Ladies and gentlemen, good day and welcome to the Tata Motors Q3 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. During the course of presentation, if any participant intends to ask questions, they can use the chat box option appearing at the bottom of the screen to submit their question to the speakers. All questions will be taken up at the end of the session. Please note that this conference is being recorded. I now hand over the conference to Mr. Prakash Pandey from Tata Motors. Thank you, and over to you, sir.
Thank you, Diksha. Good evening, everyone. On behalf of Tata Motors, I warmly welcome you all for our Q3 FY 2021 Results Conference Call. We have with us Mr. Guenter Butschek, MD and CEO, Tata Motors; Mr. Thierry Bolloré, CEO, Jaguar Land Rover; Mr. P.B. Balaji, Group CFO, Tata Motors; Mr. Adrian Mardell, CFO, Jaguar Land Rover; Mr. Girish Wagh, President, Commercial Vehicle Business, Tata Motors; Mr. Shailesh Chandra, President, Passenger Vehicle and Electric Vehicle Business, Tata Motors; and all our other colleagues from the investor relation team. Like always, we will start the session with a quick overview of the financial and business performance from the management, followed by Q&A. Over to you, Balaji.
Thanks, Prakash. Firstly, a warm welcome to all of you. Thanks for taking the time to attend this session. I hope all of you are safe and sound. Like last time, we will try and keep the presentation short, run through the key highlights of it, and then have as much time as possible for the Q&A as is possible. Prakash will just go to the next slide, the standard safe harbor statement. Go forward. It's been an intense period of activity for us despite COVID, and the key call-outs I would call here is that the passenger vehicle business now, in India, reached 4 million vehicles. That's hashtag We Love You, #4MillionClaps. Then, of course, Nexon reached the 150,000th vehicle. What you see out there is the launch of the legend.
The Tata Safari is back, and this is the twin brother of the Harrier on the same OMEGA architecture that comes through. JLR, so proud for the new Defender, which has been awarded the Top Gear Car of the Year, and a series of 21 model year launches, which we can talk about as well. On the commercial vehicle side, what you see is a picture of those 3,000 of the 6,000 vehicles that have been sold to the armed forces vehicles. They're quite a sight out there. Next slide. Overall performance, happy that we had a strong all-around performance that came through, where global wholesales dipped about 0.6% year-on-year, but still revenue went up 5.5%, and PBT on a year-on-year basis, up 209% to 4,200 crores almost, and EBITDA at 14.8%, up 540 basis points, and EBIT at 6.4%, up 450 basis points.
The second consecutive quarter of strong free automotive cash flows as well. With this, our EBITDA is now touching INR 11,200 crore at a free cash flow of almost INR 8,000 crore. A strong performance coming through across the board. Next slide. Components of this growth, if I were to talk about in a minute, invariably coming in from volume and mix were against us, because of the lower commercial vehicle sales on a proportionate basis, as well as JLR decline. Compensation did enhance the overall revenue growth. From a profitability perspective, JLR, TML, and all others also contributed. It has been a consistent value creation happening across all parts of the business, and resulting in the EBIT actually touching 6.4%. In line with our de-leverage plan, a steady reduction in net automotive debt, now down to INR 54,700 crore, another INR 7,000 crore. Next slide, Prakash.
Overall debt profile is strong, with liquidities well spread out. This has increased the voting shares of the group, the promoters, to 45.82%. The promoters have exercised their warrants for INR 2,600 crore yesterday. This is not there, the liquidity that you see in Tata Motors standalone, that is a thing that will come up in Q4 as well. In JLR, a strong liquidity of $6.4 billion, $4.5 in cash and $2 billion in RCF, means that bond issuance that we have done as well as the TML's bond issuance that we did in November, all have gone through well. Liquidity is adequate and well spread out. Next slide. Let me hand this over to Adrian to take us through the JLR performance. Adrian, over to you.
Many thanks, Balaji. Good evening, everybody on the call. The headlines are really strong, as you see there, the profits before tax was GBP 439 million. EBIT percentage, 6.7%, best Q3 EBIT for JLR for five years, and free cash flow positive, $562 million, the best Q3 cash flow in the history of Jaguar Land Rover. It's important to look below the headlines, please listen on. The patterns we see here are similar to the patterns that you saw actually last quarter. Retail is higher quarter-over-quarter, but lower than the same quarter last year. Of course, revenue will therefore be the same. We'll talk about profitability, and a bit of income detail and also free cash flow. Next slide, please. The headline, obviously, as I said, quarter-over-quarter improvement. A particularly good quarter, again, in China.
You'll see in a moment when we break out regional sales year-on-year up almost 20%. We'll also talk about inventories maybe for the last time. Actually, you knew they grew disproportionately at the end of March. We have now made all the corrections we committed to make. In fact, in many places, inventory is actually lower than ideal at this point. Profitability, I talked about. Charge+ doing what it does best. When we get onto that slide, you should start to note that it's no longer just structural cost reductions, improvements and reductions in warranty costs, in variable marketing, also as well as manufacturing efficiencies starting to come through into the program. CJLR, probably one of the disappointing elements in the quarter. We did lose much CJLR as we trued up their year-end position, particularly from the marketplace on variable marketing costs.
Cash flow, as I say, significantly strong, including investments which were lower than last year by just about GBP 200 million. This is now much closer to a normal quarterly level of investments you should expect to see going forward. Next slide, please. These are the regional retail numbers. Again, you'll see the same pattern as the total numbers in North America, in Europe and overseas, i.e., quarter-over-quarter growth, but not yet at last year levels. U.K., of course, had a particularly big month in September, which was in the Q2 data, and therefore the year-over-year in the U.K. is a better comparator. China. China again, has grown not only quarter-over-quarter but significantly versus the same quarter last year, 19% up versus Q3 last year. That is actually impacting the results significantly, both on profitability, on margin, and on cash. Next slide, please.
By nameplate, again, I'll just draw out the Defender from this page because most of the patterns I talked about are repeated on Range Rover Discovery, the pages. At Defender, we're now getting towards the normal size and scale quarter. I've told you in the past, about 5,000 units a month is a good barometer for us. You can see we broke that level across quarter three. Margins are healthy as well. We've got a separate slide later on Defender to share more details. Then the electrified vehicles, 53% of the total in quarter three had some level of electrification. We've broken that down by the ICE petrol, diesel and the MHEV split, and in particular, PHEV. They're a very strong quarter for us as we closed out some of the deals we had lined up in calendar year 2020.
Note the PHEV proportions increasing now, particularly as we bring those 20.5 and 21 model year vehicles to the market. More about that in a few moments. Next slide, please. Inventory all down to target levels or slightly below, whether it be retailer inventory, our own inventory, or days supply. We've done the job we committed to do, and we've held it level. You can see there within the quarter, and I do not anticipate this to substantially change either way going forward. Next slide, please. Our profitability in the quarter versus the same quarter last year. A number of things happening here. You've seen already our volumes were down substantially. Wholesale volumes, of course, this would be about 27,000 units, so we lost a quarter of a billion pounds off that. A substantial swing in mix.
This quick mix swing happened for several reasons. Of course, the markets of China and North America are more open and more active than our U.K. and European regions today. They significantly sell our Range Rovers, our Range Rover Sport, our Defender Proto, i.e., the larger vehicles, the significantly profitable vehicles as well. You see that within the mix column. We also see here shifts towards Land Rover from Jaguar. We talked about that as we've gone through the course of this year. Again, partially that's because of the regional health of China and North America. That shift already exists in those two regions. China JV, as mentioned, it was a disappointing quarter for the JV. That's work to do there. We did have a really nice quarter on compliance. We talked about this last time.
We did expect this quarter to be positive from a credit generation perspective, and we were able, as a result of that, to reduce our CO2 fine reserve, which we had at the end of September, by 55 million from GBP 90 million to GBP 35 million. That's a one-off within this data set, of course. Net pricing as we've started to constrain the supply to the marketplace for the reasons we previously talked about, and also for reasons I'll expand on a little later. VME is a symptom of supply and demand in many respects, and we're starting to see reduce supply need, reduce variable marketing also. The headline numbers were down to 5%. We haven't seen that level of VME for more than three years. The underlying is about 5.7%. Again, sub six is a really good place for us to be at this stage of our evolution.
We did actually release some residual value reserves, mostly in North America, $36 million on a year-over-year basis. That would be the difference between the underlying and the headline numbers. Nice progress on warranty. Again, we picked this theme up for the last four to six quarters. We did say previously 4% was a good barometer line for us. You can see now we're quickly breaking through that line and a 3.2% underlying warranty number, particularly off the back of the 20 model year units. We touched this point before. We saw improvement in quality of 20 model year. It will be the best model year for at least three years for us as we're now making progress in terms of the consistency of the engineering within our vehicles and manufacturing efficiencies coming through.
A fair point on commodity costs. You would have seen yourself, precious metals are actually increasing and that obviously impacts our bill of material. We have a number of those which will be in the FX and commodities columns. We continue, of course, to rightsize our organization and only allocate spends that we believe are appropriate and year-over-year, significant reductions in fixed marketing standing. Again, because we believe we've got our pipelines at a much better place and our order banks are healthier. You have to spend less money attracting people to buy the cars that you have. This is a part of the quality of sale and the health of sales we've consistently talked about. Model isn't just absolute number, model is the quality of each sale. As a result of which those costs of sale are falling.
Exceptional costs are VR redundancy and some pension true-ups as well. If you look at the EBIT, 2.7% in quarter three last year, 6.7%. Those one-offs, if we were to take those away are two to two and a half points. The underlying here is closer to a 4% level. That was our target underlying for pre-COVID. We do actually think our operating performance is back to pre-COVID levels, and we're benefiting from some of the adjustments from those two poor quarters in the first half of this calendar year. Next slide, please. Possibly the most dramatic slide, actually. Free cash flow, GBP 562 million. As I've mentioned, that is a quarter 3 record for Jaguar Land Rover. Historically, our free cash flow has been significantly influenced by working capital movements, positive and negative.
This was another positive quarter as we said it would be, but it was better than half of the free cash flow. The bulk of it this time was actually underlying. As a result of that very sweet model we had on China, on North America, and a rich mix. It's starting to come through the cash problem as well. Cash profit after tax was just short of GBP 1 billion . It's a record for many years. We haven't had that in a Q3. The investment levels at 600 and some, that's why it goes to the far right-hand side. We're doing again what we said we would do, perhaps a little bit more dramatically than we indicated. A lot of that is to do with the mixture of sales we had in Q3 this quarter just gone. Next slide, please.
Investment a little higher this quarter, GBP 675 million, as we started to lay down some of our investments for M&A. This is probably at the higher level of a quarterly number you will see in recent times and in times coming at us. We're still on track for the guidance we gave you nine months ago of GBP 2.5 billion investment this year. This was GBP 217 million lower than last year. The GBP 200 million cost and profit improvements plus this made about GBP 400-plus million improvement on the Charge+ program in quarter three. Next slide, if you would. This one is starting to shape. The reason why we put this page in place just like this, sadly, COVID got in the way. You will start to see the consistency of the quarterly data.
When you look back 12 months, you'll start to see that the current quarters are better than previous ones. If I take you from the start of Charge and you were to add up all of those numbers, we're now free cash positive since the start of the program, despite the horrible events of COVID. We're particularly proud of the work we're doing on our own turnaround program impacting our overall cash management. Of course, this underpins our commitment to get to net debt positive over the next three years. We're starting to see the balance between gross debt and cash available to us, including the RCF, even itself out, and we expect that to continue over the next quarter as well. Next slide, please. Okay, a business update I'll quickly go into. We talked these a couple of times already.
We've got a dramatic 21 model year series of product offerings. Historically, I think the industry's got used to a model year being minor change. This is dramatic change and not minor change. People should really understand these aren't just model years, these are significant vehicle upgrades. You can see the visuals we got here. Interior-wise, there's a step change improvement. Drive-wise, similarly. Electrification-wise, with the PHEV being introduced to three of these vehicles and then heading into Discovery. We have almost a complete new range of products. We're very proud of the work we've done over the last 18 months, particularly through a COVID period. This is the back end of, hopefully, towards the back side of this COVID period, we've produced these vehicles for the marketplace. Please find a way to test drive. You will be wowed. Next slide, please. Defender.
You know we've been positive on Defender all year. We slightly changed the layers of this so we can continue with the good messaging. The black line is retail. That continues to increase. In December, we actually topped 6,000 retails for the first time. I think even more dramatically, you now see the order bank for this vehicle approaching three months worth of sales, more than 14,000 cars in the order bank, as we just started to release the Defender 90 availability. I think it's reasonable to assume that 5,000 units a month is going to continue to be beaten on a month-by-month basis. In fact, probably lifted from that level, and the order bank situation over the next several months will be healthy. Very pleased with the Defender progress. Top Gear Car of the Year winner and European Car of the Year nominee.
It will continue to get dramatic reports and feedback from people driving it, from reporters reporting on it. Super job by the team. Next slide, please. 12 of our 13 vehicles are electrified. This is the messaging we did towards the back end of quarter three. You can see them all there. That underpins the 53% of our sales retail in Q3 had some form of electrification, which also, of course, underpins the fact that we were significantly credit generating across the targets we've been set by the different countries in quarter three. It's a super array of new product and electrification now hitting the marketplace. Next slide, please. This is where it plays back in terms of financial data. We still do end up with that 2020 full year problem.
GBP 90 million, as I've said, we believe will fall to GBP 35 million when it's finally assessed by the U.K. European authorities. Everywhere else is green, and we expect to be substantially green going forward as well. In total, last year, across all of the regions, our compliance fines or our acquisition credits totaled around GBP 60-some million. As it ebbs and flows across the regions, for those of you doing your modeling, I think it's reasonable to assume that across the planet, we will have similar amounts of tax credits, CO2 credits through the acquisitions in 2021. Our intention is to continue to be compliant, and that's what we, of course, will be working towards. That's the gold medal. Next slide, please. Charge+. By the end of September, the first nine months, GBP 2.2 billion worth of savings.
I think you can start to see the mirror of this within our quarterly results, as I mentioned earlier. Particularly pleased the cost and profits are no longer just structural costs of people and marketing support costs. Manufacturing, warranty, and VME savings are starting to come through and will continue as we go beyond into quarter four and beyond that level. Warranty at 4% will stay there. We'll still hold that as a barometer, but I think it's reasonable to assume that our warranty costs as a percentage of gross vehicle revenue will start with a 3%+ going forward into Q4 and beyond, with the quality of those 20 model year vehicles substantially improved, as previously mentioned. We will hit the GBP 2.5 billion guidance we set earlier in the year as well. That's pretty clear now, I think. Next slide, please.
A deal did get done. As we all guessed, it was left pretty late, 24th of December. Some of us guessed 29th. It was earlier than some had feared, I suspect. We did get the deal mostly we were looking for. Clearly, the direct tariff imposition is not going to happen. You will know there are rules of origin to ensure that our vehicles do not fall subject to tariffs. 55% of the content of ICE vehicles needs to be U.K. European, 40% EVs, and that 40% will grow up through 2027 in step changes, which will then be at the 55% level, and there's a 12-month period of phasing. Overwhelmingly in trade, this is the deal that we were looking for.
The U.K. government have also actually put in place their own free trade deals to mirror the deals which the EU had made and the U.K. were previously benefiting from. Mostly from a trade perspective, we pretty much ended up where we said we thought we would, but I actually did get done in case that significant potential risk away. From a compliance perspective, I talked that already in earlier slides. Operationally, we shouldn't bypass the operational challenges here. I know from a U.K. government perspective, they would say Brexit means Brexit, but I think we're finding bureaucracy means bureaucracy, actually. There's a huge amount of customs declaration and paperwork required. Our teams are working flat out across end-to-end supply chains to make sure we can get the parts to our operations on time. It has been a bit bumpy in January.
It probably will continue to be so in February. Over time, these processes will be embedded into what we do on a day-to-day basis. I expect the operational frictions that we have seen, and you wouldn't have witnessed because they're not at the borders, we have actually seen will eliminate as we go through the course of this quarter. Next slide, please. The more difficult one to assess, of course, is COVID. You know, from a dealer perspective, we're in lockdown in the U.K. We're partially/significantly locked down in Europe, less so in North America, very little in China. This starts to explain why sales have been stronger in China, of course, and also sales have been stellar in North America and less so in the U.K. and Europe, which starts to explain the mixed pattern we had, which were disproportionately to those Land Rover-biased, EVs-biased regions.
From an operating perspective, our sites still do remain open. We've got an excellent record of health and safety, which we're very passionate about the protection of the safety of our employees. Obviously, suppliers are going through these same challenges and do on a day-to-day, week-to-week basis, suffer from people currently not being able to attend work. We expect this environment to continue through Q4. We also hope, and of course, we all pray as well, that this horrible virus actually becomes eliminated with the introduction of a vaccine as soon as possible. That I know is what we all pray for. Offices where people can work from home, of course, that's a safe place for them to be. Where they can't, then we make our offices safe as well. I myself actually work mostly from the office, and I feel very safe and secure here.
Of course, we will always observe government guidance. We have lots of health and safety people making sure that we are working to the highest standards, both within our production facilities and our plants. Of course, we have registered NHS sites in our main facilities in Jaguar Land Rover as well. We're one of the biggest testers in the country, actually. In fact, I think we're now the biggest tester for COVID in the U.K. You know what? I'm really proud of that, and so is the management team. That is just an amazing response to these awful events. Next slide, please. The outlook, I expect retail to be slightly higher than Q3 in Q4. We do expect a solid EBIT margin and also a positive cash flow in the quarter.
Full year positive EBIT investment still, I'll say for the fifth time, less than GBP 2.5 billion . We've repeated that every quarter. If we do in Q4 for cash what we've done over the last two years, we'll be very, very close to that break-even level. The underlying, obviously, challenges here is whether dealers stay open and whether we can continue to safely build vehicles. Nobody can say both of those things were happening, but as we go through, will happen for sure. As we go through January, we've managed to navigate both of those challenges. Risks, COVID, Brexit reduced. COVID is still here. Of course, I think we are more compliant and have the product lineup over the next phase for the required electrification and emission.
I should call out, of course, our investment day, the JLR Investment Day, is on the 27th of February, and we've got some really exciting news for you on the 27th of February, which you'll probably want to ask about today. Thierry, who's with me today, will obviously say what he feels he should. Next slide, please. These are our footage. Many thanks.
Thanks, Adrian. Moving on to Tata Motors standalone. Performance revenue at wholesale growth of 18% and revenue growth of 35%, with a PBT loss of about INR 600 crores, halving what it was in the last quarter on a sequential basis. EBITDA up by 70 basis point, 8%, and EBIT breakeven delivered with a 710 basis improvement here. Another quarter of strong free cash flow coming through as well. Go to the next slide to unveil this a bit. Overall volumes and resilience, the sequential recovery is strong. In the case of CV, the recovery is led by medium and heavies and higher CVs with a higher demand coming in from infrastructure, mining, and e-commerce. In the case of passenger vehicles, that business is on air.
Very strong sales momentum coming through with the New Forever portfolio, with the highest ever sales in the last 33 quarters and the highest revenue in industry in the quarter. Profitability, EBITDA at 6.8% is the highest we delivered in the last seven quarters, and breakeven has been achieved. In the case of CVs, the EBITDA at 8% is now touching its traditional levels of 10%-11% that is supposed to be there, nearing there, with significant improvement in margins and mix. In the case of PVs, this is the highest EBITDA that we've had in the last 10 years, with EBITDA further improving to 3.8%. There is a particular point which I'll pick up when I come to the PV financials and cash we've talked about. On the cash savings, we had committed INR 3,000 crore of savings for the year.
We've already delivered 5,100 and confident of delivering the remaining as well. Going ahead, where did the money come from? Slightly busy chart. I need to pause a bit to explain what's happening. Within the category, the mix is improving. Because take commercial vehicles, we are selling more M&HCV and ICV, that's actually starting to help us. Within passenger vehicles, we are selling more Harrier than Nexon. Actually, we are selling more passenger vehicles than commercial vehicles, that's actually pulling us the other way around. That's what is the dynamic that is playing out. Solid improvement in realizations, as well as better volumes and pricing. These are the ones that are leading it. Pretty tight control on fixed costs are the ones that are helping us improve this.
Therefore, as the CV business starts coming back, you will start seeing this lifting even further. Go ahead. Free cash flows, again, very happy with the fact that the business is now funding itself, so the cash profit after tax is now higher than the investment that we are putting in place. As far as working capital is concerned, I'm aware that a few of you had some worries on this. Cash conversion cycles are very steady. JLR is neutral, and we are sitting at about -15 days. That's what we need to get to. Therefore, we are pretty comfortable on the working capital. The reason that cash is coming out is that growth is coming back into this business. This negative cash cycle is what's giving the cash coming through. Going forward.
Investments at INR 547 crore for the year, lower than last year by INR 771 crore. Compared to the INR 1,500 crore that we had originally put out, we are now uplift a little bit to INR 1,850 crore to manage the additional demand coming in from passenger vehicles. Therefore, that is something that we will dynamically manage going forward as well. Go ahead. This is the slide on the INR 6,000 crore versus the INR 5,100 crore. I expect on the investment side for us to be slightly short of the INR 3,000 crore. On the working capital side, we'll exceed that and cost and profits we will deliver.
Therefore, the INR 6,000 crore will get comfortably met. Go ahead. On the commercial vehicle side, the market shares are being sequentially improving. This is on a cumulative three months, six months, and nine months. That's what you see there. M&HCV is steady at about 60%.
ILCV sharply improving as inventory levels started lifting. Small commercial vehicles also improving. This does not include the almost 3,900 vehicles that we sold to the Andhra Pradesh State Civil Supplies Corporation. That will come up in Q4 because the revenue recognition, that is not recognized as revenue, therefore, we've taken a lot of market share of this. This would have been sitting at almost 36%, is what I sense. I think it is about 35%. This will continue to improve further as well. Commercial vehicles market share is coming back as the year is progressing. Next slide. On the financials, this is an important one. I'll pause a bit to explain what is happening. On the wholesale, we are down 8%, but on a year on retail, it looks as though optically it is down 23%.
I draw your attention to the absolute number of vehicles we have sold. You'll recollect we started the year with zero inventory, therefore it's broadly the same. There is whatever we are producing, we are able to put out there, we are able to retail the following month. There's nothing happening as far as wholesale retail is concerned. We are still working our way to improve the channel inventory. As far as revenue is concerned, if you notice that the wholesale is down 8%, but revenue is up almost 21%, which just tells you there's a significant pickup in realization happening thanks to the BS-VI price increase as well as lower VMEs that we are operating under. Even though volumes may not pick up, the turnovers are now starting to move quite fast. That bodes well in terms of overall operating leverage going forward.
This is something for us to keep in mind. We shouldn't get locked into just volume. There's a very different dynamic happening on revenues picking up faster than volumes. On the EBITDA, we are now at 8%, touching distance of the double digits, and therefore as we go forward, we can start moving in that direction and EBITDA is also starting to improve. Next one. Let me hand it over to Girish to give a quick update on what's happening. Girish?
Yeah, thanks, Balaji. Let me speak about the market side first. The industry here grew by more than 40% in Q3 over Q2, whereas we at Tata Motors actually grew by almost 50%, therefore outpacing the industry growth. There is a broad-based revival which is being seen if you look at M&HCVs. The revival is happening due to good growth in infrastructure projects, housing construction, mining, e-commerce. Across if you see, I think there is a good growth happening and therefore, M&HCVs is for the first time, the salience reached almost 24%-25%. Same case with intermediate and light commercial vehicles. I think e-commerce and growth in manufacturing has been driving this improvement. At the same time, we have also recently introduced vaccine transportation trucks, considering the requirement of the country. In small commercial vehicle and pickups, e-commerce has been driving the demand.
One has also seen urban demand coming back. In the first two quarters, it was more from the rural side. I think the urban demand is coming back, and consumption also seems to be going up. That is something which is driving the small commercial vehicles. The CV passenger, I mean, buses and vans, is something which still remains a concern. While some employees have started going to the offices and a large part still working from home, schools not operating, STUs running at a very low level of utilization, therefore leading to little demand in passenger. We've seen a sequential market share growth across all the segments as Balaji spoke, as we worked on supply constraints, which were seen in Q1 and Q2, most of those constraints have been behind us.
Of course, as many of you know, there are a few new constraints coming up, which I'll speak about. Therefore, on the back of this, we've seen the highest EBITDA margin in six quarters due to the continuous cost reduction efforts and also higher M&HCV salience, which has therefore led to positive PBT in Q3. Going to the bright spots, I think one has seen improvement in most macro, as well as some of the micro indicators that we look at. Whether it is the e-way bill, FASTag collection, container traffic, monthly diesel and petrol consumptions or the freight rates, I think everywhere things are gradually going up. This is therefore improving the fleet utilization to almost 90%-100% of pre-COVID levels, and the profitability of the fleet owners is also going up.
The consumer sentiment index is something which we track internally every quarter, and the good thing is that the index is now trending up. The index has actually scraped the bottom in Q1. It improved in Q2, and in Q3 it has further improved. The good thing within that is this sentiment index is a combination of both satisfaction in the current state and future expectation. Within that, I think the future expectations are even doing better. This is also something which augurs well for the industry. In terms of our BS6 products, I think we have been focusing a lot on back-to-back trials in the market with respect to our own BS3, BS4 vehicles as well as competition vehicles.
I think the purpose is to demonstrate to the customers the improvement in total cost of ownership and therefore what is the payback for the higher price that they are paying for the BS6 technology. I think this is also something which is helping us in terms of higher realization, which Balaji mentioned. Looking ahead, some of the challenges, I think since Q3, we started chasing the semiconductor issue. It started with one supplier and then gradually a few more. We are continuously tracking the situation. We are also talking directly with all the semiconductor manufacturers to see how we can manage this situation. This does remain a very important agenda for us and going to drive the volumes in this quarter. Increase in commodity prices is something which is an important thing which is happening and I think something we have been tracking.
We have been able to mitigate it through cost reduction as well as price increases. We have taken price increase in Q3, we have also taken price increase in Q4. This is something which is helping us to tackle this commodity price inflation. Finally, the CV passenger segment which I spoke about, I think the demand remains a concern. The industry has collapsed by almost 80%, and schools yet to open up, business and leisure travel is yet to normalize. We are tracking this to see how this last segment within the commercial vehicles can come back. This is summary of commercial vehicles. Back to you, Balaji.
Thanks, Girish. Moving on to the next slide on passenger vehicles. A quick run up on the numbers. Draw your attention to the graph. We know against an industry decline of 16% in the year to date so far, we have grown 39%. That has ensured that our market share has stepped up strongly from 4.8% to 7.8% holding there. Also draw your attention to the powertrain mix, where EV, which was a negligible, is now starting to make its presence felt with a 2% contribution of the powertrain. Nexon EV is now almost 64% of the EV industry volumes in the last nine months. Vehicles Tiago, Tigor, Altroz, Nexon, all of them in the top 10 in their respective segment. Harrier is a particular call-out, which is now crossing 3,000 vehicles per month with a very strong growth rate compared to last year.
Altroz, of course, has been a blockbuster success for us as it started. We just launched the iTurbo a week back and expecting continued strong performance on this front. The overall point on PV being the New Forever range, as well as the entire focus on the front-end activation, which Girish covered extensively two quarters back is starting to pay results. We will talk about this quite extensively in the investor day that's coming soon. Next slide. The financials. 85% growth here. Again, you will notice there is very limited inventory there. We sold 70,000 on our own from the wholesales of the 77,000 what retails. Actually, the retailer dealer inventories are precariously low, resulting in a huge lead time increase for orders. Revenues touching INR 5,000 crores for the first time. EBITDA increasing substantially over last year, now at 780 basis points.
Really draw your attention to what's happened to the EBIT line. We always talk on EBITDA, but as operating leverage starting to kick in, you see that while we increase EBITDA by 780 basis points, we are able to move the EBIT quite substantially by 1,400 basis points. Therefore, the next target for this business is to now get to an EBIT breakeven and then, of course, a cash breakeven, and we are confident of pushing that through as well. The good part is every line of the P&L is now starting to work, contribution mix, operating leverage, and of course, the fine line is commodity inflation, which we have to take it on the chin and manage it as well. Go forward. Shailesh, would you just want to take this three slides?
Thank you, Balaji. Let me give a quick update on the business performance turnaround for PV, which is the result of actions taken broadly in three areas: demand generation, demand fulfillment, and profitability improvement actions. Starting with demand generation. The key actions actually were focused strongly on retails, which was well supported and backed by a very synchronized demand supply planning. Channel partner margin structure and policies were revamped to enhance their profitability. This was very important because this is what enabled the enhancement of working capital, which was extremely important for supporting growth, which was nearly doubling the growth. We just kept our share of voice high through marketing campaigns, and it continued in Q3 also to support the demand generation of our New Forever product range. Therefore, we have been able to garner very strong bookings in quarter three also.
We expect that in quarter 4 also, the demand is going to remain strong for us, particularly because our channel inventory is possibly the lowest ever in our history. As I said that we have a very strong pipeline of bookings. Talking about demand fulfillment side, I think the demand generation could not have been supported if we did not do enough on the demand fulfillment side in the pandemic times. I would say it was a unique situation for us where we were possibly the only player who was able to ramp up the production to twice what we were as an average in the last financial year. Particularly under petrol vehicle production, we increased more than two times as compared to the average of last financial year.
This has involved not only a lot of debottlenecking actions internally, but more so on the supplier side for many critical items, where there was a very good partnering between Tata Motors and the suppliers to debottleneck capacities many a times without any CapEx and through multiple kinds of activities. This has really helped us in debottlenecking past. Yes, the challenge, as Girish also mentioned in CV, the semiconductor and steel availability will be a concern, but we are taking several mitigation steps to see how we can minimize the impact of this global disruption, what has happened. The last one on the profitability and cash improvement actions.
Efforts were actually put to optimize the product mix and variant mix, both actually, because Balaji covered on the product mix, but there was an effort in terms of tweaking the pricing of the variants also within the product, so that the movement of demand was in favor of more profitable product. This had an impact, as you can see on the profitability. Driving scale was one of the biggest motive for us because in parallel, we kept the fixed costs under control. This was crucial to improve our EBITDA margin, and we have seen the result of that. There was a very systematic cost reduction initiative undertaken, which has involved nearly 600 employees who have been generating a very strong pipeline of ideas. In last quarter, we did more than 150 idea generation workshops, and we have actually done a very strong pipeline of ideas.
This is in summary of the actions that we took on the PV side. Back to you, Balaji.
Thanks, Shailesh. Next slide, please. Moving on is quickly the Tata Motors Finance. This business is now, we made a PBT of INR 55 crore with an ROE of 7.3%. AUMs increased to INR 41,000 crore during the quarter, and we did manage to assign about INR 720 crore out of that. GNPA is at 5.6% is stable, and NNPA is at 4.2% marginally down. The real good news is a graph on the collection efficiency that you've seen before. Sequentially improving, hit 105% in December and continuing strong in January as well. Therefore, while collection will remain a focus area, starting to get more reassured that this thing is starting to come back correctly, but we cannot take our eye off the ball.
Excellent performance on cost-to-income ratios are now down to 32%, has fallen a long way over the last three, four years, and the business has pretty adequate liquidity at its command. Business doing well and business starting to move on track to an asset-light ROE accrete model. Next. In conclusion and ahead, I think we talked of demand. I think the situation we expected to continue to improve demand despite the new lockdowns. I think the entire focus for all of us is on the various supply bottlenecks, the functions, Brexit related logistics matters. They're all causing a lot of irritation in the supply chain, and that's something we are seized of and working through it.
Commodity inflation needs to be managed everywhere, and despite all this, we intend to consolidate the gains that we have had in Q3 and finish the year strong, which will then place us well for the subsequent year ahead. That will be the broad message and the individual line items for each of them you've already seen. Move to the next slide, please. Really keen to see you at the annual analyst meet, which will be there on the 22nd of February for Tata Motors and 26th of February for JLR. Look forward to seeing you there and sharing our plans in more details there. Over to you and then over to any questions that you may have.
Thank you very much. We will now begin with the question and answer session. Participants on the webcast can use the chat box option appearing at the bottom of your screen to submit their question to the speakers. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Okay. We have the first question that has come up from Yogesh Aggarwal at HSBC. Great set of results. Thanks, Yogesh. Questions. Why was Discovery volume so weak in third quarter? Was it due to the upgrade? Number 2, XE volumes are now almost negligible. Has it been discontinued now? Adrian, do you want to pick this up?
Thanks, Balaji. I'd love to. I think, on Discovery, there's a few things to note on the Discovery product. One is the 2021 model year Discovery is a dramatic refresh, and therefore I would encourage you to think about Discovery volumes as we go through Q4 and into next year too, of course. It's a shared production facility and production lines with the Defender, and you've seen how strong our volume demand is for Defender at the moment. It's outsold, there are some imbalances we do across those product lines. I think the third point to note is that there has been some cross-shopping between Discovery and Defender over the first 12 months. Again, we'll see as Defender balances out, whether that continues to impact Discovery post 2021 model year or not. XE volumes, they're mostly negligible now. Okay.
Of course, we've talked a lot to you previously about health of sale. House of sale end model isn't just to sell more cars, our end model is to sell more profitable cars. We had a significant refresh again on XE into 2021 model year, which is just coming through into the marketplace. The important thing to note here, we are also repositioning that nameplate in some key markets. Like the U.K., where we've taken some price changes and we've consolidated in North America, XE and XF just for the XFs going forward. It's all a part of our strategy to put cars into the marketplace that customers have appetite for and we can make good, solid returns on. XE isn't one of the most profitable nameplates we have.
Thank you, Adrian. Okay. Next question from Sonal Gupta, UBS. Can you share the best PHEV volume share in U.K. and E.U.? The reason the question being asked is how much does this need to increase further to achieve the CY 2021 targets? Second question. Okay, you take this, I'll read the next one after that. Go for it, Adrian.
Around 30% PHEV for U.K. and Europe in quarter three. Obviously, that was a substantial creditor realization position. You'll see going forward, that 4%-6% of total global demand is where we would expect to see in this quarter. It really ebbs and flows depending on regional changes. Actually, we expect PHEV proportions in Q4 to be higher than a normal quarter. Why? Because it's a strong selling month in quarter four. Of course, March for the U.K., so we will sell more PHEV than this in quarter four. It will level out a little bit as we go forward.
Thanks. The next one from Sonal again. What portion of JLR revenues are hedged for FY 2022? What's your hedging strategy for aluminum and other key commodities? How much do you expect from the impact on the rising commodity prices in Q4?
Our hedging differs by currency, of course. There are prime currencies, as you know, US dollar, RMB, and euro. More than two-thirds of US dollar and RMB are likely hedged. It really depends on what the gross vehicle revenue is, of course. That'll be our expectation. Slightly less on the euro, closer to 50%. Commodities, we hedge those 12 months out also, broadly 40% of our commodity acquisitions on aluminum, on platinum, maybe a little bit higher next year, are already hedged in place. A little bit less on copper.
Moving to the next question from Chirag , Edelweiss. There's a few questions on CJLR down as well. Maybe, Adrian, you may want to wrap this all in one question. CJLR quarter on quarter ASPs are declined and margins are negative. Anything specific or anything else you want to talk about on the CJLR piece, so that we can take all CJLR questions in one shot?
Yes. Okay. Yeah, this wasn't a good quarter for CJLR. It's definitely something we'll be working on more determinedly than we already have been. There was the end-of-the-year position for them. We have gone into a position, we've talked a lot about our supply lines for Jaguar Land Rover. We have got two months worth of stock locally for local produced products, and it's starting to show itself as higher discounting. We do need to pull back. We do need to pull back on the level of supply into the marketplace, which we will begin to do over the next few months. I would encourage you to assess the impact of that, probably not in the next quarter, but in six months time, where I'd expect us again to be back towards that breakeven position on CJLR, on lower volumes.
We're looking for volume stream five, 5,500 units a month. They are a little higher over the quarter 3 period. Of course, quarter 3 is the biggest selling quarter for Jaguar Land Rover in China and for the local business as well. I think we saw a little bit of discounting around the highest selling quarter also. Judge us in three to six months time is what I would suggest.
Got it. Another one on mix. I think we'll pick all the mix questions together. For JLR volume contribution, Range Rover, Range Rover Sport and Defender and wholesale is an all-time high of 47%. How should one look at it from here on?
In total, there was about a six- to eight-point swing from Jaguar to Land Rover across the quarter from what we would expect to be a normalized quarter. 84% Land Rover, we would expect about 78%, and that swing was heavily as a result of China and North America being open for business a lot more than the other regions. It was less about more sales in those regions. Although China did very well, it was more about less sales in our historical U.K. and European regions. That's really what's happening here. Volumes are lower than we would have expected on a pre-COVID period, and they're dramatically impacting the regions of U.K. and Europe, the lower margin areas. This will normalize out as we sell more cars.
I would encourage you, as we come out of quarter four, in 8-10 weeks time, to look at the mixes and the absolute volumes in that quarter, because I think Q4 is going to be closer to a normal quarter than the abnormality of Q3. I think there'll be about a six-point swing back to Jaguars. Land Rover is high 70% rather than mid 84%. A lot of that will play itself out at a total proportion, lower Range Rover Sport and Defenders, which will be 40 low percent rather than 40 high percent, would be my expectation.
Okay. Again, another one on the one-off, Adrian. You mentioned some one-offs in the EBIT of 6.7%. What are they and can you quantify them?
There's some binary one-offs in there. We talked about the compliance reserves, GBP 55 million. We talked about the residual values, GBP 25 million or GBP 36 million year-over-year. The binary one-offs were about 1.5 percentage points. It really gets into that abnormal high level of risk, you would evaluate that. My view is some of that is abnormal and therefore that overly influenced the image as well. You should think underlying EBIT closer to 4%. However, quarter four is normally less than quarter three.
A comment on commodity inflation, which I'll pick up. How much is visible in Q3 for India JLR? Can you quantify it?
Yes.
We have called that out in the JLR side about GBP 19-odd million. As far as India is concerned, the inflation has started now and the bulk of impact you'll see is more in Q4 rather than Q3. Moving on to the next question from Amyn Pirani, CLSA. What are the retail trends in U.K. currently and the expectation have been extended?
We showed you on the slide. Q3 versus last year was down 9%. That's been typical the scale of the reduction we would have expected to have seen. Q4, as you know, in the U.K. is the biggest selling quarter, particularly biased to the biggest month in March. Normally speaking, therefore, we'd expect the higher quarterly volumes in the U.K. to be this quarter. Clearly, at the moment, dealers are closed and therefore we're not selling at a normal level. If COVID actually starts to allow us to open dealers up for our biggest selling month in March, I would anticipate then quarter 4 to be the highest U.K. retail of this year. Clearly versus last year, we started to close down in March. Again, I'd expect year-over-year, quarter 4 U.K. retail to be higher than last year, quarter 4.
Thank you. I go to the next one from Binay Singh, Morgan Stanley. Expect a warning. Questions are on JLR. EBIT per unit is now almost a 15-quarter high. Could you share your thoughts on how you think of FY 2023 EBIT per unit? The question is also coming later from Pramod , Goldman, on any views on FY 2022, FY 2023 CapEx and with margins. That's an easy one to answer, which I'll pick up the first one, the hard one, I'll give it to Adrian. FY 2022, FY 2023, just give us a bit of time. The Investor Day is a better time to say that, as we put our strategy also together along with that. There we'll also share the cost plans that we have. The question more on the EBIT per unit, Adrian, how are we supposed to think about this?
Think about the underlying level we talked about for quarter three. We're now back to where we were pre-COVID. I do have to say, depending on how COVID develops, of course, you'd expect me to say that. If that increasingly becomes in control, I'd expect us to continue to trade at those pre-COVID levels. An underlying EBIT of around the 4% level, EPS improves by quarter. As you know, Q1 tends to be a weaker quarter for us. Q4, a stronger quarter. Don't forget, over the next 12 to 18 months, we do have some significant product changes, and therefore we'll give you better guidance quarter by quarter as we go forward.
Okay. The question from the [audio distortion] CapEx might be for JLR and India. Given the accelerated regulatory timeline meeting around the world, what are they passed on CapEx? We'll cover that in the investment. Moving to the next question coming from [audio distortion] can you please talk about cost reduction initiatives? What is the PV side turns around? How will we manage margins? How are you seeing Indian PV demand in FY 2022? Shailesh, would you want to pick this up?
Yeah, Balaji. I'll take this up. Starting with the cost reduction program, I mentioned while I was presenting my slide, that we have initiated a very structured program on cost reduction with very stretched targets, which involves nearly 600 employees in the company, working in a very cross-functional structure. We have been organizing multiple workshops through which idea generations are done. The key areas of focus would be value engineering, for example, or new variant creation, which leads to profitability improvement. Commercial reduction through should-be cost approach. It could also include ideas of import substitution, reduction in outbound logistics, and so on. These are the initiatives which are going on, and very steep cost reduction targets have been taken, and you are already seeing the result of those initiatives which have specified in the last several months.
This is broadly as far as the cost reduction initiative is concerned. Talking about how we see the market as far as FY 2022 is concerned, all the estimates show that if the economy rebounds back and also given that the vaccine is there now, PV industry on the back of two years of decline, which has been pretty steep in the last financial year and this financial year is also it is expected to be around 5% or so of decline and 20% decline in the last year. It is expected to see a steep recovery, is what is expected, and some estimates hover around 3.2 million-3.3 million market in FY 2022 is what we anticipate.
Thanks. Question on JLR from Shyam Sunder again. Can you talk about your electrification plans? More importantly, what is driving such faster adoption of EVs in Europe? Is it driven by the supply push to minimize compliance costs, or is it driven by subsidy? What's your take?
Okay, well, look, we talk a lot about the current nameplate plans, 12 out of 13 of them, they're electrified in some form. Anything else, I think I'm simply going to say we've got a super Investor Day set up on the 26th of February. You have the pleasure to listen to our CEO, Thierry, he will talk about this much more eloquently than I could. Please humor me and allow us to give you a really full outline of how we're thinking, how we're shaping our thoughts, and what you should expect. Be excited.
Okay. Moving to the [audio distortion] . Pro duction and other expenses in JLR. Can you give some how much of [audio distortion].
Yeah. This is where all the interesting stuff goes. Within there, other expenses, the reductions in engineering, the SME we called out earlier on the slides, reduction in all other expenses. Warranty is also find its way in there, and the emissions compliance as well. You will see the significant drop. I remind you, some of that's one-off and a lot of that's underlying. The thesis we call that in the structural costs. Think of mostly underlying. Our expectation is we will manage our business within those funding levels going forward, and you can see by the results, we're actually managing it pretty damn successfully.
Okay. Question coming from Market share cost JLR. While we appreciate the focus. This is from Gunjan, Morgan Stanley. Also [audio distortion] market share cost JLR. While you appreciate the focus, any thoughts on market share and how should we think of volume growth at JLR over the next couple of years? Some comments on the China market share loss as well, or how do we see market share in China?
I can answer, if you wish, to the first part of this question concerning the semiconductor shortage. It's for the whole car industry, that it's a real issue, and it's a real issue in terms of allocation impact at the moment because of the capacities of these big actors towards all sectors. As a matter of fact, we are not impacted at the moment because the team is doing a great job in order to get in touch with those Tier 2, 3, and 4 suppliers compared to us in order to make it such that the allocations are positively happening to our company. And it's working mainly because we are so small compared to other actors that in fact, our allocation doesn't change the picture for the other customers of these companies, and they understand that it will have a huge impact on to us.
With this type of approach, we have been very successful for now to be supplied.
Thanks, Thierry. Question on market shares in [audio distortion].
Yeah, let me answer that one, Balaji. I'm sorry, breaking up a little bit, but I think I got the question. Those of you on the line will know me well, right? I've not been a great driver of market share in the last 18 months. I talk about outs of sale and quality of sale. When we talk about market share, I'm a little bit look at the results. However, you've asked the question, you've asked in particular to China. We told you that we were up significantly versus last quarter and previous year, about 20%. When you look at our competitor data, I think BMW was up 10% over that same comparative period, Daimler 22%. It would suggest our share is pretty much commensurate versus the growth that they are seeing as well, and therefore, the share isn't changing that much.
That would be my expectations going forward as well. We do have aspirations to sell more vehicles, of course. We have aspirations to sell more vehicles in China, of course. We don't have aspiration to challenge the quality of those sales simply for volume. Where that ultimately ends up on a share-by-share, quarter-by-quarter, we will explain as we go through the quarterly results in Q3.
Thank you. From Joseph George, IIFL. GBP has appreciated sharply in recent months. When will the negative impact of the same be visible in JLR's P&L based on duration of the hedges? What's the way out to avoid the hit?
Okay. Balaji, I can answer it. It's Ben Birgbauer, the Treasurer. The answer is that it's already coming through our results. For example, in this most recent quarter, operational exchange was unfavorable year-on-year of GBP 46 million. It's just that that was more than offset by hedges, GBP 88 million of gains on hedges in the period year-on-year. And that over coverage of it reflects the fact that we still had hedges last year that were heavily impacted by Brexit rates. The better rates are why year-over-year are why we saw it over covering it. Going forward, the reality is we'll continue to see an unfavorable effect on operational exchange on revenue. We do hedge, and our hedging policy is to hedge up to 75% one year out and then percentages thereafter.
For example, on dollar power, we're hedged about 75% in FY 2022 and about 50% in FY 2023. That's how I answer the exchange question.
From Rakesh Kumar, BNP Paribas. How do you see it playing on margin? The second one we don't put it out there other than giving a broad of our refresh of our model.
I'm sorry, Balaji, you're really breaking up on me.
That's all right. I'm sorry.
I really didn't-
Can you hear me better now?
Yeah. A little bit better now. I'm sorry, mate.
Okay, let me repeat slowly then.
Ask the wrong question otherwise.
As residual value normalizes in the coming quarters, how do you see it bleeding out on the margin?
Don't forget what happened on residual values. It really shows itself in that year-over-year bridge, right? We show ourselves very clearly what underlying is and what headline is. Most of the residual value reserves we put in place actually progressively over last year, finally, with the COVID reserves that we saw at the end of March. Most of those have now been unwound. What you should expect to see go forward, VME as a proportion of revenue closer to the underlying level, 5% high rather than the headline level 5%. That would be my expectation. It particularly depends on where we sell by region, because there's no average VME here, of course. The VME differs by nameplate and by region. Broadly, the underlying number is effectively high going forward.
Sorry, this is the operator here. Mr. Balaji, can you hear us?
Hi.
Yes, sir. You may go ahead.
Yes. Let me take the next question. Okay. Can you hear me now better, sir? Is it better?
Yeah, this is better, Balaji.
Okay. Let me go then. Apologies for that. Question from Rajat, ICICI Prudential. For JLR, what are the sustainable VME and warranty levels for the next one, two years?
I feel I'm on a journey with you on this, right? My first quarter, if you remember, I talked about 9% VME and 6% warranty, so 15% of revenue. 12 months later, we started to talk about seven and four, 11% of revenue. I think it's reasonable to assume we expect it to be lower than the 11% of revenue going forward. I think we had a really super quarter, Q3. It may not be hitting those levels every quarter, but it'll be sub 11% across the two for the foreseeable future. The improvements we've been making on health of sale and on quality, you would expect over time that to be progressively improved beyond that point as well. Sub 11%, maybe even sub 10% from this point.
Okay. Talk about market share from Aditya and Jinesh from Motilal Oswal . There's some accounting questions, Jinesh, which you can pick up with Prakash. Where is the reversal of these fines accounted for and which line item? We'll pick it up offline with Prakash. Other expenses, we've already talked about. CJLR realizations, we have talked about. Brexit, this is a new one. Brexit rules of origin criteria of 40% EV. Is it including of MHEVs and PHEVs?
It doesn't include MHEVs. MHEVs go along with the ICE rules of origin. 55% is the MHEVs piece. It does include PHEVs. BEVs-PHEVs go together, MHEVs and ICE go together.
Cool. Again, the R&D capitalization rate has been on the 62%-64% range. Is this a new normal or will you revert back to the 70% range, which you had indicated earlier?
With the 70% range at the minute. Of course, we've still got some people in Q3, particularly in October, who are out on furlough, and as a result of this, none of their costs were capitalized. Stay with 70% for the moment. We have explained over the last 18 months, and you've been very patient with us, I do agree that the new norm is below the 80%, down to the 70% level, and we would expect over time for it to decrease from that. Not yet. There's an abnormality in the Q3 data still because of furlough.
Thank you. Moving to the next question from Aditya Makharia, HDFC. As growth is expected to revive both in India and JLR, will we turn more aggressive towards our CapEx programs? Aditya, take India, for instance. We had started the year with INR 1,500 crore of CapEx. We are now running more like INR 1,850 crore of CapEx. That basically will take care of the delta demand that is coming through to cater to that, and also ensuring that we are accelerating some of the product programs to continue delivering on the growth going forward. We will not compromise on growth under any conditions. As Adrian rightly put it, value creating growth. No debate about that. As far as CapEx, therefore, is concerned, it will be managed dynamically, but within the broad range that we had indicated.
Because equally important for us is to ensure that we reduce our debt levels and go net debt-free in the next three years. That is a hard constraint, and we will want to ensure that we get there. Whatever CapEx we are investing is anyway feeding growth, and therefore that will come back as cash as well. We are managing this dynamically. A question from Kapil Singh, Nomura. Congrats on a great performance. A question for JLR. Mix headwind. Will there be a mix headwind from here as we head into Q4? I think Adrian has talked extensively about the LR versus JSplits, so I'll skip this, Kapil. Other expenses, he's again talked about that. Many OEMs are investing heavily into BEVs and autonomous driving. Some of them are comfortable not generating free cash flows for the foreseeable future. What is JLR's plan and investment for these?
Thierry, would you want to pick this up?
I think the first element we should say is that all the evolution in terms of drivetrain is, of course, a cost of CapEx expenditure, which is already known. I think it's first element. Second element, it is designed by construction, by the way our programs have been moved forward to generating profits. It's a matter of a business equation, and it's clear that it's not because we are moving towards electrification, that suddenly we would reduce our ambition in terms of profitability by n places. That's the second point. The third point is that all the technologies which are being used in order to get electrified, even towards BEV, it's moving forward extremely fast as well.
It is that the value chain is moving, and it's being translated, and we are also making sure that we take our chunk from that new value chain so far we can continuously robust in our profit prospects.
Thanks, Thierry. Moving into the next question from Yogesh. Your PV business has been a real bright spot in India. Are there any market share targets for FY 2022? Again, the standard question, what are the new launches? We've already explained what we are going to do. Shailesh, would you want to pick up the point on market share targets that you have internally planned?
Balaji. I would say no specific number that I would, definitely would like to hint that we would be in double-digit market share is what the immediate short-term target would be. This will be supported by the launch that we are going to have, Safari, in the next month. In the same calendar year, this calendar year, we would have the launch of Hornbill. These two would enable us to be in the double-digit market share. As I said that the market is expected to cross 3 million next year, this will be a very strong growth that we can expect next year also. What was the second question, Balaji? If you can-
No, that was the product launches. You have answered it.
Okay.
You have answered it. Thanks, Shailesh. Question coming up for Girish, India CVs. This from Chirag Shah, Edelweiss. How should one look at the ability of the players to pass on the cost in the current cycle, as this time cost inflation is coinciding with early-stage recovery? Should it be relatively easy to pass on this cost? Also, can you indicate the nature of the buyers, large fleet versus medium versus small fleet? Current demand should be more of a replacement demand. Is that the way we should look at it? Girish?
Thanks, Chirag. I think it is never easy to pass on the cost increases, but at the same time, generally, one has seen that cost inflation, commodity inflation does happen when the CV cycle is on the upside. We are quite convergent with it. I think, as I said, we are addressing it on two fronts. One is continuing our cost reduction efforts, and second is price increases in steps. We took a price increase in Q3. We've also taken a price increase in the beginning of Q4. I think also what is more important is how do we communicate the value of the BS-VI products and whatever higher investments we are doing with respect to BS-IV, how fast is the payback? I think that's what we are focusing on, which is helping us to therefore let the customers digest this price increase.
In terms of nature of buyers, always in an up cycle, it is the large fleet owners who come forward first, and that's what started happening in Q2. I think towards the end of Q3, we also started seeing the small fleet operators coming in. I'm talking specifically about M&HCVs. In ILCVs and small commercial vehicles, one has always seen small fleet operators coming forward. In terms of the current demand, I don't think the replacement demand has come up yet, because the BS-VI vehicles are getting established in the market. They are watching both the technology as well as the TCO benefit. Once they see this happening more and more with more customers experiencing it, I think we will see replacement demand coming in wherein replacing earlier BS-III, BS-IV vehicles will make economical sense.
Balaji, back to you.
Thanks, Girish. Question from Kapil Singh. No, before that, there's another one from Ronak Sarda from Systematix. Girish, back to you again. What's your view on SCV, ILCV, and M&HCV demand outlook in FY 2022? Secondly, are we also seeing an easing in the financing availability?
Let me take demand one first. I think we've seen that when the industry fell, it was led more by M&HCV. M&HCV has fallen the most. Of course, if you look at in the pandemic period, it is the passenger, that is the bus segment, which has fallen the most. Therefore, if you look at the next year, of course, there are a lot of uncertainties in terms of second wave or semiconductor supplies. If we keep those aside, I think it is expected that one will see maximum demand upside on CV passenger, that is buses. That's on a very small base. That will be then followed by M&HCV. M&HCV also should see a fairly good recovery, followed by then ILCV and small commercial vehicles. I think overall it appears that the industry should be upwards of 0.7 million to 0.75 million during next year.
In terms of financing availability, yes, there has been a significant improvement which has been happening gradually month over month. In Q2, Q3, and we see good financing availability happening now. Apart from that, I think the financials have also come forward with very innovative and aggressive products considering the price increase which has happened in BS-VI. All this therefore is helping the customers also to come forward and buy the BS-VI vehicles. Balaji, back to you.
Thanks, Girish. One more coming at you again, to your time under the sun. You talked about a sentiment index, Girish. Where is it compared to what it was in 2018, 2019? This is from Kapil Singh, Nomura.
Yes. Kapil, as I presented in my presentation, in a sentiment index more than the absolute value, it is the trend which is important. Across all the segments, we have seen that the trend is moving up, and we did scrape the bottom in Q1. After that, the sentiment index is going up. If you insist on the absolute values, I think we are still behind that 2018-2019, which is quite understandable. I mean, FY 2019 was our previous peak when we crossed 1 million in volumes. I think this year it is most likely that we will be touching around 0.55 million or more than that, 0.55 million kind of a volume. In terms of overall volumes, we are still below FY 2019. Balaji?
Thanks, Girish. Question to me on Tata Motors Finance, what percentage of loan book has been restructured? Kapil Singh again. Kapil, two comments, I would say. One is, to answer your question directly, broadly 4% is the book which has been restructured on MSME credit. Another point out, which I don't think I did it when I presented. The GNPA that you're seeing at 5.6% is the IFRS GNPA or the India GNPA. We have not taken any benefit because of the Supreme Court ruling on GNPA. This is the real GNPA that we are carrying in our books. Just for information, which I missed when I presented. Question from Pramod, InCred Capital. Is the worst margin impact of EV already captured in the financials, or will it continue to haunt for the coming quarters? I'll take India, then Adrian, if you could take JLR.
In India, the contribution margin that we are currently delivering is broadly in sync with the category contribution margin. Therefore, we do not see any drag because of EV. As we start improving the contribution margins for the rest of the business, we will also be working on the EV side as well. Adrian, on the JLR side.
Because we actually provided and supplied more BEVs and more PHEV units into the market in that quarter than we were originally anticipating. We got the benefit of reversing some of the costs that we'd previously accrued. Q4 is going to be a better sense of what normality is. Overall, I expect volumes to be higher and margins to be on average lower in quarter four and a small piece of that normal quarter, a small piece of that will be increased U.K. and European volumes, and a part of that slight margin degradation is the cost of these units, which obviously we need to supply to the marketplace. Q3 is not a normal quarter, Q4 will be. I will repeat what I said earlier, I expect us to continue to trade at pre-COVID levels.
Therefore, even with the mixing towards the BEVs and PHEV units, we've made significant changes in our business model and efficiency to offset the challenges and the costs of these compliances. That's the right thing to do, and that's what we've committed to continue to do.
Okay. I think we are now on the hour. With this, I will call it a day. Thanks all of you for the time that you've taken and the probing questions that you had. Feel free to reach out to us further in case you want us to be more specific. More than happy to chat with you on this. Once again, thanks a lot. Thanks for everybody for joining. Do stay safe. All the best, and look forward to catching up with you soon. Take care. Bye-bye.
Thank you. On behalf of Tata Motors Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.