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Edited Transcript of TATAMOTORS.NSE earnings conference call or presentation 30-Jan-20 1:00pm GMT

Q3 2020 Tata Motors Ltd Earnings Call Hosted By Emkay Global Financial Services Ltd

Mumbai Feb 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Tata Motors Ltd earnings conference call or presentation Thursday, January 30, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adrian Mardell

Jaguar Land Rover Automotive plc - CFO

* Girish Wagh

Tata Motors Limited - President of Commercial Vehicles Business Unit

* Guenter Butschek

Tata Motors Limited - CEO, MD & Additional Director

* Pathamadai Balachandran Balaji

Tata Motors Limited - Group CFO

* Shailesh Chandra

Tata Motors Limited - President of Electric Mobility Business & Corporate Strategy

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Conference Call Participants

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* Ashwani Kumar

Nippon Life India Asset Management Limited - Senior Equity Fund Manager

* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Kapil R. Singh

Nomura Securities Co. Ltd., Research Division - Executive Director

* Pramod Amthe

CIMB Research - Head of India Research

* Prateek Poddar

Nippon Life India Asset Management Limited - Research Analyst - Investment Equity

* Raghunandhan N. L.

Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst

* Robin Zhu

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

* Yogesh Aggarwal

HSBC, Research Division - Head of India Research and India Tech Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Q3 FY '20 results of Tata Motors hosted by Emkay Global Financial Services. (Operator Instructions) Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Raghunandhan N. L. from Emkay Global. Thank you, and over to you, sir.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [2]

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Thank you, Stanford. Good evening, everyone. I would like to welcome the management and thank them for giving us this opportunity. We have with us today Mr. PB Balaji, Group CFO, Tata Motors; Mr. Guenter Butschek, MD and CEO, Tata Motors; Professor Sir Ralf Speth, CEO, JLR; Mr. Adrian Mardell, CFO, JLR.

I would now hand over the call to the management for opening remarks. Over to you, sir.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [3]

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Yes. Thanks, Raghu. Thanks all of you for joining the call. Unfortunately, Ralf was not able to join this particular call. From our side, we also have Shailesh, who heads our EV business as well as Girish, who heads our CV business who has joined the discussion as well. So without further ado, let me cut to the chase. Like last time, I don't intend to cover every slide. You already have the deck in front of you. I'll draw your attention to the page number on the right corner -- right-hand top corner, and we'll then roll with that. So moving on to Slide 2, which is the standard disclosure.

And thereafter, let me move to Slide 3. The key developments, I think this has been an intense quarter for both JLR and Tata Motors. In the case of Tata Motors, I particularly draw your attention to the almost fully packed agenda that we have had on passenger vehicles as we move to the BSVI beyond NEW FOREVER as well as via BSVI and beyond. And the launch of the Altroz with a 5-star GNCAP, the second car from Tata Motors and in India, which is 5-star GNCAP, and of course, the launch of the entire Tata Universe ecosystem, which has delivered the Nexon EV as well. So Shailesh will talk about that later in the day -- later in the call, but these 3 very exciting.

And of course, JLR. The much-awaited Defender production commences and a series of product launches, starting with F-TYPE, begins. And of course, the first world's in-car technology, which was revealed at the CES. So as we had committed earlier, product offensive continues. Innovation continues.

Moving on to the numbers. It's been a year -- a quarter, where I think we had a fair number of challenges that we had to deal with. And in that context, I think delivering an EBITDA of 9.9% for the quarter has been good. Revenue growth, of course, has been negative 7% and EBIT up 240 bps and particularly reassuring, the free cash flow line at positive INR 4,000 crores for the quarter.

In the case of JLR, if I were to just summarize the entire performance of the quarter, the continued recovery in JLR China, favorable mix. And of course, India M&HCV declined despite market share gains, sequential gains and, of course, continued BSIV stock reductions in India. This is a broad factor that actually contributed. And of course, the details are there in the subsequent slides as well.

And also draw your attention to the last year. Same time, we had a GBP 3.1 billion impairment that was there. And therefore, that's why the comparable number on exceptional needs to be taken note of. Revenue -- if I split the revenue up, you will notice volume and mix price and translation all went the other way. And it's almost entirely the decline in Tata Motors stand-alone is probably what led the revenue to decline to this extent. In Tata Motors, the good part is what we committed that retails will be higher than wholesale, higher than production. That continued, and therefore, retail growth is higher than the wholesale growth. But suffice it is to say that this growth is not good enough. And overall, we do have a challenge with respect to the market condition, which we'll talk about at a later point in time, the later in the deck.

On the EBIT numbers, moving to Slide 6. The increase in JLR contributed almost 4.5% in improvement of the overall EBIT number. While Tata Motors stand-alone pulled over 1.9% out of that. So that overall EBIT moved from minus 0.1% to plus 2.3%. And here, again, we'll spend a little bit of time later. So with this let me hand this over to Adrian to talk about JLR and -- in slightly more detail, and I'll get -- take it back when I talk Tata Motors. Adrian, over to you.

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [4]

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Yes. Thank you, Balaji. And good afternoon, evening, everybody on the line. Let me quickly go through the Jaguar Land Rover details. And first thing to note, volumes, retail volumes versus same quarter last year were actually a little bit lower, 2.3%. Profitability, GBP 318 million, a substantial GBP 591 million stronger than the same quarter last year. Investment down a little bit, just under GBP 900 million. That's probably going to lift up over the course of the next 6 months or so, but well within our target guidance. We've given already free cash outflow, GBP 144 million and cash balance at the end of the quarter, GBP 3.9 billion, excluding the revolving credit facility.

If you go into the volume details, there's a tale of 3 or 4 stores. We break this down by region, of course, overall, the 2% lower but that includes a substantial 24% increase in China. So that's 2 full quarters of substantial double-digit increases we've had as we signaled last time. So the performance in China was very much what we were signaling when we spoke to you in October. U.K. is down 11% year-over-year. Most of those are low margin products. A lot of that activity was deliberately taken from the marketplace for that reason. And Europe is 10% lower versus same quarter last year. Almost all of that is actually I-PACE sales. In the Netherlands, there was a tax change on benefits in kind actually, in January 2019, which drove increases (inaudible) high in comparative quarter that would have for Europeans. So binary, almost all of that would be I-PACE.

Next page, if you would. This breaks it down actually by vehicle line. You can see there, the Evoque continues to be a strong performer versus the same quarter last year. So the new model has landed well as we expected it to do, up 30% in the quarter. And Discovery's brought up 9%, but as you will see later, that increase really was driven in December, and will continue we believe going forward. Range Rover was down versus the same quarter last year. Mostly, again, binary in the Middle East, where, as you would estimate, there are substantial geopolitical challenges imminent.

In terms of the PBT versus the same quarter last year, this is where you can see the huge improvement, 2.5% negative EBIT last year and 3.3% positive this year. Volume and mix, broadly the same. We do continue to have higher marketing costs. So this is a continuation of the story that I signaled in October, although 0.4% of that increase is actually the residual valuation we have on '16 model years in US of A. I continue to believe that it continues to be extended '16 model year period, again, exactly the same as we talked about last time. This is where the cost reduction efforts under Project Charge continued to flow through aggressively. Manufacturing and material costs, plus our structural cost reductions here. We did have bad news on labor and overhead, which is a throwback to the comment I made last time's call because in Q3, we also had a very, very strong net exchange number, although overwhelmingly its revaluation of the balance sheet due to the 6% appreciation of sterling in quarter 3. But if you look, the contribution cost improvements and the structural cost improvements that broadly adds up to the GBP 300 million profit in the quarter. We thought one of the questions we'll get today was how does it compare to the previous quarters. So we thought it would be helpful to lay this out, the 4.8% versus the 3.3% so it gives us a number of things running around. But broadly speaking, volume performance and our CJLR performance is better. VME in the marketplace is slightly worse, but anticipated to be broadly at this level over the next 3 to 6 months.

There are increases in manufacturing and material costs. Most of those are binary one-off items. Of course, we're trying to launch the new Defender, which is a piece of that. There are commodity cost increases in the quarter, also a piece of that and a pay award in our Nitra facility. But they were increases that came through versus prior quarter, but you would have seen on the previous slide -- page was still substantially lower versus the same last year. The labor and overhead I've mentioned already is a result of lower build levels although versus last quarter, we're more -- we were more efficient again on lower D&A because the spend is starting to come through as lower D&A here. And then the exchange story, which broadly speaking, is appreciation, bad news on operating hedging, doing the job we'd expected to do. And the revaluation of the balance sheet, as I've mentioned already. The commodity hedges are a throwback to the hedges we have in place for those commodity cost increases, which I referred to within the contribution that walks the quarter-over-quarter. And you will notice there that the substantive reason for the EBIT deterioration is actually in exchange.

Go to the next page. It shows our cash outflow for the period, GBP 144 million, (inaudible) same quarter last year. We've talked before about balancing our cash profit and investment. We're a little bit short in the quarter, but there's a huge amount of activity, actually, on working capital, significant inventory reductions and also increases in volumes drive receivables. But at the end of the quarter, we were paying for less supplier parts because we didn't build the cars as I've already referenced. Investment is GBP 892 million in the quarter. You'll see versus prior year reductions in all places, including significantly lower capitalized R&D, as you would expect, and we previously signaled. In terms of our liquidity, obviously, much stronger at the end of the quarter. GBP 3.9 billion worth of cash in our bank accounts, excluding the revolving credit facility. And I'll talk more about the debt position going forward.

Thank you. The strategy. Okay. I mentioned Defender. You'll see there, December is the 20% increase versus prior year. So as the vehicle becomes more available in more markets, the comparative year-over-year performance is improved. The Defender vehicle, of course, job one did happen on the 8th of January. As we indicated in October, it was going to happen. Start of sales still continues to be spring as we indicated previously, also, the orders are still much stronger than a normal profile for the vehicle. I picked up my vehicle yesterday, it is sensational.

Next one. CO2 emissions. We're still signaling a compliant portfolio in 2021. Of course, I talked before about the measurement system changing. You'll see there the detail of how we become increasingly compliant at lower levels. All of the 2021 signals still got green ticks on them. Overwhelmingly, of course, customers will need to accept and take these products. So we're watching carefully the acceptance of our PHEV and our BEV sales over the course of the next 12 months to ensure that we can be compliant through sales of compliant vehicles. Those vehicles are in place.

In terms of Project Charge, as I signaled last time, we were going to exceed the target within this quarter, and we did quite substantially, actually, to date, GBP 2.9 billion worth of cash savings have been generated from the program. You see the split there, significant increase in Q3, investments and working capital, particularly the 2 levels were a lot lower at the end of December than they were at the start of the financial year. And then another $200 million on cost and profits as shown mostly on that previous slide, which I broke down the year-over-year data on.

What we're doing going forward on Charge. Well, we are continuing. We're calling it Charge+. The plus is an extra fiscal year. We're going through to March '21. We're signaling here the value we expect to be able to get over the next 15 months broken down by a expectation of an improved GBP 400 million position in Q4 and then GBP 700 million more in '21 fiscal year. This is the program. I also indicated last time that most of the program would shift to an EBIT and a variable profit focus. So 6 of the 8 large work streams we are continuing with are those, although, of course, you would expect us to want to continue our inventory discipline, which has been excellent in the quarter and our reduced investment spend, which continues to apply the rigors and, therefore, the underspend levels we expect to continue going forward also, although investment will peak in the next 6 months or so.

Just wanted to draw attention to one last item in this section. A significant piece of the FY '21 improvements on Charge+ will be material cost. We have a huge amount of initiatives in place to lower the spend within our vehicles. We are doing really well. You will see some benefits of that in quarter 4 to a normal closeout of our deals with suppliers, but we expect to do even more in '21 fiscal year. We've laid out a bit more detail there, so you can see the approach. We've effectively got the car breaks down into 34 components or commodity categories. And each one is having a thorough review. We're in the phases of the first 9 at the moment. We will obviously bring you more details on that program as we go forward.

And finally, this page is pretty much as we've said over the last 6 months. As indicated last time, FY '20 is around 3%. I do have to warn that, obviously, the position in China is evolving and developing. And you have seen over the last 6 months a significant improvement in our China operation. So there is a big care point about, obviously, what happens from the China market. All of our thoughts are now with the people, the friends, the families and the communities we know in China, which, of course, is paramount consideration here.

Next year, FY '21, we believe we'll be in the 3% to 4% range, as previously indicated. Investment. I am signaling the full year number is going to be lower still, up to GBP 3.6 billion is the new number for this year. The guidance for next year is still GBP 4 billion and then we do remain confident on achieving our plans. I do mention here, you see the coronavirus, again, which will unfold over the next several weeks. But of course, we'll focus continuing launch in the exciting products and the breakthrough technology. You saw there the eSIM technology with Defender, which enables software over the air, on the move, while live streaming, which is pretty neat. Improved PBT and cash flow, of course, and then deliver the Charge program, which fundamentally has underpinned the turnaround of this organization over the last 18 months, I'm very proud to say. Finally, the annual Investor Day, we're announcing here to be the 18th of June.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [5]

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Thanks, Adrian. Let me quickly run past Tata Motor's stand-alone domestic number here. Wholesale, we're down 25%, combination of both market as well as system stock reduction. You recollect that we did not talk about INR 3,400 crores of inventory system stock last quarter. So we have done another INR 3,800 crores this quarter. And this is now at both at our end and the dealer end. At the same time, revenue is down 33% fundamentally with an increasing competitiveness as well as VME increases that you're seeing in the market because of the disposal of BSIV stock. EBITDA at 1.1%, down 800 bps as you could see there. And fundamentally led all of the M&HCV decline of 48%, which obviously impacts mix. And the net one-off expenses also was about INR 155 crores for the quarter. Free cash flow is an area that we were consciously called out last quarter, something that we would want to turn that number and make it positive. Happy to report that we landed at INR 2,400 crore of positive free cash flow for the quarter. And most of it driven on our working capital improvement that we had committed to. The interesting piece as far as the M&HCV decline is concerned that the market shares have been increasing sequentially as well and year-on-year basis as well. So we are now saying, okay, fine, we just need the market to turn beyond this.

PBT bridge, if we were to just call out, it's fundamentally led out of volume, mix and net pricing, and we talked about the VME piece as well. Every other line item, we have managed to keep it under control. And the overall performance-linked -- fundamentally linked to lower volumes as well as mix and higher VME.

On Slide 29, a similar one on quarter-on-quarter was moved. You would notice that a slight pickup in volumes, offset by a higher VME. And of course, last quarter, we had the one-off that was there in the PV write-off and that if you offset it this time around, the total number actually starts increasing. So overall, what we can control as costs, I think we've kept a tight leash. What we can control as share, we have managed to secure. We just need the volumes to start coming through as well.

Free cash flow is positive. As I called out the bulk of it coming out of working capital changes. And this is something that we intend to keep a tight leash going forward as well. Investment spending is about INR 1,300 crore. We expect to end the year at INR 4,500 crore, in line with what we have seen last time, all of it into -- mainly into BSVI and new products, and you've seen the product offensive that happened earlier in January, and we can talk about it as well. CV, overall numbers, you see the market share increase coming through in M&HCV and ILCV. Eco -- though recently, what we are starting to observe is that we're starting to see inquiries starting to increase. Replacement demand and hopefully, government's thrust on infrastructure investment, that is expected soon, should help demand. Realizations are starting to increase as well, starting December, and early indications are being seen. So it does give us a lot of hope as we look into Q4, but this trend should continue, and we gradually work our way out of the problem that we are in.

On the priorities for us, I think the entire focus of the team is on BSVI transition. The ecosystem viability, dealer performance, profitability, that has come through quite well for us, and we'll continue to keep it that way. And we enjoyed the tap to demand recoveries, our #1 focus at this point in time. And retail's being more than wholesale is something to be proud of, and we continue to report on that particular front that we're in the right track.

On the commercial vehicle piece, on the EBITDA number, in particular, there is a onetime impact of a wholesales tax issue of 2002 to 2005 -- 2006, I mean. And the law then changed thereafter. So this issue is now -- we have settled this whole indirect tax dispute and that's had a onetime impact of close to about 3% on the EBITDA number. And on top of the other issues of VME and mix is something that does play out here.

On the BSVI update, it's a rich pipeline of intervention that is there. I think our products are ready. And we will be starting to hit the market in the coming days. And March is going to be the month where we'll be shifting gears completely there because requires the new fuel also to come in. And as a team, the obsolescence management is very much under control. And we hope to land flawlessly on that particular front. And our entire focus is on getting field ready, which also is now more or less done and dusted. And we can go to the next level into the dealers mechanics as well. And so we are in a good place. And the key thing that we want to follow-up on BSVI, and you've already seen that in passenger vehicles and that's what will play out in CV as well. This is not just about compliance. It's about adding value and going beyond. And therefore, this adding value could be in any form, be it improved TCO, increased earnings, value enhancements, whatever it may be. But the consumer needs to get excited about the BSVI product, and that's how we intend to play that. And I'm sure you would want to have Girish talking about it later as well.

On PV side, again, retail's 35% higher than wholesale. This is now a completely refreshed product portfolio. We have also cleaned out the distribution network in its entirety as of end of Jan. And we're also very, very excited about the product offensive, Tata Altroz now receiving a 5-star Global NCAP, which we talked about earlier. And we have seamlessly transitioned into BSVI. This month the build up begins. And our systems stock is at a multi-quarter low. Very, very healthy on both CV and PV at the stock level. And therefore, ability to win -- get back on our momentum is pretty high.

On the revenue, on the overall P&L on the CV -- on the PV side, growth down 19%. EBITDA margins at minus 3.6%, a significant improvement from last time. Again, coming on the back of the one-off write-offs that was there. And now we're starting to trend back into where we ought to be, but not good enough. Needs to breakeven and go forward as well. But the good part of the PV side is that the contribution margin continues to improve and the Turnaround 2.0 momentum is starting to come back again as we are starting to pick up volumes.

And the BSVI range you saw the -- you saw it on the press on Jan 22, every one of our products has been relaunched. And we are probably the only one in the world who has done it in this intensity that's gone right across. And now the sales starts from here onwards. And in particular, what we'd like to call out is there's a commonality in approach, be it on the design benchmark, be it on the safety call out that we have done. We have 5-star GNCAP in Nexon and Altroz. 4-star in Tiago, Tigor. So we want to be best-in-class safety in any category that we want to play. And of course, not just the compliance. We would want to go beyond BSVI on all things, connectivity. So we have now intelligent real-time assist coming onboard. And the whole thing is about the pleasure of driving. So clearly an all-encompassing full blast launch is how we plan to do. And this then brings in the new phase of PV as far as Tata Motors is concerned. And then, of course, is EV, which I'm sure Shailesh will talk about it. And why don't -- hand it over to Shailesh because he has just come back from the Tata Universe launch, right? You were talking.

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Shailesh Chandra, Tata Motors Limited - President of Electric Mobility Business & Corporate Strategy [6]

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Yes. So as far as quarter 3 is concerned, we were the market leader with 47% market share. And which takes us to a market share figure of 43% year-to-date for this financial year. And this has been on the back of the success of the newly launched Tigor EV, with extended range of 213 kilometers, which has been received very well by the fleet segment. It is now the highest-selling EV in India year-to-date, Tigor EV. Also, we unveiled first EV built state-of-the-art ZIPTRON technology. And the first product that we launched day before yesterday is the Nexon EV with a certified range of 312 kilometer.

We had also done a media drive for this Nexon EV, and the verdict that we got from most of the media people is that it's the most promising EV available in the market. And we have been receiving very strong bookings and response from the customer. We also had worked on the whole ecosystem around the Nexon EV. And there are 5 other Tata companies who have participated in this ecosystem effort. Tata Power has already installed nearly 100 public chargers across 5 cities. And by this financial year-end, we are targeting to do about 300 in these 5 cities. TACO has localized the battery pack. And going forward, we have plans to also localize motor for us. Croma, we have tried to do a very innovative concept, which is the store-in-store concept for giving an immersive experience, digital experience for Nexon EV. And these tools will also, therefore, book and book test drive well as the car if customer's interested in. Tata Chemicals has also been working with us for cell manufacturing. And we are going to start the pilot plant in Dholera in Gujarat. And we also have Tata Motors Finance, which has been working with us on different kind of financing solution for fleet as well as personal segment buyers.

The focus for the next 6 months is going to be -- we will continue to develop the fleet segment, which has been the bread and butter of the electric vehicle segment in the last 9 months. We are going to scale up our demand for Nexon EV and also work on the supply, also because the response in the market has been very strong. We'll also work with Tata Power to accelerate the process of public charging network in the 5 cities and the focus -- other focus cities that we have identified. And we also announced that in the next 2 years, we would be introducing total of 4 vehicles, which includes the Nexon EV. And the work will be on in the next 6 months itself. And we are also working on localization of critical EV components in line with the sales manufacturing plan of saving program. And of course, we will continue to focus on improving the profitability through direct material cost reduction efforts.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [7]

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Thanks, Shailesh. So basically, the entire strategy of running proactively playing out as we had indicated. And these are the specs of the new cars that we are going to have out there and happy to talk about it in the Q&A if need be.

Motors Finance has started its division, is starting to improve in the market with respect to collections. We had a quarter where AUM was at INR 37,000 crore. Our disbursals obviously slowed down as the M&HCV business, in particular, started to slow down. Funding has not been an issue. We have been raising funds. And we managed to securitize in the last 9 months, almost INR 8,000 crores of our book that we had. And the reward is very reassuring as the collections are now starting to increase from December '19. We had a very good December, and we hope to continue that. Even January seems to be trending right. So I think we are starting to see this business coming back. And all the stress is fundamentally related to the M&HCV portfolio. All other portfolios, be it ILCV, be it small commercial vehicles, passenger vehicle, the GNPA and PBT trends are quite comfortable. It is fundamentally medium and heavy commercial, where we're not worried because these are strategic accounts, and we expect to see them coming back pretty soon.

On the net debt side, just a quick flash on the -- how the bond issuances have performed both in JLR and TML. Reassuring to see the YTMs on the bonds in both JLR and TML trending the right way as the performance of the business starts improving and as well as some of the more macro impacts like Brexit started to come off. And we have also had an issuance in JLR of almost GBP 1.6 billion and TML had an issuance of -- had funds coming in of almost INR 6,500 crores this year. This including the private equity. So funding situation is extremely solid. And overall, net automotive debt is now down about INR 5,000 crores to INR 45,000 crores, what was at INR 50,000 crores earlier in September. And maturity is in a very good place as well. Overall, liquidity for JLR, at GBP 5.8 million including last year. And Tata Motors stand-alone at INR 10,200 crores. So we are well-funded and adequate in liquidity.

So moving on to the outlook, I think there's other ones, which are normal. The only thing I can draw your attention to is China and India, where I think in China, the coronavirus is developing as we speak, with a -- you also need to look at it. We are not able to get visibility of what the situation on the ground is with respect to not just the demand, but also the extended supply chain. And that is something that we need to keep a close watch on. Next week should be better in terms of information as people come back gradually from their Chinese New Year. In India, of course, a sharp economic slowdown and the turnaround is something that we are eagerly awaiting on that front. In that context, I think there's no -- broadly no change to the outlook that we have put out there, where for JLR, we are looking at an EBIT of around 3% for the year. And of course, the coronavirus is also something that it could have some impact, we need to watch that. And of course, the delivery of Charge+ of at GBP 1.1 billion going forward is something is a call out for that business, apart from, of course, the traditional launching of exciting products and the cash flow.

Tata Motors, I think, the medium- to long-term plan, and the fact that now sequentially, they're starting to see improvement. We are reassured. But of course, the key one is the immediate term, what happens to the market demand, post-BSVI migration. So next 6 months, we do expect to be in a fluid situation, and let's see that after what happens.

So with that, let me stop and -- sorry, go to the next slide. These are the 2 critical dates where we expect to see you in person. Tata Motors India would have on 12th June in India and JLR, 18th June in the U.K. and look forward to seeing you there. So let me hand you over back to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Yogesh Aggarwal from HSBC.

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Yogesh Aggarwal, HSBC, Research Division - Head of India Research and India Tech Analyst [2]

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A couple of questions for me just related to JLR. It seems the CO2 target in Europe has further, I mean, it has changed. I thought it used to be 132 grams for 2021, and it has now changed to 156. So has there been any change in the way the portfolio has and so the requirement is different? And then related to that, see, this year, there is a feeling that some of the large OEMs will refocus on the larger vehicles to achieve their CO2 requirements. And you guys seems to be comfortable. Is there a scope to gain some market share in the larger SUV space in Europe? And then lastly, anything on I-PACE? Seems like numbers are not picking up either in U.S. or in China. So anything around I-PACE? And how do you see I-PACE ramping up?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [3]

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Adrian, want to take that?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [4]

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Yes. Certainly, yes, I'll take that. Let me start off with the last one, if you wouldn't mind. So I-PACE volumes are very sensitive to incentives within government. You've seen that particularly within this quarter data versus the prior year. Netherlands, particularly Netherlands, actually in the quarter, 2,500 units lower than the same quarter last year as benefits in kind increasing from 4% to 13% in January 2019. So that's a really large illustration of what the marketplace is currently thinking about our I-PACE. There are recourse benefit in kind changes, which are going to actually kick in April this year in the U.K. And we expect our U.K. volumes off the back of that to increase.

Now in terms of the targets that we actually have set. We know we've talked to you before, about the actual target setting ranging having changed. So we are actually showing it here versus the 156 WLTP level in '21 calendar year. We think we'll be compliant against that. But the big point here is the link. That's why I started off with I-PACE, of course. The big point here is it really does depend on the acceptance of the customer with the products that we have made available. We've also shown on this page, all of the actions we're taking on whole portfolio to make electrification available to all of our customers and potential customers from MHEVs. And if you remember, we showed last time in MHEVs itself drives the 12% reduced CO2 level to a PHEV. And if you remember from last time, a PHEV will drive a 70% reduction in the CO2 level. And of course, the BEV is a 100% reduction. So the vehicles are available for the customers to buy. The incentivization really does drive that tipping point of excess demand.

We are expecting improvements in the U.K. market going forward from April. And you can see there on the page, there's a huge amount of other activity happening with our engineering factories with smaller, smaller ICE engines, obviously, the MLA platform being using lighter weight materials and several other things that our thousands of engineers are working on. I think the big unknown over the next 12 months, really, will be the acceptance of not only the I-PACE, which you asked about, but the other PHEVs that we bring in place. Don't forget the Discovery Sport gets a PHEV in the first quarter of next fiscal year. That is our biggest selling product. So the response to consumers and customers to Discovery Sport will be huge in terms of our position over the course of the next 12 months. But the cars are available. Could you repeat your middle question, if you wouldn't mind, please?

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Yogesh Aggarwal, HSBC, Research Division - Head of India Research and India Tech Analyst [5]

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So I was wondering, there are 2 things happening. There are some launches like X7, Q8 in the larger SUV space, but there is a thought process that to achieve that peak CO2 target, some of the OEMs will be focused on the larger SUV. This kind of give you guys an opportunity to gain some share, at least for the top end Range Rover. So is this something you are looking at?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [6]

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Look, we're balancing out the optimized position for profitability and being compliant. So where we can actually drive more vehicles is the higher end of our range. Charge+ actually has specific work streams around that. So we will certainly be looking to do that. When you look at our higher-end wave, and of course, they have PHEV offerings within them as well, of course, right? When you look at our high range vehicles and the performance, Range Rover Sport, even though it's in year 7, is actually higher versus the same quarter last year. And Range Rover is a bit lower and that overwhelmingly is a result of the issues that the world has in the Middle East. So both of those cars are selling extremely well, and we expect them to do so over the course of the next 12 months. A care point around how many PHEVs actually gets sold. That was as high as 20% over the last few months. So we are hopeful. We continue to drive high-value margin vehicles, which have PHEVs in them as well.

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Operator [7]

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The next question is from the line of Pramod Amthe from CGS-CIMB.

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Pramod Amthe, CIMB Research - Head of India Research [8]

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This is with regard to your Charge+ program, where you seems to have taken up a pretty aggressive target. And of which nearly 35%, 40% is front-loaded in this quarter. Is it because of the low-hanging fruit? Or you guys started working on it much earlier in the course? And why it gives you so much of confidence?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [9]

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Yes, there's 2 or 3 things specific to quarter 4. Most of them are continuation of programs. So there may be a little bit more investment, not very much. But the material cost, most of our segments actually happened in the final quarter of the year and which we are now in the final quarter. So I'd expect a bigger proportion of the saves actually being on the material cost program. And you've seen for the last 2 to 3 quarters, we've had really strong performance on structural cost reductions as well, and we expect that to continue. So we will definitely have a fast start to the GBP 1.1 billion in quarter 4, and we were just being helpful by breaking that out for you.

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Pramod Amthe, CIMB Research - Head of India Research [10]

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And the second one is with regard to Defender. You did try to give some indications on the same. But can you give us some color in terms of what type of capacity headroom you have, as you indicated you guys are surprised by the initial response? And what potentially it was in your portfolio in terms of proportion of mix it can bring in?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [11]

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Yes. I won't give you any detailed numbers. I'll simply say, at this point, bear in the mind, we haven't confirmed sales dates. We have more than a 3-month order book. And that's pretty neat at this point in time. So let's see how the next 3 months go. We'll be able to confirm when we next talk formally that the vehicle is now on sale. And I'll be in a much better position to ask those specific questions. I mean, broadly speaking, the first sales of any vehicle is always very rich. Because most of the people like the new vehicles, specify them very highly. So I wouldn't want to mislead you and give you the data that we have in front of us.

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Operator [12]

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The next question is from the line of Robin Zhu from Bernstein.

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Robin Zhu, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [13]

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Two questions, please. One, in terms of the variable material cost savings that you pointed to as part of Charge+. Just wanted to understand the drivers of this. Is this something that's dependent on you guys given the supplies more volume? Is it something associated with higher MLA volumes and the components of the new platform have lower cost? Is it simply that you've got better pricing like-for-like from the same suppliers? Some color on that would be helpful.

Second question, could you quantify what warranty costs were during Q3? And then -- and Balaji, when you and I spoke a few months ago, you had indicated that you weren't confident to guide a range lower than 4% to 6%. Just wanted to get your latest thoughts on where are we in that process. Are you still thinking to the 4% to 6%? Or are we closer to potentially going lower?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [14]

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Let me take the first couple of questions that you asked, Robin. So variable material cost. I would actually point to the difference the Charge program has brought. Don't forget what we're doing with this program. We're wrapping all of our specialist teams around a host function. So all of our analytics teams, our ability to really analyze and truly have data in front of us, which enables us to what we would suggest to claim an appropriate level of savings from the supplier. And it's broadly over the course of this year versus last year, driven, I think, by the time we're done up to GBP 100 million extra cost savings. Most of those settlements actually will be closed over the next 3 months. 1/3 of them have been closed in January. Yes, from time to time, there are MLA or any other future products used as leverage, of course, an excellent batch from our MLA mid and high volumes. But it isn't really the overwhelming substantive piece of the negotiating settlement. Most of them is the forensic analysis that we have actually been able to do.

Warranty costs. Warranty costs as a percentage of revenue was pretty much smack on what we were saying as underlying anyway, pretty much smack on what we were indicating last time. It was about 4%. However, one of the impacts we had here as a result of the appreciation of sterling is the warranty liabilities actually reduced like-for-like. And therefore, the optical number you'll see in warranty is a little bit lower, I think, 3.4% of revenue. But that's the underlying. It stood at about 4% level, which was the range I indicated to you about 6 months ago.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [15]

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Robin, can you just repeat your question that you had? I lost you in between.

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Robin Zhu, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [16]

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Yes. So I think one of the times we spoke, you had said that you want to guide 4% to 6% for warranty costs. And you want -- you didn't want to disappoint the market by guiding lower because there were still, I guess, the potential for surprises every now and then. Is that still the case? Are you still -- is the potential for surprise still there? How close do you think the company is to saying, okay, 4% -- 4% to 6% is far too higher a range and we can start to go lower?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [17]

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I think I mentioned that. You may have followed up with Balaji, but I think I mentioned that on pretty much the first call I did in July. 4% to 6% was mentioned at that point in time because the first quarter was at the 6% level. And I think I attempted to say there's a band here. Underlying performance. My expectation will be closer to 4%. However, we've also signaled we will do the right thing. And therefore, if recourse come along, we'll call as soon we need to. And if there's opportunity to do campaigns -- customer care campaigns as we did in quarter 1, which we feel ultimately will be a payback for the organization, we will take those as well. Over the course of the last 6 months, neither of those 2 items have actually happened. Underlying over that period has been at the 4% level. We obviously are working tremendously hard in several areas, including to improve the efficiency and the capability in the engineering factory. We track all the early data to see that. There are very small signs of improvement, but it's far too early for us to show them in the financial results. We have a rules of the road for warranty which was set 8 years and will continue because it enables individual vehicles to make sure before we actually show the individual performance. You know we come off the back of disappointing launches on '18 and '19 model years. And we are determined to make sure we get Defender right, which is why we're continuing to work on that product. We're continuing to hold it and give a release date for the spring because we want to make sure it's released to the marketplace when it's ready. So everything we're doing is attempting to improve the immediate quality performance and accelerate it there to improve it with a new vehicle quality. So I will continue to say 4% to 6%, only because it gives us the capability to do the right thing at the right time. But over the last 2 to 3 quarters, underlying has been close to 4%.

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Robin Zhu, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [18]

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Understood. If I may, It sounded like from what you said on variable material costs that most of the savings you will achieve through your forensic analysis, but essentially getting better like-for-like pricing from the same suppliers. Is that -- would you say that's correct?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [19]

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Yes. I mean, there are so many things that go into that line item, as I'm sure you know. But what we find in here, we try and pull out the nonvariables like commodities and such. And yes, like-to-like pricing has actually reduced from a number of our suppliers.

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Operator [20]

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The next question is from the line of Kapil Singh from Nomura Securities.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [21]

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One question, firstly, on the financials. We've seen a bit of volatility in the raw material to sales ratio. Last quarter, we saw a big improvement. And then this quarter, there's been a sharp increase. So what is the key reason for this? And also, if you can explain on the depreciation charge, which has seen a sharp drop.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [22]

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Kapil is referring to consolidated numbers?

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [23]

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For Jaguar and Land Rover.

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [24]

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Well, okay. So raw materials to sales. It encompasses pieces that I'd just mentioned, but there are several other elements in there. There were increases in commodity costs in the quarter. I think [PGM] increased by about 9%. Clearly the procurements on the mix of vehicles we sell, the derivatives of vehicles we sell and where we actually sell them within. We did have a rich sales mix profile in the quarter, which generally means the material cost pieces increase also and as well. So there are numerous factors that are involved here. What we attempt to do within the analysis is work. And of course, exchange rates is a huge factor, particularly movements on the euro as well because we buy a lot of our parts from Europe. What we attempt to do with the analysis for you is draw out all the things and then consolidate it down to what we would consider to be the performance driven items, which is really back to the distributor...

(technical difficulty)

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [25]

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Hello?

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Operator [26]

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You may go ahead, sir.

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [27]

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So what I planned to do is make sure we point to the actual underlying pieces, which I think are the ones that will determine performance going forward. Hence, the previous discussion about our efforts to reduce like-for-like material costs with suppliers, which we just had with [Robert].

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [28]

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Okay. And the depreciation charge is also seeing a drop? Any color there? How it will shape up with the Defender launch?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [29]

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Yes. Well, the Defender launch, obviously, from job 1, which was on the 8th of January, we start to increase the depreciation charges. They will increase in this quarter year end. And going forward, that product, we are convinced, is going to be successful. So the overall product will return to the bottom line even after increases in investment costs.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [30]

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Okay. And just one more. I wanted to check on the product launch side. How many new products are we looking at over the next 2 to 3 years on both the Jaguar and Land Rover brand? Whether it's a full model changeover or a new -- completely new brand?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [31]

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I won't give you numbers of models. But our cadence still continues to be that 7 or 8 year replacement cycle. And there are likely to be 2 all new products on top of that, one of each.

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Guenter Butschek, Tata Motors Limited - CEO, MD & Additional Director [32]

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With a mid-cycle refresh in between. And there's a lot of activity.

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [33]

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When you go into the presentation...

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [34]

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Is it Jaguar or Land Rover?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [35]

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Both. When you go into the presentation, you'll see the immediate one there, even the F-TYPE, which I could have excluded from that discussion. We've done a super new launch on the Jaguar F-TYPE. It goes on sale later this quarter. And of course, we talked about the Defender already.

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Operator [36]

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The next question is from the line of Sonal Gupta from UBS Securities.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [37]

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Two questions from my side. One on -- starting off with the Jaguar Land Rover question. I mean, like on the cost -- on the -- basically, as you've overachieved on the targets in Charge, but you've sort of underachieved on the cost and profit, the operating costs. Why I'm stressing on that is basically from the cost structure side, I mean, the improvement is probably still not that high. So I just want to understand, like, I mean, like, are there -- I mean, I know you're continuing with that and sort of going to improve further, but still -- I mean, like, are we seeing any room for -- I mean, like -- I mean, the focus of Charge+ also seems to be more variable. I mean, on the fixed cost side, do we see room to cut costs more? I mean, we've seen, again, the employee cost has sequentially increased. So just want to understand how much of fixed cost reduction do we expect going forward?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [38]

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Let me correct you for the first point you made, if you don't mind. Let me correct the first point, if you don't mind. We haven't yet missed any of the targets on the Charge or the Charge+ program. We did say we would deliver GBP 1 billion profit improvement through to March 2020, where it's GBP 700 million after the first 4 quarters of that. You can see for the last 2 quarters, at least, we delivered GBP 200 million a quarter. That gets you very close and I've referred to material costs already. So we haven't yet given up on the GBP 1 billion target we've set, although we have rolled the targets for another 12 months beyond that. As far as structural costs are concerned, they are GBP 200 million a quarter lower than the same quarter last year. That's pretty neat, we think. And yes, we continue to ensure that we don't add costs where we don't need to. And we continue to take actions where we still have inefficiencies within our operations. And we'll start to hear some more of those going forward when we're at a point to pay.

So I think we're doing a pretty neat job. There's always more you can do. We're trying to balance the cost structure and our ability to ensure that we can take revenue growth opportunities also. And that's what we package really uniquely within the Charge+ program. And I think when we talk in May time, you'll get a much better sense of follow-up to your first question, and how much we expect the proportion to that new program to start showing the value in '21 fiscal year.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [39]

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Sure...

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [40]

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To add to that -- Sonal, talk to you in a minute. Just to add to that -- just to put in perspective the way we have gone about doing some event after cash first and then we went after the fixed cost structures. And now we realized it's an area where there's always the opportunities to improve. I'm not debating that. But I think there's a bigger price to be had with respect to variable cost. Similarly, we have to decide where to focus our people and efforts on. So we are now moving on those areas where variable costs can be there, should be focused and taken out. And that will then give you an overall breakeven that will start coming down. We need to work on both the numerator and the denominator if you are to get the breakeven stock. So that's how the sequencing has been done in line with the kind of issues we had a year back on cash and operating leverage. Now we are saying that is not the main issue now. We now need to start looking at other side of it. So it's just a calibration as well.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [41]

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Just a follow-up on that. I mean, the recent news flow around 500 reduction in Halewood. That's part of the existing employee reduction, right? That's not a fresh thing?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [42]

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I mean, individual programs we announce when ready. So the 500 people who will be leaving our Halewood facilities in April. It's an efficiency program. We're going to speed up the line and therefore, we need fewer people. We're going to invest up to GBP 5 million to break bottlenecks on the line as a super payback. It's a similar -- as I've just said, it's a great illustration of how we will continue to take the opportunities as they arise to become more efficient.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [43]

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Okay. And my second question is on India. Basically, what I'm confused about a little bit is that the realization per unit has dropped like 12% quarter-on-quarter, even though I don't really see the mix change being that sharp, right? So (inaudible), I understand is slightly lower. And exports is the main one, which has gone lower. So I just want to understand is there something getting knocked out of the top line itself, which is sort of pushing the ASPs lower? Elaborate.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [44]

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I think the main one that we have called out is the increase in VME that is there -- the quarter-on-quarter number that is there. You will notice that there is a pricing that has got impacted because of the higher VME as we clear out the BS-IV inventory in its entirety. The earlier we do it, the lower the cost, and the later we do, the higher it is. And that's the reason your realizations are down. And hence, you will see the challenge there.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [45]

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And sorry, the INR 340 crores, the sales tax, where is that sort of getting?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [46]

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That's in works. That's in the other cost items. So other expenses. Work expenses.

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Operator [47]

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The next question is from the line of Ashwani Kumar from Nippon India Mutual Fund.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [48]

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Yes. My question was, what is the progress in China, if you could spare a few minutes describing how you are doing in China? And how is the strategy playing in China on cost improvement, quality improvements and the reach?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [49]

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Yes, okay. Let me reference the AV, as I answer this initially. We can talk about the import business, if you wish so -- wish to afterwards as well. So just a reminder to everybody, 4 out of our 5 nameplates within the JV are in refresh between August last year and June this year. You start to see within this quarter's results the first full quarter of the new Evoque. And our marketing report on Evoque dropped by 1/3 in the quarter. So that's encouraging. By far, the biggest impact in the JV over that period of time will be the new Discovery Sport. The Discovery Sport is due to go on sale on the 20th of February. It's half the volume for the CJLR business. Goes on sale on the 20th of February. Of course, with the sad event in China at the moment, that launch will be impacted. We're thinking about doing as a virtual online launch rather than a physical presentation initiative which we normally do, but that decision has yet not been finally made.

The virus will certainly impact Q4 results. To what extent, we'll know over the coming weeks. So the base business is getting stronger. As fresh product comes in place, you would expect that. Now we're targeting the operation to improve again into the quarter wherein, of course, the virus may impact. But if not, in the following quarter. So I'm expecting the CJLR performance to be stronger, particularly as that Discovery Sport product hits the marketplace later in the year. You know we talked last time about agreeing with the dealers that we would support the older product until that's flushed through. Discovery Sport has been selling really well actually in CJLR but it has an expensive discounting around it. Our strategy is to clear the old product before we get the new one. And that strategy was working perfectly well through to the third week in January.

In fact, our sales in China for the first week in January, both CJLR and [port] were a little bit stronger than we were expecting, of course, as mentioned, 2 or 3 times already, that input we put on hold. My recommendation would be to judge the first quarter of our fiscal year next year, when you will see, we all hope, the improvements that we're expecting through the Discovery Sport, how momentum is built on the Evoque. And then also we have XF long coming along at the end of that quarter, but that will be a smaller product launch for us.

So getting better. Not where we want it to be. We're very aligned with our partners about what success looks like. And we'll be measuring that success on a quarter-by-quarter basis with an improving profile. Our import business was stronger, as you would have seen from the data, the (inaudible) was stronger in quarter 3 for the Range Rover SUV-5. So we had a nice quarter for our China import business and the comments regarding this quarter would continue for China imports as well.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [50]

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And sir, what is the single most factor which is required for you to close the gap with the leaders in China financially also in light of Tesla's, let's say, opening factory there and starting to produce electric vehicles?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [51]

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Well, you know different models to Tesla in China. We don't have an electric vehicle produced locally and their electric profile is very, very different from our electric profile, as you would know also, of course. So our model is still overwhelmingly an import business, which has most of its products to be PHEV, mild hybrid, and ICE engines at the minute. It's a lower volume, higher-margin business model, as you would also know. And we're not too worried about what Tesla does. Actually, we're worried about being very, very focused on the fundamentals of our business. We've talked to you about those fundamentals on several occasions. Making sure that the dealers are meeting their sales profiles locally. They did even stronger than that in quarter 3, but we didn't tell you because we've already beaten those targets we set, making sure the dealers return to profitability. So they were profitable in quarter 3. Again, we didn't show you that because we told you that in the previous quarter, making sure inventory was lighter, and they've already achieved in a bit stronger our inventory targets. So again, we didn't show you that because this is just a continuation of what we did in Q2 continue going forward. Let us get through Q4 and see what happens in China. And then if you wish for more information, we can start to show you more.

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Operator [52]

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The next question is from the line of Chirag Shah from Edelweiss.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [53]

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So my first question is on India business. Two things. One, what is the normalized margin for the business? And the related point that I observe is, to improve the cash flow, we are compromising on profitability. Is it the right analysis? So if you can just help us understand what is the normalized business because there was inventory clearance and there were certain one-offs. So going ahead, how do we look at the margins in the India business?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [54]

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Yes, I think we have talked about -- we have put out a margin plan out there, and we also stated that we are quite confident in the medium to long-term situation there. And as far as the current situation is concerned, yes, there is an inventory correction, which we've already quantified it as well. And at the same time, we are also seeing a lot of operating leverage because of the volumes, particularly in the medium and heavy commercial vehicles. We see margins starting to normalize. M&HCV starts lifting back to its normative level. And we would love to see that come sooner rather than later.

As far as -- I'm not able to understand your question on working capital versus profitability. If you -- if the question is you're asking me whether have we extended creditors and accordingly paying more broader -- I mean paying costs for it, the answer is a categorical no. And you would notice that every line item of the working capital is being worked, be it inventory, be it receivables, be it payables, all 3. And that's how we would want to tighten the game plan there.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [55]

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So what I was referring to is your balance sheet and cash flow improvement seems to be far superior than your profitability performance in this quarter across the business. So how should we look at the fine balance between the 2 going ahead?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [56]

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Yes. If I draw your attention to Slide 13, basically it has the free cash flows for the quarter. You would recollect that this shows the working capital of one line that actually went out of whack in the first quarter. As we said that we did err in saying that we could anticipate the size of the market drop that happened. We just couldn't take it. And therefore, we were slow. And we started correcting it from July onwards. And you see an improvement that happened in July -- in the last quarter, and it's now got secure. So I would not on a full year basis, the working capital number should normalize to 0. I am not expecting dramatic shifts, either increase or decrease. Don't hold me to the last one digit, but broadly, it needs to be stable because we are quite all right on the working capital side.

It is the error in judging the market in the first quarters where the working capital went out of control. So if you keep the working capital line aside and look at the cash profit after tax, and then compare that to the investment, our challenge has been on the cash profit after tax because of loss of operating. Everything that we talked about earlier.

So as we go forward, I think I'm expecting the inventory corrections to more or less play a bottom out in Q4. And thereafter, the buildup of inventory in the dealer end will have to start and that then means you will have situations when our wholesales will be higher than retail, which is perfectly fine with the filling back the stock levels there. But that can't go way out of whack and it needs to be normatively done. And then you see the business starting to build to that momentum. But all this depends on how strong the retail growth is, and that is where the expectation that with the investments in infrastructure with the government has talked about and of course, the GDP starting to pick up. We should start seeing it. And the day that starts moving, then you'll start the whole thing coming back to what it was. We were around 2 years, this business has run in terms of getting back, it's (inaudible) business, an EBITDA of 11.5% was a stable EBITDA that was there for many, many quarters. And therefore, that seems like a sensible number for this particular business.

And PV, we are on our journey of building back the EBITDA to breakeven, which we've delivered for a year. And we're now starting to come back again and get closer to that, and I've said exclusively that we would want to get ahead of that and get to an EBIT breakeven and a PBT breakeven. That is the journey that we are on to, and we should -- we should get back to that journey. We've already seen that sequentially improving this quarter, and we intend to keep it that way as we go forward.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [57]

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And my second question is on the Charge+ part. So why only GBP 700 million of improvement targeted? Because of where you have indicated on various aspects that you are looking at, there seems to be a much bigger opportunity under Charge+ for F '21. So can you just highlight how and why only a particular number rather than a guidance of GBP 700-plus million kind of a number?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [58]

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Yes, sure. Well, we're working off the basis that in almost all of that number next year would actually come from EBIT improvement. So we don't expect to significantly outperform investment and/or inventory. We think we're at the levels where we need to be on those areas at this point in time. We will continue with them to ensure that the disciplines are enforced within the organization because all turnaround programs have to be sustainable. And they become sustainable by making sure that the people doing the day jobs, do it for a living, and that's why they're mostly in the program. The rules that we have in place for those will stay but the level and scale of opportunity on those areas is much, much lower in FY '21. So it's overwhelmingly being targeted towards EBIT value generation, material cost reduction. And again, within 3 months' time, we're now a little bit more, and then 3 months after that, a little bit more than that. I can assure you if there's more value in those hills, then we will go get it.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [59]

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Yes. And one last housekeeping question, if I can just ask. Is it that JLR has reported a negative tax for this quarter because your PAT number seems to be higher than PBT number? So if you can just explain and how should we look at going ahead, as an average?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [60]

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Okay. So we did actually get a catch-up in the quarter for the recognition of the deferred tax asset, which hadn't been in place for the previous quarters. So I think it's probably better for you to look at the year-to-date data in terms of the normalized level of tax we should expect going forward. There's a one-off catch-up for the previous shipment. Of course, that's a good sign, right? That really is a good sign in terms of the growing confidence of the underlying physicals and the performance of the organization. But it's binaries one-off, it's catch-up for the first 6 months of the year as well as the quarter. Let me encourage you to look at the 9 months rather than the quarter result in tax.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [61]

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As to the normalized is around 25% as the tax rate is. Is it the right number to look at around that reach? Or it's a lower number?

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Adrian Mardell, Jaguar Land Rover Automotive plc - CFO [62]

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It's a little bit lower than that I would suggest. When you go through the detail of it, there's actually -- there's more considerations than you imagine, but broadly speaking, lower than 25%, probably closer to 20% is the normalized -- and if it's not at that level, something else had likely happened. It really depends where we make our profits within a given quarter, of course.

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Operator [63]

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The next question is from the line of [Nilanjan Gupta] from (inaudible) Capital.

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Unidentified Analyst, [64]

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I have just a question, please. What is the view of the company in the Indian luxury car market, as it's still largely dominated by the Mercedes and the Audi?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [65]

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Can you repeat? Your -- there is a lot of noise on the line (inaudible)

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Unidentified Analyst, [66]

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Yes. I just wanted to know what is the view of the company on the Indian luxury car market, as it's still largely dominated by Mercedes and Audi?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [67]

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Adrian, would you want to pick that up or would you want me to pick it up? Happy to do that.

Right now we are #3 in the market. And we sell about 5,000 odd cars in this market on JLR side. And it is a business that has been doing well. Just for information, we just launched the Evoque today in India. And therefore, it's a business that we continue to invest, and we have our own manufacturing setup here. We also have our own EV manufacturing setup here. So it's an exciting market that we have out here. Having said that, this market as well has struggled in the last one year in terms of growth rate, similar to the rest of the players in the market. And the overall market size is about 40-odd thousand vehicles (inaudible). And it has not been dramatically growing, unlike what you would like to see in such -- if you take China, for instance. So that is a disappointment in terms of the potential market. But I think all OEMS, premium OEMs have a play here and are constantly focusing on this particular market. And we believe that we have done a pretty decent job in terms of almost 15 (inaudible) of what we currently operate under and intend to continue to work our way and keep improving that there.

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Unidentified Analyst, [68]

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Okay. And my second question is, as the shift is happening towards the electronic vehicle front, what is the -- and Tata just launched the Nexon EV, what is the number the company is targeting?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [69]

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We don't give numbers in terms of our target for our individual line items and neither do we give it at an overall level. It's more growth rates. Broader, the higher the market is what we want to do. But the potential of the market and how we are seeing it, let me probably hand it over to Shailesh.

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Shailesh Chandra, Tata Motors Limited - President of Electric Mobility Business & Corporate Strategy [70]

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Yes. So if you really see Nexon EV, it's the first product of its kind. A personal segment EV product, which is first time broad beam, (inaudible) very close to what an IC counter part is. So far, the references that we had in the past was a product like (inaudible) EV or Mahindra e-Verito, which was absolutely directed to a different segment, which is the fleet segment. Then you have cars, which were launched by a few other players, which were mainly (inaudible) operations and were priced very high at INR 25 lakhs. And we know the demand references here, but absolutely, we have no clue in terms of what can be the potential of demand as far as this edition is concerned, although we have taken some reference of course. But this is first -- next 2 months is going to be a demand discovery phase for us. And then it will be clear what should be the potential of this product. But if I have to take any reference, for example, we would take the reference of, in the CV segment, which is compact SUV segment, all those automatic transmission cars, which are being sold will be a volume difference, and we would like to reannounce certain share of that. That's how we are approaching this demand estimation, I would say. But I think in the next 2 months, we'll be clear in terms of what will be the response. But so far, the bookings have been pretty strong, much more than what we had expected. And we'll be rather focusing on how to ensure that we are able to meet the demand, and not on the supply side. Of course, we have one challenge definitely in front of us. It's the China situation. So that's the response to your question.

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Operator [71]

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Ladies and gentlemen, we take the last question from the line of Prateek Poddar from Nippon India Mutual Fund.

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Prateek Poddar, Nippon Life India Asset Management Limited - Research Analyst - Investment Equity [72]

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Sir, just a couple of questions on the CV side. One is, could you just talk about these inquiries which you are seeing. Are they in the haul-it segment or the tipper segment? That's question number one. Second is in terms of conversion. Are we also seeing similar conversion in the sense, increase in conversion rate? Or that is not happening? If not, why? And third would be, any thoughts on the scrapping, sir? These three questions.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [73]

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Girish, take that?

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Girish Wagh, Tata Motors Limited - President of Commercial Vehicles Business Unit [74]

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Right. So I think the inquiries that we are seeing are in both cargo as well as tipper and both are for different reasons. I think tippers now because there are a few projects which have started and payments have also started happening to some of the existing projects, and that's why the tipper demand has come back.

But it is also an annual phenomena that post monsoon, and last year, monsoons actually got delayed. And I think once the monsoons were over, tipper inquiry started and that's what we saw as an upside. In terms of cargo, essentially, the inquiries are coming from the fleet owners, large fleet owners, medium fleet owners and essentially for replacement of their old BS-III vehicles , which will give them better economic -- it makes a lot of economic sense for them because the BSIV vehicles have better TCO as compared to BS-III. So that's where we are getting demand from in the cargo segment. I think there is not much demand, which is coming from the retail segment and the retail segment is not as quiet as one has seen in the last fleet owner segment, which is essentially for replacement. In terms of conversion, I think, as I said during our last call also that customers were waiting for -- trying to see if they can get better deals, but with the demand-supply imbalance having changed now, essentially because of reduction in the stock, I think the realizations are also firming up and they are realizing. And we are also seeing the conversions happening during the month and not essentially during the later half of the -- or last week of the month. So this is what is the status. But I think overall volumes, in the sense, I think what we have seen in the last quarter is November was a growth over October and December was further growth over November. So there was a sequential month-over-month growth in M&HCV specifically. I think it will be key to see this particular month. But of course, this quarter is going to be a very unique one in the sense that towards the end of the quarter, we will see tapering or, in fact, reduction of retail, essentially because we may even run out of the stock. So that's where we are in terms of the commercial vehicles.

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Prateek Poddar, Nippon Life India Asset Management Limited - Research Analyst - Investment Equity [75]

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Okay. And sir, sorry, just if I may squeeze in one small question, and correct me if I'm wrong, when we launched Harrier, Harrier did not have an automatic option, and we saw substantial bookings. I mean, cuts in the bookings. I mean, the bookings were withdrawn. This time also Altroz is launched without the automatic version. Any specific reason for that?

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [76]

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I'm sorry, it's a very specific question, but you may choose to...

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Shailesh Chandra, Tata Motors Limited - President of Electric Mobility Business & Corporate Strategy [77]

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Let it be specific. And the answer is also going to be specific. As far as the Harrier is concerned, I don't like to make any pre-announcement to what is going to be presented next week at the Auto Expo. But pleased to see and you will actually see that we deliver on our commitment. The enhancement of the product is going to be part of an active life cycle management of the product. So therefore, there will be a Harrier and you will actually see that this Harrier actually ticks all of the boxes in terms of the customer requests raised at the point of the launch.

Second one related to Altroz. Same commitment. There's an active life cycle management because in the current situation, where we actually had to convert the entire range of products from previously BSIV. Now as of the 1st of April, expected to be launched on the 22nd of Jan (inaudible). We had to actually strike a balance between our capacity for all of the required calibration activities to be performed and want to launch in the first instance. And if one of these balances to be taken, Altroz will actually be its manual transmission at the launch followed shortly after by an automatic transmission in order to complete the product family and meeting the customers' expectations. Why is it that they have taken this call? For the reason mentioned, but also for the reason that in the segment, the Altroz is competing the car equipment of the option of an automatic transmission, be it a CVT or a DCT (inaudible) of close to 15% where we said that's the percentage of option taken, which allows us to actually stretch the launch of the different variants over a couple of months.

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Operator [78]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Pathamadai Balachandran Balaji, Tata Motors Limited - Group CFO [79]

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Yes. Thanks a lot all of you for the -- for your patience and listening to the call. Look forward to catching up in person or at the Auto Expo, which I really hope to see you there. And of course, the Investor Day that's coming up on June 12 and June 18. And, of course, catch you in the next quarter call as well. Thank you.

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Operator [80]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.