Tata Motors Passenger Vehicles Limited (TMPV.BO) Earnings Call Transcript & Summary

Good day, and welcome to Tata Motors Limited Q2 FY '26 Earnings Call. I have with me today Mr. Girish Wagh, Managing Director and CEO, Mr. GV Ramanan, CFO; and the Investor Relations team. Today, we'll walk you through the results presentation followed by Q&A. [Operator Instructions] I now hand over to Mr. GV Ramanan SP999 Over to you.

Thank you, Sara. Can we go to the next page, please? So this is our standard safe harbor statement, and I just want to draw your attention to the accounting standards par adding the prior period financials in this presentation, they reflect the impact of the demerger as it has just been effective since the companies in cost resin that happened in June 2024. Accordingly, the Q1 numbers that are included here within H1 '25 numbers are derived numbers. In terms of our presentation format, there are no changes to the segment definition. It remains the same as in the past, and we've listed the details clearly there. On the consolidated financial statements, they include the unallocable and other items that are not specific to the commercial vehicle segment. These comprised largely corporate function and other subsidiary and associate companies, which are clearly listed here. Can you go to the next page, please? The key highlights for Q2, very happy to share that we've passed the entire GST reduction benefit to customers to the price cuts. And as the OEM, we were the first to kind of go off the block on this. This contributes to achieving the government's objective of accelerating economic growth. Our portfolio has expanded with new launches, especially [indiscernible] Gold Diesel, Wingers Plus and a couple of trucks, which clearly addresses diverse customer needs. We expanded mobility leadership in Srilanka with the launch of 10 new trucks and buses to meet the market needs. Electric mobility is a key focus area. We signed an MOU with green energy mobility solutions to supply 100 Magna EV intercity coaches. We have started delivering 148 Sabus EV buses to BMTC, supporting Bangalore's e-mobility drive. The EV ecosystem has been strengthened with over 35,000 public chargers in 150-plus cities for electric S series. Next page, please. Q2 FY '26 was full of significant corporate actions. We successfully completed the demerger with effective date of 1st October. And as committed previously, we are pleased to share that the listing of the commercial vehicle business is also completed and now listed as Tata Motors Limited with the ticker TMC on both BSE and NSE. On the [indiscernible] acquisition, the regulatory approvals are underway, and the initial funding through bridge loan has been secured. We would like to thank all our banking partners for the overwhelming response in this regard. To further reinforce our commitment to accelerate AI-led freight transformation and digital logistics, the company has invested an additional INR 134 crores in Freight Tiger, bringing the total investment to now INR 284 crores. Next page, please. The Q2 wholesale performance. This slide provides a detailed breakdown of our wholesale across period and product lines. Q2, we had a good quarter where wholesale clocked 97,000 units, which was up 12% year-on-year with increase in volume across product lines, and we outgrew the industry. Double-digit growth in IMCV and HCV product line and demand drivers gained momentum. Exports grew by a solid 75% on a Y-o-Y basis, mainly led by the [indiscernible] countries, especially Bangladesh, Nepal and Sri Lanka. With a quarterly volume of 7,600 units, our international business is back at pre-COVID levels of FY '20. Next page, please. On the [indiscernible] market share, our H1 stands at 35.3% with steady share across product lines. After a subdued Q1, trucks market share rebound strongly from the second half of Q2. SCV, while the shares remained flat, we witnessed healthy retail growth on the back of new launches. We expect this to continue. On CVP, we have a strong pipeline to recover our market share. Next page, please. for the financial highlights for Q2, the revenue was at INR 18.4 crores, up 6.6% Y-o-Y, with EBITDA at -- a double-digit EBITDA at 12.2% and PBT at INR 1,700 crores. Strong ROCE performance continues with Q2 ROC at 45%. And Margin expansion continues with EBITDA up 150 basis and EBIT up 200 basis year-on-year. Next page, please. On this slide, you would see the EBIT walk. The PBT increased by INR 469 crores Y-o-Y, with EBIT margins at 9.8%, which is a 200 bps growth Y-o-Y. The higher volume and favorable realization significantly contributed to margin improvement. The savings and fixed cost led by lower D&A. clearly insured cost is under control, and this has delivered an EBIT of 9.8%. Next slide, please. Q2 FY '26 saw a strong free cash flow of INR 2,200 crores. This is led by a sustained operational performance and working capital gains owing to higher volume. H1 FCF was a record INR 417 crores. This is the highest ever, with strong cash profit after tax of INR 4,200 crores. We expect our FCF to be consistent with the likely growth in H2 volume. Significant reduction in interest charge as a result of deleveraging, our interest cost has been kind of coming down, and you will see that quarter-on-quarter. Next slide, please. This slide basically highlights our journey of achieving significantly higher and consistent cash flow. There have been structural shifts in business, which will continue to drive the SCF performance. The key levers for driving superior performance on FCS, as you would see the first box on the left side, the scale has gone up significantly. Our revenues are at a level of INR 75,000 crores, For CAGR over FY '22 was growing at 13%. Our absolute EBITDA has expanded 5x since FY '22, and we've delivered consistent double-digit EBITDA margins. Continuous focus on noncyclical business has helped achieve sustained cash performance and our noncyclical business is high margin and high ROCE business. prudent CapEx spends, which are well within the guidance range that we had given of around 2% to 4% of revenue. And this will continue to be in this range, and we have been very prudent as majority of the spends are largely on decarbonization and circularity initiatives. Our fever towards profitable growth cost optimization efforts and strong working capital discipline has helped achieve an FCF of 10% as a percentage of revenue in FY '25. In absolute term, that translated to INR 7,400 crores. This highlights the ability of the business to deliver consistent cash even in a scenario such as FY '25 when HCV volume witnessed a drop of around 9%. Coming to the consolidated financials. This is a clear snapshot of our consolidated financials. Our Q2 revenue was at INR 18,600 crores, with EBITDA at 11.4%, including the impact of acquisition-related due diligence spend, and that's what you see is the reduction between Q1 to Q2. Our PBT was negative at INR 0.6 crores. The reported profits were adversely impacted by the mark-to-market loss of INR 2,000 crores on account of the recently listed investment in Tata Capital. Excluding this mark-to-market loss, the underlying PBT and net income remains strong at INR 1,500 crores and INR 1,200 crores, respectively. Strong cash performance with FCF at INR 2,000 crores in Q2 FY '26. At a consol level, we are net cash at INR 1,200 crores. I'll hand this over to Girish now for the business update. over to you, Girish.

Thank you, Ramanan. Let me start with the lead utilization first perform. And I think the fee utilizations continue to be at a good level despite heavy rains. And in fact, across the segments, we have seen a year-on-year growth in utilization across HCV cargo and Cargo trucks, ICD and LCV and buses. I think only in HCB tipper, we had seen a bit of downside because of extremely heavy rains as compared to the previous year. But I think we have already seen the tipper utilization now ahead of the last year as we entered into the month of October. So I think on fleet reutilization, the overall scene is quite good. In terms of freight rates, we continue to remain firm. And in fact, post the GST rate rationalization, since there has been an increase in consumption, it has led to increase in the freight being transported, and that has also helped to firm up some of the freight rate. So I think, overall, in a good space. Next. Now coming to our business for Q2. So the industry volumes grew by 8% Y-o-Y in Q2 and the TME industry volume actually grew across all segments, which is a good healthy sign. And we transitioned the entire portfolio to the GST regime. And as Ramanan said, I think we were the first 1 to immediately indicate the pricing list, and therefore, the drop in prices. In terms of heavy commercial vehicle, which is 28 tonne and above, our volumes grew 5% on a Y-o-Y basis, while I think the industry volumes have grown by 2%. In ILM CV, our volumes grew by 15%, whereas the industry volumes have grown by 11%. In SCV pickup, the industry volumes grew by 11%, and our volumes also grew in line with the industry. In the buses and vans segment, that is CV personal, volumes grew by 9%. And actually, the performance was influenced by shift in salience of some of the segments, as also tender-driven business, especially the tenders which happened during the last quarter of previous financial year. Talking about the noncyclical businesses. We have seen a consistent year-on-year growth in parts and service penetration. Over now almost 3 years, there has been consistent growth happening. International business during the year continues to do very well. And in fact, we have seen the shipment see almost 75% growth on a Y-o-Y basis and the retails are also moving at the same rate. In terms of the Smart City Mobility, our electric bus fleet has now cumulatively crossed 420 million kilometers. We continue to deliver uptime of 95%, and in fact, exceeding the contractual requirements. In the digital business, we aligned our subscription plans to the expectations of the customers, and we actually introduced to new levels of subscription plans, light and prime and also, therefore, better than some of the non-OE offerings in the market, post which we have seen a good pickup in subscription renewals. And as you can see that it moved from 26% to 37% within 2 months. And I think now it is up to -- connect -- up to us to connect with most customers and push the subscription renewal further. Talking about electric mobility solutions, we had only 81 electric buses registered in Q2, which means a total registration of now 3,700. And I think now all the tenders that we had won till now of electric buses, all the buses have been delivered. And now we are evaluating the participation in the PME drive tender supposed to be closed tomorrow. I think this, we are participating through a consortium model. This tender also addresses the payment security mechanism and an asset-light structure. So this meets on all the requirements that we were advocating with the government and the conditions are now favorable for us to participate in the tender. We launched ACE Pro EV in the last quarter and a very good response. I think we've been able to increase the retails beyond 400 per month. in addition to the ACV that we are already selling, and we see good traction coming in across last mile distribution, FMCG and waste management. We've also been able to onboard most of the financials to fund this product. On our internal sustainability journey under the Project Talingara, we have made progress in all the 3 areas of decarbonization, circularity and preserving biodiversity. We now have 3 plants certified for water neutrality, 3 plants, which have already achieved 0 waste to landfill, and the conservation efforts on the central Asian flywheel and elephant contribution are on track. Next. As far as digital business is concerned, we now have more than 885,000 vehicles active, out of which 75% monthly active users and 54% weekly active users on the Fleetedge platform. Milage [indiscernible] continues to deliver more than 7% improvement in fuel efficiency to the customers who have onboarded themselves on that service. In our online sales platform, [indiscernible], we now have more than 22,000 platform assisted retails in the entire quarter 2. And in addition to that, digitally generated retails converting into final sale now is at around 27% of the total retail. E-Dukan, our online spare part sale, we now have 10,000 customers and 33,000 retailers. But we also now started direct-to-customer delivery -- last-mile delivery across 8 cities in the country, which will ensure that the parts booked on the platform are delivered directly to the customers within stipulated time line. Next. Going ahead, Q2, as I said, has seen good demand recovery, mostly driven by good monsoons, but more so, I would say, with the positive sentiment post the GST rate reduction. And we believe strongly that growth momentum will continue through the second half across the segments. I think the GST cut has boosted consumption leading to improvement in D2C or B2C kind of customers who don't take input tax credit. But due to increased consumption and utilization, it is supporting demand for medium and heavy commercial vehicles also. Mining, construction, infrastructure has restarted. And from the last month, I think one has seen good improvement in the tipper demand. In fact, towards the end of Q2, we have started seeing good improvement in tipper demand. I think for us now, since we have seen a very strong growth in our trucks, market shares from the second half of Q2, we will sustain this growth trajectory. We will continue to gain share in the NCV buses, especially in private sector. And we will also start the delivery against the tenders that we won in Q2, which will help us in market share gaining back. We are currently in the process of increasing the volumes of some of the new products that we've launched and have gained traction. And of course, as Ramanan said, we will continue to sustain the profitable growth, robust financial performance, delivering double-digit EBITDA, cash flows and then strong ROC. So that's it, I think -- thank you. We will now get into question and answers.

So the first question is from Amin Tharani, JPMorgan. Exports have been growing quite sharply for you as well as other CD peers. Is it just a low base effect? Or are there new opportunities which are opening up in terms of geographies or customer segments?

So I mean, it is a combination of both, I would say, post COVID, the international business was quite subdued. And I think in the recent past, we've had some markets opening up. First, Nepal opened up and led to good volumes. But unfortunately, we had another level of political instability there. Therefore, Nepal is once again down. But I think Sri Lanka market has opened up now with the economy improving there. But in addition to that, we have clearly seen an improvement in Middle East as also Africa. And these markets are also, therefore, leading to higher demand. So I would say it is a combination of lower base as well as increase in some of these markets that I mentioned.

The next question is from Kapil Singh. What is the demand outlook for MHCVs and LCDs for FY '26? And have you seen any impact because of the GST cuts on demand?

Yes. So Kapil, I think, as I said, the GST rate cut has led to a dual impact on commercial vehicle demand. First, I would say, a primary or a direct impact. So we have those B2C customers who don't necessarily take input tax credit. For them, the reduction in GST has been a direct benefit and that has led to an increase in demand. This is applicable more in LCVs and small commercial vehicles. In addition to this, the reduction in GST on spare parts, tires, et cetera, have also led to a reduction in their operating expenses, which will lead to improvement in TCO by almost 1%, 1.5%. That is another area which is going to help. But the secondary impact on demand is this GST rate rationalization has led to general increase in consumption in many categories, which is, therefore, leading to higher production, and therefore, higher freight available, both inbound and bond, which one can see in terms of requirement of more number of vehicles increasing utilization. And this increasing utilization clearly will lead to higher demand. And with respect to this, therefore, we expect in H2, across the segments, there will be a single-digit to higher single-digit growth as we go ahead. And I think the Q3 has also started on a good note. So that's how we look at the demand going ahead.

On the market share, another question from Kapil Singh, there is a slight dip that we've seen in the market share across segments. And what are your plans to pull this back? And how do you think of discounting in a post-GST cut scenario? Has it really come down?

Yes. So Kapil, I think, yes, in the presentation also, Ramanan mentioned, that we started the quarter on the subdued note in market share. But after that, I think in trucks, that is both heavy commercial vehicles, and intermediate, light, medium commercial vehicles, both these segments, I think we have rebounded very strongly. And we are -- we know that we will continue this trajectory as we go ahead. We will also be launching some of our new range of products, the model year '26 in both heavy commercial vehicles as well as intermediate light medium commercial vehicles, which will further improve the competitiveness, and this will be a very, very wide range of products that we'll be launching, with which we are pretty confident that we should be able to continue with the strong trajectory of growth in the trucks share. As far as buses is concerned, I think there are 2 parts to it. In the private market, actually, we have been doing well and growing market share in both MCV and ICV buses. Where we have suffered is actually some of the tender, businesses tenders that we had lost during the last quarter of previous year. [indiscernible] in the quarter gone by, we've been able to win 3 good tenders and this quantity will help us to get back the market share pretty strongly in the rest of the year. In small commercial vehicles, yes, our market share remains at the same level, at a lower level. But the good part is that after 18 months, we've been able to, consistently for 2 months, retail almost 15,000 vehicles, which is a significant growth over otherwise what we were retailing. And we will -- we're continuing this retail growth as we go ahead in the rest of the year, and this will, therefore, also lead to an improvement in share even in this segment. So that's the status on market share.

Next question again from Kapil Singh. We'll finish with a Kapil and move on. What percentage of revenue comes from non-cyclical businesses? And what is the mix of your key subsegments and how you expect them to grow?

Kapil, thank you for that question. So what I would say is that today, the mix of noncyclical business revenue as part of the overall revenue is a healthy double digit. And we expect this to grow with the growth in the digital business. And I think Lee shared that as part of the business update, too. So as the business -- the digital business grows, I think this percentage is only gets stronger for us.

Next questions are from Gunjan. There are a few questions in there. So maybe I'll just break it up. Can you talk a little more on the difference between CV segment and consol financials? And where is the electric bus business captured and are there any losses on that count? And what are the other businesses in concern?

So I think, Gunjan, if you actually look at our safe harbor statement, we've called out the CV segment quite clearly there. And there is no change in this segment versus what we were reporting earlier as part of the overall consolidated entity earlier. So -- and to your second question in terms of the e-bus business, I think you're referring to the the smart city operation. That is part of the Commercial Vehicle segment only. And that's the number that we kind of shown as part of Commercial Vehicle segment. What kind of comes in console, as I had kind of shared this earlier in the safe harbor statement also. In addition to the Commercial Vehicles segment, this includes the unallocable and other items, largely the corporate functions and some of the other subsidiaries and associates like ACGL, Freight Tiger, that kind of comprises from a consol standpoint. And that also if you see the other details on the safe harbor statement, we have called them out again.

Another question from Gunjan. Any color on margin drivers, commodities, pricing, discounting for trucks?

I think in terms of the EBIT walk that we kind of shared if you've seen, the key driver, largely the 2% improvement in EBIT year-on-year is kind of coming from volume and favorable realization, and that's what is kind of driving the EBIT higher.

Sir, any update on Iveco? How is the acquisition being funded? How much debt have you taken it?