Q2 20/21

Oct 27, 2020

Ladies and gentlemen, good day, and welcome to the call on Tata Motors Q2 Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode. During the course of presentation, if any participants intend to ask questions, they can use the chat box option appearing at the bottom of the screen to submit their questions to the speaker. All the questions will be taken up at the end of the session. Please note that this conference is being recorded. I now hand the conference over to Mr. Prakash Pandey. Thank you, and over to you, sir. Thank you, Thanks, Pratash. Firstly, welcome all of you. Apologies for a slightly delayed start. We're just getting a few technical issues sorted out. I'm sure now you are able to hear us loud and clear. This is a standard safe harbor statement. I've you have seen that. The only draw attention I'll draw into you is a few changes that you have done in the in the definitions around EBITDA and free cash flows. And these are basically in to ensure consistency of reporting as well as ensuring alignment with other OEMs who are out there. The big one would be on the free cash flow definition where both on consolidated and on Tata Motors domestic, free cash flows will be net of interest, which is something which JLR was always there. And, you know, in short, consistency of the definition right across. The comparatives are available on the data bank. I'm happy to clarify offline any further clarifications you may need on this particular front. Go to the next slide, Prakash. Again, an intense period of product launches during quarter as well. You've seen all of them. The key call out I would make in Tata Motors has been on the CV side, a pretty intensive period with the Cigna 55 launched as well as the Cigna forty eight twenty five. For us in in passenger vehicles, the result, of course, and the numbers you already seen, but the milestone of the 300,000 Tiago and the thousand, the Nexon EV is something to celebrate about. And in JLR, the Land Rover Defender 90 is now available for sale. The F PACE '21 model year launched. And so far this year, five p haves and five m haves have also been added to our portfolio, furthering our electrification drive. For the next slide, the growth wise, I mean, it's been a despite challenging periods that we have seen, I think there's been a significant improvement in sequential performance. And even on a year on year basis, particularly the the decline in revenues of 18% notwithstanding, PBT has been managed to at reasonable levels. EBITDA decline has been reduced to just one sixty bps, and EBIT breakevens having achieved in this period. And in line with our deleveraging commitment that we put out there, free cash flows automotive has been 6,700 crores positive. So in a in a highly trying period, I think happy with the set of numbers that we have put through. Go to the next slide. We had to peel this performance into what actually drove it. Bulk of it coming from a drop in volume in mix, which is compensated with the rest of the factor. And overall on the profitability, the big one that that came down was JLR coming fundamentally because on a year on year basis, fundamentally because of the volumes that you saw earlier that came down. TML, of course, improved it, and overall net automotive debt has now started its downward journey as it's supposed to go to. And and we have probably used it about 6,000 odd crores this quarter. That's right. Debt profile is strong. Overall, liquidity has remained strong with maturities well spread out. Additionally, on a memo basis in JLR, we had an additional 700,000,000 issuance that happened in the month of October, which further added to the liquidity. But overall, the liquidity profile has been quite strong. Over. Let me now hand this over to Adrian who will talk about JLR, and I will then invite Thierry to talk about his how he sees the business having been sixty days on the job. Over to you, Adrian. Great. Thank you, Balaji, and good good evening, everybody. If you on this slide, so if you remember when we talked in July, there were a few things we were signaling for this quarter. I'm really pleased most of those things have happened. In fact, some of them have happened more aggressively than we were signaling. You see here, the retail sales were higher than quarter one, significantly higher than Q1, although not as strong as last year, as we said last time. Revenues similar to that, revenues actually are down 28.5% year over year, but significantly stronger than the previous quarter. We were profitable in the quarter. That is something we were not signaling in July, and we'll take you through the reasons for that. EBITDA back into double digit percentages, which of course is pleasing and also a very strong free cash flow, which we actually were signaling two months ago. Next slide, please. So these are the headlines within the quarter, significant improvement Q over Q. However, year over year down 28.5% on revenue. China and UK are the two regions that have actually returned to pre COVID levels quickest. And our retailer inventories are down to ideal levels. I'll take you through that in a moment. That was another thing we signaled as an intent in July. Five PHEVS and five MHEVS already added to our product portfolio in FY 2021 with more to come, and I'll take you through those in a few moments. We were profitable, as I said, 65,000,000 in the quarter. Some of that was exchanged, so the EBIT was 0.3%. Charge did its thing again, GBP 300,000,000 cost reductions year over year and also GBP 300,000,000 investment. And again, we continued with CJLR, which was again for the second quarter running at the breakeven levels. So that consistent improvement year over year continues in our joint venture in China. And then the CHF $463,000,000 positive cash, as I mentioned, I'll take you through the details of that in a moment. Next slide, please. Thank you. Okay. So I mentioned a minute ago, UK and China have returned to pre COVID norms the quickest, so they're very, very close to last year's Q2 levels. U. S. Down about 15%, although there were supply shortages to The U. S. In September. So we're obviously looking carefully at the Q3 results, which we expect to be stronger in North America. And the two regions haven't yet returned to previous levels are Europe and overseas, although 21 model year offerings are very important to Europe, so we're expecting better things in Q3second half. And the Defenders are now being added to the overseas lineup. And again, we will expect better sales in the second half of the year in overseas regions. You see there, we're already returning to pre levels. Next slide please, if you would. Thank you. So just on this one by nameplate, again Range Rover and F PACE showing the pattern significant over Q1, but short of last time. They're the two callouts. On this page, you can see the Defender top right, bigger in quarter two than any other quarter. And we expect that profile, of course, to continue in the second half of the year. And we will add the Defender 90 right at the back end of this calendar year into quarter four. So those sales will continue to increase in half two. Very confident on the Defender product. You see the powertrain mix there, we're adding those MHEV's appealing well to customers, Proportionately, a large take up of our ICE engines are now MHEV offerings, and we'll get into some more details of that later in the presentation. Next slide, please. Okay. So we called out dealer inventory in quarter one because as the dealers closed in March, those inventory levels increased. We were specific with our intent to bring that back into control in quarter two. We said at the time when we had ninety days' worth of inventory, sub-fifty five days is the place we wanted to be, really pleased with fifty four days at the September. So again, we're getting in the habit of doing what we say, which is really, really good. The absolute levels, top line is the dealer inventory, 60,000 units. The bottom line is inventory on the way to dealers, 33,700 units, which grew a little in quarter two only. Next slide, please. Right. So where were we in the quarter on profitability versus last year? Balaji mentioned it was down year over year. These are the reasons why dramatic reduction in volumes, as you saw earlier, almost GBP 500,000,000, although our JV position has improved substantially also. The big news here actually is the improvement in the marketplace, a rapid improvement particularly in quarter two, particularly in markets like North America. And headline VME was down to sub-four percent. It's important to note that the underlying was mid-six percent, so a little better than we had achieved in previous quarters. And the release here of U. S. Residual value reserves, which we put in place. We saw the market deteriorating rapidly in March, April and May. Most of those reserves have now actually been released, which is a great sign of the secondhand marketplace under the health of the market, of course. Warranty, we did have a campaign this quarter on the I PACE. And also in this time last year, there was a reversal of spend on a PHEV campaign in China, which makes it the warranty. And we are actually working with the suppliers. The supply network are trying to get themselves back into 100% operating effectiveness. And that is delaying our ability to take cost down in the first half of the year. That will improve in the second half of the year. Also Charge has done its stuff on cost control and structural cost reductions, significant improvements again this quarter, obviously measured over year over year. And the reason why we were profitable there, our currency exchanges, the sterling appreciated in the quarter, finishing just short of 130 and they gave a revaluation of the balance sheet, which of course we weren't aware of at the point we communicated in July. Next slide, please. Okay, very pleased with this slide. So we did say we will be significantly cash positive. We did say overwhelmingly that was working capital, which it was. But if you go into that middle section, we were underlying cash negative of about GBP 65,000,000, but on GBP 73,500 deliveries to the marketplace, that is a strong underlying performance. That's annualized deliveries sub 300,000 units. So again, mostly because of the health of the sale has been strong, which we're not pushing volume, don't forget, we're pushing health of sale, quality of sale, value from sale, but also our structural cost reductions. I remind you two years ago, our breakeven position was 575,000 units. This is signaling our breakeven position is a shade over 400,000 units. So dramatic improvements on the downside risk assessments that you can make on this entity. Next slide, please. Investments, $531,000,000. Again, I did say in July investment will be close to quarter one levels. It was a shade lower. You see where those investments were. We have brought more of our engineers back to work at the back end of this quarter. So I do expect investment levels actually to increase in the second half of the year modestly. However, our full year guidance still stays at up to GBP 2,500,000,000.0. And I think with GBP 1,100,000,000.0 spent in the first half of the year, you'll see that we're actually in control of our investment spends. Next slide, please. Okay. Shifting gears a little bit to environmental update. None of this will surprise you. I think the only surprise here is the speed that these things are coming at us, and potentially they will come at us together now. COVID, of course, in the winter period could get worse, may actually again mean some instability in people's lives and for us in production. Brexit, of course, the completion of the process on the January 1, and there may be some friction at the border over that period of time. We'll get into that later. We'll know next week who's won the U. S. Presidency, so that will come at us very, very quickly. And you would expect the disruption we've seen in the marketplace off the back of all of these things. Markets are moving quickly based off single information sets at the moment, and that's just the environment we will continue to operate within. I'll touch on emissions on later slides. Next slide, please. Okay. We use external intelligence and information, particularly on volumes from IHS. And you can see their mainstream case is actually a modest improvement over time in the marketplaces. Obviously, it wouldn't index in overwhelmingly any of the events I've just mentioned. But standing down those binary impacts, we do expect a modest growth in our sectors across all of our regions going forward over the next twelve months. So IHS tells us we should. Next slide, please. Defender, the marvelous Defender. So we did say vehicle deliveries from the factory will increase and sales will increase also. September does have our second largest month in The UK in there, so the retail level of 7,000 to 4,500 units in September was a bit higher in The UK. Although now deliveries are actually coming at us more consistently and with the 90 being added, I do expect sales of four to 5,000 units per month going forward. Wholesale deliveries to the market were increased as we start to fill and get our vehicles to the point of customer. And the actual the order bank still remains very, very strong. So we're still at the position of sales being sold out for the rest of this year. And order banks not reducing, they're actually increasing, including the additive of the Defender 90, which goes on sale at the end of this year. Next slide, please. We are overwhelmed and pleased with Defender performance. Next slide. Okay. Great adds to our lineup with new PHABs. These actually are of our D7A architectures. So this one is the F PACE and the Velar. Big interior upgrades also. So we think these vehicles will be very appealing, particularly in our UK and European regions. So we are expecting these to underpin sales growth in the second half of the year, and also compliance, right? Emissions compliance also will be enhanced off the back of it as well. Next slide, please. Right. So where are we overall on our lineup from a PHEV and an MHEV perspective? Each time we talk to you about this, more of the covers come off. There's only one cover on one vehicle left from the PHEV. We will announce tomorrow. We're actually adding the PHEV to the E PACE as well. So that's the cover that will come off. And then later in the year, we'll announce a second additive in the MHEV range. I'm sure as you go through all the vehicles, it's becoming more obvious, which that one is, but I'm not in a position to actually say that second MHEV today. But most of our range now is in place and our second half of the year, particularly quarter three, will be determined by the pace of bringing these vehicles to the marketplace, particularly The UK and the European region on time, but to quality, to quality, to quality. We will not compromise quality for speed. We will get these vehicles right before we deliver them to the marketplace. Next slide, please. Okay. So where are we overall with our compliance targets by region? Lots of green on the page, so I won't focus on those. I'm actually going to focus on UK and Europe for this calendar year as a part of the delivery of those PHEV, particularly to the marketplace, which as I mentioned in July, are and have been impacted They will actually be delivered to the marketplace later than we were originally anticipating. As a result of which, we have added within our quarterly results, first of all, in our '4 results last year, reserves for potential fines we will need to pay in UK and Europe. We built those reserves up to EUR 19,000,000. Now we will be compliant in Q4, this Q4 calendar year, because of course these were assessed on a calendar year, not a fiscal year basis. And obviously, the compliance will be dependent on the number of registrations for the new but also the I PACEs. So for the moment, the reserve level is adequate and we're hopeful in the balance of this quarter we're now in, those reserves will start to fall. We have a compliant lineup in calendar year 2021. These are calendar year dates, not fiscal year dates. And so it's just simply a case of quality delivery of those vehicles to customers' hands, which will progressively happen through this quarter. Next slide, please. Off the back of that, I wanted to remind you the journey we've been on. Our target was a 45% reduction from 2007 levels. We will be at that point when we get into next calendar year. We're progressing to that point quickly in this quarter. But overwhelmingly, we have a compliant fleet in our UK and European markets post the introduction of these final PHEV. So a great job by the team, 45% reduction in CO2 over that period of time. Next slide, please. Okay. We'll get into Brexit, I'm sure, in Q and A. Just simply to say, our base case is still that there will be a deal between The UK and the European Commission, I. E, we won't trigger a WTO tariffs, that still becomes our base case. And if that becomes true, then a deal is very similar to the Canadian position we expect. If there's no deal, we're expecting something like the arrangement Australia has with the European Union. And I'll get into the details of what that means again as we talk about it most quarters within a Q and A, should anyone want to ask. Next slide, please. So Charge has done what it does best. Tight controls over cost and expenditure. It's done so well, people are starting to ask, are we under investing? We don't believe so. We think we are appropriately investing and we will appropriately grow the speed of that investment as resources come to us over the balance of this year. This quarter, almost EUR 600,000,000 additional savings. Don't forget, last quarter, we did EUR 1,200,000,000.0. So in total, in the first half of the year, that's EUR 1,800,000,000.0 worth of variable profit cost investment and inventory reductions we have made, all measured on a year over year basis, by the way. So this isn't notional internal stuff against internal targets. This is measured versus what we did in the prior year. Looking forward, we confidently again would say that the GBP 2,500,000,000.0 target for this year is absolutely within reach. And people like to ask where it's going to come from. You've seen in the quarter two, it's about fifty-fifty investment in cost and profits, and that's broadly the splits we expect going forward also. We're mostly done on investment. We are at that GBP 3,000,000,000 level at the '2. Next slide, please. Okay. So just a quick summary overall. I don't think there's any new points here for anyone. The Investor Day, I draw your attention to for Jaguar Land Rover. We're looking at the Investor Day on the December 2, Wednesday December 2, and we're really looking forward to it. And to set that up, just a quick discussion, I'd like to ask Thierry to say a few words, our new CEO. Thierry, if you wouldn't mind saying a few words to the investors. Sure. Thank you very much, Adrian. Well, hello, everyone. My name is Thierry Beaulieu, and it's my pleasure to introduce myself to you as the new CEO of Jaguar Land Rover today. Well, it goes without saying that these are unprecedented times with the health and economic impacts of COVID nineteen compounding many other challenges presently facing the industry. The rapid technological change and political and trade uncertainties such as Brexit to name a few. However, Jaguar Land Rover is an iconic company with strong brands and talented employees to manage through these times. That Jaguar Land Rover generated a profit and positive cash flow this quarter is a testament to this and I'm confident the business will achieve a future of long term sustainable profitability. I know many of you would like to ask about what I think about the company or what changes I might like to make. However, I just joined the company in September, and I'm still in the process of reviewing the business with the management team this today before the end of the year, and I expect to be able to say more to you then about my vision for the future of this iconic business. So I look forward to speaking to you again then. Thank you very much. Thank you. Thanks, Jerry. We lost you a little bit towards the end. Basically, main point is he would be very keen to engage with all of the investors on the Investor Day that is now scheduled for the December 2. So look forward to seeing you there. That is the basic takeout. Okay. Moving on to Tata Thank you. Yeah. Thanks. Thanks, Jerry. So moving on to Tata Motors domestic business, a strong sequential improvement in performance. Year on year growth of 3.4%, mostly almost entirely led from the passenger vehicle piece. Revenue down 3% and PBT broadly in line with what was there last year. EBITDA, of course, what I really would love to call your attention to is the EBITDA improvement by four eighty bps despite this holding the revenue line. This tells you the amount of work that's happening on the cost line and EBIT improving by about 300 bps. And, again, reassuringly, free cash flow after interest as per the new definition, still positive at 2,300 crores. Next slide, please. Performance highlights, if you like to summarize, quarter on quarter improvement is something that is definitely there. CV, a gradual improvement in demand and with improving market share as the supply chain stabilizes. And but the callout demand still remains weak, obviously improving within the month of October compared to where it was earlier, but still a long way to go in terms of the heydays of CV. Passenger vehicles, of course, has been on absolute boil. Very strong sales momentum coming through with our new portfolio with increasing market share. EBITDA was positive for Tata Motors despite the the mix, which is really noteworthy given what's happening in the cost side. CV has improved sequentially, but we'll call out some of if you were asking me earlier, in terms of PV EBITDA breakeven. Glad to report has been achieved. We are calling it our highest ever EBITDA for quite a while, 1.6%. Strong free cash flow, of course, we've called out earlier. Next slide, please. So this year, we've already seen, so I won't spend too much time on this. Nothing further other than what's on the slide. Keep moving, please. Free cash flow, again, we have talked about, so no further comments on that. You can let me move into the commercial vehicle, please. Investment spending, you can skip the slide. Cash savings on this point, the slide minute here. We had called out a 6,004 cash savings. And against that, we have delivered $2,004.75. And as we look forward into the future, we are confident of delivering the 6,000 crores. I expect a bit of movement in the numbers between investment and working capital because we are seeing a very resurgent demand, particularly coming through in PV. So we'll just need to ensure that the CapEx is managed prudently while catering to that resurgent demand. But we will deliver the 6,000 crores that we are confident of. Move forward. And, of course, cost and profits are very strong, $8.20 crores delivered, which is reflecting in the EBITDA improvement as well. Good point. On the commercial vehicle side, market share is at 36.7%. It is starting to improve month on month. Every month, we are seeing an improvement in market share, fundamentally coming out of supply chain issues as we stabilize post COVID. MNSCV has continued to do well at 60% share. The call out is on small commercial vehicles where we need to improve our shares. And the recent win that we've had of 400 vehicles for the for the Andhra Pradesh civil services is something which will be of supply, sorry, will be something which will help us there. But more than that, you will see is lot of work happening in the second half of the year as the supply chain stabilizes there. The real call out of CV passenger, which I'm sure Girish will talk later, where we don't see much happening in this particular segment because of issues like working from home as well as schools not being there and state transport undertakings not having the money to buy. Forward. On the financials, the the overall despite it being a very weak mix because MNHCD within commercial vehicles has actually been declined even further. Despite that, we have improved our overall position in terms of revenues and retails. You'll find retails being higher than sorry, wholesales being higher than retails as we build inventory post BS VI. And overall EBITDA at 3.2% just reflects the situation on the mix line. Move forward. On the CD market update, I think I'm sure Girish already talked about it in the q and a, but a quick run up there. Girish, do you wanna take a minute on this? Yes, Balaji. Thanks. I'll be unmuted there. Yeah. So I think as Balaji put out rightly, we have seen decline happening across the segments. So if you see in q two, the passenger segment has declined by 73%, MNSCV by 39%, ILCV by 30%, and SCV 1%. I think the good thing in this is that these declines are far lower than the q one decline. And, also, if you see within q two, July over September, this decline has been reducing. So if you take MNSCV for that matter, while for the quarter, it is a 39% decline, for the month of September, it was a very low single digit decline. So I think gradually, the volumes are picking up in all the segments. SCVM pickup, in fact, was higher in September 20 as compared to September 19. And as a result of this, the small commercial vehicle and pickup sales has actually gone up by almost 20%, so it's now 72% in this quarter. So some of the good things that you're seeing at macro level, EV bills, petrol consumption, GST collections are going up. Fleet utilization is gradually improving, and the sentiments that we track for customers in all the segments have also been going up. And essentially, within that, they are quite optimistic about the future, although not so satisfied with the current status. Rural demand, as all of us know, is is going and is is very strong. We also see good movement happening in mining as well as infrastructure projects, especially driven by highways. And think our BS six range has been received really very well across the range. We have seen fuel efficiency and TCO benefits, which is which is leading to a very good positive recall in the minds of the customers. So of the challenges as we go ahead, I think commodity prices have started going up again. And not only the precious metals, but also flat steel, long steel both have gone up from the month of October, so something challenging. And I think on passenger, Balaji already spoke that generally, the demand for passenger is very low because of schools not working and a lot of employees working from home. Prakash, can we go to the next slide? Thank you. So I think what what is it that we've been doing? Again, you know, same buckets that we spoke about in the last analyst call. So in terms of demand generation, I think as the COVID intensity is reducing, there's a lot of focus on on ground activations, a lot of back to back trials of the BS six products to prove the superiority. We are pushing a lot of value added services, whether it is platinum AMC or it is uptime guarantee, turnaround time guarantee, extended warranty. I think a lot of these are being appreciated by the customer, especially in BS six era. And in financing, a lot of work is being done by closely coordinating with the financials across, and a lot of good schemes have been brought up, which ensure that the EMIs are equivalent to the BS four era. In terms of demand fulfillment, a very clear focus we have on debottlenecking the the supply chain, and we are working on ramping up the supply that in month over month, there is a good improvement which is happening in the output. We are also driving a lot of flexibility in manufacturing. So, for example, in q two, two of our plant locations had a high impact of COVID. I think we were in a position to then shift some of the production of some variants at that location to other locations and therefore negate this impact. Similarly, we are also working with our vendors to see to it that the COVID impact is minimized. We are also having almost now daily sales and operation planning process to ensure that there is a good bridge between demand forecast and what we are able to supply. I think cost reduction cash conservation, right on track as Balaji mentioned. I do want to spend more time, but all our cost reduction initiatives are on track. And in fact, now we are focusing on sustaining the gains in fixed expenses, although the scale of operation is increasing and coming back to pre COVID levels. On CapEx, I think we continue with a choiceful deployment. Some of the areas due to increase in volumes, we are spending CapEx, but otherwise controlled in other areas. And we are working with a very, very tight working capital cycle, which has led to good cash flows. Balaji, back to you. Yep. Thank you. So that gives you a sense of where commercial vehicle is going on to passenger vehicle. Call out is the 7.9% market share after a long period of time. So since this is now starting to move, as we had said, watch this space. All the four main players that are out there, Tiago, Tigor, Alpro, Nexon, and, of course, Harrier starting to now really do well. And Harish, I'm sure, is gonna talk about it in the q and a as well. And between Harrier and Alpro, we're really seeing momentum pick up in this particular segment. These are very choice vehicles that we put out there in the Asana and Omega architectures. And therefore, on an industry growth of minus 34%, happy to see a first half growth of plus 10%. So this is quite noteworthy because this includes a lockdown period. So despite lockdowns, complete shutdown for two and a half months, this business has delivered a 10% growth. And Nexon EV is now almost 61% of industry volume to market with a very strong market share there. So the clear focus on reimagining PV is now starting to yield results and is also showing in the P and L. Go to the next slide, please, where this is a wholesale of 107% growth, retail of 73%. And our absolute numbers, almost, there's nothing to talk from about. There's no inventory being built anywhere. We don't have inventory at this point in time. And revenue of INR 4,000 crores for this quarter is a is a is a high over many, many quarters that is out there. And EBITDA at 1.6% is extremely reassuring that this business is back into what it was before. It is not a flash in the pan. And overall, target is now to get the EBIT to breakeven and then to cash to breakeven, which is what we are on to. Okay, Will? So let me hand this over to Shailesh for understanding of what's happening and what's what's driving the step up in performance. Shailesh, over to you. Thank you, Balaji. So some of the key options that we took to drive the kind of improvement in sales that we have seen in the last six months. First and foremost was the focus on retail and seamless demand supply synchronization. This was very essential to ensure fast cash flow cash rotation for the leaders, especially in the COVID times. Otherwise, it would have been a trouble, especially in the initial months. But this is what led us to absolutely align the production to what was needed in the market, and this ensured that we were able to, therefore, do double of what was the working capital capacity of the dealers. The second most important action that we took was to increase our share of voice. We realized, you know, while we were interviewing the customers in the, you know, lockdown period, April and May, that the awareness of our no new forever product was very low. And that's why we took a call that we'll go high in share of voice right from July itself. And that has helped us to not only increase the awareness, but also consideration of all our cars. And as Balaji mentioned, that it is not a story about one car or so. Each and every car, five cars that we have in our portfolio, some of them who are not doing well also in the earlier years, all five are doing really well as far as their pull is concerned in the market. The third action that we took was a significant review of the dealer policies and incentive structure, which enabled us a significant jump in the profitability. And, there were significant section of dealers who were not profitable, and, I'm very happy to share that now, majority of our dealers are profitable with the kind of growth we have seen and with the action on the dealer policy change that we have done, which meant enhancing the margins and also revamping the incentive structure, which was aligned to the growth that we wanted to drive, specifically in areas like some of the products which I said in the portfolio, which were not doing well. At the same time, specifically on the diesel portfolio also. So this has really helped us, you know, drive traction and also as far as our booking generation is concerned. The fourth action was on the digital. As you know, in the times of pandemic, the customers were not ready to venture out of their houses and go to the showrooms. So digital was the important source of inquiries, and we took several actions, and especially the click to drive initiative where a customer could view the video brochures, could get an immersive experience. And on the back of that, you know, it really drove lot of online bookings for us. So and and beyond that, we are also working on a very holistic initiative, which will drive a seamless digital experience, for our customers in their entire journey. The last one, is focused work to enhance rural penetration in key micro markets, which is 20 urban micro markets that we have identified. And there are several set of initiative initiatives that we have taken, which includes hyper local marketing, then focused marketing activities, network strengthening, etcetera, and also nuanced, you know, marketing for rural markets and the EMO expansion, what is emerging market outlet expansion. So these are the set of initiatives which we have taken in the last five, six months, which has led to this kind of performance for us. Back to you, Balaji. Yep. Thank you. Go to the next slide, please. Moving on to Tata Motors Finance. This is one area where we did the expressing, you'd want to want to what September is the critical month when the moratorium sits. We are again happy to see that things have actually been better than what we had anticipated. The business had a CD market share improving to 37%. We have consciously removed the market share here because public sector banks are absolutely picking up for humongous market shares on PV, and we've never had we'll never be competitive there. So CV market share is something we are choicefully deploying our money with the PBT of a positive PBT despite significant overlays coming through. And overall, GNP at 4.8% below what it was last year despite moratorium is something that is very reassuring. And therefore, this focus on cost to income ratio, focus on efficiency has really helped. We are now at 44% down from the highs of seventies, then the fifties, now at 49, now below at 44. And, of course, liquidity has been extremely strong in this business. No concern on that front. So overall, ROE at this point, 1%, we will move to a double digit ROE as we look as we tighten this business in terms of its efficiencies and its disposal move forward. So looking ahead, you've seen the slide. The key callout I would have is second half is expected to be much better than first half as demand improves and our focus on cost and the cash continues to drive harder. And therefore, we are absolutely committed to deleveraging this business over the next three years and become sustainably cash positive. And the focus areas are there for all to see no new news there other than brilliant execution of our exciting portfolio and continuing to manage the cost tightly. Last slide in terms of there is there'll obviously be a more deeper dive on the business strategy post COVID both in TML and in JLR on the December and look forward to seeing you there. With this, let me hand it back to you for any question and answer that you may have. Okay. I think we already started seeing questions coming through on the on the moderator view. It says media frame live. Anyway, this is the Chorus Call. First one is from Pramod Kumar, Goldman Sachs. Congrats on a great performance. What is driving the record ASP and gross margin? And are these sustainable at current level? Number one. Number two, can you please provide an update on Defender customer order book and explain the gap between wholesales and retails of 8 ks since launch? And three, what are you going to do to address market share declines across the CV segment, say, medium and heavy commercial vehicles? So Adrian, can you take item one and two? And Girish, I'll probably divert you to item three. Yes. Okay, Balaji. Thank you for the questions. So margins, I think on record saying, look, we're looking to grow the health of our margin rather than the quantity of sales. We've taken a number of actions, including making sure with the overstocking we had in the marketplace from April, May and June, including making sure that we're only building cars that we needed to build. So we brought our plans back up to speed based off a demand led recovery, starting off with Nietra, which builds the Defender, of course, and the Discovery. And at the same time, on the May 18, we brought back a Solihull plant where the Range Rovers are built. The quickest region to come back has been China, and that's why the year over year performance in China actually in the quarter has been good. I think you know we sell more of our SUV V units in China, and therefore, the margins are healthier on those units from China. So the regional profile of change and growth back has driven a strong margin performance for us in the quarter also. I refer back to some of the VME U. S. Residual value reserve releases, 64,000,000. Although we've had negative headwinds as well, which do offset those reserve releases, including booking an extra £30,000,000 just over just in case we don't get those to the marketplace within our compliance cost reserves and also a difficult performance on cost down for suppliers. So overwhelmingly, the underlying left there is half of sale, particularly because of the speed of return to sales from our China region. And Defenders, of course, Defenders are an all new vehicle and therefore, there's a lag between production then into wholesales, then into retails. The order banks would tell us we don't yet have enough cars actually in the customer's hands or to the face of the customer. Therefore, I do expect as that gets built up that our wholesales will be higher than our retails because, of course, the car has to go through our own hands into customers into dealers and then into customers' hands. That will continue a little bit into the second half of the year, but a lot of that is in place now on the Defender 110. We will bring the Defender 90 on stream later in the year. And you will see the same profile. Production in the early days will outweigh wholesales, and they will be higher than retails because, of course, we have to get the vehicles down the line into customers' hands again. That will level out, I expect, in quarter four. The big message here is there's more demand than supply at the minute, and those order banks will stay strong throughout the balance of this fiscal year. And there's good healthy sales as well. The mix of sales that the customers are ordering are stronger than the mix profiles we anticipated when we estimated the initial six months' worth of sales. So there's nothing extraordinary happening apart from attempting to get those vehicles into customers' hands as soon as we possibly can. Adrian. Girish, do you want to take the question on what are you going to do to address the market share declines across CV segments, say, medium and heavy commercial? Yes. So, see, this market share decline, which has been there, is essentially due to the supply side constraints. I think our pipelines in terms of demand generations have been quite good. And if you see the month over month market shares, I think we have consistently grown starting from May, June onwards as the availability of the vehicles have increased with debottlenecking of the supply chain. In fact, if you look at the September alone market share, I think we are almost close to what we had in September 19. So we will continue on this journey. And as we know, I think the market in h two, the total industry volume in h two is going to be more than double of what it was in h one. And therefore, it is going to give us a very good opportunity to recover this as the supply side constraints are addressed. I think some of the key factors that Balaji also mentioned, I think the key here is going to be actually the small commercial vehicle and pickup segment where the salience has increased to 72%. And therefore, any loss in this actually gets aggravated at the the overall business level. So here, not only is the pipeline in the retail market good, but also we recently backed this order from Andhra Pradesh. Supplies is around 6,400 vehicles. So all this is part of our calculation, which will help us to get the market share back across all the segments, either in Q3 or towards beginning of Q4. Balaji? Thanks, Girish. Yeah. Thank you. Second question comes from Prateek Pudar, Nippon and Deer Mutual Fund. First question address security. Is there a need to relip at the JLR nameplate in the brand positioning of Jaguar in your view? Would you look at pruning the product portfolio so that models don't cannibalize each other? Let me respond to that. I think Asshiri has said that he's keen to speak to us on the December 2. I would rather we wait for that conversation as he makes up his mind on this would be my response to you, Prateek. Second question, Girish, is to you to say that can you talk about the outlook for MNHCV and how the confidence amongst CV operators internally Tata Motors is, oops, that moved. In internal, Tata Motors has leading indicators of predicting demand. What are they indicating? Would you wanna take that, Girish? Next question is I'll pick it up after that. Okay. So, you know, some of the leading indicators of MNSC that we look at, first of all, of course, you know, what kind of spend which is happening on mining and infrastructure as also ecommerce, what are the kind of agri produce, what are the kind of output from steel and cement industry. I think these are some of the lead indicators that we are looking at. And the good thing is most of these indicators seem to seem to be doing well, number one. Number two, I think gradually over q two, the utilization of the fleet and the freight rates are kind of firming up, which is also good. I mean, this is something that we can see from the eBay bills, and this is another good indicator. One indicator that we track internally is the sentiment index, the consumer sentiment index, so to say, which is a multiplication of what is their satisfaction with the current status as well as future expectations. In that, we see that while the current status is is slightly improved over q one, but the future expectations have significantly improved, which means that they are looking forward to the business to grow. As I said, you know, in the first quarter, the M and HCV segment had degrown by almost 90%. In q two, it degrew by 39, 40%. But if you look at just the month of September, I think it degrew degrew by only three to 4%. So gradually, medium and heavy commercial vehicle volumes are growing and are catching up with what we were last year. After the last year itself was a good amount of decline over the year previous to that, which was which was high. So I think overall, some of the indicators are lead indicators are falling in place, and we do see that the medium and heavy commercial vehicle demand, therefore, should go up gradually as we go ahead. Balaji? Yes. Thanks, Girish. Third question is from speakers of team, which says that how should we think about investment in CapEx over the medium term given that investments in year six are over and major platform investments in PV are also done with? I presume that we are a representative of domestic. And here, you know, it's fair that the investments will continue to remain tight. And at the same time, we don't want to lose demand because of capacity constraints or anything. So we will be very choiceful about that, but I don't expect a coming through here. So we should be in and around the ballpark range that 8,500 to 2,000 plus kind of range. And because we also have a very clear imperative of deleveraging the business, So as I keep saying earlier, all we are saying that we will start to talk about free cash flow generation to pay down the debt. There is one more reason why we changed the definition of free cash flows to net of interest cost. So we know that that money is available to pay down the debt. And therefore, CapEx will be a derived number from that perspective, at the same time not compromising on growth. So let's move to the next question. That's from Sonal Gupta, UBS. Can you indicate what share of BEV and PHEV is UK plus EU vol for q by '21? You are provisioning for some fines for JLR in terms of meeting EUCO two targets. Can you indicate what was the quarter? Also to meet the 2021 target, what should be the PHEV bev share that you need to achieve? Adrian, you want to pick this up? Yes. Yes. Thank you, Farhaji, and thank you for the question also. So the data we show you actually in the presentation, of course, is global 33%. Normally speaking, if you divide the world into five and crudely say each one is a fifth, there's 40% of our sales ultimately will be UK and Europe, so 3% PHEV times it by 2.5, you get to say seven or 8% of the marketplace. That will increase as we go through into next quarter as we release these PFFs into the market, of course. And we've broadly given guidance three or four years out. We've given guidance that we expect these to be up to 24%, 25% of our sales. The level of increase, of course, is important and partially that will be driven by the speed of those vehicles to market. But I would anticipate double digit percentages for both PHEV and bev in the quarter three period of time. So 11%, 12%, 13%, 14% levels of those sales will be PHEV stroke BEV units is our expectation in Q3. Going forward beyond that, yes, reserves grew to EUR 90,000,000 at the September. They were just about CHF 60,000,000 at the June. So we increased those reserves by about CHF 32,000,000 actually in the quarter, 58,000,000 to 90,000,000. We do expect that to come down in Q3 fiscal, I. E, the balance of this calendar year, but it really depends on the release of those vehicles as I mentioned earlier. Thank you. Thanks, Adrian. Next question is from Yogesh Agarwal, HSBC. Again, for JLR. Adrian, coming to you. Do you plan to move XE and E PACE on the MLA platform over the coming years? Second, market share. Okay. Not surprised. Market share continues to fall in China. Reasons behind that. And I think you already answered the question on provisions. To clarify, Yogesh, it is part of the P and L of this particular quarter, so nothing outside the P and L. So can you take this question on market share in China, Hidya? Yes. So this China is particularly we talk about house of sale rather than quantity of sale. That lands greatest in China. We've been I think we've shown you in previous quarters, we've really been working on the house of sale and there's a number of metrics that we use to show that within our China organization, including where we sell the vehicles, sales rather than actual rather than localized sales rather than absolute number of sales. So we're up to 90% on that metric, including the level of inventory that we actually have in place at our dealers, which we're at one point three and one point five months on that metric and including where we actually sell the vehicles in the responsible area at 93% on that metric. We also have return on sales metrics for our dealers, which we want to be, of course, positive. Dealers like to sell their Your Cars when they make money, and we return to positive territory at the dealers in quarter three. As a result of that house of sale drive, we actually reduced the variable marketing support we put behind the units in China import business to around 5% underlying in the quarter. So we're about half of sales. You know the SUV5s are our highest selling units within that import business. And we feel the size and the scale of the business with those two vehicles in the seventh and eighth year of their life is incredibly rich at this point in time, and margins are incredibly strong from China. So we're very, very pleased where we are in China. We think we can do better going forward. But by driving those metrics, we set dealers at target, we expect them to hit that target, we expect them to sell that car locally rather than outside of their region. We expect them to be profitable, and we expect them to have lower stock levels. And we have delivered all of those things again in the quarter. And delivering those things, we are less sensitive about absolute share of market, although we think we can improve that going forward also. Thank you. There's a question on strategy. Does the CEO want more models in the portfolio or lesser? Yogesh, as I said, let's let's keep this question for December 2. Next question comes from mister Rakesh Junjunwala of Rare Enterprises. How important is the scrappage policy? Girish, can I ask you to take that question? Yes, Balaji. So I think for commercial vehicles, the scrappage policy is indeed going to be very important. We've seen that over the last two years since the downturn started almost way back in September '18 when the increased axle load regulation was notified. Since then, the amount of replacement demand has been very low, and then we have to wait at a window for having that kind of demand coming up with the scrappage policy. I think it also depends on how the scrappage policy is going to be, you know, defined. And as it appears now, it is going to be based on not only number of years of the but also on the health assessment of the vehicle and health assessment basis emissions and safety. And if the vehicle is found to be not meeting some of the norms, then I think we'll be subjected to some disincentivization and being forced to scrap. So I think this is what it appears the scrapping policy will be. In addition to this, yeah, it also needs to be supported by health assessment centers across the country as well as scrappage centers in an organized manner across the country. So we are indeed looking forward to the scrappage policy because it will ignite some amount of replacement demand. It has not been there for the last two years because the fleet the fleet utilization was low. Balaji? Yep. Thanks thanks, Girish. Next question is coming from Chirag Shah Elwai. First on Brexit, what models you make today in EU, excluding UK? And what model can be made there if forced to? And what kind of investment will be needed for that? Adrian, we'll take it one question after other. There's a lot of questions out there. Chirag, you had a party with it. Okay. Good bye. Okay. Thank you. Thanks, Balaji, and thank you for the question. So at our Nitro plant in Slovakia, we build the DEFENDER and the DISCOVERY models, allow Magnus Steyr build on our behalf in Graz in Austria, the E PACE and the I PACE. So those are the models today we currently build within Europe. And of course, they're shipped globally, both to The UK and across the rest of the world. I don't really want to speculate about what it would cost to shift other models to other plants in Europe or whether we have the intention to do so. All of these things are possible. Anything we would talk about strategically from a model footprint perspective, or which particular models will we emphasize more on going forward rather than less than, these are the types of questions that we may choose to get into as a part of the Investor Day. So speculating what we could do. You can do anything, right? Just costs a lot of money to do things. So it really would be an assessed return on investment, which we wouldn't do without clarity of actually what the trading circumstances are likely to be going forward. The good news after a long time, that clarity should come at us very, very quickly over the course of the next sixty days. Thanks, David. Second question is on the strategy and portfolio mix. I'll skip that. Question is on the third one was from here on, what will drive free cash flows, working capital, volumes or profitability in terms of order of priority? So let me take that. I think the one that you see, and it's also talks to you an expression you have, Chirag. The working capital pullback that you saw this quarter is basically a correction of the unwind that happened in the previous quarter. And we called that out explicitly, and therefore, going forward, working capital won't be the main driver. Other than the fact since we are sitting on a negative working capital to the extent of growth, you will always see some working capital credit coming through, but nothing more than that. The main driver going forward will be combination of volumes and profitability. Of the two, I think the profitability, the base is actually starting to get set. Some extent, some of the particularly the material cost savings in J and R will come towards the end of the year. So there will be an improvement there. But volumes have to start coming through to start playing up on the free cash flows, which is why if you see the comparison today, the operating cash flows less less CapEx is near zero. That needs to start turning positive for us to become sustainable. So that's what we are focusing on. Then this adds to the question on your rising payable. It is not a rising payable. It is more a question that we have industry norms in terms of what the payable days are, and we don't intend to go beyond that. But at the same time, we need to have our rightful payable in this particular market. JLR market share at the second first question is on JLR market share, how do you look at it? In the past, market share failed to yield adequate profitability. Adrian, would you want to comment on that? Yes. I'll go back to the previous responses. We're very, very focused on health of sale. Of course, market share is an important consideration also, but health is more predominant. So we have, over the course of the last two to three years actually as a part of the Charge! Program started to take out some powertrain and model offerings, which were loss making. And we will continue to do that. We think most of that is now actually where it needs to be and you will see increases in volumes going forward and also increases in shares as well. The last question again, that's something which I'll ask the question, but I'll push it into the December 2 question mark. Bev, you seem to be focusing more on PFs rather than as compared to your peers who announced a series of expected launches and set aggressive targets. Edinu, do you want to take this question now or you're deferring to the December 2? Yes. I mean, simply put, we have different targets to a lot of our competitors. Of course, we're a smaller volume seller in UK and Europe. There's a derogation value up to 300,000 units. Our strategy, understandably, is very, very different to our competitive strategy over the next five or six years through to the late 2020s. That means we'll just do things differently over the next phase, because it works for us. They will have to do things more aggressively. That will drive competition between themselves over the next five or six years, some of which we will need not need to get into. The rest we will cover at the strategy day. Great. Thanks, Adrian. So moving on to the next question, it's around Kapil Singh, Nomura. What is JLR's best strategy? How do we plan when do we plan more web launches as several new competing launches are coming up in the next two I think Adrian just answered that. Second, what are the maintenance CapEx of JLR in India? What are the key reason for increasing CapEx and guide for HCF in FY for the India business? I think the maintenance CapEx that we are talking about, if you feel if I understand you right, if I recollect, you're saying that what are the level of CapEx that we below which we cannot go. I think post COVID, the numbers that they put out is probably pointing to that. Below that, it's going to be difficult for us to be sustainably sustainable build. We may not have the models when growth does come back. So therefore, we believe at this level, we are really scraping the barrel. And as far as India is concerned, all we are signaling is that CapEx will look at dynamically because if you're going to see 100% kind of growth rates coming through in PV with the model mix changing towards petrol, you will need to do a few corrections out there. But don't none of this changes the fact that our main focus is to deleverage the business. And therefore, CapEx will continue to be the need for CapEx will be significantly higher than the availability of CapEx. We can assure you that. Where do we account for reversal of residual values in The U. S. Market? Adrian, would you want to pick that up? Yes. So it's a part our VME, of course, releases, and it's on the balance sheet. It's in other provisions. Got it. Thanks. So moving to the next question, which is from Jinesh Ghandi on Mottala Aswan. For JLR, any further furlough benefits expected in the third quarter? Are you looking to reduce further inventory at the dealer levels? And what scope is there to reduce VME from the underlying VME of 6% in the second quarter? Overwhelmingly, the furlough scheme is coming to an end. As you would know, in The UK, we had 2,500 people, I think it was, in October on the scheme. They will progressively come back into the business during quarter three. VME levels in quarter three, well, of course, we're extending the 2020 model year period pending the arrival of those 2021 model years. So I do expect where we've extended it, particularly U. K. And Europe, those VME levels will be slightly higher than 6% in Q3, and Q4 will be a better measure for us, right, as we get those new programs out there, those new products out there. It's a good selling season for us, quarter four. So it's at that point in time when I'd expect those levels to be at the lower end of 6% rather than the high end or maybe even into 7% for this quarter. And I've said to you for four or five quarters, 7% below is a good place for us, 7% above is not such a good place. So we're looking to get back into that happy place of sub-seven percent in the second half of the year. You. So the next question is on potential EU fines. I think you have covered these questions and therefore I'll skip that. The next question is from Arvind Sharma, Citi. Could you please shed some light on the provision for EU CO2 fine? Will it later be will it be I think the key point is, will it be offset later on? And also, how do we stand vis a vis competition? Yes. So the fines are actually assessed over a calendar year basis. So this is why this is a really big quarter for us because it's the last quarter in the calendar year. We do believe this will be a compliant quarter. And we're also hopeful it will actually be a quarter where we're in credit. And therefore, the ultimate amount of fines will be lower than the CHF 90,000,000 we would hope at the back end of this year. The actual payment period for the fine and the pure assessment from externals will be into the second or third quarter next year. So we're hopeful CHF 90,000,000 is the worst it's going to get, and we do expect it to actually reduce. It really depends on the timing of those PEFs coming through, as mentioned earlier. Thank you. Then moving on to the next question again from Janesh. In India PVs, what is your aspiration of market coverage and by when would we be you'll be able to achieve it, and what are the gaps that you'd like to fill? Shailesh, would you wanna take that? Yeah, Balaji. So if we really see the next five years and, you know, the segments, you know, which are going to really grow in the coming years, there are three, four segments. You know, one is the compact SUVs. The other one is the midsize SUVs, including, you know, the seven seater versions that we are seeing gaining traction. In hatches, it will be the premium hatch which will see, you know, growth. And then there will be growing demand for subcompact SUVs also, which will be even smaller than the compact SUVs that we see today. I think, you know, as far as we are concerned, is how we had planned our product portfolio also. And therefore, if you see in compact SUVs, we have an Exxon, which is a very refreshed one. In the midsize SUVs, we have the Harrier. But at the same time, as I said, that seven seater version is also gaining a lot of traction, and therefore, the Gravitas is going to fill the space for us as and when we launch it. The premium hat segment we have entered this year, which is Altra's, and therefore, it will serve us, and we'll be coming with, you know, variants like the DC, you know, the automatic transmission as well as, you know, turbocharged version in the future. And the subcompact SUV, I think, you know, the one which we have already announced with the HBX or codenamed Honda. This is going to fit in this space. So, you know, our portfolio is pretty much aligned to those segments which are going to grow in future. And with the launch of Gravitas and Honda, I think our portfolio will be complete and sitting in a very sweet spot of where the market is going to grow for us. Electrification will be another area where the penetration is going to progressively increase in the lows to come. And as per our plan, we should have the widest portfolio there also. Back to you, Balaji. Yep. Thanks, Anshak. A related point on PV coming from Aditya Mukherjeev from sorry, FTSE Securities. Last quarter, we were despondent, and this quarter, we have turned EBITDA breakeven. Our plans to find an investor partner now delayed. Yeah. I I won't characterize last quarter as despondent. I thought we said do watch the space. There are a lot of work that's happening. We were driven as a better way of putting it there. I don't think we are we are not our decision on the investor or a partner is long term. And we did say that we need a partner not as an imperative for today. The turnaround of this business will be done by us with our own portfolio that's out here. It is more about the opportunity for tomorrow, which is what we are trying to capture with this particular move of getting a partner in. And conversations are underway. And as and when something comes up, we will definitely share it with you. So moving on to this is Raghunam from MK Global. Let me this is on over the medium term, XCVs could reach a sizable portion of the volumes in the luxury segment. Would you be confident that JLR can have a similar market share in the XCV segment? Can you quantify or give some color on the CapEx R and D spend planned for EVs over the next few years? And also the areas of tie ups and alliances that the company is exploring? Adrian? Thank you, Balaji. Would I be confident? Well, I'll be confident that we will hit the targets we're intending to hit, which will underpin the capital investments we need to make. I think I referenced earlier our growth towards EV will be a little slower than the competitors. Technology is changing significantly quickly, as you know. So we will pull in place the technologies we need at the point in time we need to be compliant. We desperately will be compliant. We want to be compliant. We aren't happy that we won't be in calendar year 2020, but a lot of that has been taken out of our hands due to the unfortunate events. Of course, we were intended to be compliant in CY 2020 as well and we will be again in CY twenty twenty one. I'm not going to break down investments by what's EV, what's BV, what's PHEV. We will talk in more detail on the December 2 about our strategy and we will share some of the technologies and we'll give you a lot more information about what we're planning to do over the next five to seven years at that point in time also. Thank you. Thanks, Vikram. Second question from Raghunathan again is on the target of becoming debt free in three years, can you indicate how important the divestments be to meet this target? And also please indicate which all entities are likely to be considered for fixed sales. As we said, there are three verticals that we see in terms of using our debt to near zero, automotive debt to near zero. Number one will always be free cash flows. These are the these are business operations led, and these ensure the more we free cash flows, we continue to get earn our right to win in this market. And therefore, we have to earn our right to grow and win in this market. So therefore, free cash flows being positive is an imperative, and that will be a very important and large lever that we will play with, number one. Second lever will be divestments, and there are two noncore investments we've already identified. That is Tata Technologies and Tata Hitachi. We're also looking at parts of the business that were core for us earlier, but we are when we look at it, it may not be the future core. And therefore, that is something that we will take a hard look at, and we have time to do that entire piece. And lastly, once you have done these two, then whatever is remaining is there, there's an equity top up that is needed. We will look at it at that point in time. That's how we see that. So that is very important, but even more important are the operating and free cash flow business of this business. For the next question from Amin Pirani's CLSA, The emission charge for EU is under which line item and in which quarter was it charged? I think quarters we already talked about. Can you just clarify the line item I made here? I think it goes into revenue, and then it's on the balance sheet as a part of the legal and product liability reserves. What is the level of BEV and EV penetration you need to meet you need in order to meet the emission norms of EU going forward? It'll be in double digit percentages, so low double digits for CY 'twenty one. Okay. And what are the level of model flexibility you have between UK and EU capacity? I think we've already covered this question. Next question is from Mr. Rakesh Nunjinwala again. What is the capacity of Defender that you have? Well, depends on how many shifts we pull on. We're looking to pull up to 5,000 units a month into the marketplace. Question from Kapil Singh Nomura again. Tata Motors Finance. Oops, that moved around. What is the collection efficiency as of the latest available figure? We are now starting to cross the 92 mark, and that was September month. And October, we expect to improve that even further. But overall, I think we are seeing far better corrections than what we had we're worried about, but at least sometime in September for. Moving on to the next question. I think this is from Sonal Sharma, IDBA Capital. Is the company still looking for a strategic partner for its PV segment? And how is the company planning to be debt free? I think we have covered both of these in my in my comment. And I think I have one from Tata Mutual Fund, sir, Sujit Singh Arora. In your assessment, when is the M and HCV industry likely to report growth? And how big could that replacement demand for CV be? Girish, would you wanna take that? Yes, Balaji. So, you know, as I said, the month over month, the MSCV volumes have been growing, and the the new growth over the same month previous year has been going down. And we have been September, we've seen a very low single digit kind of a decrease with respect to. And looking at the way the piping, I think in this quarter, we will probably start seeing the y o y growth in a particular month. We're not still talking of the entire quarter, but at least or two within this quarter, one should certainly see that. And I think as I also spoke earlier, there are quite a few lead indicators, new infrastructure, e cement, doing pretty well. I think we will keep on tracking how these new indicators are moving, which is which we can then start looking at a very good growth in M and A going ahead. Balaji? Yes. Girish. I have a next question from Basudeep Banerjee, Ambit Capital. With JLR inventory now under control, would it be right to assume approximately 30% rise in wholesale volume in third quarter and a larger assumption of flat retails quarter on quarter, thus better operating leverage going further. Adrian? Yes. Thank you, and thank you for the question. So yes, dealer inventories are now back where we wish them to be. Therefore, going forward, our levels of production and our levels of wholesale and our retails outside of CGLR excluding CGLR, excuse me, should broadly be consistent with each other. And yes, they will be higher than quarter two. And as a guide for quarter three, thirty percent increase quarter over quarter or thereabouts is a good guide, actually, maybe a bit more. Okay. Thanks, Adrian. Next is from Nitin Arora, Access Mutual Fund. Two questions. JLR EBITDA, £481,000,000, and CapEx is five thirty one million pounds. So JLR has not generated any free cash flows. It looks more a working capital, which went higher in q one that got reversed and JLR generated cash. How much of this working capital reversal can happen which generates free cash flow because or is it largely done? I think we answered this question in terms of the sequence of how we see the priorities. This quarter was important to get back the free cash flow, the loss because of working capital unwind. So we have done that. And going forward, it will obviously be a mix of demand as well as profitability improvement for us to drive the free cash flow that that we are looking for. Second, we are seeing JLR losing market share, especially in China. Do you think you're running a risky strategy of reducing CapEx, which looks like will be equal to your depreciation rather than working on motorcycle and generating free cash flow? Just again, I think Adrian has covered at length saying that we're looking at the health of the sale that we are doing out there in China and improving and driving the profitability. I don't think I agree to the point saying that reducing CapEx is impacting market share in China today. We are ensuring that we are having a healthy ecosystem between us, our dealers as well as an exciting range of products that is out there. Don't forget that we launched Defender in the peak of a pandemic, and we're continuing to introduce our electrified portfolio, and we'll continue to have the top products that are coming into the market there. So CapEx and its implications going forward and the portfolio, I think it'll be a it'll be a very good discussion that we can have on the December 2, and we will talk about this in greater detail there. But let me reassure you that we are not looking to become a zombie company where we cut our CapEx out, generate cash, pay down the debt, and after that, we have no products to sell thereafter. That will be a that will not be acceptable, and that'll be quite a silly strategy too. So, yeah, we now have funds from Shyam Sundar, Sundaram Mutual Fund. On JLR retail inventory, we see that inventory days are at pre COVID levels. Are you seeing the need for further destocking? And housekeeping question, depreciation in JLR UK P and L has been lower quarter on quarter. All plants other than Casabrom, which are operational. Can you help us understand this depreciation number? Adrian? Yes. Okay. Thank you for the questions again. So at the average, average planet level, dealer inventories are absolutely where we'd wish them now to be. When we break that down by market and by nameplate, there are still some nameplates and some markets where a bit which are higher, some overseas markets in particular, and we'll continue to take those down. Conversely, there are also some nameplates in some markets which are too low. And good examples of that would be rest within North America in quarter two, which is why I mentioned earlier, North America Retails were partially lower in the quarter year over year because of supply constraints. We expect all of those market by market nameplate issues to be resolved as we go through Q3 and into quarter four. Depreciation year over year lower, yes, that's overwhelmingly as a result of the Range Rover and the Range Rover Sport. Those cars are now almost eight years in life, and therefore, the residual depreciation to go is much, much lower than it was twelve months ago. Ultimately, in eighteen months' time, those cars will be replaced with all new fresh vehicles. That's partially as a result of COVID and everything going back a little bit. But mostly speaking, those cars are still significant in the marketplace, selling really well, generating a lot of money, but they've just gone beyond a natural eight year cycle and therefore, and A is not much left to write off. The next question is from Antique Limited, Priyaranjan. What are we doing to contain warranty cost increase as quarter on quarter it has increased again? Let me start that one as well. Yep. Okay. Many thanks for the question. So quarter on quarter, the increases were we spoke around the campaigns. I referenced them, iPay's campaign and the reversal last year of a PHEV campaign in China. I've also mentioned, I think, on at least two or three occasions, we can see the underlying data for our 20 vehicles is actually performing much better than 2018 and 2019 model years. We have accounting rules of the road, which only allow us to take effect of those twenty model years at a certain point in time. 75% of the sales need to be through into customer hands of a model year. That will start to happen in quarter three. So my expectation is you will start to see warranty from quarter three this year below 4%. Don't forget, just like I mentioned, 7% was a line of good or bad for VME, 4% is that line in warranty. So my expectation is we will be lower than that level in the 3% plus range in quarter three. So that's where the warranty will start to come through as a positive in the second half of the year. One more question coming through, which I will take. We have seen the draw of Jaguar XC from The U. S. Can we see more such a draw of other Jaguar models? Do hold your questions on anything related to portfolio to December 2. That may be a better time to answer it comprehensively. How long can we see plant cap CapEx going on related to the modular platform? This again linked to industrial footprint and portfolio, let's pick it up in the on the 12/02/2001. Next question is from JPMorgan, Gemma Parmelo. Can you please give us some indication on how increased electrification will impact gross margin? And second question, an updated view on how much excess inventories JLR will need to hold in case of a no deal Brexit? Adrian? Okay. Thank you for the questions. So margins, obviously, depends on how you measure the margin. If you measure it before fines, then there obviously is a reduction of a margin we'll make electrified vehicle rather than a traditional ICE. However, we put vehicles into the marketplace for compliance purposes. And if we weren't to do that, the losses we'd make on those vehicles will be even higher. So our compliance strategy, our electrification strategy follows our value maximization strategy, and it's the right thing to do also as well, of course. From an excess inventory level, again, we're on record previously. We continue to raise our parts inventories, particularly just in case there is friction at the borders over the first days and weeks of January. We have done the same again over the last several weeks leading up to the end of this year. So we've added an extra day's worth of buffer inventory in stock, which is in place. We can't hold inventory forever, of course, and therefore, it will help us with days rather than weeks into January. Finished vehicle inventory similarly, we will grow it in between UK and Europe over this period of time just to avoid that level of friction. Our expectation is over time, whatever the challenges are at the border, they'll be factored into working capital, into operational requirements over the following months. I suspect we'll work through this during quarter four or it's likely to be a big deal in the early part of quarter four, but we'll work through it. So we're doing it exactly what we've done in previous quarters. We've built where we can, but you can't hold inventory. There's just so many parts coming to our factories. You can't hold enough to trade through that uncertain period. Thanks, Kiran. Question Girish, coming your way. This is from Shishragh, India MNFCV. What's your understanding on the willingness of financiers to fund new trucks, especially MNHCV? How's the resale value of trucks and risk of defaults for repossession post the end of the moratorium period? And and then the next question is to PV. So if you could take these two. Okay. So thanks, Sudhak. I think we have seen, gradually from Q1 and then to Q2 that the financials have reduced their risk aversion, and I think they are coming forward and funding not only the large customers, but also the retail customers. Even the loan to value ratios have been improving as we move from q one to q two. So I think there is a good openness and funding which is now available for the MNSCV customers. On your second question regarding, you know, what is the status after moratorium two, I think would have been better answered by my colleague, Samrat. But as I know from him, I think this is also being managed very well as we move from moratorium one to moratorium two and from moratorium two to structured loans, so to say. And I think we don't see too many NPAs which are happening as we go ahead in in the M and HCV, not only M and HCV, but even in the ILCV domain. So that's how I see the financing environment. There has been a very good improvement as we moved month over month from q one to q two and as we stand now. Balaji? Yeah. Thanks, Girish. I think, conscious of time, I think we have a lot of time. Once again, for the rest of the questions that are out there, do reach out to us. We'll try and, I'll with you. In any case at that time, we can answer these questions. Once again, thanks a lot for your time and patience in going through the questions and listening to us. Look forward to seeing you again in the coming days, and thanks to the team on the call as well. Response is much appreciated. All of you, stay safe and catch you soon, and look forward to seeing you on December 1 and December 2 in the two Investor Day. Thank you.