Tata Motors Passenger Vehicles Limited (500570) Earnings Call Transcript & Summary

Hi, everyone. Thanks for joining today's call. This is Robin Zhu, Asian automotive analyst for Bernstein. I'm delighted to be able to introduce Mr. PB Balaji, CFO of Tata Motors. We're going to try and conduct this in a fireside chat sort of format. Before we start, thank you for everybody that's sent in question in advance, and we'll try to cover as much as we can. If you have any more questions, please e-mail me, [email protected]. So standard disclaimers apply. Balaji, thanks again for being extremely generous of your time and taking time to do this call. I guess the 3 main topics we were hoping to cover were: One, the near-term impact of the coronavirus outbreak initially in China and now looking like globally; the second, CO2 compliance. I mean, this is something that I've spent a bit of time on, and we get plenty of questions on from investors; and then number three, a few questions around the Charge+ program and longer-term structural change at the company, and what the plans are for new management? If it's all right, I'll go straight into my questions, if that's okay with you?

Yes. Thanks, Robin. Thanks for organizing this. Pleasure to be here and happy to chat up on this one, any other topics you want to talk about.

Awesome, thank you very much. So I guess to start, just in terms of near-term, obviously, there is huge uncertainty in terms of the medical situation, in terms of how this is propagating across different markets. As leaders of the Tata Motors and JLR businesses, I mean, how are you thinking about going on? How are you -- what assumptions are you making when trying to plan for the future in terms of: A, in China, the production recovery over the coming weeks, how you imagine demand to be? And then, I guess, I'll follow-up with a question for overseas.

Yes. I think on the coronavirus situation, we had put a status update last Friday, just to give -- get everybody on the same page. And the current situation is similar to what we called out there. If I split the problem into 4, I would look at JLR demand in China, supply chain, thereafter Tata Motors, domestic PV and CV. That's how I would split the problem. And on the JLR China demand situation, I think we probably -- and the worst is probably behind us in terms of things starting to improve from February onwards, which is what we called out. And we see this gradually improving as the days progress. And with respect to our own people, very happy to report that all of them are safe and sound. We had one particular instance of a coronavirus impacting one of our employees, but the person is now safe and sound, back on track again, so no worries there. The domestic China supply situation has improved quite significantly. Now we have 97% of our vendors now producing, and they are now at almost 80% plus capacity utilization, which means bulk of the supply situation there is now sorted out. We are able to get airlifts -- air shipments going from China out, which means whatever China-related supply chain, I think, is broadly under control is the current situation at this point in time. There is some challenge on sea freight at this point in time because the ships -- there's a lack of availability of containers, sea freight containers at this point in time. But that, I think, is temporary because a lot of ships have skipped the Chinese ports, and those, when they reroute, we should start seeing the containers coming back again. So therefore, at this point in time, we do not see a disruption coming from China to the global supply chain for JLR as well as domestic production in China. Yes, there are other countries that are getting into challenging times at this point in time; Italy being quite significantly impacted, and that could have ramifications on the supply chain going forward. But at least for the next 2 weeks, as we see the plan forward, there's no production cuts or anything planned in JLR. We are quite -- we are stocked up reasonably well on that one. So therefore, it is -- every passing day has to be looked at, a lot of firefighting, as you would expect, happening across the length and breadth of the company. We hope to be pulling through as we speak. The second element is Tata Motors. So we talked demand in China, we talked supply chain for JLR, then is supply chain for Tata Motors. As far as BSIV is concerned, we are done and dusted, so there's no risk whatsoever. BSVI is -- some parts of the business could get impacted, but we have been able to move out almost 2 chartered aircraft out in the last 1 week, and therefore situation is improving. And we look forward to moving it away from air charters into sea freight pretty soon, but it is being monitored extremely closely. And I wouldn't say that people are now back in comfort zone. A lot of burning the midnight oil happening at this point in time. Additionally, we also had a local fire in one of our factories that was manufacturing lamps for the newly launched Altroz. Again, happy to say we have now retrieved the tools, manufacturing has started again. We have -- we'll be retrofitting the already manufactured cars with the lamps, so we should start getting back volumes again on that. So net impact of all this is a lot of people burning the midnight oil, making a lot of calls, lot of supply chain follow-ups. So we expect JLR EBIT to be impacted by about a percentage for the year because of this and -- which -- and we still expect to remain at least modestly cash-positive for the quarter in JLR as well as in Tata Motors, which I think we are quite happy with the situation, given what we are currently grappling with to have landed here. So that's where we are on coronavirus.

Understood. And if I may just dive in a little bit. I mean, you've obviously issued this guidance in terms of what you think Q4 impact is going to be. Two questions. One, what kind of a run rate are you anticipating for China in March versus what's normal? What is the assumption that you've made behind that? And secondly, we've seen China now, I guess, get past the worst of it. And I think there is a question around Europe and the U.S. that needs to be asked in terms of whether it's supply or demand impacts potentially over the coming quarter or 2, depending on what happens. Any thoughts you could share on that front would be great?

Yes. As far as demand is concerned, if you recollect, we dropped February by almost 85%. So we are running at 15% of January sales rates in February. We expect that to be in the excess of 40%, 50% as we enter March, and that's something that will -- that we're already seeing on the ground. And we also expect to see the dealers after sales service situation also improve quite significantly as we go forward. So this is much better than where we were in February, but definitely nowhere near trend rates that we are growing at almost 25% over the previous year. So we will not be satisfied with these numbers, but it is better than where we were in February. And as far as rest of the world is concerned -- as far as U.S. is concerned, we import all our cars into U.S., so there's not necessarily a supply chain impact of the U.S. supply chain at this point in time. Europe is a big one. And Europe, we have almost 90%, 95% of our volumes, of our raw materials, in-bound materials sourced out of Europe. And so far, so good. But yes, we are aware the disruptions are real, and we'll have to see how much of it plays out in the coming weeks.

Understood. Okay. And in terms of the impacts on the dealer networks, you mentioned that after sales is coming back quite quickly. Is the business -- is JLR issuing incremental incentives, different measures that try and support dealer cash flows and profitability? Should we expect that to -- is that already baked into the guidance for Q4? And could we see more of that, whether it's in China or elsewhere in the early parts of FY '21?

See, at this point in time, we are keeping wholesales extremely low because we want to ensure the retails clear out. And that strategy of ensuring that the dealer inventory and viabilities maintain continues with respect to what we can do on the inventory side. We have no intention of pumping up the supply chain at this point in time. And as far as the dealer viability and the issues are concerned, I think it's too early to have those conversations now because first priority is to ensure that the dealer is fully staffed, is open, they have sufficient masks, of ensuring that his people are neatly split into ship, so that there's no one group is not impacting the other. Those kind of operational discussions is what we are on to. And we are seeing excellent support from the dealer network on working our way back out of the trouble because those are the real things that they require at this point in time.

Understood. And when you look at your China dealer network, I mean, is there a proportion of dealers that you would consider as high risk when it comes to viability, cash flows, where I guess you should spend the majority of your support hours and...

I think, each one of them has their own unique challenges, and therefore Qing and team are on to all of them and ensuring that the communications are open and extremely close and intense. And at the same time, we're also seeing a lot of support coming in from the banks in terms of deferment, in terms of moratorium on payouts, et cetera, which is also equally important in this because it's a temporary aberration is how we read it. It's not a structural correction to the viability or the growth rates of the business or the TIVs of the industry. So therefore, we need to tide over the temporary crisis, and then we can decide once -- if we know what exactly the real situation, then we can decide the longer-term challenges there. At this point in time, we're treating it as things will come back, yes, gradually, but definitely will come back.

Understood. Okay. And in terms of cash flows, I think in the update that you provided for the fourth quarter, I think, if I'm not mistaken, you indicated that cash flows will still remain positive in Q4 despite the sort of near-term impact of the virus. Could you confirm that? And given that working capital tends to swing quite a lot between Q4 and Q1, is there anything we should be aware of cash -- the cash situation beyond the immediate quarter?

Two things in that, one is the cash -- I'm confirming as we put it in the guidance as well, that we will be modestly cash-positive in JLR and in Tata Motors this quarter. So we are quite comfortable on that one. At the same time, the loan payouts. So currently, we are sitting with about GBP 3.9 billion, if my memory serves me right, on cash balances. And then of course, we have a revolver of another GBP 2 billion -- GBP 1.9 billion. So there is sufficient cash balances that we have. And we need to pay only about GBP 250 million -- GBP 300-odd million in March and then the rest is now in January next year. So we have a pretty light schedule in terms of our repayment. And we continue to look at opportunities to find sourcing of funds, and we will diversify our funding sources, so those we'll actively explore. Particularly in China, what is also happening is that we're getting strong support from the government and the local authorities on deferment of customs payments, which we have already secured. So those will also be part of the plan as we generate the cash flows for the quarter. So all in all, I think on the cash side and the liquidity side, we are quite comfortable. And we have no urgency to hit the market. We did want to go into the market in February, but we didn't like the pricing and therefore we pulled it off.

Right. Understood. And what about on the equity side? I mean, because a couple of quarters ago, the majority shareholder came in with effectively some new funding for the company. In light of what's happened and the potential for some, I don't know, touch wood, fairly volatile trading over the coming months, is that something that the company at this sort of shareholder level might consider to shore up confidence? Because the last time that happened, it did provide a bit of a reset for the bonds. So wondering if that might be something that could be considered again?

See, I think the debt equity levels of JLR, I reiterate again and again, I think it's extremely comfortable. There's not a debt equity issue in JLR. If I were to cut to the chase, what people are worried about in JLR is your -- how far will you have cash burn continuing, and when will you turn cash positive, which is more a creating cash flow, less CapEx issue. So it's a business conversation we need to have and not necessarily a balance sheet conversation. And as far as the JLR bonds themselves are concerned are more reacting to the 2 things; they're reacting to the rating, and the fact that you're having -- some of the iTraxx indices have really widened, and therefore that is creating a bit of a concern there on top of what you'll have Brexit and playing the China story through us. That's what's happening there. And so we are quite -- we understand why it is going the way it goes, and we'll do whatever is needed for that at an appropriate time. And as far as equity infusion itself is concerned, as I said, there's no need for equity in JLR because it's a well-capitalized business. It's gross debt to equity will be sitting at about 2.5, so it's quite all right in terms of its debt equity position. And net debt equity is actually sub -- is about 0.6 or something like that. So it's quite a comfortable situation there. And the reason so that we are clear why we had to infuse capital in domestic market is simply because I think the sharpness of the fall we faced in the medium and heavy commercial vehicles, which is a cash generator for the business last year, was something that we did not want to prolong beyond a point, and therefore we have to acknowledge that fall and correct with an equity infusion. And as we speak, I think bulk of the inventory correction, not -- all of the inventory corrections are done and dusted. And therefore, going forward, it's a BSVI transition, we have now made it quite seamlessly into BSVI. And now it's just a question of ensuring we build back inventory at the dealer end and then continue to focus on retails and -- in the BSVI world and take off from there. So we do not see a need for even in the domestic market. And as we have said since then, we've been consistently generating positive cash flows in the domestic business as well. All the inventory deterioration that we had, we have completely corrected by this month. And therefore, we don't see a concern on cash flows or equity infusion, both, be it domestic or JLR.

Understood, okay. And I guess, related to this, I mean, everything you said sounds fairly encouraging. Could I just ask, what are your assumptions with regards to premium segment growth in the key regions for FY '21? Because for 2 reasons, one, to understand what underlies your business assumptions, I guess, but also to what extent do you think there may be risk at least in Q1, if there's a near-term sort of worsening of the medical situation?

Yes. I think as far as the near-term is concerned, extremely fluid, very difficult to read which way Q1 and -- Q1 will go, that is next financial year, first quarter, both in Tata Motors and in JLR because here BSVI needs to come on land in the market and then people need to accept it, the new pricing and then take off from there -- new technology and take off from there. And there, I think global, this whole follow-the-sun way in which the whole coronavirus is moving from East to West is something that needs to complete its cycle and then the new demand situation has to stabilize there. So it's fair to say that first 6 months, Q1, Q2 next year, is going to be extremely volatile as we go through this phase. At the same time, we'll also see the people who have been already affected starting to come back again. I would definitely expect China, Korea, Japan, to all start coming back into the equation as Q1 starts moving forward, but that totally depends on stabilization of the virus cases and ensuring that local economies actually starts moving. So I think the first marker in that happened yesterday when you had the Premier going to Wuhan. And that shows a lot of confidence that they have got it under control there. And thereafter, I think one would want to see the alert levels going down in Shanghai, Beijing, which we are expecting sometime in mid-March, end of March should start happening. And that should then give us signal that slowly business is getting back to normal again in terms of night life and other matters there. One would want to see similar -- I think Italy is the next one to start coming out of this one, let's see how that plays out. So demand per se, we are internally planning very weak demand rates for next year. And our objective is to see we can go beyond that. And flat to 1% is what I would expect global demand to be on premium because there is likely to be also factors that will start playing in our favor going forward because one would start expecting easing of some norms with respect to license plates. It's a fair expectation, not necessarily an assumption. Second, of course, is shared mobility, there will persist own mobility, there will definitely be -- the pendulum could correct a little bit there. And some of financing models in terms of turbocharging growth, tax rebate, et cetera, would also be available, which is what one would expect as they pump prime the economy back again. So these are all factors that are there. But I'm not expect -- I am not giving it any credence at this point in time unless we see it. So we're expecting flat growth next year, and we'll need to grow beyond that.

Understood, okay. And then in terms of the slightly further outplans or, I guess, for the next 4 to 6 quarters, to what extent does what's happening now impacts your planning on CapEx and R&D spending, product cycles? Is there any risk to any of those things considering the near-term uncertainty?

As far as I split the problem into 2, JLR at this point in time, we have not yet -- we are still reading the situation. As far as Tata Motors is concerned, I think we will see us tightening CapEx further because it is very clear that the peak of 2019 in terms of volumes of medium and heavy commercial vehicles and commercial vehicles is not going to come back in a hurry, maybe it'll take another -- next 2, 3 years before it actually comes back. And therefore, there's no point waiting in hope that demand will be back again. And there is a fair number of challenges that we are facing here in India. Therefore, we are very clear that we'll cut back CapEx in India quite significantly as we go into next year. And also, BSVI CapEx is done and dusted, so we will take it off the table in terms of interventions. And JLR, I think we'll probably wait till end of this month to actually see what is the situation on the ground. And then if we need to calibrate CapEx further, we will do that. But as we are ending the year, I think we have ended the year quite strongly with respect -- we will end the year quite strongly with respect to CapEx controls. And none of that will change as we go into next year. If we need to tighten further, we'll do it, but definitely no question of relaxing CapEx controls at this point in time in JLR.

Understood. I guess I was asking more about the ability or the flexibility to suspend or to cut CapEx more sharply over the next 1 or 2 quarters, like, how much flexibility do you have to -- whether it's to conserve cash or whether it's to give the business a bit of leeway in the context of everything that's going on to sharply reduce CapEx, say, for a quarter or 2? Is that possible for you.

I think that will not be necessary. I don't think we need to cut CapEx to manage cash levels because we've quite -- we're sitting with a good GBP 3.6 plus billion of cash at this point in time. Therefore, there's no need for using CapEx to control cash flows. What we -- what I am more referring to there, what is the structural level of CapEx that the business can work under is a bigger question because that is more the medium to long-term conversation we need to work with. And if it needs, we need to calibrate that further, that we will take a decision in the coming month once we are able to read the demand situation better post coronavirus. And if that is unlikely to come back in a hurry, we'll need to take hard steps. But if it's a temporary aberration, then we have sufficient cash to balance, to manage that. But the guidance -- I mean, the plan for JLR to get cash neutral and then cash positive, that stays, none of that goes away. And that's where the role of projects like Charge+ come into the fold because we now need to ensure that we drive higher levels of savings, higher levels of realizations on contribution profits, which will be the focus of Charge+ unlike Charge, which was focusing squarely on people, working capital and CapEx. Because we now need to start generating operating cash flows higher so that we can spend it on the right CapEx levels and then generate the free cash flows.

Understood. And I guess -- sorry to be repetitive, but just to confirm, you're happy with the level of cash flows and balance sheet cash, considering that you've got the seasonal outflow of cash in the first couple of quarters just because of working capital in the U.K and so on. There's no -- you don't see any risk in light of the coronavirus situation that you may need some extra funding?

Not at this point in time, given what our current assumptions are. But, of course, if situation deteriorates extremely alarmingly, and it needs to be seriously alarming, not a little bit here or there for us to reconsider that. And secondly, I'll just draw your attention to how we manage this current year versus how we managed last year. The cash outflows in current year were significantly lower compared to what they were last year, so we are learning how to smoothen out these cash generation and cash burn so that we don't get into quarterly matters and have a reasonable flow, but yes, there is an element of seasonality, which you are right. But we're trying to reduce that so the peak and troughs can be smoothened out.

Understood. Cool. Before I go on just...

I do not think this is going -- Robin, just one additional point. To the extent that China has gone down this quarter, it's also fair to expect some of it will also come through in the subsequent quarter. That will be an upside to the cash position as well as we look into Q4. So this -- I would rather look at Q4 and Q1 together for both the years, this year and last year, for us to get a better read on it, subject to, of course, things don't -- not deteriorating anywhere else in the world alarmingly.

Correct. What would you consider alarming or seriously alarming?

Good question, good question.

Which is in contact -- where is the line [ between ] comfortable and alarming?

For me, it's customer, how significantly is consumer demand collapsing. China was a deeply worrying situation last month because that was a complete clamp down of demand of the -- one of the largest economies out there. So that would be seriously worrying. So far, one is not seeing that level of intervention anywhere in the world. And therefore, it will totally depend on how the consumer is able to -- is reacting to this.

Is there a number that you could put to, say, quarterly sales growth or whatever it may be that -- what constitutes alarming?

Not at this point in time. Let's see it. It's too nascent at this point in time, Robin, for us to...

Okay. Got it. Cool. Yes, before I go on, just for the folks on the phone, if you have any questions that you'd like me to address on the call, please e-mail them to me, [email protected]. We'll try and be as inclusive as possible. Balaji, back to our discussion. I guess, this is a good time to segue into change of the company. I guess, there's 2 aspects, one is Charge and Charge+. If you could quantify it, like if I -- if my memory serves correctly, there's GBP 700 million of Charge+ savings that are scheduled for FY '21. Could you share like within that, what is the rough split between, say, variable cost savings, direct material cost savings, and on the OpEx side, further reductions to fixed costs? And on the former, on the variable material costs, to what extent is that volume-driven? You have to give the supplier something so that they give you price reductions? Or are they not volume dependent at all?

Yes. See -- you're right. Just to bring everyone else on the call up to speed, we had called out Charge as a program of starting September last year, ending in March this year, to deliver GBP 2.5 billion of cash savings, split broadly as GBP 1 billion in CapEx, GBP 0.5 billion in working capital and GBP 1 billion in cost savings. And out of this, we've delivered GBP 2.9 billion versus the GBP 2.5 billion that we had as a target by end of December. And we intend to now -- we've now launched the next version of Charge, now us having exceeded that number to run it for another 15 months, starting December all the way till March of next year to deliver GBP 1.1 billion on top of that, out of which we said about GBP 400 million is likely to come in Q4 this year and then the remaining GBP 700 million, that Robin you referred to, coming into next year. So if I -- so on the cost savings side, bulk of Charge+ is in cost savings, and most of it is in variable cost. And out of the variable cost, it's a mix between what we do on realizations, mix, material cost savings, warranty cost reductions, VME optimizations, all that pieces there. That's how it's typically spread out. And a fair chunk of it comes out of material cost reduction. And in this material cost reduction, more than the commercial -- yes, there is an element of commercial negotiations involved in it, but more than that a sizable portion of it, let me put it that way, is linked to features in and features out, which is designing features more optimally, ensuring that we reduce complexity of what parts that go onto the vehicle. So it is actually a combination between marketing, engineering and materials procurement, together sitting and figuring out, led by the vehicle line directors, to understand what is it that needs to be in the car and what needs to be taken out, what is it being priced for in the car and what is not being priced in the car, so that we are making clear choices. And wherever we are doing it, again, you also look at some of the inbound supply chain optimization that we are doing, multiple number of hops that a particular material takes before it lands up in our factory, how do you kit it, how do you pack it? So there's a full-fledged intervention that is happening split across 33 commodity groups and run in 2 waves, so that we are able to take out about -- 50% of the cost savings, we are able to do it in phase 1 and the remaining 50% we do it in phase 2. That's how we are looking at it. And so far, the progress has been very good, and reviews are continuing with the same level of intensity that we ran Charge with. And we are, therefore, quite confident that this GBP 1.1 billion is something that we will be able to deliver. So that's Charge+ for you. Most of it variable cost.

Yes. Have you assumed anything in terms of warranty costs? I mean, this has been something that we discussed over several quarters. It's come down in the last couple of quarters, which is encouraging. I mean, just wondering if this is something that was as part of the Charge+ plan. Or is it -- would it be incremental?

Yes. It is Charge -- part of the Charge+ plan. And we know that the global benchmarks are sitting more like between 1.5% to 2% depending on whom you take as a reference. And we are at least 200 bps more than that. And it will be -- it's a combination of how we do goodwill as well as how we -- what are the failure rates that we have. And therefore, that's also being picked up as part of Charge+ for savings. We are not breaking up individual line items because we'd want to keep a bit of flexibility to ourselves because there are multiple thing -- moving parts in this, but warranty is very much part of the game.

Got it, okay. Related to the business change, I mean, Ralf has recently stepped up stairs, and we're due in announcement for the new leadership at JLR. I mean, as group CFO, I mean, how do you think about this change in terms of what it means for the JLR business? Do you consider it an opportunity to perhaps shake things up to make some different decisions from the past? Or do you -- would you say that continuity is more important?

I think it's a routine process that's currently kicking in because Ralf reaches 65 years when he -- in September, and therefore, as per Tata Group policies, that's why he's offered to step down. And there is a selection committee that has been put in place. And I'm sure they will find an appropriate candidate who will come and lead this exciting company. So as a CFO, I'm looking forward to working with the next CEO, but Ralf is very much in the saddle at this point in time, so fun to work with and continue to work with him on that one till we find a new person. And I think as far as the agenda itself is concerned, that is pretty clear because JLR is already taking quite an aggressive agenda in terms of be it growth, be it product introductions, Charge, now Charge+, as well as Accelerate, it is all transformation. So I am expecting till the new CEO comes and settles down and reviews the entire strategy, this is what we'll be executing as a team. And we'll wait for the new person to comment, in case he or she has different ideas on that. This is the game.

Got it. And related to sort of top-down strategy, my sense for it for some time now is that the business is still quite focused on growing on, obviously, lowering breakeven points and so on so forth, but also trying to expand the size of the business. There's various reports about new products, which is obviously encouraging in many ways, but if we do go through it -- go through this period where global demand, global SAAR is a bit weaker. What are your thoughts around sort of potentially, at least, temporarily trying to -- trying harder to become smaller, leaner in order to get through that period?

Well, which is what I am saying that in the case of Tata Motors, we are pretty clear what we're going to do. In the case of JLR, I think we just need to wait for a few more weeks before we understand this better. And that will be discussed in the Board, and that is when we will take a decision on that. It is -- you wouldn't want to react to newspaper headlines to decide long-term strategy because these are all decisions that will impact 3 years from now, 4 years from now and, therefore, needs to be done carefully. And rest assured that we will take those decisions as and when they become necessary as we have been doing over the last 2, 3 years.

Got it. I remember when -- this maybe 1 or 2 years ago now, but in one of our first discussions, I quite rationally at that time, probably, I raised the question of, at what point would you make some more bigger structural decisions around the future of the JLR business? At that time, I was referring to perhaps some of the Jaguar products, the Jaguar brand as a whole. It's been a couple of years. How far away do you think you are standing in 2020 from making some of those more fundamental questions around the nature of the business?

I think those are all very much in the pot in terms of issues that we still need to resolve. And as we work through Charge, Charge+, it also resets the intrinsic profitability of these businesses. And that will then be -- and that is one part of it. Second, I think as the new cars roll off MLA, low, mid and high, they also change the profitability profile of these brands as well. So I think those are the things that we are watching closely to really understand what should be the next wave of action that we need to do. But at this point in time, I think the team on the ground is focusing squarely on what is the brand position of Jaguar as a brand, and how are we going to make it sharper and how are we going to ensure that the portfolio that we have is in sync with that position, so Felix is driving that quite rigorously. And we are hoping to see the first set of recommendations that come around it in the coming months. It's not an easy task. It's a very, very renowned brand that is -- has a lot of salients in a lot of markets. And yes, in some markets, it's not as strong as it ought to be. And therefore, those are all the factors being considered as Felix works through it. And once we are ready with it, we will definitely share it with you.

Got it. Okay. Cool. Our third topic, CO2 compliance. I mean, this is something I personally have spent quite a bit of time on recently for several reasons. Could you just talk a little bit about how JLR intends to fulfill 2020, 2021 European CO2 compliance? What it entails in terms of what level of EV mix that you may need to get to in Europe? To what extent does BEVs -- I guess there's only the I-PACE, but BEVs, what level of mix will that need to get to for you to get to 2021 compliance? And mild hybrids, just the sort of technology mix that you intend to use, and to what extent are you making assumptions about diesel?

Yes. I think few background materials on this. I think, number one, the whole piece around, what do you call it, the derogation as a concept in the -- given that we sell less than 300,000 vehicles in Europe, including U.K., that's the first part of it, which means we have a more relaxed standard to comply with compared to rest of the larger OEMs out there, and that is as per European rules. So basis that, whatever the norms that are being coming up for us for FY '21, we are confirming that we will comply with that. And whatever amounts that we need to take as carbon credit they need to pick up that's part of the forecast that we've put in place, we are comfortable with it. Those are small numbers, nothing material in that, number one. Number two, the road map for that includes a host of things because 100% BAVs -- BEVs is one part of it. But the fact that all vehicles have an electric option starting FY '20 is an -- sorry, this CY '20 is an important part of that game plan. And at the same time, we're also seeing diesel stabilizing in Europe. So to the extent that we are able to make -- we're able to have these plans being executed and a mix that we believe is conservatively assumed, we are comfortable that we'll meet with the norms that are out there. And as far as hybrids and BEV itself is concerned, we need to assume. Anyway, we are assuming about 5% to 6% would be the kind of compliance that we need to -- in terms of volumes that we need to have in terms of -- to comply with the norms that are out there, and -- which we believe we should be able to meet comfortably.

So is that 5%, 6% BEVs for '21 compliance?

Yes, yes.

Okay. Good. And then...

Hybrid will be another 5%, 6%. So between the 2 of them, take about 10%, 12% to be the compliance thing that we need to do between hybrids and BEVs.

Hybrids, meaning plug-in hybrids?

Plug-in hybrids, mild hybrids.

Okay, cool. Fine. Great. And in terms of the end markets that you intend to sell into, I mean, it is quite noticeable that the I-PACE, if you look at European sales, it's very concentrated in a few places, whether it's the U.K., Netherlands, Norway. I think the reasons for that I got clear, but is there any assumption of that evolving, changing out the next 2 or 3 years? Or is that basically the game plan to sell in these markets where the regulatory regime is especially, I guess Pro EV?

I'll need to get back to you on this. I'm not as close to it in terms of country-wise positions in Europe and what's going on. So I can get back to you separately on that, if needed.

Great. And on the low volume derogation, my understanding is that this is currently confirmed to go through until 2028. There's no -- can you confirm that there's no risk of this changing as a result of the latest discussions in the EU with regards to the new deal? And what could potentially change in terms of '25 and 2030 rules?

We don't know is my honest answer at this point in time because it depends on how the discussions happen in the world of Brexit. And at this point in time, we have briefed the respective people who are informed of it, who are aware of it. Industry is well aware of this issue there. And we'll have to just wait till any clarity emerges on that. At this point of time, the benefit will continue.

Got it. Okay. And just to confirm, the 5%, 6% of BEV sales and hybrid sales, did you mean 5%, 6% of European sales or global sales?

Yes, yes, European sales. European sales.

European sales. Okay. Cool. Got it. And on the I-PACE, I mean, it's a brilliant product. I mean, I was in the U.K. when you guys did the Analyst Day. I draw it -- I liked it. The sales have not really reflected that kind of product sort of feedback. I was wondering, when you look at your sales, when you look at some of the sales at BMW or the other German companies or -- and compare that to Tesla, I mean, what do you think is -- where do you think the gap lies? Is it simply that Tesla has monopolized the idea of an electric vehicle? Is it something more sort of from an engineering standpoint that is different? Or where do you think the different lines? Or where the greatest different lies when it comes to the observed outcomes?

I think it's a traditional market penetration curve, where I think you've seen the early adopters who have gone into Tesla who were the evangelists, who are there. And the more -- the belly of the market is still not yet moving into it. This is what we keep saying. In all this, we are having too much technology talk, we need to have more consumer talk and how we're going to ensure the consumer adoption rights. And therefore, things like charging infrastructure, et cetera, becomes very critical, particularly in countries -- in Europe where people drive long distances. And therefore, that's something which is -- the more that starts coming in, it then becomes a chicken and egg story where what do you put first. And I think those are moves that need to happen because regulators have put the norms there, but it's equally important that we're looking at the consumer side and ensuring that those fears are removed and those assurances of range, et cetera, are secured. So while so much conversation has gone towards battery technology to keep increasing ranges, if only a fraction of that conversation goes towards how we're going to build charging infrastructure, I think we would have been in a different place. So one is hoping that those will change as time goes by. And then the belly of the market moves, then you'll have a different profile of OEMs getting into it as well. So I think it's a matter of time because in the midst of an exponential disruption where we will always overestimate near term and underestimate long term. So we are clear that this is a course, which we need to traverse, and therefore let's stay invested in it, and one fine day the consumer does change.

Okay, cool. And I'm assuming the plan is to reuse the I-PACE architecture. I mean, if you could shed light on, is the XJ on the same architecture? Is there other plans to do like a Land Rover version of the I-PACE or something on the same architecture? What are the plans in terms of the MLA, which is a flexi platform versus the I-PACE structure in terms of how you decide to prioritize one over the other?

I think bulk of our focus will go towards the MLA, that's what we have called out. And that is where all the efforts will be in terms of the newer arch -- new vehicles coming through.

Right. And does that -- I mean, that sounds like you don't plan to keep using the I-PACE architecture, is that fair?

I am not privy to it at this point in time, but the main focus of all our efforts will be on the MLA side. And we will need to make a choice in terms of when we want to expand the I-PACE architecture. But I think we must be clear that I-PACE was first used as -- first as a technology demonstrator, which we can actually show the world that we can deliver -- show to ourselves that we can deliver a top-notch vehicle. Now that we have understood how to do it, we will want to build scale, and therefore, it is MLA that will be taking the lead on that.

Got it. And so the all-electric XJ, that's coming, that will be on the MLA?

Yes.

Got it. Okay, cool. All right. This has been really helpful on the JLR side. It is something that I probably understand less well. India, the economy has gone through this weaker periods. MHCV sales have down -- they are down over the last few quarters. I mean, where do you think we are in that process in terms of just the overall SAAR or the overall cycle bottoming, potentially getting back to growth in FY '21? Have margins bottomed? Any thoughts on that front would be great?

Yes. I think if I split the India issues into 2, there is a set of cyclical factors which will reverse, and set of structural factors which you need to work through. I think matters like liquidity, matters like capacity or -- sorry, traditional demand based buying that have overshot, one is expecting with the correction having been done, we should be starting to get those back again on trade. I think the key structural ones is what we are focused on, starting with, I think the biggest one of them all is axle load piece where we enhanced capacity of the part by 25% without notice. And I think that is working its way through. By the time, middle of the year comes, I think we should be done and dusted, 2 years would have passed, and then hopefully we should now start seeing the waning effects of that. If, touch wood, we also get a scrappage policy happen at that point in time, then I think second half we should be back on track again. The second structural factor was related to the whole liquidity crisis that happened in the market. And I think the ILFS-related issues, I think, is no more or less done and dusted, markets are in a good place, availability of liquidity is not a problem, collections are improving, no issues there. Personally, I do worry about how the Yes Bank fallout will play out in the market. If they're able to contain it and actually deliver it as a big win, I think the markets will definitely react, so liquidity issue should definitely be behind us after that. And third, which is one that really, along with liquidity, got the whole market into trouble was the infrastructure investments that didn't go through at the speed that one would have wanted. And that is -- we are starting to see that come back already. So if you look at the construction segment, tipper trucks, et cetera, are already starting to move. So I think these 3, external structural factors, then, of course, is the BSIV to BSVI migration, people are all waiting for a prebuy. There's no prebuy possible now because all BSIV vehicles have run out, so which basically leaves the prebuy hasn't happened, which means the collapse post -- which we are expecting post, the prebuy will also not happen because it's now normal smooth and it's a smooth supply chain there. And therefore, that issue, hopefully, next 3 to 6 months, I would expect people to internalize the technology, do their trial runs, understand which technology is better because each of us have taken different routes to the technology. We remain fully convinced that the route that we are taking is global standard, and therefore that is the one that will win in the long run, others have different thoughts. May the best technology win. We are very clear as with the one there. I think that if it clears out, I am expecting CV to actually start moving from second half of the year. First quarter will be -- CV will be particularly weak, and second quarter monsoon is normally a weak quarter, but we had a horrendous second quarter last year. I'm hoping, therefore, things should look better from that perspective. But the real demand I'm expecting by September onwards post monsoon. If we get a good demand going through, I think CV should start turning from there onwards. But it is fair to say that the peaks that it hit of 2019, CV will take a little bit of time to get there. But one is just wanting growth back as long as we don't plummet 60% in M&HCVs, I'm perfectly fine batting in this pitch.

Okay, good. I've got a few questions from helpful clients, help me out with India truck. What do you think is the impact of DFC completion on transport demand and truck? And also, what are you seeing in the downstream, in the trucking companies and fleets and financiers, whether any of those are running into trouble or how they're doing? And does any of that sort of influence your thinking on where and when M&HCV bottoms?

I think what we have done is kept the ecosystem extremely healthy. We have cut out inventory quite aggressively. So bulk of my dealers, both in PV and in CV, are actually quite comfortable viability wise, no concern there. And we are now starting to see that picking up momentum again. So I think broadly, on an ecosystem, we are quite comfortable, bankers, financiers, everyone there. The financing system did get into a bit of trouble on the M&HCV customers who were -- had problems with their money stuck with the -- most of it with the government, that has now been released. So collections are not -- they are not comfortably touching 100% every month. So therefore, one should see collection efficiencies quite -- improve quite significantly this quarter. And therefore, we are all ready for tapping into demand. Products are now -- new products are BSVI. They're all designed for to deliver solid TCOs. So I think we are ready and raring to go. We had a little bit of concern on the -- some of the electronic parts for the BSVI migration coming in from China. That, I think, is a temporary matter. Within the next week or 2, we should be able to resolve it. And then we are ready, we are open for business.

Understood. And in terms of truck margins, I mean, historically, 0 is sort of a trough in terms of where the industry went and turned around. How do you think about trough and peak margins, especially in the context of the higher cost of BSVI and higher fuel costs?

Yes. I think, firstly, the freight rates are starting to harden, which is good news. Used vehicles' prices will start hardening after the BSVI migration, which means that's, again, good news for people who are changing their fleets. Fuel prices, with this collapse in crude is actually a godsend for this economy. And that can actually -- if used properly in a focused manner, can really turbocharge growth, so looking forward to that. And of course, from a point of view of BSVI inflation itself, we are all -- I mean, from a Tata Motors' perspective, these vehicles have been absolutely top to bottom redesigned to deliver better TCO and better value proposition. So it is now a hard-core selling story at our end, no more a product story, it's a selling story to ensure the benefits are communicated and accordingly people will realize the value of it. So go back to my earlier statement, I think the stars are lining up in terms of this business getting back on the rhythm again. Very seamless transition to BSVI that we had committed, we will deliver that and now we are waiting for growth to come back. So we are open for business. Now we need a bit of customers and demand coming through. And of course, we will work quite seriously to mitigate the pain of the BSVI transition and to get demand back again. We are the market leaders and we can...

Great. Yes, there's a couple of other questions from my inbox, if that's okay. How do you think about Defender volumes -- peak Defender volumes versus some of the other Land Rover products, the big Land Rover products? And how do you think about cannibalization within the upper half of the SUV segment for Land Rover?

I think there are few things in that. Defender, it's a different kind of a vehicle because it's coming back into the U.K. after 2015. It goes into China for the first time. It goes back into the U.S. after 1997. Therefore, it will be -- if it's just going to cannibalize existing products, that will be deeply disappointing because it's going into different consumer segments and in a different avatar, into a different kind of product than what it used to be. So it is not about the nostalgia that we're going to buy, we are buying into an extremely capable vehicle. I am particularly excited to see it going into the U.S., for instance, which is fundamentally -- in the earlier days, it was fundamentally a sedan market when Defender was there. It's now fundamentally an SUV market, a pickup market. And therefore, we'll see Defender actually being very apt for that kind of a market is how we see it. That's the kind of response we've got from our dealer fraternity as well. And therefore, sounding quite confident on what Defender can do. Time will tell how much we can translate that into sustainable volumes. But the order pickup has been outstanding, well ahead of our internal plans. And it's -- now we need to deliver that vehicle in the kind of quality that it does.

Got it. 50,000 units?

Beyond, but you'll not get me into a number, Robin, you know that.

Worth a try. Cool. Different question from email. Funding, so the last couple of weeks has been sort of mildly dramatic in terms of what the market's done. There's concerns around the money markets and to what extent the funding markets are open to new fundraising. How do you think about JLR in that context? How do you think about Tata Motors in that context? Would you be open to, say, for example, secured lending? Or would the majority shareholder be the sort of lender of last resort in a "insane situation"?

I think we talked about a little bit earlier in terms of balance sheet and current liquidity position, so I won't retrace that path. I think the key thing for JLR, you will see us doing that consistently is to diversify our sources of funding. We were 100% bond. We then got into syndicated loans. From there, we moved into U.K. financing. And we won't stop with that. We have proved, over the course of last year, that we can be pretty flexible at the way we fund ourselves. And therefore -- at the same time, whenever opportunity arises, we will move very fast into the markets as well. And we are quite confident that we can do it again and -- because I think the underlying numbers, people will see through this chaos because it's been -- the bonds traded extremely well for a good 6 months. So therefore, there's no earthly reason why we should look panic because of 1 week or so. And we are expecting markets to come back, and we are in no hurry for the markets to come back. We are well positioned in terms of funding. And as far as Tata Motors is concerned, even in this weaker demand, the bonds are trading extremely comfortable. There's no worry at all. And we've just about did a INR 500 crore borrowing in the Indian market as well, which also we've got a very, very attractive rates. We are in the market for Tata Motors Finance as well, which we are not pulling off because we believe we'll be able to secure it. So I don't see a concern on Tata Motors securing its funding as well. I think people will want -- if I see where the bond market will react, I think people will want to see the impact of all this on the P&L in Q4 and if they are comfortable with what we see -- what they see there and if it's in line with what we have put out there, I think the market will open up again, which may give us an opportunity again. So we will be waiting to strike at that time. At the same time, we are in no hurry whatsoever at this point in time.

Understood. Cool. One final question, given the time and we're coming up to half past. The China JV, there's been sort of management confusion turmoil in the past. Now I think one of the main issues is the capacity that's on the ground and utilization rates and the fact that there is now quite a large D&A bill that comes with that. To what extent would you say there is a risk that, that may need to be written down or adjusted? Or what is the plan longer term for the JV in terms of products, given the current line -- versus the current lineup?

Yes. I think it's clear that the current volumes that are coming through in the JV, even before the coronavirus was -- the issue was there, it's well below its capacity of 200,000 units. And therefore, they are also going to a road map of Charge kind of a program, and now that they've got Chery funding at the top. I think they are also comfortable in terms of taking fundamental calls in the CJLR unit with respect to the turnaround plans they need to put in place. So Adrian has agreed with them that their first port of call is to get to a breakeven. And this was before the coronavirus, so therefore maybe that will get delayed by a few months till we get the business back on track again, which is fine, which we'll want to use that to actually drive some of the harder decisions that need to be taken there, which is in the good interest of both the JV partners there. So those are fully aligned and being implemented. And at this point in time, focus is on getting production back again because the workforce is now back on track, but we need sales to go through, retails to go through for us to be able to start production again. So we are waiting for that to start, and then we'll be up and away. But the more difficult discussions -- decisions in terms of how do we rightsize the cost envelope and CapEx envelope in CJLR is very much part of this year's delivery plan.

Got it. I think we'll wrap it up there. Thank you so much, Balaji, for answering all of my questions, all the folks on the phone's questions. I've learned a lot. I'm sure we've all educated ourselves on the business. Thank you again, and look forward to speaking.

Yes. Thanks, Robin. Thanks all of you, and look forward to seeing you in person in due course. And in the meanwhile, stay safe, all of you.

Likewise. Thank you. Thanks, everyone. I think we'll wrap up here. Thank you.