year we are still going to be less than 40% of the peak, right? So while we are looking at the industry growth over the previous year, it is is still far away from the peak that the industry has already achieved. Even next year while we will see some double-digit growth, still got to be a portion of what the TIV was in the peak year, that is FY ’19. So I think, frankly we are still far away from the peak and even while fleet utilizations are improving, they are not up to the level that we’re seeing in the previous peak. So there is some way still to go. And as a result, if you see today, even in the customer mix. I think it is more of the feed, larger accounts who are coming forward and buying and the retail customers are are very small, I mean, very small amount in terms of their participation. So I think overall I would say the industry is still far away from the peak which — which had been achieved.

P. B. Balaji — Group Chief Financial Officer

Thank you, Girish. That question is from Ronak Sarda, Systematix. The next one from Satyam Thakur, Credit Suisse. CV margins don’t seem to have improved sequentially in third quarter despite higher volumes and some price hikes. Have the [Technical Issues] continued to go up in quarter two? What has been the experience in Jan? Has the Jan price has been met with another round of discount bump or has it stopped at this time? Why do you think discounts have been going up in CV despite rising volumes?

Girish Wagh — Executive Director

Right. So, I think part of the answer to this question was in the earlier answer that gave. So while the volumes are increasing over the previous year, its still far away from the peak, number one. Number two, I think the price increases that we’ve been taking is in a way trailing the commodity increases and the price increases that we take have been gradually getting passed on into the market, month over month within the quarter. I think now this quarter, the Q4 is a quarter where we’ve seen that there has been no steel price increase and we have taken the price increase, basis whatever commodity increases happened in Q3. And now we will continue to pass through the same month over month. As Balaji mentioned earlier, we’ve already seen a month over month margin improvement happening in Q3 itself. And I think we will continue on the same trajectory during this quarter also. Balaji?

P. B. Balaji — Group Chief Financial Officer

Thanks, Girish. There is another question on JLR from Sathyam, I’ll come to it in the end as we complete the CV questions are more on the PV and come back to JLR. So then just hold the question in this itself. A question from Dinesh Gandhi Chris. Are you seeing any signs of the single and small fleet operators coming back, and with — we already talked about the M&HCV growth. So, and what are the under recovery on account –on account of commodity cost which I already covered in the presentation, Dinesh, and what kind of chip supplies do you expect in fourth quarter for CVs and PVs.

So maybe the first section, Girish is right [Indecipherable]

Girish Wagh — Executive Director

Yes. So I think I spoke in the first response about the customer mix. So the customer mix is currently skewed completely towards larger accounts, but we’ve seen a sign of the retail customers now or small customers coming back into the market gradually, started from few regions and this is something we will continuously track and as the fleet utilizations go up, the freight rates will go up, the profitability comes back, you will see the retail customers coming back. But as of now, I think it is less. And also one should appreciate that whatever new BSVI purchases, the large fleet accounts or larger accounts are doing, they are selling off their older BSIII BSIV vehicles, which in a way are going to these smaller retail customers. So that’s how the whole vehicle changing hands is happening currently. But we do see early signs of the retail customers coming into the market.

On the semiconductor, if I can answer, Balaji.

P. B. Balaji — Group Chief Financial Officer

Yeah.

Girish Wagh — Executive Director

So we do continue to face shortages. But I think with the efforts that we’ve taken we’ve been able to secure our suppliers in Q4 for the medium and heavies, the intermediate and lights versus, of course, the requirement is pretty low. I think we continue to face challenges in the small commercial vehicle segment and that’s something that we have been working with the suppliers. Balaji, Over to you.

P. B. Balaji — Group Chief Financial Officer

Thanks, Girish. We’ll move onto the set of questions on PV that is coming. So Shailesh, over to you. We made Tata Motors PV division strategy clear on BEV, however, if consumer demand is strong for hybrids during the transition in the next three, four years, would Tata Motors be considering launching products there? If yes, what will be the lead time for deciding that launch? Like we launched CNG, seeing strong demand for the variants. And the same question, another question from Jay Kale. again is. What are the company’s plans on Flex fuel engines and CNG in the next two, three years. Shailesh?

Shailesh Chandra — President, Passenger Vehicle and Electric Vehicle Business

Yeah, Balaji. So let me first talk about the hybrid. You know, there are certain players who have taken a position on hybrids and they have vehicles available and therefore they pursuing it primarily to meet the requirement of CAFE [Phonetic] and there would be few players who for the purpose of complying with the CAFE requirement would go for hybrid, and therefore the way we see this technology is mainly for compliance compliance and its relevance is only going to sustain itself for the next few years. We have to focus on technologies which will not only help us to meet the CAFE requirement, but also which is going to lead — which is then going to enable us to lead the charge as far as the zero emission technologies are concerned, which is going to be the technology that which will sustain itself for the coming years, rather grow fast. And that’s why we have taken a conscious goal of focusing on EVs.

Just to give you some understanding of what it takes to offset the CAFE norm, if you’re at a 3% to 4% penetration level of EVs, we would fully comply to what is needed in the CAFE and our targets are much higher. So we definitely don’t need hybrid to support complying to CAFE, and therefore we keep ourself focused, we have to make strategic choices to keep our resources directed towards future growth, and this is the conscious call we have taken. Just to be clear that, as far as our capability is concerned, to make hybrid, there you must have some of earlier companies who had more than hybrids intensity, so that’s not a problem.

But we have made a strategic choice to focus on EV strongly. It helps meet the future demand and future relevance as well as strongly meeting the need of CAFE to the extent that we can be surplus on that. As far as, the second question was concerned, on CNG. Yes, I think CNG is a segment which is going to grow in the coming years. This will be a subset of I would say the petrol, because this is being more triggered with the rising cost of petrol.

It uses a petrol engine, as you know, and therefore it’ll mostly cannibalize petrol and to a great extend also diesel, replacing diesel in the entry segment cost. And therefore we see a strong future of this, given that there is a deeper penetration and expansion of the CNG outlays that we have seen in the country, and therefore we will focus on CNG because it’s a more cleaner option on the ICE side. So this is something that we continue to focus on. Balaji, can you just rephrase me the third part of the question which you asked?

P. B. Balaji — Group Chief Financial Officer

This is on flex fuel Shailesh.

Shailesh Chandra — President, Passenger Vehicle and Electric Vehicle Business

Yeah, sorry, sorry. Flex fuel, on the flex fuel, as you know the first milestone for us is in 2025, where it is mandated that we need to be ready with E-20 for all our models and we are pretty much on track as far as that is concerned. There is a discussion, ongoing discussion, with the MRTH on implementation of flex fuel beyond this ratio going up to 85% also. There is a discussion on the timeline for that. There’s the whole ecosystem readiness, which is required for that. Whatever is the final outcome of that discussion we would be ready to comply to that as far as flex fuel is concerned. Over to you Balaji.

P. B. Balaji — Group Chief Financial Officer

Shailesh, one more question — I’ll combine the two questions because they are — similar one is from Ronak, the Systematic and Nishi Jila this other one. This is on CNG, which customer profile do you see CNG picking up? And how do you see the mix between petrol, diesel, CNG and EVs going forward? That is one. And also any indication on the order book and how has been the response to the launch? And would you be also doing it in other products as well? And will this work in premium hatch back and compact SUV segment?

Shailesh Chandra — President, Passenger Vehicle and Electric Vehicle Business

Yeah. So I think all the questions are interrelated, let me start with the customer profile. As you know that with the enforcement of BS VI norms, diesel became less viable in the entry segment primarily the hatches and sedans, compact sedans, and also most of the segments which were less than INR8 lakh, diesel really struggled in terms of being relevant in those segments, and that’s why you’ll see all the models which existed in diesel has completely gone away.

This is also a segment therefore, particularly from a customer profile perspective, which is sensitive to the running cost and less worries about the rest of the other aspects on performance or for example, sophisticated features. And therefore the customer profile is — if I have just have to take a price point less than INR8 lakh segment as a relever — viability, diesel has lost its segment and customer profiles it also connects well with the customer profile in that segment.

Now talking about the CNG and the fuel mixed distribution, which was also the other question that you had, let — let me give a current situation. First, let me talk about Tata Motors, how we see the spanning out over the next three to five years. Today, diesel is 15%, about 60, I’m talking about the exit situation this year because let me focus of where we’ll exit this year. We would be at about 65% to 66% of petrol. Diesel would be 15%. CNG, we believe will be in the range of 10% to 12% as we exit this quarter, and EVs would reach around 7%.

In the next three to five years, petrol will possibly come down to about 50% level, CNG will go up to 20% also on the back of, you know, few other — few other models that we might come to and that was also a part of the question. And I’ll reply to that also. Diesel would come down further to about 10% and I would say EV would — we have already declared the target of going more towards 20%. So this is the kind of mix that I believe would be in a three to five year period. For the industry, this would be slightly different given that we are more aggressive on the EVs.

For the industry, this would be say 7%, 8% penetration in three to five years, and CNG would definitely be a bigger portion, which is 25% because I say this is mainly going to cannibalize the petroleum and to some extent diesel will come down from current industry level 18%, 20% kind of a level two to 10%. This is the kind of transition that I see in the next three to four years, but also kind of level to 10%. This is the kind of transition that I see in the next two three to four years, but also depends on how the whole mix of fuel prices CNG, petrol and diesel play out in the coming years coming years.

Coming to what are the potential segments which will be relevant for CNG and what models we might therefore consider? I think in SUVs CNG might struggle given that it is very performance oriented segment and less sensitive to running cost. And therefore they see that CNG will have only partial penetration in those segments. But as I said that there are still segments and we mentioned in the premium segment will be less what to say inclined towards CNG. But yes given the price points and the economics of CNG versus the petrol, it might play out to some extent, but not as deep an impression as we are seeing in the entry segment.

And compact Sedan is doing well because of the boot space that you get which is completely compromised on that and that’s the thing that you’re seeing in the demand profile also that we are getting for the two models that is a strong preference for compact sedan therefore given the boot space that it gives. So therefore, we would target a few more segments. We’re working on them. But as of now we have really focused on the hotspot of CNG which compact sedan and hatches. And I must tell you that the bookings are very strong. I cannot reveal the numbers. But would be like three months of bookings already. Balaji back to you.

Girish Wagh — Executive Director

Yeah. Thank you, Shailesh. Before jumping to JLR, one final question on CV that is come in and then we move back to JLR. Is the gain in — it is from Sandeep Varma. Is the gain in market share in CV segment due to CNG based sales of LCV segment, where the second largest players presence is not there. Do you see continuation of market share gains in the segment Yes where there is a almost 45% penetration. And you spoke — you asked specifically about SCV, I mean, below LCVs. So below LCVs we look at the market in two subsegments. One is what we call is small commercial vehicles and the second one is pickups.

The pickups is about maybe 60% of the total segment. And in pickups we don’t have a CNG offering at all. It’s only in the small commercial vehicles where we have CNG offering where as I mentioned in the presentation, I think the penetration is somewhere around 33%. So I think the market share gain number one has happened across the segments and it’s not on the back of CNG number one. Number two with regard to Q4, so we have our own retail targets. I think we’re working towards building a strong retail capability to reach a particular level and that’s what we’re working on and we will continue to improve on this. Back to you Balaji.

P. B. Balaji — Group Chief Financial Officer

Thank you, Girish. So let’s go back to a set of questions coming in on JLR. First we start with Satyam Thakur with Credit Suisse. JLR capex came in at a new low of GBP2.2 billion in FY 2022 how should we think of this falling capex in light of the major EV transition underway at both J and LR, is a partnership with some other OEM or cross leveraging of platforms inherent in the function.

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Yeah. Let me take that Balaji. Look there’s nothing intended all behind this reduction, but we give guidance each quarter around GBP600 million and we have been low for the last three quarters. Now some elements of capex, the non-production investment will probably tough actually on the return on investments required much tougher than historically we would have been and that certainly is a piece of the underspend here.

But you should continue to expect our level to be around GBP2.5 billion and maybe next year be slightly higher than that as a piece of catch up here in terms of the spend profiles. Obviously below each of the spend categories, the different profiles come out at different points by far the easiest for us to assess is what the engineers are doing and what they’re working on. I’ve already explained that as a part of the capitalization questions. So there’s nothing mysterious about the levels we’re spending. You don’t — you shouldn’t be thinking that consciously trying to reduce that spend, anything you would wish to add Thierry.

Thierry Bollore — Chief Executive Officer, Jaguar Land Rover Automotive Plc

Yeah. I think it would be interesting to reach with the previous question on the platforms as well, because remember when we launched Reimagine one year ago, we committed to go from — to divide by two the number of platforms, which is happening first point. And the second point, which is not necessarily visible, is that we are criminalizing significantly on those platforms, the key new control points of the new value chain, i.e., typically the batteries, i.e., of course, the electric motors, same with the software, onboard, off-board and all that together is creating a real scale at the level of GLR that we are benefiting from management, this has an impact of course.

P. B. Balaji — Group Chief Financial Officer

Thank you. Thank Adrian. Thanks Thierry. Next question is from Chirag. Average realization per unit in the quarter was almost 68,000 tones, up from the 61,000 in Q2. Is this driven by higher Range Rover or Range Rover sport quarter-on-quarter or is there any other driver? How should one look at realization per unit when it will normalize and what should be the normalized range?

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Yeah. Look, I called out the data, as I did in the presentation, hopefully to head off some of these questions at the past. So I’m not sure I was successful with that. We have a huge bias towards the Range Rover in the quarter. We did that because we know we have to close down that production to make sure that we were ready for the new Range Rover that really has — to the average revenue in this instance, after that 68,000. You need to connect data sets here, it’s really important because there’s a lot of — I suspect in this some modeling going on beyond — below some of this.

Low volumes, high average per unit, they go together, right? So as you ask the question, what are the volumes likely to be next year? Well, I can certainly confirm to you if they’re not substantially higher than this year, then we would have very high average, gross vehicle revenue points. Right now what you might be thinking, well, what point do they crossover? I suspect they will be above GBP60,000 average until we build more than 100,000 cars in a quarter, right?

So there’s some frames I’ve given you there, it’s very little to do with Range Rover Sport, build in quarter three. It will be more to do with Range Rover Sport built out actually in this quarter and our quarter four, which we will attempt to do exactly what we were successful in our quarter three. And that is to build those final vehicles that customers have ordered because it’ll be our last chance for us to fill that order. And that’s just the right thing to do, and that’s what we’ll do again in quarter four.

P. B. Balaji — Group Chief Financial Officer

Thank you. Thanks Adrian. I think that has answered a set of questions around Range Rover and Range Rover Sport and realization by unit. Let me go to a different question. Global OEM, this is from Binay Singh, Morgan Stanley. The second question that global OEMs are highlighting software sales as a revenue opportunity, in the long run. How does JLR see this opportunity? And lastly, could you talk about China demand outlook for both the JV as well as the imported models?

Thierry Bollore — Chief Executive Officer, Jaguar Land Rover Automotive Plc

Well, I think we announced it very clearly in our strategy Reimagine, that, yes, of course there is a significant strategy to Reimagine that, yes, of course there is a significant chunk and an increase in software revenue, but because we have what we need for that in terms of onboard software, off board as well, and it’s improving in a fantastic manner for the next generation of platforms as well. So it’s sort of an fantastic enabler, but it’s an enabler that we are always — already using by the way, as we launch our in control renewals, the fleet telematics and of course, making the best of the software over the air in order to improve communication services. So the answer is clearly, yes.

P. B. Balaji — Group Chief Financial Officer

Thank you.

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

On the China point, Balaji, look the import business originally were constrained in terms of production levels like the rest of our — the rest of our global business, increasingly, in quarter three, the JV of CJLR has become similarly constrained. There were specific production issues in Q3, as I referenced in the main part of the presentation from some suppliers in the north of China. Now they have been worked through, but the conditions now for both imports and for local is that, demand is above our levels, we can currently supply. And obviously what you’re seeing, is similar to other parts of our business has a significant increases in GVR and importantly in our discount store and vehicle marketing. And I expect those two things for both elements of China to continue as we go into FY 2022.

P. B. Balaji — Group Chief Financial Officer

Thank you. There’s a question from Pramod Kumar, UBS. Can you throw some color on the hit of GBP45 million related to the battery end of life on slide 9? From our — I remember, Adrian covering this in the discussion, maybe you want to speak a little bit on this.

Adrian Maredell — Chief Financial Officer, Jaguar Land Rover Automotive Plc

Yeah, it was — it was actually a reserve release we did in September, so we talked quite extensively to it on our Q2 results at the end of October. That’s why I chose the negative this time because there aren’t two releases. We in fact we were building up end of life provisions on batteries and the absence of a defined, it methodology to actually dispose of them. That’s changed over the last several months, and we’ve removed all of those reserves from our box in September based off a piece of work we did. I think I talked at the time under Ignite alongside, some external consultants. So, there’s no — we don’t eliminate the reserve twice that’s why you’ll see it this time around, but it really relates back to actions we took in September prior to September.

P. B. Balaji — Group Chief Financial Officer

Thank you. Let me — there’s another question is coming up on extraordinary expenses. I think there’s one question on P&L, Rishi Vora, Kotak Securities. Why did the Tata Group not participate in the PLI for advanced chemistry sales? Rishi, we had considered this extensively. And when you looked at the conditions of this particular PLI, we found that the risk return equation was not working out for us and therefore we decided to stay away from it after having done off — humongous amount of work I would say. So, that’s why we decided to stay way.

Another question from Nishi Jilan on India PVs. Can you share more details on the extraordinary expenses in this quarter related to formation of the subsidiary? See, I think the formation of a subsidiary has a series of steps to be done in terms of you’ll have one more hit coming close to about INR200 crores coming up in the next quarter as well. It’s all related to how do you know the stamp duty, land transfer premiums, ensuring that the buildings are up to the mark.

All those are getting ready for — PV subsidization is done. So, therefore these are treated as extraordinary expenses and hence called out. But you are not able to take it exceptional and hence that is the underlying cost. There’s another item that you see in the standalone books related to an exceptional item that’s an impairment reversal that you have because the two subsidiaries — design subsidiaries are now being sold to the EV business.

And therefore we have fair valued them and then take to them. These were impaired earlier because we did not in March of 2020 along with PV impairment. When the capex plans were low therefore these people, these companies didn’t have the revenue stream coming to them. But with the step up in capex and performance of the PV business that reversal has happened. So that’s the background to that expressional item.

I think there’s one final question on the accounting matter, which is some Saurav Jain, Ambet Capital regarding the PV segment, we can see the PV segment showing a profit of INR834 crores as profit from discontinued operation. All of the margin in the presentation is showing minus 2.6%. I’m not able to reconcile. Saurav you recollect I had started my presentation with this, saying that there is an accounting item which is just the fairness of accounting, where discontinued operations are not allowed to take the depreciation of that, and that is sitting as an item in the balance sheet. Obviously, once this company comes into existence from Q4 onwards, the business goes back the normal.

But for like to like comparison in the — because the underlying business performance doesn’t change, we have showed the number on a like to like basis in the presentations, and this is there in the notes to accounts answers; need further clarification, feel free to reach out to us. We will explain that in detail, if needed. So with that, I think where we are now coming to the end of the session here, it’s on the hour. So thanks everybody for joining us. And I hope we’ve been able to take most of the questions coming our way. Do give us a feedback in terms of whether this format does work for you. We are trying to getting as many questions in as possible and we’ll try to improve upon this going forward as well. Thank you and stay safe. Take care. Goodbye

And Tata Motors and JLR team, thanks for your time guys. Well done.