Tata Motors Ltd

NSE:TATAMOTORS

Earnings Call Transcript 2023-Q2

[Sneha Gavankar, executive]

Welcome to the Tata Motors Q2 FY '23 Earnings Conference Call. I'm joined today by Mr. Thierry Bollore, CEO, Jaguar Land Rover; Mr. PB Balaji, Group CFO, Tata Motors; Mr. Girish Wagh, Executive Director, Tata Motors; Mr. Shailesh Chandra, Tata Motors -- MD Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility Limited; Mr. Adrian Mardell, CFO, Jaguar Land Rover; and my colleagues from the Investor Relations team.

Today, we plan to walk you through the earnings presentation followed by Q&A. [Operator Instructions] I now hand over to Balaji to begin the presentation.

[P. Balaji, executive]

Thank you. Good day, everybody. Thanks for taking the time to join this session. As is customary, we will try and keep a fair clip in terms of going through the slides and pointing out the key highlights and then look forward to taking on the Q&A and to subsequent stage.

Next question -- next slide, please. So the standard safe harbor statement. The only call out I would say is the segments. Automotive segment, just to reiterate, we have done this, no change from last time. But just to confirm, when we say Tata Commercial Vehicles, it's all things commercial vehicles, wherever Tata-branded commercial vehicles are; similarly, Passenger Vehicles, all Tata-branded passenger vehicles; Jaguar Land Rover; and vehicle financing as the 4 automotive verticals. And of course, others which are the remaining segments. So these are the segments. No change there.

Next slide. Again, an intense quarter this year. In India, the commercial vehicle space saw a flurry of activities with multiple launches in the medium heavies and light commercial vehicle and a full range of pickups that were launched. In the passenger vehicle space, the big one was the Tiago.ev launch, which was a blockbuster opening of 10,000 vehicles, which I'm sure Shailesh is going to talk about later.

On the JLR side, the key move was the stabilization and the ramping up of production of Range Rover, Range Rover Sport that we had committed to. The order bank, of course, grew to a record 205,000 vehicles. And the chip supply has continued to create trouble for us. But as we start signing more and more partnership agreements, we do expect to see this easing. I'm sure Adrian is going to cover that subsequently.

Next slide, please. Before I get started, our key corporate action that was announced today, Tata Motors intends to voluntarily deal its American Depository Receipts shares from the New York Stock Exchange, as the objectives with which these were originally listed in 2004, are no longer relevant. There's a consistent drop in the participation in the ADS program, and it's now less than 5% of the ordinary shares. And we will find for a voluntary delisting of the ABS in Jan 2023 and also terminate our depository program that we have with Citibank, N.A.

And once the ADSs have been delisted from NYSE, there will be no over-the-counter market trading of the ADS in the U.S. due to regulatory restrictions we have in India under the Indian law. And therefore, the holders will need to convert their ADS into underlying ordinary shares, but you have time until July 2023 to make that happen.

And we expect to file for the registration with the SEC in Jan 2024, a full 12 month after the delisting for ceasing our U.S. reporting obligations. Obviously, the whole process is being done with an aim to simplify our financial reporting and also reduce administrative burden, and there's no cash outflow for TML due to this.

Next slide, please. I'm happy to take any questions that you may have on these subsequently. At an overall revenue, we grew at about 29%, with the global wholesales going up 33% and profit before tax was a loss of INR 1,800 crores. EBITDA went up 130 bps, EBIT of 390 bps, and we have a free cash flow breakeven of about INR 1,000 crores in the quarter. And the volume recovery was and is fundamentally based on a better mix and lower breakeven, even though volumes were lower than planned, particularly at JLR.

Next slide, please. Where does this growth of 25% come from? 28% came from volume and mix. And reassuring that good 8% came from price, it means we are able to take up prices in line with the inflation that is there in the market, which is also reflected in the results. Translation, we lost a fair bit as the pound sterling depreciated vis-à-vis the Indian rupee.

And from a profitability perspective, all businesses came to improve their profits. We had a challenge in Tata Motors Finance, which I'll talk about later. And the net debt came in at INR 59,900 crores. The good part is the external debt is now down to INR 32,500 crores, almost INR 20,000 crores, is because of working capital, mostly in JLR, a little bit in Tata Motors as well, which we intend to sort out as the growth comes back into the business. So that's overall from me.

Next slide, handing it over to Adrian for talking about JLR. Adrian, over to you.

[Adrian Mardell, executive]

Yes. Many thanks, Balaji. Next slide, if you would please Okay. Okay, so these are our KPIs. Top left, you can see retails did start to improve quarter-over-quarter, up 12%, not yet back to last year's levels, but I'll show you the inventory build later in the presentation. So we're confident we're going to get there in the second half of the year. I'm going down the page, double-digit EBITDA for the first time in a few quarters. And again, we're confident that's going to continue going forward. The revenue, a dramatic year-over-year increase of 36%, with now volumes that are only up 17%. So what you're seeing there is both an increase in volume and a substantial increase in mix of volume as a result of our Range Rover and Range Rover Sport vehicles now being presented to the marketplace. That's driven an EBIT positive in the quarter for the first time in those comparative 2 quarters, substantially improvement of more than 5 percentage points.

We were loss-making. Obviously, all of that was non-EBIT, and we'll take you through the implications of exchange on our numbers later. And we were close to cash breakeven, minus 15%, substantially better than the comparative quarters with just 75,000 wholesales. And all of that cash loss and more was actually working capital negative. So we've taken our breakeven underlying point down to 70,000 units, again, which was the level we were at the end of last year that we didn't think we'll be able to get back to. So there is a lot of positive information underlying within this data set.

Next slide, please. Okay. The only things I already haven't called out there is the order book. The order books are still very strong, more than 200,000 units. I'll take you through the details of that. The breakthrough on Range Rover and Range Rover Sport production now at the end of September, up to 2,000 units a week. Let me remind you, when I talked to you in July, I was referencing 1,000 units per week. That's a substantial increase there. Every focus program continues to be value-generative, GBP 300 million in the quarter, GBP 550 million in the first half of the year. And then liquidity is strong, GBP 3.7 billion cash, plus the revolving credit facility, GBP 5.2 billion in total.

Next slide, please. Okay. So these are the volume positions. On the top right-hand side, the increase in the retails quarter-over-quarter. And not surprisingly, with those Range Rovers now coming through, all of that increase, most of it, is actually in the Range Rover brand.

From a wholesale perspective, we did 75,000 wholesales, a lot lower than the 90,000 we were signaling in July. We were decommitted on semiconductors in September, had an impact both on September -- and on September production, and went actually flow into the September and the October wholesales. That the decommitment is fixed. A long-term supply agreement is now in place with that source. So we do not expect further decommitments from that source going forward. And again, the wholesale numbers you expect, given the production increases on Range Rover and Range Rover Sport, we will now have a very rich Range Rover brand.

Next slide, please. This is the same data but by region. And as you know us, while enough now, a lot of Range Rovers are sold in North America and China. Therefore, it's not surprising and corroborative data that the big increases quarter-over-quarter are in those 2 regions in the retails, and even more some wholesales, of course, because our units flow from production to wholesale before retail. So again, good corroborative information of the trend to come increasing those new Range Rover products.

Electrification is stable at 65%, stable on PHEV, MHEV and BEV at 11%. We need more supply, particularly as those PHEV units will actually come on board as we go through the next several quarters.

Next page, please. Okay. So our profit bridge, our profit walk versus last year, I've mentioned a few things here. I mentioned them because they're important to this quarter, but they are also important to the trends that you're going to see in future quarters. So you will see volumes at a higher level, that was worth GBP 120 million versus last year. You will see a significant improvement in mix, just with the value we actually dispatched to the markets in Q2. That was GBP 300 million higher than last year.

Emissions versus last year, credit have not repeated this year, not a negative trend this year. Pricing, now those vehicles are coming to the marketplace, and VME at very low levels, will both continue into the second half of the year. And obviously, they are intended to offset the inflationary costs you see there in material, which we suffered in the quarter versus last year. I have a slide on that later, so I will hold those comments until then.

And the fixed costs are growing, but they're growing from historical lows, and this is still significantly lower than 3 years ago. They will lift a little bit as we go forward because we do now want to begin to accelerate our transformation programs in commercial, in digital. And obviously, we're now scaling up our product engineering programs. So you will see these numbers continue going forward the adverse versus last year, but still in historical lows.

And I will talk about exchange on the next page. Very complicated exchange at the moment, so we thought we'd take the opportunity to lay it out for you and hopefully kill all the questions you may have around it. First big point, our operational exchange is very positive. It will be. We're predominantly a U.K.-based manufacturer exporting 80% of those vehicles. And obviously, for any exporter, if you're local currency for a sterling is at a low value, you do very well. This is a good operational model for us on exchange.

Of course, you also know we protect ourself for variability in downside risk on exchange. And therefore, a lot of that protection is coming through as negative versus a weak sterling. Most of our dollar contracts were in and around $1.30, and this will be with us for the next 4 to 5 quarters.

And then there was a big movement against sterling in the quarter. So you see that within the revaluation, it totals GBP 100 million in total versus last year. The dollar effectively moved from 1.21 down to 1.11. We have a lot of liabilities on our balance sheet for dollar-denominated, and that's what you're seeing within here. But it's a point-to-point adjustment, reflecting a very weak sterling at the end of September.

I think the bottom left is really important. It gives you the "what happens next". We have GBP 20 billion worth of hedging contracts. You see there, we've shown those same 3 points, GBP 20.1 billion at the end of September. And if we were to strike those versus the 1.11 at the end of September, there will be GBP 2 billion of losses to come through.

Look at the memo below that, shifted with sterling appreciation of just GBP 0.04 in October, a drop from GBP 2 billion to GBP 1.4 billion. And let me remind you again, against the top left, our operational exchange will be bigger than our losses going through our income statement. And this is a theme that will continue with us over the next several quarters. If we stay within this 1.10 to 1.15 dollar-sterling window, which we seem to be into at the moment.

Next slide, if you would, please. Okay. So this is the cash position. We were cash negative of GBP 15 million, but just take a look at the working capital. It was GBP 124 million over GBP 15 million. And therefore, again, we were underlying cash positive on just 75,000 units, with an 18% MLA Range Rover, Range Rover Sport mix, which will grow going forward, of course.

Effectively, we paid for more units in the quarter than we wholesale to the market. Our wholesale pipelines are starting to lift, which is the signal, actually, of a better supply flow. Just look at the brown box there, and working capital negative over the last 6 quarters has been more than GBP 2 billion now. As our volumes start to increase and our mix has improved, that will slowly start to unwind the other way. So we are confident we're at the low point on working capital, and that will build back over the next 6 quarters.

Next slide, please. So breakeven, look, we've taken the breakeven down to historical lows again, in part because we've been tough on expenditure, even though we've allowed some to grow, in part, of course, because volumes are bigger, mostly because the mix is turning back to a more normal level of mix. We would actually expect it's getting back to mix as we would have had in Q3 last year, and that will improve in the second half of the year.

We do expect expenditure to increase because we do want to continue with our change programs through to our Reimagine strategy, which you're very clear about, I'm sure. But the mix will help offset the breakeven point to about 300,000 units, 4 years. We feel we're in a really good position in terms of the underlying structure of this organization, and the resupply and the improving mix will both move in our favor as we go forward over the next several quarters.

Next slide, please. So this is investment. Our investment was higher in Q2 than Q1, but still just GBP 526 million. A few things to note. Engineering investment is increasing as we're now bringing more engineers in place to move to our electrified architectures. That will continue over the next several quarters.

We're now beginning to capitalize more of those engineers because we've triggered a maturation in our architectures, which enables us to do so in line with our accounting policy, which we've taken you through so previously. Overall, we're at 40% engineering capitalization. And let me remind you, we expect to be between 50% and 60% at some point going forward over the next cycle. Again, I'm referencing 3 to 4 quarters often. Over that period, you will see capitalization increase to those levels again.

Next slide, if you would, please. Okay. business update. Let's talk semiconductors. Next slide. There we go.

Look, we're now in a position to do the first phase of what other OEMs are doing. We've got our new nameplates out there, our Range Rovers and Range Rover Sports. They are valuable assets, most valuable assets. And we're in a -- we have a position now we can start pulling those chips into our most valuable assets. All other OEMs have been doing that over the last 12 months, we've been in project changeover over the last 12 months. So it's not surprising the mix is improving in our favor, and that will continue.

So Phase 1 of the management of these challenges, we're now in a position to be able to do. Phase 2, we've been working on for a long time, actually, that's engaging directly with the chip manufacturers, putting in place long-term supply agreements with them. We've again had breakthroughs over the last 3 months, including with the chip supplier, which decommitted us in September. And we're confident from those supply sources into calendar year '23 -- on quarter 4 of this year for ourselves.

And we continue to work to close out the residual items we have. We do have residual items left to close out. There is still a possibility we'll be knocked off course. But week by month -- month-by-month, we are starting to put in place a more robust, a more fit-for-purpose supply chain and agreements with our sources. So again, we're heading in a good direction, slower than we want to be, slower than others, but we're heading in a good direction here.

Next slide, please. And this is really, really good, right? So this is the new Range Rover and Range Rover Sport, it's weekly production, giving you the trend over the last 5 months. June was the last time we talked we had data, I referenced 1,000. You can see we improved as we went through the summer period, but the real breakthroughs were from September, and that's continued into October. This is weekly data.

So we're now building and shipping more than 2,000 cars a week, which means, within the quarter, MLA will soon -- once these cars get to their destinations, China and North America, in particular, we will soon be posting 30,000 wholesales within a quarter into quarter 4. Quarter 3, some of those cars will be on water. But that will dramatically shift the mix of these units from sub 10% earlier in the year and 18% in quarter 2 towards 30% and beyond for quarter 3, quarter 4.

So that page in that profit bridge on both volume and mix will continue to be strongly positive as we go forward over the next several quarters, a really, really big breakthrough for us. And my compliments to the team who have worked tirelessly for the last 9 months to get us to this position.

Next slide, please. And this is our order book. And of course, you will see straightaway that the breakthrough in supply is now starting to attack where our orders are. So our very patient clients who've been waiting for these new vehicles for a long time will soon start to receive handover of said vehicles. It's grown over the quarter to 205,000 units. It's starting to taper off as our fulfilled orders, our handovers to customers are increasing.

And our new orders, net of cancellations, you asked cancellations, it's within that data there, but just about the 90,000 level. We really haven't marketed these cars or any of the vehicles over the last 12 months because of supply. Once supply starts to come through, we have several tools and several weapons to drive up that new order intake, which we will actually do. But obviously, keeping orders in place for longer than our clients wish for has been a consideration, which is why we've held off on those marketing campaigns over the last several quarters. This is starting to feel better balanced and healthier, and I don't expect over the top or to explode going forward, like they have over the last 5 quarters.

Next slide, please. Okay. So health of our pipeline expressed with the finished vehicles, 2 data sets here. The blue-black line, the one at the top, that's retailer inventory. That's vehicles with their retailers awaiting customer pickup. You can see the light blue bar at the top, that's a normal level of activity. So in normal times, that blue line should be within that top block. It was until May '21, it's fallen away dramatically.

But the important point is it's steadily lifting from about February. It's steadily lifting to the point where we had 44,000 vehicles at dealers at the end of September awaiting customer pickup. These are sold cars awaiting for people to hand over, which is why our retail levels, as I mentioned earlier, will now start to grow.

Our own wholesale stock, the stuff that we still own, that's in transit to dealers, is actually in the gray line. And you can see that started to lift. And you can see, in September, it fell away dramatically. That was the supply decommitment we've mentioned already, which did impact dramatically September production, also impacted September wholesales, which is why we missed September and October wholesales, but we're now back on track.

Our production levels are now working to the level we expected. And again, we do expect the gray line to be back in that gray section as we go through quarter 3 and quarter 4. So we're getting healthier. I've spent time on this. So it's clear that our data is starting to turn slower than we want, but in several corroborative data points.

Next slide, please. Okay. So inflation, obviously, is the other big thing. The big 3 is supply, MLA and inflation. MLA is in a really nice place. The other 2, still work in progress. It's broadly what we anticipated at the start of the year. We referenced up to GBP 1 billion. This is first half data, GBP 430 million.

And of course, our Refocus program is there, not only to offset inflation, but to generate bottom line value. It's doing that. It generated GBP 550 million in the first half of the year. So we're positive cash GBP 120 million. It's mostly doing that in the commercial space, pricing, lower variable marketing, lower wage times and, therefore, lower discounts going forward. We're also starting to see the agile transformation come through in lower headcount, and people costs and investment is lower in the first half of the year.

How do I expect this to shape? I expect inflation to be with us. We know it's going to be bigger and deeper than we thought 6 months ago. So this level of inflation feels about right in the second half of the year for us. I expect Refocus to continue at this level. We are reconfirming GBP 1 billion plus full year, but I expect the market performance to grow, the cost labor to be about the same and the investment to fall away as we start to increase our product engineering investments over the second half of the year.

Next slide, please. I think this is my final one. Next one, thank you. The first half metrics down the left-hand side. Look, what do we expect in the second half of the year? We expect our wholesales and our revenue-based volumes to be up about 10%, more in Q3 than -- Q4, excuse me, than Q3 as supply is coming through and as MLA is still building. Those vehicles have to go to their revenue recognition points, which, as you know, some of those points are 6 weeks after build. So that will increase as we progressively go through month by month.

Revenue will be bigger than GBP 10 billion. Where we see it today, it's closer to GBP 11 billion. EBIT margin will be positive in the second half, in both quarters, we anticipate. I've mentioned investment increases for the full year guidance, around GBP 2.3 billion. And you know what, we can get back the cash we didn't get in the first half of the year. We know it's all working capital.

We think our trend of volumes is positive, and therefore, working capital will be positive. And we've demonstrated for the last 4 quarters, we're underlying cash positive anyway. So we believe we can get back the cash we lost in the first half of the year, breakeven, we're writing. But if you know us well enough, we want to do better than that.

Key priorities, of course, it's all about chips, chips and chips. It's hard work for us, right? We were behind the clock. It's a bit like turned up to the buffet 2 weeks later on, some of the stuff left than what you want. But we're breaking through this. We're working tirelessly, and we're working in the right direction. Continue our new Range Rover and Range Rover Sport, which we're doing. Volumes, I've mentioned. Refocus, I've mentioned. And also, our intent to be positive, positive on the KPIs, EBIT and cash flow.

I think I'm back to you, Balaji.

[P. Balaji, executive]

Thank you. Thanks, Adrian. Moving quickly on to Commercial Vehicles. Change here where we are moving to the registration Vahan market shares in our reporting. And the other thing we'll also notice in this is, traditionally, we used to refer our internal group of metrics are on medium and heavy commercial vehicles, intermediate and light, small commercial vehicles and pickups and then commercial -- or passenger vehicle, that's how it used to be. So this is now, we would love to ensure that it is as transparent and as easily pick up. You can pick it up from the Vahan port yourself. And therefore, we are reporting the Vahan numbers itself here as is, where is even in the splits that are there. .

So here, we did the -- from a market share perspective compared to 44.7%, we lost about 150 bps this year so far. And we are definitely looking at what is the right way to win in this marketplace in terms of shifting to a demand pool business model. And I'm sure Girish is going to talk more about it in his section as well. And the focus is on getting back to a double-digit EBITDA and profitable growth as soon as possible. And you should see that playing out in the coming quarters.

Next slide, please. From our overall mix, that's the only call out here, I would say, is draw your attention to the CNG section, where, in the ILCV section, thanks to the way the CNG prices are starting to move up and the gap between diesel and CNG has come off quite sharply. And you would see that in the salience therefore of CNG in the overall segment actually come off quite sharply. We believe this is going to be temporary. And once this thing, the international geopolitical situation stabilizes, the growth in CNG should be coming back again.

Next slide, please. Overall, numbers-wise, year-on-year growth of 35%, PBT positive at INR 300 crores. EBITDA year-on-year is 180 bps, but I would draw your attention to the sequential drop that you see. This is basically coming out of residual commodity inflation. This is the last of the price increases as we closed the contracts, which we went through. So we do see reductions coming through from Q3 onwards. And that's already evident in our numbers from September, October as we see. So this is what you see as a number there. And EBIT numbers, of course, 260 bps improvement. And the year -- quarter-on-quarter is more linked to the same number you saw on the EBITDA.

Next slide, please. Shape of where the drivers came from, you do see volume mix. I draw your attention to the realizations. It's starting to now inch up above the variable cost increases. So we are seeing numbers coming in. And this is on a year-on-year basis, therefore, the increase you see. And what is also -- from a commodity perspective, we did see a few challenges, particularly on the ForEx side, where, with the international business significantly coming down because of the global situation, we had to take out a few covers, cancel a few covers because the volumes are not supporting the covers there, that's some of what you see there.

Next slide, please. Girish, over to you.

[Girish Wagh, executive]

Yes. Thank you, Balaji. So I think Q2 had a healthy growth of around 40% over the Q2 of previous year. Of course, the Q2 of previous year was also over impacted. And I think, from Q3 onwards, with the improvement in the base, we will see a normalization of the growth rates to a lower level.

As Balaji spoke, the EBIT margin was impacted due to the residual impact of commodities, which was to the extent of almost 200 bps, as also lower export mix. We were able to offset it partly with improved pricing and also some cost reduction actions. We see a consistent growth in our spares and service penetration, which is a key focus area for us. And the non-vehicle business revenue grew by almost for the entire first half as compared to the H1 of last year.

Balaji spoke about CNG salience coming down, and it's almost down to now 17% and 15% in ILCV and SCV, respectively, from a level of almost 45% and 18% in the same quarter last year. And this is because the difference between diesel and CNG price, which used to be almost INR 44, INR 45, has come down to now INR 15.

Within the bright spots, I think, of course, I think the strong industry growth, especially led by M&HCV, of course, has the base effect of the last year. And the good thing is the passenger vehicles, the buses have also come back pretty strong, with good demand in school versus employee transportation, and there's also some demand coming in from mixed use now.

I think with our consistent focus on ETL communication as well as digital for lead generation, I think you've seen a consistent gain in the Net Promoter Score as also top of the mind brand Awareness and consideration by almost 100, 200 and 300 bps, respectively, and they are now at the highest ever level. So our strategy of therefore increasing the brand salience is working in the right direction, which is going to support our retail acceleration initiative.

We also strengthened our product play with the launch of more than 30 new products and 70 variants. And within that, I think, in quarter 2, we did launch a new range of pickups as also range of smart trucks, including some of the first-in-the-industry safety features.

The semiconductor situation has eased further, although it remains on our radar. And in addition to that, we are also keeping on track of the new semiconductors, which will get introduced in the vehicle when we migrate to BSVI Phase 2 as also some of the electric vehicles where we are going to ramp up the production.

Going ahead, clearly, the focus will be on retail, retail acceleration and track the Vahan share, which will also, therefore, help us to maintain the inventories at healthy level within the system as we gear up for the BSVI Phase 2 transition.

A strong focus on margin improvement will continue through sustained market operating price increases. So I think what we've been doing is reducing the discount and increasing the market operating price and not touching the max retail price, which is there. And in addition to that, I think we also had a very good first half in terms of cost reduction, almost the best performance ever on cost reduction.

We will continue to engage with the key financials as also the other stakeholders, especially with the kind of MOP correction that we are taking. And also with the rising interest rate, we need to ensure that we provide all the right solutions for our customers, both retail as well as the key accounts.

Readiness for BSVI Phase 2, that is real-world driving emissions, is absolutely key, and there's a lot of focus within the organization. And we remain on track for this transition from April 23.

As Balaji mentioned, in the international markets, I think the total industry volume has declined sharply. And I think our focus has been clear on maintaining market shares, margins as well as the channel health. I think within this, we have seen a sharp decline in Sri Lanka followed by Nepal and even Bangladesh, and also, Sub-Saharan Africa has declined by around 10%.

Next. Coming to our future business update. On the electric mobility, I think we have been able to complete the in-market trials of ACE electric vehicle with our leading e-commerce customers at 2 locations in the country. I think the product has delivered very well in terms of range and the load it can carry, and seems to have a significant competitive advantage over the current solutions. I think we should be starting actual deliveries within this quarter.

We are also gearing up not just the operations but also supply chain for the new set of orders that we have for electric buses also. This is -- I'm referring to the CESL Phase 1 tender, which we had won for around 3,600 numbers. There's a bit of a change in that likely to happen. But otherwise, we are gearing up for start of supply of these buses from Q1 of next year.

In terms of our Smart City Mobility Solutions. In the last quarter, we completed delivery of 100 more electric buses to Delhi Transport Corporation. And with this now, the total e-bus fleet has covered more than 51 million kilometers cumulative.

We -- as I said, we received LOA letter of acceptance from -- for 3,600 buses of Delhi, Kolkata and Bangalore as a part of the Phase 1 tender. The Kolkata one is being reviewed in light of the recent court order, which has come in this regard. In addition to this, we -- there was a new tender, which was floated by Jammu and Kashmir for 200 e-buses for own-and-operate model, which we have won. And even these buses -- delivery of these buses will start during the next year. So we have a healthy order pipeline, not just from the tenders from the government but also from private sector, especially for employee transportation in corporates.

I think amongst the fleet, we have been able to deliver more than 96% uptime across the buses, which is better than what we have committed in the contracts. The total revenue from this business in H1 has now crossed INR 200 crores. So that's where we are in terms of revenue from this new business line.

On digital front, I think the Fleet Edge continues to do pretty well. Now we have more than 290,000 trucks -- connected trucks on the road. And within that, we've seen more than almost 80% active users now with good usage during the day.

During the last quarter, we launched the Minimum Viable Product 2 on Fleet Edge, which includes a lot of new features and reports for the customers and the fleet owners as well as their workshop managers. And they see a lot of value coming in from these reports and insight, which will help them to improve their total cost of operation.

Lastly, E-dukaan, which is our online spare parts marketplace, has been doing pretty well. In fact, in H1, the revenue has grown 3x from what we had achieved in H1 of FY '22. So I think we continue to build the back end and then have more and more customers coming on to this app, which will help us to grow this revenue at a similar rate.

So that's about CV. Back to you, Balaji.

[P. Balaji, executive]

Thanks, Girish. Moving on to Passenger Vehicles, a pretty strong quarter coming through, 57% retail growth. And domestic markets is steady at 14% and 8% EV penetration, 10% CNG penetration. Those are the key highlights.

Next slide. EV side, I think, the fast -- the strongest quarter that we have had. We're now at almost 88% market share. And more than that, the penetration are now continuing to increase, charging infra has continued to increase. So we do expect to see this continuing to drive penetration up.

Next slide. On the financials, 71% revenue growth, PBT breakeven again. And EBITDA was down 70 bps, but a lot of it is the same -- 2 reasons here, kind of sequential drop. One is the residual commodity inflation there, and the other was a one-off that was taken in this quarter, which will correct in the subsequent quarters. So no major concern there. We'll continue to keep this profitability improving. EBIT of 200 bps improvement.

Let me hand it over to Shailesh for -- on the financial, this is what I just referred to. I think on a year-on-year basis, volume realizations are continuing to increase. There's still scope for pricing. We just got through our pricing in the first of November. And of course, from a overall perspective, the one that I want to draw your attention to is the depreciation and amortization, where, given the -- we're taking more into the P&L than to the balance sheet. And on the commodities, the hedges are paying off at this point in time as the currency depreciates.

Next slide. Shailesh, over to you.

[Shailesh Chandra, executive]

Yes, thank you, Balaji. Let me start with the key highlights of the industry first. In quarter 2, the industrial wholesale breached the highest ever, crossing 1 million mark, with a very healthy growth rate of 38% year-on-year. As you know that last year, the base was low because of semiconductor issues that the industry was facing.

Segmental trend continued to grow strong in favor of SUVs. So SUVs further increased their share in the total TIV, whereas hatches continued to see significant decline. As far as Tata Motors is concerned, we further strengthened our market share in H1 to 14.1% as compared to 12.1% in FY '22.

And in PV and EV, the business grew by 84% and 371%, respectively. It was, of course, the highest ever offtake for us in quarter 2. We maintained our #1 SUV position as well as Nexon also retained its #1 SUV position among the 40-plus SME models that we have in the industry.

EV also posted its highest ever quarterly sales at 12,000 plus, now with a market share of 87%. Balaji talked about the launch of Tiago.ev and a very strong response that we got on the first date of opening the booking, with plus 10,000 in the first day itself. And so far, we have received very, very healthy bookings for Tiago.ev, even while the customers have not tested in the cars. So very, very encouraging response seen for Tiago.

Talking about the bright spot that we foresee in quarter 3, we believe that industry will sustain the momentum, what we have been seeing in the past quarters. The focus in this quarter for the industry would be retail. There will be moderation and offtake as all the players would like to reduce the channel inventory as we are approaching the year-end.

Also, semiconductor supplies have been strong, and we have seen that's the reason why last quarter, there was 1 million supplies in the industry. And this quarter also, we don't see a major issue because of semiconductor supplies. As far as Tata Motors is concerned, across all the models, we have seen the demand remaining strong because of a strong customer appeal for our products.

There has been consistency in supplies, and you have seen, quarter after quarter, we have sequentially growing our supplies. Also debottlenecked some of the capacities in our existing plants, so it is therefore going to support the demand well. And we will see strong growth trajectory as far as EV is concerned.

Challenges in the industry would be now preparing towards a transition to the new emission norms from April 2023. So the work will start from now. And market growth is going to normalize, as I mentioned, especially in this quarter as the effort would be to reduce the channel inventory.

So how we are planning to work on the challenge? I think as far as demand is concerned, we'll continue sustained initiatives at micro market level for different products. We'll also start transitioning to BSVI Phase 2 from quarter 3 end itself. And hopefully, quarter 4 will be a seamless transition for us. And there is a clear glide path that we have created for our profitability improvement using 9 levers, and that is also pretty much on track, and there's a very strong rigor as far as execution of this aspect is concerned.

Back to you, Balaji.

[P. Balaji, executive]

Thank you. Thanks, Shailesh. Next slide. Overall CV and PV on the cash side, the cash profit after tax and investments very well funded. So the business is generating the cash it needs to invest. And you can see the working capital changes flow through as growth comes up is what I would expect to see in JLR as well as growth comes back. So we still have a way to go to knock out INR 2,600 crores on a full year basis. And I'm sure as the year progresses, we'll get back to those numbers as well.

Next slide, please. Investment spending to be up to INR 6,000 crores and FCF has still remained positive that's the broad message here.

Next slide. We'll take a minute on Tata Motors Finance. We had an AUM of INR 46,000 crores, but I do draw your attention to the GNPA line of 8.5%. Before the 2 comments. One is TMF and TMF -- the 2 NBFCs are classified as middle-layer by RBI. And the process to demerge the NBFC business will combine the 2 Tata Motors Finance and Tata Motors Finance Solutions. It will consolidate and simplify the group, very similar message to the ADR message as I said earlier. So that's on the corporate side. But the main one is the central line, which is the point related to the sharp slippages that we've seen in the restructured portfolio COVID-linked stuff that is there.

The underlying portfolio is pretty healthy and continuing to do well. But the restructured portfolio is something that has seen a sharp slippages, and therefore, we will be monitoring this closely. And that's why you see the loss this quarter as well. So this is something that does concern us. And we will aim to therefore, tweak some of the approaches in Tata Motors Finance to focus squarely on improving sourcing quality in our underlying business to offset some of this and also stepping up the targeted collection that we have there. So -- but at the same time, capital adequacy is fine, the debt equity ratios are fine, liquidity is fine. So we just have to ensure that the execution on the ground in Tata Motors Finance steps up further, and the team is on that search to get that done.

Next slide, please. overall outlook we'll pause here, particularly on the top point. Demand remains strong for now. and will remain a key monitorable because the geopolitical uncertainties are pretty large and wouldn't want to be complacent as far as demand is concerned. At the same time, no worries at this point in time. So we will remain watchful. Chip supplies as Adrian indicated earlier, will improve further there. India, we do not see a concern, and therefore, the volumes will continue to ramp up steadily. In India, definitely and JLR as well pulling commodity prices will lay improvement in underlying margins.

And we do expect to deliver strong improvement in EBIT and free cash flows in H2. JLR we already talked about coming to Tata Motors priorities, definitely delivering market-leading revenue growth. So product innovation service quality in the new demand for model is going to be a very important one and a sharp improvement in realization and EBITDA margins is what the business is focused on. And we are already starting to see the first successes of that. And we will deliver a, as far as CV is concerned, market bidding growth and continuing a steady improvement in profitability and cash flows and as far as EVs it's about driving penetration.

So this is what we had to say. There's a flurry of questions that have already landed up. Let me try and lump them together because it's going to be -- there will be a fair amount of repetition.

[P. Balaji, executive]

There's a broad set of themes Adrian coming your way. One related to chip supplies and the theme of when the global chip supplies are actually starting to ease, why are we doing long-term contracts. So that's 1 kind of questions that are there. Second is now that we have secured chip supplies, are we -- the 80,000 units, 160,000 units production for second half full sales for second half this year signal? Is it on the conservative side? And thirdly, will that also mean that the margins that we are also putting out there is on the conservative side. So these are the -- I think there's one theme around semiconductor that I see. If you could pick that in the meanwhile, let me try and summarize all the questions as well. Over to you, Adrian.

[Adrian Mardell, executive]

Yes, sure. Thierry will answer the semiconductors and then I'll go into the profitability stuff afterwards.

[Thierry Bollore, executive]

Yes. Well, good afternoon, good morning, everyone. I think this chip supply is absolutely fundamental to understand that's -- we have almost finalized all our long-term supply agreements. But it is very clear that if you miss one, it's enough to create the problem that we have had and that Adrian explained in September. The good news is that now we have finalized all our supply agreements. And -- but let's take the example of the last one that we could sign is going to be effective by calendar year 2023, which means that we can see already very positive signs in the way we are dealing with our problems in an effective manner.

That's why we are very confident of our ramp-up but the full effect of this long-term agreement is going to come into action gradually with the global supply base and with our Tier 1. So that's the reason why it's a gradual improvement. And we should not also forget that the crisis supply in terms of chips is really in-crisis in our sector. So we can see improvements, but it's going to continue when I'm discussing with the CEOs of all this industry, it's going to continue in the coming years. It's not a matter of months or quarters, but it's going to be a matter of years before we come back to a situation which is much more normal than what we can see today.

[Adrian Mardell, executive]

And if you let me build from that theme into the second half year one thing [indiscernible] that is where most of our supply from January than we are from October. I told you earlier in the presentation that we were decommitted in September and that carried through and to our production and wholesales into October, which is this quarter. So it's reasonable for you to assume 160K in the second half of the year. We've guided you there'll be stronger volume in quarter 4 from January and in quarter 3. What we're seeing favorable volume addition in quarter 3 is a limit in Q2, but not a dramatic improvement.

However, our mix because of the units we're now able to build within FA 3 and Solihull will improve. And therefore, total units in Q3 will be modestly increased, but average selling price an average revenue per unit will increase a lot above the GBP 70,000 per unit level, which we started to see towards the end of September. So that's what you're going to see over the next 3 months with an increase in supply in our quarter 4, which balances out to the 160,000 units. Don't forget, we don't want to put a number out there that we're having to explain why we didn't either.

So a part of this is learning from our Q2 experience because Thierry's other advise is at a point in time, you can actually be decommitted outside of your expectations and it just takes one part for us not to be able to complete and ship a vehicle. So that's why the guidance you're seeing in the second half of the year and the intent behind what we're trying to do here and the complexity that there still is for ourselves and for everybody else in automotive industry, by the way.

[P. Balaji, executive]

Thanks, Adrian. I think let's probably take the other 2 questions also coming your way, which then takes this to the next logical question saying that what are the reduction in production and cash flow guidance on JLR mean for our FY '24 guidance of becoming debt-free? And how do you see the device guidance?

Let me take that I think the -- at this point in time, the net debt -- near debt-free target remains as it is, we're not changing it simply because we don't want to update it every now and then. But we do understand the stretch that is there in trying to get there. So obviously, we will work out or look at all options and start us trying to see how close we can get to that. I think the better time to do this discussion would be at the end of the financial year as we are able to see as Adrian and Thierry talked about, Q3 is a transition period. And then Q4 is when the full calendar year benefits come through as well. That will give us the better time in terms to talk about it. So we are aware of the challenges to get there. At the same time, I wouldn't want to run ahead of ourselves in terms of putting a number out there. So that's on the net debt.

Related point on this in terms of your funding, Adrian, does it also mean that you may be coming to the bond market sooner rather than later in terms of taking care of this GBP 1 billion that is currently not in your plan?

[Adrian Mardell, executive]

Thanks, Balaji. Ben, what are your thoughts?

[Bennett Birgbauer, executive]

Yes. No. I'm happy to pick that one up. So we did have the quarter at GBP 3.7 billion of cash, and that does include a buffer for underseen cash requirements or to cover maturities if we don't want to go to the market at the time. So we already gave guidance that we would be significantly cash flow positive in the second half of the year. And we have about GBP 800 million of bonds maturing in February, March and basically, the guidance that was put on the page sell was GBP 750 million.

So that would about cover it and say you really wouldn't be eating into the buffer. We could do scenario planning and say, what would happen if that didn't happen. But I think that what would happen is we just used some of the buffer. And I think we are in a situation where, yes, over time, we'll always want to maintain that buffer, maintain good liquidity. But rates in the market right now are not very attractive. And I think we do have flexibility for the reasons that I just said to wait until we see rates that are more attractive to us to issue at.

[P. Balaji, executive]

Let me turn to India. I think there are questions coming through on the profitability of the Indian business. The Indian business margin, I think this comes from Gunjan, Bank of America. The Indian business margins have declined sequentially in both segments despite price hikes and better operating leverage. How should this pan out a hit? What sort of metal correction tailwind we expect in second half if you can quantify?

I think let me take that question, Gunjan, I think if I see PV and CV individually, close to about 70-odd bps of residual inflation came through in this current quarter. in our overall profitability, which we expect to actually neutralize and turn and actually go forward, start giving credits in Q3 and beyond. We do, as I said earlier itself, the intention is for the CV business to get as close to double-digit EBITDA at the earliest. And PV will continue to have a steady improvement in profitability going forward for which commodities is one of the legal. But it's fair to say that the operating leverage from a PV perspective is now used to the limit, and we would want to now see the contribution margins and mix continuing to play and keep improving and there's enough and more opportunities on that front. So that's what we see from our improvement perspective.

Other thing on the PV we should keep in mind, I think we have lost some more -- not lost, I think that we have taken a charge a one-off charge of almost about 50-odd bps this quarter on the -- related to SKU of sales issues that are there. And those are sitting in the underlying business, which they are one-offs and should not repeat going forward. So that's on the profitability side.

Girish, this one coming your way. I think when you see CV margins, they are very weak despite industry volumes. And this is from the industry itself being very weak. So can CV business margin reach double digit? Are they closer to double-digit like, let's say, 9% kind of a close double-digit there? How do you see the profitability of the industry?

[Girish Wagh, executive]

Yes. So I think, as Balaji mentioned, we as market leader have actually taken this upon ourselves to increase the realizations from the markets. And that's a big change that we've done in towards second half of Q2. And we have been increasing our market operating prices with which we will see that the margin should improve. And as Balaji mentioned, I think our target will remain to get to a double-digit margin EBITDA. And I think the good thing right now is the transfer to sentiment index, we do see it remains quite positive, which is good. So the demand is going to be there. We also see that the fleet utilizations are good. Freight rates are also at a good level. So despite the increases in diesel prices and the vehicle prices at whatever level they are, the transport of profitability is intact. So this should help us to firm up the realizations as we go ahead. And with commodities tapering off and our cost reduction actions, I think we should be getting towards our double-digit EBITDA target.

[P. Balaji, executive]

I'm getting questions to both Shailesh and Girish in terms of BSVI Phase 2, what kind of cost inflation can we expect .

[Girish Wagh, executive]

So I can say at this juncture that the cost increases for the BSVI Phase 2 are going to be lower than what we had seen in the BSIV to BSVI transition. So in terms of price increases, therefore, it may be lower than what we had to take from BSIV to BSVI. I think it depends upon the technology also, but the statement that I'm making is applicable to most part of the diesel portfolio. That's what we are. I think we obviously are very light on gasoline. There is only one product in gasoline. But gasoline anyway will have much lower cost impact. So that's where we are in terms of cost impact due to RD migration.

[Shailesh Chandra, executive]

Similar, similar response, I think the transition that we had seen earlier from BSIV to BSVI, it was a double-digit kind of an increase. So as far as price was concerned, you're not going to see that kind of a price increase in this time. And diesel will specifically talk about diesel because that gets impacted the most. But you'll see different kind of cost increases for different manufacturers depending on the technology selection curve. So that's what we don't see going forward, but it's not going to be as significant increase as we had seen from BSIV to BSVI.

[P. Balaji, executive]

Thanks, Shailesh. Adrian, this is coming away. Given that a lot of your cash outflow is coming out of working capital, the fact that you are now guiding to 160,000 units volume with semiconductor having taped up is that number conservative? Number one, which you answered in a part. But the implication on cash flows because given the working capital rewind should give you better benefits going forward, are we being conservative on the cash flow?

[Adrian Mardell, executive]

Yes. Okay. Thanks, Balaji. So our being conservative on the cash flows. There's 2 or 3 things happening into the second [indiscernible] within there. One is -- and one I've actually referenced on the call, but to items of the data here. One is we'll be building more cars, and therefore, working capital stock. Ultimately, it depends on how many [ fuels ] in the last 6 weeks of the year, of course, right? So but our assumption is we will build more cars over the end of Q4 than we're building at the end of Q2.

Therefore, there will be a working capital to earn in our favor in the second half of the year. There's a mix improvement. So no, volumes aren't as high as some people wish. The mix improvement in the value per unit and the average selling price will grow as well. all of those things will be positive. What I've also said to you on the call is we expect investments to increase in the second half year in 2 or 3 places, 1 of which is the optical investment number. which the guidance we've given you is GBP 200 million higher in the second half of the year than the first half of the year.

With the supply starting to improve, we're also anticipating improving other investments like fixed marketing, to generate more orders, which we're deliberately not generating today because the size of the order banks. And we will also allow expenditures to grow in other places alongside our digital transformation. So our spend will grow and our cash receipts will grow, and it will net out to the flavor of the GBP 750 million you see there. And not consciously and deliberately being conservative, although we're being very balanced and it is possible to overachieve those numbers should we get more supply or more value units to end destination before the end of March.

[P. Balaji, executive]

Adrian, one more coming your way. This on the order inflow. Q2 seems to be around 93,000 lower than the 100,000 plus that you are reporting in the previous quarters. So the broader question that's coming through is, is this because of a demand slowdown? Or is it because the long wait periods? What's causing this throughput rate to come down? And therefore, how are we seeing the cancellation rates as well as the overall demand environment?

[Adrian Mardell, executive]

Yes. Okay. So we are about 10,000 units lower than we were by quarter earlier in the year. Obviously, a part of that is the reasons I've just said, we're not stimulating new demand. But what you're also seeing in the absence of that stimulation and demand is the aggressive increases in orders for new Range Rover, for example, are starting to flatten off. and we're building more of those units as well. So that's what you're seeing here. You're seeing the original spike launch of New Range Rover now starting to flatten off.

There's been no marketing spend behind that vehicle at all, advertising or indeed verbal marketing. So there's plenty of opportunities for us to stimulate that demand. The other thing you'll see, and we're starting as the Range Rover Sport is becoming visible into the marketplace. You'll actually see the database increase Range Rover Sport orders as we go month-by-month in the second half of the year.

So we're waiting and watching to see whether it naturally because of that second reason gets to 100,000, or whether we actually need to start to stimulate some of that demand. And the fourth reason is that we know dealers are holding back on some orders at this point because we don't have delivery times for them. So when you put that flavor together, Balaji, we are super confident we're going to stimulate orders more than 100,000 going forward once we get the supply.

[P. Balaji, executive]

I will leave you with a teaser on pension that's going to come your way, but let me further move to Shailesh. Two questions, Shailesh, on EVs in particular. One value proposition of EVs, how is it better than hybrids? So that's one. And second, EV margins, the impact of EV and overall margins of PV, can you talk about these 2?

[Shailesh Chandra, executive]

Sure. So as far as EV is concerned, and the way the ramp-up we have seen in terms of demand of EVs and Tiago is 1 big example. First day getting 10,000 bookings. We have never seen this kind of a response even for some of our very successful ICE cars, clearly shows that it is being well understood the strength of the value proposition, not only versus hybrid, but I'm saying versus normalized vehicles also.

The biggest proposition here is the low operating cost and the low operating cost is really translating into big benefits in terms of annual savings and therefore, the justification for the premium that you have to pay for EVs. It is a very smooth automatic transmission vehicle. At the same time, for which it is being appreciated and also in terms of performance and drivability pressure, it is proving to be much [indiscernible] here. And of course, there's a change in mindset and greater trend of younger population also to move towards more cleaner vehicles and we will be responsible to the environment. All these trends make it a very strong proposition, and we're clearly seeing that translating into demand. So this is an answer to the first question.

The second question was on margin. I would say that margin of EVs is not very different than what we see for the ICE segment and PV. And this should further strengthen from next financial year as the PMI benefits also start coming in.

[P. Balaji, executive]

Maybe I'll just tag you there for a minute. In terms of your volume outlook for domestic PV, now that the pent-up demand is more or less met up and semiconductor situation is normalized, how do you see it? One question. And second, in terms of how do you expect to gain market share going forward on the PV business?

[Shailesh Chandra, executive]

Sure. So as far as this H2 is concerned, H1 itself was very strong, and we saw nearly 1.9 million vehicles, which got sold in H1. Typically, you would see a 48, 52-point of a ratio between H1 and H2. This time, we want to see nearly 50-50 kind of ratio. So it's going to be a very strong year, highest ever industry volume is what we are going to witness in this financial year, possibly going up to 3.8 million plus. And therefore, I don't see right now the demand really going down, except that we see iteration on offtake this quarter and then it should again pick up in the next quarter, not to the full extent, I would say, because of the transition from BSVI space 1 to Phase 2, but still it will be good enough to do similar kind of volume as we have seen for the H1.

Definitely, then the question will be in FY '24, whether you'll have similar kind of growth. I would not expect that because pent up has got released already in H1 and therefore, now it will be more bigger through the new launches, and there will be segments which might get impacted, which will be mostly the segment as there will be some price increases coming because of some regulations which are going to hit, which is one, the Phase 2 RD and then the safety regulations, which will also hit on October '23. So I think FY '24, I would just hold my comment right now because I also -- we have also then triangulate based on what projections we are going to see from various agencies.

What is the second question, Balaji?

[P. Balaji, executive]

EV margins, covered. Let me probably take the comment, Adrian coming your way, JLR pension liability situation and the provision needed due to the bond yield in changes?

[Bennett Birgbauer, executive]

So Balaji, Adrian asked me to pick this one up. So I think this question is relating to the extreme volatility we saw in gilt price -- in gilt yields following the mini budget that was announced in the U.K. in late September. And that did cause liquidity challenges for pension plans in the U.K. because they have interest rate hedging arrangements and they had to post collateral against those interest rate hedging arrangements. And JLR was no different. We did see increased collateral requirements in the pension plan related to our hedging arrangements. And we did take action in the pension plan to reduce the hedging levels and sell assets to cover those collateral requirements. And we acted very, very quickly when that came up.

So the pension plan remained liquid throughout the issue. Rates have, of course, normalized now. They had risen by 2 percentage points to something like 5.5%, and they're back now down into the mid-3s again. I think an important point here is that it was always a liquidity issue only not a funding or solvency issue. And the ironic thing is actually the pension plans of JLR, the accounting basis serve us actually [ runose ] from the end of Q1 to the end of Q2. So the account and surplus is actually over GBP 1 billion at the end of September, and it was slightly under GBP 1 billion at the end of June.

[P. Balaji, executive]

Yes. Thanks, Ben. One more question on the JLR side. Other expenses for sales are flat quarter-on-quarter, not seeing any leverage gains. Any key drivers for that, Adrian?

[Adrian Mardell, executive]

No, not really. Look, I mean, the -- even though we've broken through on MLA, we still only have 13,500 Range Rover, Range Rover Sport sales within quarter 2. It was just 18% of the total volumes. So we're [indiscernible] better than that in the second half. optically is incredibly powerful with that GBP 300 million year-over-year. but we're not punching our for wage yet by any means on MLA, and that will actually increase the average revenue per unit and the total revenue in Q3.

And therefore, you may see a change as a counterweight to that I think I've already answered, we are going to start to lift some of those costs and some of those expenditures. And of course, the inflationary pressures in the second half of the year, particularly on employee settlements will start to come in place to lift the cost as well. So I see a revenue lift, I see a cost lift. And broadly speaking, the balance between the 2 will be will be reasonably close going forward as we said today, Balaji.

[P. Balaji, executive]

Yes. One additional question on the VME, do you see any pressure in China and EU on RR portfolio -- non-RR portfolio, sorry?

[Adrian Mardell, executive]

No, I don't. I mean, particularly on the -- as we buy products towards the higher end of the business, the distal end of the business is lower. And therefore, again, it will be a part of the margin improvements, which will start to do in the second half of the year once free supply comes, and we start to build greater quantities of the smaller vehicles, the SUV frees, that's when I expect it to be more competitive, and that's when I expect VME to start increasing as an average as a percentage of total revenue.

[P. Balaji, executive]

Okay. And one more question before I move back into CV here. JLR has -- the revised base settlement at JLR, has it been reflected in this quarter's results? One, and two, time lines for the debt repayment of the GBP 1.7 billion in '23?

[Adrian Mardell, executive]

Yes. So the wage settlement is effective from Q3. So we -- there's no impact earlier in the year on this reported period. That will kick in, in the second half of the year and as a part of the explanation, even why recognize. Some of that will go into the margin rather than other expenses. It was a part of the last explanation. But it's in front of us rather than behind us. And the profiling of the debt kicks in, in February and between February and June, there's GBP 1.5 billion equivalent we pay back.

[P. Balaji, executive]

Okay. Second, now is coming back into India, Shailesh, your way. Customer profile of the Tiago EV bookings versus Nexon. Any interesting anecdotes there? And are they first-time buyers? What are the mix first car with the second car?

[Shailesh Chandra, executive]

We would not have that real picture of Tiago but for Nexon. I won't have the split of first only car, but between only car and primary car. It is nearly 70%, which has grown significantly for what it used to be. It used to be 25%. Otherwise, it was generally a second car. People who are now using the Nexon EV, buyers who are using it as the only car or primary cars really now 65% to 70%. On Tiago EV, we have only regional kind of a mix, which is a very strong we have seen in states like Kerala, Maharashtra, Gujarat, NCR, Rajasthan and these kind of places in Telangana. So pretty, I would say, a similar kind of states where we had been selling but also -- some of the states in the East have also started showing interest in EV. So that's what we have so far information on Tiago.

[P. Balaji, executive]

I think there's one question that's coming back again and again, so let me put it up in terms of what are the reason for lower profitability of CV and PV despite better volume. And I think there's -- it's also got questions into how much is the commodity impact for the current quarter, how is it likely to change the next quarter?

I think let me cut the problem into 2. As far as CV is concerned, the main reason that we had was a residual commodity increases, the last lap of it. It is just the way negotiations close, they just overflow into July, August. And those are now settled and completed, and we should see the decrease coming from Q3 onwards. That's how the negotiations happen. Additionally, I'll talk of it in CV going forward. You should also see realizations increase as we move to a demand pull strategy. So that will also keep increasing the profitability. And therefore, we would expect like Q3, the business to ramp up in terms of profitability and intention is to get as close to double-digit EBITDA as soon as possible.

So that is a plan there. Coming to PV, yes, the residual impact is also there in that. But on top of it, there's also one-offs which we have taken with respect to obsolescence that we had to write on. And that's almost 50 bps of write-offs have got taken there. So those are the 2 reasons why the profitability came down and both are now behind us, and therefore, that's something that we should expect to see the things changing here.

So moving into a set of questions that are coming in terms of AVRs, DVRs, basically saying that if you have simplified the structures through delisting the AVRs, what are the plans on DVRs?

At this point in time, there are no plans. And as and when there is something coming up, we'll definitely share it with you.

In terms of CapEx in India, first half of the year, we have spent about INR 15 billion, but we are guiding for about INR 60 billion. What is our current plan?

I think this is up to INR 60 billion in what we said INR 6,000 crores. And we do have plans that are rear-ended typically. That's how it endurably happens as the proposals clear. We will keep a close watch on it and we'll spend as is prudent. And rest assured, we are not clinging on investments and the intention is to keep supporting the growth there.

I think one question coming our way, Adrian, Euro 6 emissions that are there. Are there additional expenses that we have to undergo to meet the new emission norms?

[Adrian Mardell, executive]

Yes. Well, the Euro 6 legislation is behind us Balaji. So I think we're looking ahead towards Euro 7 at this point in time, which I'm told has been delayed by 24-hour announcements until later this week. So I think the E7 ones are the ones we're looking forward to, if they get confirmed in the time line, then there will be additional expenditures, which will be contained within our investment targets we give you going forward.

[P. Balaji, executive]

Okay. So Ben, one coming your way, given the pound depreciation against INR, should there be an exceptional gains sitting in the P&L due to debt on the JLR books?

I know it's related to INR or is it USD that you're referring to because JLR has its debt in USD, what you also see is there a translation impact of that, not definitely P&L. And as far as the OCI is concerned, we do see it's in the OCI in JLR.

Ben anything further you want to add, assuming the question is vis-a-vis USD?

[Bennett Birgbauer, executive]

Yes. I mean I think it's harder for me to answer the question relative to INR. I guess all I can say is that I'd go back to the slide that we looked at earlier that showed exchange. And basically, it showed that the exposure benefit net of hedges was favorable about GBP 55 million in the quarter compared to a year ago. And we did have revaluation on the debt. At the end of the day, debt is largely hedged either by derivatives, by foreign currency cash holdings or in some instances, designated against future revenue. So we don't really -- I really think about foreign exchange revaluation on net debt, including hedges, and that is broadly neutral. We did then have about GBP 90 million of balance sheet revaluation for other non-sterling liabilities that showed up in the income statement. It's all on that slide that we looked at earlier.

[P. Balaji, executive]

One question to you, Adrian, in terms of announcement from another OEM related that the high inflation in Europe could result in moderation of demand next year. Do you share this view? Or is there -- and is there a risk to volume or pricing given discounting currently is at record low?

[Adrian Mardell, executive]

Yes. Okay, Balaji. I think I touched on this, actually, when I talked through the VME explanation, right, for the larger vehicles, the Range Rover, Range Rover Sports coming through, we're not seeing any discounting. We're not seeing any fall off in demand. There is a flat lining of new orders, but not a fallaway of new orders. And the flatline is absolutely consistent with the profiles we have in the demand books, order books we have in place.

I think once supply starts to free up for us of the level that we're currently indicating in the second half of the year, then we will be [indiscernible] the order units, let me say, in the SUV 3 segments. I think those segments are more competitive always from a support VME perspective from an aggressiveness of supply of other OEM actions. So I do expect higher VME at some point in time on those nameplates. But clearly, we need the supply to build them at the moment. The ones where we will be building over the next 6 months in time, I don't see this as a risk at all.

[P. Balaji, executive]

I think there's a question from -- on -- a slightly different question, but again, linked to the high energy costs. Is there a risk of shortage of components due to gas shortage or very high energy costs from vendors?

[Adrian Mardell, executive]

No, we're not seeing any of that at the moment. We're seeing cost increases flowing through, of course. Just to give you a sense of that, our base energy bill is around GBP 200 million a year, and therefore, that's certainly increasing. It's in part in our first half year, and it will be a reason. I talked to inflation earlier. I said the number is broadly going to be the same. And if you put together the 2 responses we've given Balaji, the commodities are going to start to fall, although the cost categories, including utilities and including pay awards will start to kick in, which is why I'm saying overall, the costs will broadly be the same in second half of the year. It just come at us in different places. We don't see risk of supply at this point in time. Obviously, as a nation, we're less reliant on supplies from Russia, of course. Most of our suppliers come from other places like Norway.

We do have alternatives, particularly for the buildings outside of our processes, production processes like paint shops, so we have other alternatives for other sources. We don't have gas storage, if we wanted again to gas storage. We know our facilities in Europe and our governments in Europe do have a gas storage, which will get them through most versions simulated of a winter. So we're not actually expecting shortages of supply to impact our production facilities over the second half of the year. We haven't seen any yet, but we are expecting cost increases is a summary of where we believe we're going to be on gas in the second half of the year.

[P. Balaji, executive]

I think a question on the 4 plant acquisition, Shailesh, when are we going to see production out of the 4 plants that we have acquired?

Just to clarify are not yet acquired? We will close the transaction. The intention is to close it by end of this financial or early in the next year. Sorry end of this calendar year or early in the new year. everything points to that kind of time line. So all systems go on that one. Production?

[Shailesh Chandra, executive]

Yes. So Balaji, we are right now in the process of government approvals final stages of finalizing the model location mix, which changes now and whatever we are probably in the other factories are going to relocate to some extent to this factory also and the new EV models which are going to come. So FY '24 is where we are going to see some start of the activity in the later part of FY '24. This is the current, what you say, estimate of when we'd be able to retool this plant for the new models -- for the models that we are going to shift are to this factory and some of the new EVs are going to be made there.

[P. Balaji, executive]

Okay. There's a question on this probably. I'll take it. What -- how important is JLR to Tata Motors and the wider group's growth strategy and what level of support does the former envisage going forward?

I think it's absolutely categorical. We made that many statements that Tata Motors -- JLR is absolutely core to Tata Motors, and it enjoys as much Tata with any other companies and therefore, within the group as well it's a crown jewel, and we will keep it that way.

In terms of an interesting question, post the launch of Tiago EV, do you see any pressure on Nexon EV, Shailesh?

[Shailesh Chandra, executive]

Tiago EV is a very different product segment with very new customers. And so we don't see any impact on the Nexon EV demand.

[P. Balaji, executive]

So maybe the last question unless there something comes up now is on Tata Motors Finance. How much of the incremental loan formation is dependent on Tata Motors PV, CV, EV? What is the plan to improve the operation of Tata Motors Finance?

I think let me take a few minutes to explain the response. There are a few things that we are working with Tata Motors Finance. One is that their underlying business, which is a running portfolio is in a good quality. There's no concern on the earning portfolio. but we'd like to step it up further in terms of reducing the level of GNPA there and ensure that we step up the quality of sourcing. Thereafter, of course, in parallel, we're also working to tighten the collections infrastructure there.

And you should see these playing out in the coming quarters. And it's very clear, it's an independently managed company out of -- in Tata Motors and Tata Motors Finance, we'd love to keep it as, from a decision framework, separate. But of course, As tough asynergy as possible they should drive. But intention is to ensure they take their own decisions on credit and decide whom to fund or what to fund. Their portfolio from a new vehicle perspective is entirely Tata Motors. But their used vehicle portfolio does have sourcing from other OEMs as well, but that's the market. So we get a fair share of our market -- of the vehicle part that is of there. So this is clearly a tough for the team there.

And I'm sure, given their commitment, they will come back on track which is only a restructured portfolio that is giving us the pain and that is completely related to the pandemic and the fact that we have back-to-back pandemics for 2 years in a row, the MSME, particularly small commercial vehicles, some I&LCVs and M&HCVs, those individual fleet operators have been in stress. So we will need to deal with this, and we are committed to deal with that as well. We bring this business back into the pink of health. It needs to get to a double-digit return business, ROE business, and we will be there.

So I think it's more or less done for the day. So thanks, everybody, we have no further questions. So thanks, everybody, for attending the session and also thanks to the team around the table as well as in JLR for a lively Q&A session and the response there. And in case you do have any further queries, don't hesitate to reach out to us. We'll try and respond to the best of our abilities. Thank you, and have a good day. Take care, bye-bye.