Tata Motors Limited (TMCV.NS) Earnings Call Transcript & Summary

Good evening. Welcome to Tata Motors Q3 FY '26 Earnings call. I have with me Mr. Girish Wagh, Managing Director and CEO; G.V. Ramanan, CFO and the Investor Relations team. Today, we'll walk you through the results presentation followed by Q&A. [Operator Instructions] Now I hand over to Mr. G.V. Ramanan. Over to you sir.

Thanks, Sneha. Good evening everyone. For the standards Safe Harbour statement, I would like to draw your attention to last para on the left side. We've had a few exceptional items this quarter. And just if you look at it, the impact has been on account of new labor code, which is impacting us by around INR 603 crores. Merger cost has been around INR 960 crores, and both these are going to be onetime for us. We don't expect this on a recurring basis, it's an exceptional item. And we also have an acquisition cost, which is part of our IVECO acquisition of around INR 82 crores. Impact of all of these and other items stood at around INR 1,500 crores in our stand-alone financials and at INR 1,600 crores in our consolidated. Key highlights for Q3. As you can see, our IVECO acquisition is progressing as planned with all the regulatory approvals anticipated to be received by end March. And as we laid out the time line earlier, the deal should get finalized by Q1 FY '27. On the business front, a very eventful and exciting last week, wherein we had launched around 17 new next-gen trucks. And I think we want to take the fizz out of it, Girish will share more in part of the business update. We broadened our portfolio with the introduction of Prima 3540.K, our most powerful tipper at EXCON 2025. Also showcased our new Euro 6 range in our growing markets in Middle East and North Africa. We delivered the cutting-edge Prima, range of electric prime movers to Enviiro wheel driving advancement clearly in progressing on the zero-emission trucking. And with a view to strengthen India's LNG trucking ecosystem partnered with THINK gas. Can we go to the next slide. Looking at the overall Q3 wholesale performance. This slide clearly details by period and product line. In Q3, the wholesale reached 116.8K units, a 20% Y-o-Y increase over last year. All the product lines registered a growth on a Y-o-Y basis with HCV, ILMCV and SCV registering a double-digit growth. HCV grew at 23%, ILMCV around 26%, small commercial vehicle grew at 15% and our CV passenger business grew at 4% on a Y-o-Y basis. International business continued its growth trajectory with a Y-o-Y growth at 70%, mainly led by SAARC and [indiscernible] and sub-Saharan Africa countries, especially Sri Lanka, which is kind of coming back as the economy is bouncing back. Go to the next page, please. On the Q3 financial highlights, revenue for Q3 reached INR 21,533 crores, marking a 17% year-over-year increase, primarily driven by higher volumes. Margins continued to expand with EBITDA rising to 30 basis points. In the same quarter last year, there was an impact of maiden PLI gain of INR 169 crores, which had an impact of 90 basis points. I'm also pleased to share that this is the 10th consecutive quarter of double-digit EBITDA margin delivery. The CV segment also achieved the milestone of a double-digit EBIT margin for the first time, which now stands at 10.6%. The profit before tax and exceptional items rose to INR 2,300 crores, an increase of INR 600 crores compared to last year. And we recorded the exceptional items in this quarter, which I have already shared with you as part of the Safe Harbor. The free cash flow was strong in Q3 at approximately INR 4,800 crores, outperforming the corresponding quarter last year. As of December '25, net cash stands strong at INR 3,900 crores, providing momentum for future growth. We go to the next page, please. The financial highlights on a year-to-date basis, revenue for YTD December reached approximately INR 57,000 crores, representing a 6% Y-o-Y increase. EBITDA margins improved to 12.4%, rise of 80 bps compared to the previous year, while EBIT margin increased to 10.1%, which is a 130 basis points improvement year-on-year. Profit before tax and before exceptional items was INR 5,600 crores, reflecting a growth of approximately INR 1,200 crores compared to the prior year. Company achieved a strong YTD cash flow performance to date, generating around INR 5,200 crores in FCF. Return on capital employed continued its upward trajectory and stood at a robust 53% as of December '25, supported by higher profitability. Investment expenditure amounts to INR 2,000 crores, which has been pretty consistent with the guidance provided earlier. Next page, please. Now where did all this come from? So this is the EBIT walk. The PBT rose by INR 610 crores Y-o-Y, mainly due to higher volumes and better realization. Material and other costs increased largely on account of precious metal volatility and fixed cost savings were lower largely due to D&A coming down by around INR 193 crores and partly offset by a INR 120 crore increase in employee costs due to an annual wage or salary inflation. PLI and other incentives were down by INR 75 crores. As I shared, last year, we had taken a onetime accrual gain as first FY '24 and '25 was accrued together. So last year, it was around INR 169 crores basis receipt of the PLI claims which had come through. Now this has been partially offset by a gain on EPCG incentive accrual in Q3 FY '26. Overall, EBIT margin improved by 100 bps due to stronger net realization, model mix and fixed cost savings. Go to the next page, please. Cash flow has been strong and consistent in Q3. We generated a cash of around close to INR 4,800 crores. The achievement was driven by strong cash PAT and significant working capital reversal owing to increased offtake and consequently higher production level. Strong FCF performance and a continued net cash position led to a net finance cost gain of around INR 27 crores compared to a charge of INR 125 crores in Q3 last year. Year-to-date FCF stands at INR 5,200 crores with a robust cash profit after tax of INR 6,300 crores, controlled capital expenditure and a much lower interest expenses. Disciplined working capital management helped unlock working capital gain on a YTD basis also. With Q4 typically our strongest quarter still ahead of us, we will continue to strengthen cash flows. Next slide. On a consolidated basis, Q3 revenue reached INR 21,800 crores with an underlying EBITDA margin of 12.5% and profit before tax and before exceptional items of INR 2,600 crores. Q3 PBT reflects a mark-to-market gain of INR 295 crores on our investment in Tata Capital as against a loss of INR 2.35K crores in Q2. On a consolidated basis, net cash stood at INR 6,100 crores. The CV business continues to demonstrate resilience and is well positioned to capitalize on upcoming growth. With this, I now hand this over to Girish to take you through the business slides. Over to Giri.

Thank you, Ramanan. And on the first page itself, first slide, you see the range of electric trucks that we launched. This last week, on 20th, we launched 7-tonne, 9-tonne, 12-tonne, also a 28-tonne and 55-tonne trucks and tippers in the electric category. In fact, as I also mentioned, we have been working very closely with the customers for very specific deployment of each of these vehicles. I think also very important is these trucks have been developed on this Intelligent Modular Electric Vehicle architecture, which consists of modular based platforms, which we use on ICE also. In addition to that, modular battery packs, in-house battery management systems and e-axles that we have developed, which give us good flexibility to deliver solutions that meet specific requirements and also ranges. Going to the next slide. In addition to the electric trucks, we also launched -- let me go one by one, almost 17 new trucks, which also included those 5 electric on the first slide. So we introduced the Azura series, which is a completely new platform launch for ILMCV segment, right from 7 tonnes to 19 tonnes. It gives state-of-the-art cabin, walk-through features with comfort and convenience required for long-distance travel. I spoke about the EV trucks. The left-hand side at the bottom, you can see the launch of all the truck cabins that meet the European safety standards R29 03, with which I think we bring higher safety on the roads, especially for the occupants, which is the drivers. And I think also something that all the transporters look forward to, which is increased payload as well as increased fuel efficiency in the multi-axle rigid trucks and also tractors is something we have delivered or launched in the Heavy Commercial Vehicle segment. So those were the new launches, which cover almost entire range and the most important expectations or requirements of the customers. Moving on. So on market share, I think there was 100 bps recovery from Q2 to Q3, essentially led by strong growth in commercial vehicle, which is for us 3-axle and above trucks, 28-tonne and above. Intermediate, light, medium, which is 7 tonnes -- 5 tonne to 19 tonnes also saw a fair bit of recovery. SCV and CV passenger, I think both the shares kind of remained same over the previous quarter at 26.3 and 35.9, respectively. Going next. In terms of fleet utilization, I think post GST, one has seen increased demand, especially in specific sectors like auto, consumer durables, et cetera. And that has, therefore, led to increase in utilization of HCV cargo. Infrastructure projects also getting back on track post the rainy season, extended rainy season. The tippers also are seeing higher utilization. MCV cargo, ICV trucks also doing well due to e-commerce and the Manufacturing segment uptick also as LCV buses continue to do well as we see. I think, more importantly, over a period of 3 years, there has been a significant improvement in the fleet utilization. As you know, this is actually based on the data that we have internally, based on around 1 million fleet edge installations in trucks and buses. Based on some other data points, we have seen that the freight rates have also firmed up. And in fact, we've seen in rigid trucks, in heavy, medium as well as intermediate commercial vehicles, one has seen a 2% to 5% growth in freight rates post GST 2.0. And therefore, has led to some improvement in the transporter profitability, especially in the segments that I spoke about. I think also very important to note is the diesel consumption continues to be at a high level and has grown Y-o-Y. More importantly, the E-way bills rose almost 23% December on a Y-o-Y basis. It also indicates availability of higher freight or one can also say the higher number of trips. Going on, specifically by segments and trucks, the trucks, I think the segment grew significantly after a flat H1. Our volumes grew by 24.2% with HCV at 23.2% and ILMCV growing at 26%. All the segments have also witnessed a quarter-on-quarter improvement in sentiment index. And sentiment index is a combination of satisfaction with the current state of business and how do the transporters expect the future state of business. And this is also essentially led by increase in demand in certain sectors post GST rate rationalization. There was a strong inventory buildup also happening in certain sectors. Generally, after monsoon, the infrastructure activity has gone up. I have already spoken about freight rates, how they have inched up, which also augurs well as we go ahead. In buses, I think we have seen a strong momentum now with multiple tender wins accounting to total almost 6,000 units which we will now deliver over a period of next 10 to 12 months. Notable amongst these have been the Maharashtra State Road Transport Corporation, Gujarat State, Northwest Karnataka, Telangana, I think these are some of the tenders that we have won. These are all ICE buses. We've also seen private segment volume growth, specifically in MCV buses, but also more in our vans, that is Magic and Winger. And while we had bid for the earlier 10,000 tender, we are also going to bid for the new 6,300 CESL tender that has come up. In addition to that, we have also been bidding for the small, small tenders, which have been coming outside CESL. On the small vehicles, we had new launches. Of course, first, Ace Pro which happened towards the end of Q2. In Q3, we launched the Ace Gold and the liquid NOx -- Lean NOx Trap technology. I think both have got established well. And in fact, this Ace Gold Diesel used to be the mainstay of our volumes till BS4 as I've been saying, I think these products have started picking up volumes and in fact, have been instrumental in volumes. Our Q3 retails were almost at 45,000, highest since Q1 of FY '24. Going to the other segments. The Parts & Services business continue healthy double-digit growth on a Y-o-Y basis. In Smart City, we now have, of course, more than 3,600 buses covered now almost 50 crore kilometers. We continue to deliver uptime addition of 95%. In terms of decarbonization, almost 280,000 tonnes of CO2 has been reduced with these buses operating on the roads. In digital, as a part of Fleet Edge, I think we have come up with a new subscription plans, which are branded as Lite and Prime. And actually, this also becomes the most attractive value proposition in this particular industry for logistics. And this has, therefore, led to doubling of the subscription renewals for Flee Edge. So absolutely on the right track. International business has been doing well. This year, I think the shipments have grown 70% on a year-on-year basis. And the main contributors have been SAARC with Sri Lanka coming back on track now. So Sri Lanka has been contributing well, as also Middle East and North Africa, some of the new markets that we've entered in North Africa, also doing well, followed by Sub-Saharan Africa. Next. As we look ahead for Q4, I think Q3 has witnessed a very good uptick in sales momentum. as also overall sentiment. And I think as the consumption continues to be at a higher level post GST 2.0, leading to expansion in some of the end-use sectors and infrastructure activity by government, we are looking at improved levels of demand in Q4 as well across all the segments and also buses demand will increase now, especially because they are cyclical and do well in Q4 and Q1 of each financial year. Therefore, going ahead, I think on trucks, the sharp recovery in Q3, we are certainly looking forward to continue this momentum in trucks. And in fact, with the launch of these 17 new trucks, we will accelerate the volume growth and increase our presence in all the segments. In buses and vans, as I said, we will now start deliveries against the strong government tender wins that we have had in the last 2 quarters. Small commercial vehicles, a clear agenda of volume ramp-up, Ace Pro, Ace as well as Intra. Parts & Services, international business, both growing well this year, we will look at sustaining the momentum in this quarter and even ahead. And therefore, overall, we will continue to drive strong financial performance and consistent delivery of a set of margin -- a set of metrics rather than looking at 1 or 2 metrics in isolation. So with that, thank you, and over to you, Sneha, for the Q&A.

Let's start with the Q&A. The first one is from Gunjan, Bank of America. Can you talk about the commodity inflation impact that we've had in the quarter? And how is it going to be a headwind going ahead? How significant is it? And have you taken any price hike to offset it? And second, realization has come off. So I think, Gunjan, you mean ASPs. ASPs have come off quarter-on-quarter despite the better M&HCV mix. What explains this?

Yes. So let me take this. The first one on commodity inflation, we've seen commodity inflation, specifically on the PGM, the Precious Group Metals, I think these are the first ones where we have seen higher inflation followed by nonferrous metals led by copper. I think these 2 groups have been the main headwind, if I may say so. I think the total hit for us Q3 has been around 50 bps. As we look forward into Q4, these are the same set of commodities, which are posing some headwinds. And steel prices also in open market have gone up, but this is something, I think, which will continue to be a point of discussion with the steel mills. We don't know how it is going to play out and maybe from Q1 of FY '27. So I think in Q4, we are looking at similar kind of an impact due to nonferrous metals and Precious Group Metals. To mitigate this, we have taken a price increase of 1% in the month of January from 1st January across the range. And therefore, main purpose of this price increase has been this commodity inflation. With regard to your second question, which is the ASPs, I mean, you said realization, but it's more of ASPs going down. So I think while the HCV numbers have gone up, yes, you're right. But at the same time, the ILMCV numbers have also gone up, so have the small commercial vehicle numbers have gone up. And even in buses and vans being a mean quarter for buses, actually, the small van volumes have gone up. And therefore, net-net, the mix has actually led to the realizations or ASPs going down. But on a Q-on-Q basis, actually, we have been able to increase the realization. Now coming to your question on replacement demand. See, while I had said last time that we are trying to develop some robust understanding on the replacement demand, so we continue to try to do that, but I can give some more flavor to you. In this quarter, the replacement demand for trucks is most likely gaining momentum post GST 2.0 because it has prompted the fleet operators to initiate vehicle replacement that were previously delayed. The shift has become more financially viable due to lower EMIs resulting from lower initial prices. I must, however, say that some large operators are still assessing the best approach to input tax credit under the new GST regime. The tax processes are yet to be fully streamlined. We expect better clarity, much smoother procedures in FY '27, which can possibly accelerate this replacement activity. Overall, this trend is likely to support positive cash flow for transporters, maybe improved financing terms and tax benefits should improve their overall financial position and therefore, maybe push replacement demand. If I may also add, I think a similar trend is being observed in the Bus segment. where replacement demand could be a key structural driver with several states actually prioritizing the phased replacement of aging fleets across both intercity services and within city. This is also likely to support the demand as we go ahead into the next year. So that's the response, Gunjan, to all your 3 questions.

Next question is from Pramod Amte, and there are 2 sets of questions. So maybe I'll break up one set for you, Girish, and one for you, Ramanan. So Girish, for you, we've seen market share recovery from low of June. What has driven it? And is it sustainable? What are your ambitions for the next 2, 3 years? And how is the truck operator profitability and health now versus pre-GST? And how is your supply chain to cater for any demand surprises? And what parts are a challenge?

Okay. So Pramod, on market share recovery, as I said, I think, this has been led by heavy commercial vehicles. And some of the factors. First is the growth in the tipper market where our share is higher. We, in fact, have driven our shares further higher in tippers because of their revenue salience. We've also had specific actions in specific micro markets during the quarter, which have also supported market share recovery. In terms of what do we see going ahead? I already spoke, I think the new launches that we have done, they address almost every category or most important categories for logistics and transportation, and that should help us grow further. In terms of outlook that you've asked for our ambition, I think as we have said that we are not looking at market share as one metric alone, we are looking at a basket of metrics now, which indicate profitable growth. It would be market share, at times revenue share as we calculate internally, it would be profitability, it would be the free cash, et cetera, et cetera. And I think we have, therefore, ambition to drive this profitable growth agenda. That is the response to the first question. In terms of truck operator profitability, I think as a response to Gunjan's question, to a large extent, I think this has got addressed. In terms of supply chain situation, if I may say, I think with increase in demand across almost all auto sectors, whether it is 2-wheeler, 3-wheeler, cars, commercial vehicles at some suppliers and specifically in the area of castings, one has seen the capacity bottlenecks being reached. And therefore, I think there are specific debottlenecking actions which have already initiated in the supply chain. While I mentioned castings, I think in some other areas, there could be few more items, but this is what is the higher level indicator in terms of supply chain capacities at this juncture. We don't expect a surprise as you have mentioned, because I think there has been a good supply chain mapping, which has been done. I must, however, add that the rate at which the demand has gone up and therefore, production at all the OEMs is something which is quite significant, which has led to some stress. There is a working capital question for Ramanan.

Yes. So the question is -- 2 questions actually. One is what has been your spend on the new product launches? Does it change your CapEx plans for FY '26 and '27? And on working capital, the release has been quite big. Is it sustainable?

Yes. So Pramod, to your question on CapEx, I think our guidance, we continue to remain within the guidance that we had given. And we have been pretty disciplined in terms of our CapEx spend and without compromising on the need for new tech. So in terms of CapEx, I think we'll continue to be within our guidance. Now coming to your question on cash, I also see Kapil also has a same question on FCF. So I'll probably combine the 2. We've been working to clearly smoothen the volatility in cash flow and have been FCF accretive since YTD Q2 this financial year. The strong FCF that you see in this quarter is a clear result of strong operating profit, efficient working capital management and disciplined spending. And as we kind of go forward, even on cash flow, we did give a guidance, and we are pretty confident that we will meet the guidance that we had given on cash flow. And generally, it's a known thing. Always the second half of a year in a cyclical business like CV is always favorable from a cash standpoint. And we will continue to kind of watch out for this and maximize. Thank you.

Next question, Girish. There are quite a few questions on the bus business. So I'll just probably combine all of those. So one is, can you share some color on the growth outlook for the bus business? And recently, you had mentioned an increase in bus bodybuilding capacity. Can you talk about what is your current capacity and utilization? And also on the EV buses, how are the bus orders? And would you think of consolidating all your bus bodybuilding businesses into one entity?

Yes. So Jihan, let me first talk of bus business growth. So first of all, I think Q4, Q1 are traditionally high demand quarters, and that's how we are seeing these 2 quarters. Overall, next year, we should see the bus business growing at a higher single digit is what we are looking at, at this juncture. In terms of bus bodybuilding capacity, yes, I did mention about increasing the capacity by debottlenecking. So it is roughly around 15% increase that we have done in anticipation of higher demand in Q4 and Q1. Your next question is about allocation of buses. So see, we have 2 bus bodybuilding facilities. One is the Tata Motors Body Solutions Limited and the second one is Automotive Corporation of Goa Limited. So one is, generally, there are specific set of models that we do at the 2 entities, although we have a fair bit of flexibility. To get in efficiencies, we have allocated certain specific models in these 2. As far as EV is concerned, currently, EVs have been productionized only in Tata Motors Body Solutions Limited. But as we go ahead, yes, of course, we are going to productionize that in Automotive Corporation of Goa Limited also. Yes.

So just staying on the bus business, there's a question from Jinesh as well. How many bus tenders did Tata Motors win in the recent 10,900 E-buses? Any reason for being cautious as this tender was under PM-e sewa?

Yes. So Jinesh, see, as we have said very clearly, in this tender business, we are going to look at 3 things based on our experience of running these buses in multiple cities. First is the payment security mechanism, which was addressed in this 10,000-odd tender. We are also looking at an asset-light model, which was addressed indirectly in this tender, and therefore, we participated through a consortium model. So in most of our bids, a consortium partner who is a bus operator was front-end, front-face. Part of the buses, we also bid directly from Smart City. And there's a third thing that we are looking at, of course, financial prudence. And accordingly, we quoted in these tenders. We are not L1 in any of these tenders. And I think we will continue to stick to these 3 requirements that I've spoken about is payment security, asset-light and financial prudence. As we go ahead, we will get more and more knowledge on each one of these 3 and see how we participate in the tenders. We want to be very patient for this business because this is just the beginning. As you know, the government has already said that almost close to 850,000 kind of buses will be converted into electric as we go ahead. And we have a sufficient runway ahead. I think on one hand, we are building a very strong, stable business of running these buses, create robust systems in place and therefore, create a model with which we will start getting into also operations of these buses. So I think that's where we are, Jinesh, as we go ahead. I think he has some more questions also. If you want, I can take those.

The other question was on the capacities that we have for M&HCV and ILMCV.

Yes. So see, as far as M&HCV, ILMCV trucks capacity is concerned, we have a fair bit of flexibility in the sense we can manufacture these in 4 of our plants, Jamshedpur, Lucknow, Pune and Dharwad. And as far as in-house capacity is concerned, there is no concern. What I answered some time back was with the sudden increase in demand across all the auto segments has led to some capacity press in specific areas like castings, et cetera. So we are watching the situation wherever decisions are required from a longer-term perspective, we are going ahead with that. And we are at a fairly okay levels in terms of utilization prepared for the higher demand as it comes next year.

Next question from Kapil. What should be the direction of margins? And what are going to be the drivers for the same?

So Kapil, I mean, in terms of drivers, you know better than all of us. So realizations, of course, we have been focusing on that. On the cost side, I think in the call, we have spoken at least in 2, 3 questions about where the commodity challenge is being seen. And to address that, we have already taken a 1% price increase from 1st of January. I think Ramanan has also explained in his presentation what are the other cost elements which have hit us in Q3. Some of those are, of course, onetime. Therefore, we will start getting benefit as we get into the next quarter from here. So yes, I think we continue to work on further margin improvement. I think as demand goes up, further scale benefits will also come in.

Next question from Raghu of Nuvama. And some of these have already been addressed, so I'll only pick those which are new. Can you indicate if the double-digit growth is likely to continue till September? And the share of tippers has gone up. Do you expect tipper demand to remain robust ahead? In HCV cargo utilization is at about 80%. At what level of utilization do you think fleet operators start to add trucks? And another question on delinquencies and availability of finance.

Yes. So thank you, Raghu. And frankly, I'll be delighted to give a one-word answer to your question 2 and 3, which is yes, right? But I think I look at it like this. See Q3, which has gone by Q4, we are seeing a Y-o-Y growth also because of the base effect. And I do see that base effect continuing in H1 of next year also, right? And therefore, if GDP continues to grow at this rate, consumption remains at a higher level, the infrastructure mining activity continues at this level, then I think we should see this kind of a growth. Share of tippers has, yes, indeed, it has gone up. And it is not only mining and infrastructure activity, but also the urban construction activity is also leading to an increase in tipper and RMC products that we see. And with the focus of government on these sectors, we see this demand to remain robust ahead. Your next question, Raghu, is in HCV cargo utilization is at 80% at what level of utilization? Frankly, we still don't have that kind of data and solid backup to say that, yes, I think we are close to this. But as I answered earlier, I think with the drop in initial prices and some of the customers, especially the fleet owners are looking at which of the GST regime they should take, they should follow, right? And therefore, this is something which should get clear as we get towards Q1, and that is also something which should help replacement demand probably. You also have asked a question on can you indicate ease of finance availability for operators, trends and in delinquies? So I know, yes, there was one report which was released in the quarter gone by on increasing delinquencies, et cetera. But that was actually based on data which was at least a quarter prior to that. Our direct connection discussion with the financials clearly indicate that the delinquency trends have stabilized, used and are improving over the past few months with clear green shoots visible across major financials. And in fact, see, I mean, this kind of a growth, 25% of the growth isn't going to happen unless the financials bring in 25% more money. I must also say the various delinquency buckets that they look at, 30 to 90 days or 91 to 180 days past due have actually moderated compared to the earlier stress periods supported by stronger collections, tighter underwriting and more disciplined risk management. I had also highlighted some stress in UP, APTS and Karnataka. Even in these states, there has been an improvement, although they still remain a bit behind other states comparatively. I hope I think, Raghu, this answers all your questions. I think he has asked another question.