Ladies and gentlemen, good day, and welcome to the Tata Motors Q1 earnings conference call. As a reminder, all participant lines will be in listen-only mode. During the course of the presentation, if any participant intends to ask a question, they can use the chat box option appearing at the bottom screen to submit their questions 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 the conference over to Ms. Sneha Gavankar from Tata Motors. Thank you, and over to you, ma'am.
Thank you. Good evening, everyone. On behalf of Tata Motors, I would like to welcome you all to our Q1 FY 2022 results conference call. Today, we have with us Mr. Thierry Bolloré, CEO of Jaguar Land Rover, Mr. P.B. Balaji, Group CFO, Tata Motors, Mr. Adrian Mardell, CFO, Jaguar Land Rover, Mr. Girish Wagh,
Executive Director, Tata Motors, Mr. Shailesh Chandra, President, Passenger and Electric Vehicle Business, Tata Motors, and our colleagues from the investor relations team. We will start the session with a quick overview of the financial and business performance from management, followed by Q&A. Over to you, sir, Mr. Balaji.
Yeah. Thanks, Sneha. Firstly, thanks everybody for joining this call. Hope all of you are safe and sound. As is customary, we will probably spend about 30 minutes going through the deck at speed, and pausing on the areas that you'd want amplified, and thereafter open up for Q&A, as we want. Moving on to the safe harbor statement , traditionally nothing to do here.
Next slide, please. A period of intense activity for all of us and despite the pandemic, and the key ones I will call out here in Tata Motors is in the passenger vehicle side, the launch of the hashtag editions across the Altroz, the Harrier, and the Nexon. In JLR, of course, Reimagine program continues apace, and we launched the long wheelbase of Range Rover Evoque. Of course, the record order banks that are about 110,000 units, close to about 29,000 of them is this fiscal year.
Next slide, please. It's fair to say that this has been a challenging quarter for us, having seen a solid recovery through the pandemic and coming out of the pandemic. This quarter had to contend with semiconductor shortages as well as the second wave lockdowns in India and, of course, issues of wave two elsewhere in the world as well.
On a year-on-year basis, the numbers are flattering because of a very low base. Therefore, we have given also the Q4 numbers for context. Therefore, you would notice that growth of about 132%, obviously lower than the orders in last quarter. The revenue of about INR 66,000 crores, lower as compared to the INR 88,000 last quarter, about 107% on a year-on-year.
A PBT before exceptional items of a INR 2,600 crore loss. EBITDA of 8.3% and EBITDA of -1.3% basically showing the operating deleverage coming in because of the volumes coming off on a quarter-on-quarter basis. Free cash flow outflow of about INR 18,000 crore, most of it coming out of working capital unwind because of the volumes coming off.
Next slide, please. We did see growth coming across all factors, be it volume, mix, price, translation, and others. On a profitability basis, we did see significant improvement in JLR, TML, and others, basically Tata Motors Finance, which I'll talk about towards the end. On net automotive debt basis, the underlying debt was about INR 34,000 crore when we ended last year.
This quarter did deteriorate. Almost INR 16,000 of it is coming from working capital change as it unwound. The business, of course, delivering about INR 37,700 crore. That is the situation on net debt. We do expect to see this return from second half onwards as volumes pick up. Next slide, please. Adrian, over to you.
Good evening, everybody. Next slide, if you would please. Okay, these are our KPIs, across the same information sets Balaji just took you through for the group. To the points he made, we've included quarter four FY 2021. I remind you, in our view, that was a really good representative quarter for us. Obviously, high concerns, which is why it's a really good comparator. Retails actually in Q1 were higher than Q4.
That is not a normal pattern for us. It just reinforces the retail level we have in the marketplace today, pending supply issues, is very strong. Obviously, our revenue is determined by wholesales, not retails. You can see already an impact on revenue in Q1, which of course will continue into Q2 and beyond.
Our loss, actually, of GBP 110 million and 0.9% negative EBITDA was slightly better than I was indicating two weeks ago on the calls. I'll take you through the details of that. EBITDA down 9%, obviously suppressed by the volume levels as well, and the free cash flow was the GBP 1 billion outflow within GBP 4 million, the numbers which we announced on the 6th of July.
Next slide, please. Okay, most of that I've already said. I think the thing that I didn't say was the order bank. Just a reminder, that's 110,000 units at the end of June. 29,000 Defenders. That product continues to be incredibly strongly received in the marketplace. That number over the last two weeks has stayed about the same level. Next slide, please. These are the quarter one retails, 124,000 units by major region. You can see a dramatic increase year-on-year.
Of course, this time, quarter one last year was significantly impacted by the dealer closures and the isolation of our buying public, along with the rest of us. The regional splits, pretty much as you would predict, apart from China. China, of course, returned to normal much sooner than other regions last year. Even in China, on a year-over-year basis, we were 14% higher. Overall, 68% higher at 124,500 units. Wholesales were more impacted, of course.
These will be impacted sooner as we only have a pipeline before we hand over to our dealers and importers. The important point, that wholesale increase of 73,000 units, but dramatically lower than retails. Normally, the only difference should be CJLR, the joint venture, of course, where you would expect retails of about 15,000 units in this quarter.
You can see a big fall off in wholesales, and I think the key point to take away from this slide, now our pipelines and our dealer stocks are falling. You will begin to see falls in retail sales from quarter two. Next slide, please. This is the slide on stocking levels. If I take you back 12 months, the blue line at the top there, that's the inventory that our retailers own, which of course then pass into customer hands.
It was high at the end of April, May last year, of course, as those retailers were closed. We did deliberately take it down to ideal levels. We talked to you about that on a number of occasions at quarter two and quarter three last year. You can see that with the dealer stocks around 60,000 units. They've fallen a lot since March.
They've fallen from about 68,000 units down to about 42,000 units. That enabled us to keep the retailers high in Q1. From that level, we would not be able to keep those retails as high in quarter two. The on-wholesale stock, the brown line, the stock that we own, obviously they're on their way through to the dealers.
That's down already to about 30,000 units. You can see it was lower when the plants were closed in April and May last year. Again, that number can drop a little bit. The pipeline is very, very thin and therefore, going forward for the foreseeable future, production will be a better measure of both wholesale and retail levels, with the exception of CJLR. Next slide, please. Retails by family in the quarter.
Range Rover, of course, doing incredibly well, even though those vehicles are seven and eight years old, the bigger ones are. Obviously, the Velar is doing well also, up 56% quarter-on-quarter. The Defender entrance 12 months ago, obviously, that's why that number for Defender was very low in the previous year. We had a good 17,000 units.
Remember, I told you for a while, for it needed to be 5,000 retails a month. We went through that in quarter four, and that's continued in quarter one. The appeal for those products is very strong for both Discovery and Jaguar are up year-over-year also for the reasons mentioned. Our electrification numbers were 66% in quarter one. Let me remind you, that was 62% in Q4 and 53% last year.
More and more of our units actually have an electrified offering, just as we said they want to do. Next slide, please. This is the bridge which takes us back to prior quarter profitability. We lost GBP 413 million in Q1 last year, obviously heavily impacted by COVID. I think a lot of this would be expected. Our volumes were restricted by about 30% in the quarter just gone, but still significantly higher than the same quarter last year, up about 36,000 units.
You can see a big number there for volume and mix. Mix is richer than the previous year. Good improvements in parts and accessories as well within the quarter versus 12 months ago. We did have restrictions on volumes in CJLR. Don't forget, China wasn't impacted as much last year as the rest of our regions. The emissions number needs calling out as well.
We've got a compliant portfolio. We've explained that to you. When we had free demand in terms of those PHEV units and free supply at the end of last year, you know we reduced the fines and the reserves. These semiconductor reductions and supply reductions are impacting our ability to build compliant units in the quarter.
You see that within the order bank data, which I've shown you previously, the 110,000 units in the order bank. The biggest order banks are in Europe and the U.K. Underpinning those orders are customer requirements for handover delivery of PHEVs. When we can build those units and pass them over, we will have a compliant portfolio. That was not the case in quarter one and will not be the case in our quarter two either. Other things, highlights here, VME.
I've talked consistently about VME over the last two years. This time last year, we were at 7.5%. Some of that was one-off incremental reserves because of the marketplace being negatively impacted by COVID. We knew it would fall. Down to 4.7%, let me remind you, in Q4, it's fallen again. The underlying data is just over 4%, the actual reserve recorded data was 3.1% in the quarter.
That drop was more than we were anticipating, particularly towards the end of the quarter, coming through, which improved our actual quarter one. Reduced our quarter one losses. Warranty a bit better, as we said. We are suffering actually some added import duties as a result of the changes with our relationship with Europe. You see them there. Some commodity cost increases within our material costs you see there.
The big year-over-year increase is actually in the category we talk as structural costs. A lot of that is furlough monies, which we took from governments around the world 12 months ago. That, of course, was a job retention policy, and it served us incredibly well over that period. Unfortunately, we weren't able to retain all of our workforce through the Reimagine changes, but that definitely helped us to protect jobs over the critical period last year.
As we sent, let me remind you, almost 20,000 people home last year. Of course, the amount of cost spend, overhead spend, fixed marketing spend was much, much lower and suppressed. You are seeing it increasing, not back to normal levels, actually, but much higher than previous years. The other thing to note here is our engineering capitalization continues to be lower at just over 40% in the quarter.
Again, we've explained that to you before. The policy was changed in FY 2018. Those changes will ebb and flow depending on where we are on each of the product cycles. What's happened here is we've completed Defender, we've completed 21 modular. Those engineers are moving over to the new architectures, which have not reached their capitalization point yet because of the maturity of the product.
All of that is exactly as we've explained to you in previous years. Operating exchange, bad news because sterling appreciation offset by the hedges we have in place. That's GBP 110 million loss, 0.9%. Underlying the breakeven point here is about 90,000 units. Our EBIT DA underlying was lower than we were indicating a couple of months or so ago. That's the start of us just to optimize and maximize this position of supply shortages. Next slide, please.
In the circumstances, this was a really good result on cash. This is our traditional walk. The two numbers in the middle are the cash profit after tax and the investment are the two we look to balance out and obviously overachieve on. We were within GBP 74 million of doing that on just 84,000 units, which tells me our underlying cash breakeven was just under 90,000 units. We've said our intention was 100,000 units in the investor presentations in February and also in the May year-end presentation.
Again, we're starting to optimize our position in difficult circumstances. Overwhelmingly, the cash loss in the quarter was working capital. You can see it there. We're not building cars, and therefore our payables at the end of June were much lower. You also know that will reverse at the point we start building more cars.
It's exactly the pattern you saw last year, GBP 1.5 billion outflow last year, you see at my bottom line. Look, the working capital number was GBP 1.1 billion. Let me remind you, last year, that GBP 1.1 billion reversed itself within GBP 25 million on a full year basis. Once we're able to build more cars, that working capital number will begin to reverse. That is a certainty.
Next slide, please. Investment. Our investment numbers, GBP 2.5 billion full year. I've said to you, ebb and flow around GBP 600 million a quarter. This was slightly under the GBP 600 million, I expect that to be the case in Q2 as well. Then investments to grow in Q3 and Q4 as we start to bring our new MLA high products, Range Rovers, first of all, to the marketplace and finalization in the second half of the year.
Next slide, if you would, please. Okay, the business update. Keep going. Thank you. Obviously, a big focus for this organization is Reimagine under the transformation program of Refocus. This program is much more complete and holistic than the fantastic Charge+ program we had. You see the pillars there. It really is engaging a lot more people than we engaged during the turnaround programs across the 6 pillars with the three enablers.
The really exciting news here is we're starting to see value generation and value creation, particularly in pillars five and six. INR 150 million we recorded in the quarter. I won't take you back to the previous slide, but if you would go back to the previous slide, you will note that what we're recording here is less than the value we saw in quarter one.
We've attempted to subdivide the quarter between what happened because of shortage and what happened because of the power of the program. If I were to add it up, everything you can go back and record in the bridge, there's almost INR 350 million actually worth of reductions quarter on quarter over the previous year. We're recognizing INR 150 million of those, the Refocus program. This is a really great strong super start for this program.
This is just the first full quarter, of course, of Refocus. We also saw improvements on quality, down to 3.3%. That drove an INR 18 million improvement, and we're starting to see improvements on Pillar three, although in a volume-constrained environment, the absolute savings on material costs, of course, are going to be lower than in a free supply environment.
The size of that number will partly be determined by the speed of recovery of volume and supply in half two. A great first full quarter to the program. Let me assure you, momentum is building. Momentum on this program is absolutely building. Next slide, please. The big news this quarter for us was semiconductors. We covered a lot of that in our announcements on the 6th of July and also in the special meeting we had with a number of you on the 7th of July.
This is the page we use. The headlines are, there's strong demand in quarter two for retail, so take you through that. Wholesales were up versus previous year, but importantly, down 27% from the level we would have expected to have passed over to the dealers, and those orders would have expected and underpinned.
At about 30,000 units. Quarter two will be a worse performance supply quarter than quarter one. A lot of the quarter one happened towards the end of the quarter, including new news at the end of June, as we talked about. We can see July production has been impacted quite significantly. August is better than July, September is better than August.
We are starting to see the end of the quarter better than the start. Our volume wholesale prediction in the quarter is slightly higher than I told you back two weeks ago. I said it was 60,000 units. We think we're slightly higher, around 65,000. Broadly in that 60,000 to 65,000 range, I also indicated that point in time. The problem won't be fixed in quarter two. We are taking a number of actions. I talked you through all of those two weeks ago.
We have a mission control center, which is a permanent center of activity and energy, which we meet at the board level twice a week. There really has been a rigorous engagement led from the front by Thierry, who actually today, Thierry is on the road. He is listening into the call. When we get into the Q&A, just be aware that he's in a different location to myself.
There might be a requirement for a delayed passover for him to make appropriate comments. That supply engagement is obviously at the first tier level where our contractual points are, but going much beyond end-to-end pipeline right back to semiconductor manufacturers we're fully engaged with. We have true visibility, and more importantly, they have true visibility of our requirements, and there's no filtering that down through the end-to-end pipeline.
We will begin to prioritize the vehicles that we produce. At the moment, we have 110,000 orders, therefore, obviously, we want to make sure we do the right thing, provide those cars to customers as soon as we can. The new orders we take will start to reprioritize to higher derivatives within nameplate. If we have to choose between nameplate, more valuable nameplates, of course.
Our big drive here is to increase the allocation of supply to Jaguar and Land Rover, all plants. We believe we're starting to make traction and progress on that, although only a small amount is coming through as incremental in Q2, those 5,000 units so far. Next slide, please. The outlook page, I know this is a difficult one because you want us to say more, but we're not in the habit of misleading you.
We have added more information than two weeks ago. The revenue off those 65,000 wholesales will be about GBP 3.7 billion. I told you already our break-even point in Q1 was about 90,000. It might be slightly lower than that in Q2, but obviously 65,000 will be negative EBITDA margin. Our investment at GBP 2.5 billion, we do not plan to delay investments, but absolutely full speed ahead on introducing those new products to the marketplace.
Free cash flow will be up to a GBP 1 billion outflow in Q2. The actual status is slightly lower than that. For the moment, if you hold that number, obviously, if things were to significantly change, we bring that information for you. Half two revenue is difficult because we're not clear yet on supply, but it will be determined by supply because those customers are waiting for cars.
We do, however, expect quarter three to be better than quarter two and quarter four to be better than quarter three. It's reasonable to assume as we start to reduce the break-even point again, which we will do in half two, towards the 80,000 unit level, we'll be positive EBIT in the second half, and we'll also be free cash flow positive at the point we build more units, because obviously that working capital piece will reverse very, very quickly.
Our underlying break-even points have now been brought down to a level where we're not that far away from September's activity to actually be in cash positive territory. No change in guidance for FY 2024 or FY 2026. Why are we super confident about FY 2024? For the reason on the right-hand side. This was our underlying data in half two FY 2021, 6% EBITDA. Optical was just over 7%, as you would know. We feel very confident if you draw a line between H2 2021 and FY 2024.
We request all the participants to please stay connected. The line for Mr. Adrian Mardell is disconnected.
[Break]
Let me probably step in here because obviously he's having a problem there. Balaji here . The underlying number of H2 gives us the confidence that from an EBITDA margin perspective, we are talking at the right level. As and when this current semiconductor issue gets resolved, things start improving, we do expect to see an improvement in EBITDA margin. That's something that should play through in our numbers.
Of course, from a cash flow perspective as well, this is a big one there, because in the second half we did almost INR 1.2 billion of cash. Therefore that will also feed through as the years progress from second half of this quarter onwards. Let's move on to Tata Motors. Next slide, please. Overall, the revenue is about INR 11,900 crores. We obviously got impacted. The recovery for the last three quarters is coming through quite nicely.
Did face a stumble because of the wave two lockdowns that we had. Therefore that resulted in wholesales coming off from 195,000 units to about 114,000 units. A sharp drop there. That translated into revenues also coming off from INR 20,000 crores to about INR 11,000 crores. Year-on-year, slightly, I wouldn't cover that. Overall, EBITDA margin of 1.8% compared to the 7.8% we did earlier. Free cash flows of INR 8,000 crores negative, almost entirely explained by working capital and mine.
Next slide, please. The key callouts as far as the volume industry, we'll talk about a little bit of market shares in a while, and passenger vehicles as well. The highlight standout for us is PV's order book of about 53,000 units going strong. EV, of course, really rocketing now. Penetration at 3% of the portfolio, used to be 0.2% only two years back.
Highest ever quarterly sale at 1,700 units and moving on stronger profitability. The CV EBITDA was breakeven with the volumes being impacted, hence operating leverage as well as inflation playing on there. On PV, the 4.1% is a continuing progress that we see. Cash flows almost entirely explained by working capital with a very strong liquidity side nomination across.
Next slide, please. Just the waterfall here, compared to last year, the volumes recovering sharply, and there you could see this deterioration of the variable cost with this commodity inflation, particularly steel being greater, as well as some of the precious metals causing grief. On fixed costs, this is a lockdown, unlike last time. We have kept all the guns blazing. We had IPL, therefore S&M investments continued, and the investments in D&A did play out there.
We have not stopped any action here, and it also resulted in metrics picking up. That was needed to ensure that we serve the demand subsequently. That was a conscious choice. This time was a business agility plan, and hence these things were kept going, unlike last time. Next slide, please. Cash flow is very similar to the JLR story. Cash profit after tax and investment, if you just add the two, broadly there.
Therefore, even at these low levels of volumes, this business is now able to hit cash breakevens, which is a good news. Everything explained as working capital, and a combination of payables, trade receivables, and inventories, all of them going the other way.
Inventories in particular, we have consciously built up, first of all, to ensure that the semiconductor, whatever is coming our way, we are manufacturing cars, because we know demand is going to come. Payables, just absolute volumes being low. Next slide, please. Investment spending on track, around INR 3,000 to INR 3,200 because where we likely to land, somewhere in that range, more towards the lower end, we will see where we land, but on track. Next slide.
Moving on to the commercial vehicle business. The market share is the key measure there. M&HCVs has been doing very well for us. Now the third year in a row, things as market shares have been increasing, and this quarter we picked it up further to about 62.7%.
We are quite happy with the way this category has been progressing for us. ILCVs as well, we have now started to increase market shares and we're consistently picking it up. That's another good one that's coming too. Our challenge has been small commercial vehicles. Draw your attention to the graph on the right-hand side, top corner, where we look at this FCE salience, which used to be only about 50% of the business, now almost at 65% of the business given the current economic conditions.
There we are losing shares, and also at a lower level, it has impacted the overall market shares at 40.5%. We don't like the share and rest assured that we are ensuring action is well in place for that. We started bad last year. We did end at almost similar to the previous year.
This year, we want to really go ahead of that. Work is underway on that particular front. Buses remain the sector where the salience is almost evaporated, and we open grade at come second half of this year, buses will come back again as school starts opening. Next slide, please. Commercial Vehicle, the key call-out between retails and wholesales, broadly the same.
Inventories are quiet there. Revenues obviously impacted by the fall in overall market that we see. EBITDA breakeven, which is disappointing because this business was very comfortably coasting towards a double-digit EBITDA margin. Combination of lower volumes and commodity inflation did cause grief and hopefully this will start recovering from this quarter onwards. EBITDA, of course, is just a factor of operating leverage. Next slide, please. Let me hand over to Girish to comment on the business discussion and plans we have. Girish, over to you.
Thank you, Balaji. Good evening, everyone. The first quarter of this financial year was going up and down. We started the month of April with the second wave of COVID, and the volumes actually dropped by 50% over the month of March. Further in the month of May, there was another drop of 50%. From March to May, the volumes actually dropped by almost 75%.
The good thing is, in the month of June, the volume started picking up, especially in the second fortnight, and one saw almost 94% growth over May, which means that the volumes in June came back to April level. At an overall level, Q1 volumes were 56% lower than Q4, but at a very good level as compared to the previous Q1 of FY 2021, when we had almost a complete lockdown.
Localized lockdowns across the country have actually helped the economy to continue, and we were able to sell volumes almost four and a half times of last Q1. As Balaji mentioned, I think M&HCV and ILCV market share momentum has continued and which augurs well for us. I think the focus now is on SCV and pickups, as Balaji mentioned.
At an overall level, I think the freight has started improving towards the second fortnight of June with the e-way bills increasing, diesel consumption increasing, our internal metric of workshop job cards also recovering. As far as freight rates are concerned, I think they are also improving from the low that they made in the month of May. In terms of commodity inflation, I think this is something which we keep on fighting.
As a result of this, we had to take two back-to-back price increases, 2.5% in April and almost up to 2.5% even on 1st July. This is in addition to the cost reduction efforts that we've started, accelerating further basis the steel inflation and also some inflation in the precious metals. With the increasing prices of diesel and gasoline, one has also seen an increase in penetration of CNG. CNG penetration is not limited to a few pockets in the country.
With the CNG infrastructure also improving, many areas in the country, the penetration of CNG is increasing. Because of this profitability of the transporters under stress, one saw the sentiment index of transporters also going down in Q1. This transporter sentiment index is made up of two parts. One is satisfaction with the current conditions, and the second one is expectations from the future.
The satisfaction with the current conditions were actually negative, which means the transporters were completely dissatisfied with the current state in Q1. The good part there was, they were optimistic about the future going ahead in Q2 and H2. Government's infrastructure trust continues, and this is driving the demand in tippers and also in segments like cement, steel and mineral.
We also see the e-commerce continuing to do well, which is for both hub-to-hub as well as last mile distribution. In terms of availability of credit, I think financial collection ratios have started to improve towards the end of Q2 and after a good fall in April and May. This has also therefore led to increase in availability of credit and convergence in the month of June.
Going ahead, I think with the diesel prices as well as where we are on the freight rate, the transporter profitability is still a concern. It is still below the levels of March, the freight rates are continuously increasing with the demand increasing and the demand supply balance being restored. One therefore looks at the transporters' profitability improving as we go ahead.
Semiconductor availability continues to be a focus area, so we are managing it from a war room perspective, and we are looking at almost every component where semiconductor goes in and tracking it on daily, weekly, fortnightly, monthly basis, depending upon how important that part is or what is the inventory with us. We have taken multiple steps here, like engaging directly with the semiconductor suppliers, spot buying of semiconductors from the open market.
We are also developing alternate sources to ensure that at least towards the later half of the year, we are in a better position. We've also built inventory of critical semiconductor-based parts in Q1 when the demand had gone down. Also parallelly, we are looking at design interventions to optimize the semiconductor consumption or the footprint in the overall vehicle.
These are all the steps which have been taken, and therefore in Q1 where we were placed better, of course, the demand had also gone down. With the current visibility of demand for Q2, we seem to be placed better, but as I said, this is something which is being tracked almost on a daily basis. Coming to the next challenge, inflationary pressure, especially on steel and precious materials continued, and more so on steel in Commercial Vehicles.
Therefore, we are having a significant drive towards cost reduction by repurposing a lot of our teams to ensure that we are able to pull out whatever amount of steel consumption is possible, and therefore reduce the cost. Finally, I think the CV passenger area buses still continue to have a very muted demand. There has been good pull to some extent in ambulances, but otherwise, all other buses continue to do very low.
The only green shoot there is the manufacturing sector. Employee transportation for manufacturing sector seems to be doing well. All other segments, whether it is employee transportation for IT sector, school buses, even intercity transport is something which remains muted. I think gradually the things are improving as we had also seen last year that Q4 was comparatively better. Same thing we expect that going ahead, the bus demand should start coming back to some semblance. That's the, in a nutshell, summary for CV business. Balaji, back to you.
Thanks, Girish. Moving on to passenger vehicles, market share of 10%, a nine-year high. The penetration of EVs now starting to touch 3% for this quarter. Even within that, I think we are now seeing all our segments starting to do well, particularly market shares in the mid-size SUV segment is up almost 800 basis points, with strong response coming from Nexon, Harrier, and the Safari.
What we are noticing on the EV side is, as I said, our quarterly sale is of close to 1,500 units. Market share now standing at 7.7% for this quarter. Good momentum building up on the passenger vehicle business and continues that way. Next slide, please. On the financials, draw your attention to the wholesale and retail number. Wholesale is higher than retail.
That's a conscious choice because dealer inventory levels had dropped precipitously to just about six days, and we have now built it back to about 17 days compared to industry sitting at anywhere between 30 to 45 days, depending on the area. We intend to keep it around these levels at this point in time.
There's still a wait list, waiting period for our cars, and we'd like to obviously ensure that doesn't go too much out of control. Profitability, of course, continues to do well at now at 4.1% despite these low volumes. This business is very much on a turnaround and should improve performance even further as we go ahead. Next slide, please. Shailesh, over to you.
Thank you, Balaji. As Balaji has already spoken about the last quarter performance, I'll share with you the actions that we are planning for in Q2 as we've witnessed progressive recovery in July, and expect the quarter to be reasonably better than the same quarter that we had seen last year and also versus Q1 of this financial year. On the demand generation side, we have identified certain micro markets where we are systematically working on focused levers to drive growth, and also working on certain supporting interventions to recover in product segments and geographies which were impacted in Q1.
As you know, we have the upcoming festive season, and to make the most out of it, we have planned for festive campaigns, and also our presence will be felt in IPL, which restarts in September to provide better visibility to our products ahead of the festive season in October and November also. Living to the philosophy of New Forever, we have been and will continue to launch exciting product interventions. The hashtag Dark is what we launched this month, is one such example, I would say.
This is getting excellent response, there are going to be more such interventions in this quarter also. Our network is key to our growth, and we are systematically strengthening it in terms of reach, in terms of dealer customer experience processes, and also channel health.
These are the actions that we are planning for on the demand generation side. On the demand fulfillment, we have progressively enhanced our capacity in the last two quarters, and we should be able to now realize the gains on the back of the strong demand, which Balaji also mentioned about. The semiconductor supply has been an ongoing crisis, and we are best trying to mitigate this through creating alternatives, and we have been working very closely with our supplier partners.
We have new product lined up, and we are trying to accelerate the work on the same, especially those variants which are witnessing high demand. Example, CNG and also EV is now really moving very fast. Given the supply side risks due to various uncertainties in the environment, we are also building strategic inventory for the identified components.
As far as profitability is concerned, we are keeping strict control on cost as per the business agility plan that we have developed. In our supply constraint environment and where certain product segments are facing pressure, we are also trying to best optimize the mix to drive better profitability. We have also been organizing more than 300 idea generation workshops in the last quarter we did, involving more than 1,000 employees to drive cost erosion ideas.
We are going to further accelerate this in this quarter also. Finally, given the continued pressure of the rising commodity prices, we will be taking price increase to potentially partially offset the same. This will be done in a manner that we keep the competitiveness of our products intact. This was a quick update on the actions that PV business has planned for in Q2. Back to you, P. B. Balaji.
Thanks, Shailesh. Moving on to Tata Motors Finance. I want to take a minute on this one. This has been a segment of the business that got significantly impacted this quarter. Unlike last time, here we had our collection infrastructure, our people getting impacted by the pandemic. More than 1,400 people were impacted by COVID, and unfortunately, we lost about 16 of them.
We had consciously taken a call to slow down physical visits to various places to protect our people. That did cause grief in terms of collection efficiencies really dropping, as you see in the line chart below. The good news is now we have more than 95% of our people vaccinated. Our infrastructure is now well and truly on track. In July, we are already seeing 101% collection efficiency coming back again.
This meant that GNPA shocks on the roof 5.3% to 12.3%. During last time, same time, the moratorium was very much on and clock had stopped ticking on GNPA, but this time there's no such waiver from RBI. We have done our best in terms of protecting our people, and we also ensured that our cost income ratios remain tight even in this environment. We now expect to see a significant reversal on GNPA provisions in the current quarter as collection efficiencies pick up.
From an overall perspective, this quarter was a very, very tough one for the Tata Motors Finance team. Next one, next slide. Overall outlook, to summarize, I think demand situation, we see continued improvement as vaccination rates pick up. Supply situation, of course, is going to be challenging between semiconductor issues, commodity inflation, and the intermittent stoppages due to lockdowns.
We do expect performance to improve progressively from H2 onwards. For JLR, Adrian has also already covered it, but we do intend to manage all the supply chain risks as topmost priority for us, execute the Reimagine strategy, this work is well underway, and Refocus, we have already covered it. For us, as things pick up, achieving a positive EBITDA margin and positive free cash flow for H2 is a key priority at an overall level.
For Tata Motors, I think commercial vehicles is continuing to grow market shares across segments, and SCV in particular is a key one. For PV, we contribute to accelerate the sales momentum that we are seeing. In EV, we will want to drive up penetration even further and accelerate cash flow setting up of the charging infrastructure on priority.
We are still confident in delivering a positive EBITDA margin and positive free cash flow on a yearly basis. This is what we have to say. Happy to take any questions that may be out there. Okay. Moving on to the questions. I think, first 1 from Ankit Makharia, HDFC Securities. The aggregate China car sales has been declining since the last few months. What's the reason for the above? How the luxury sales are faring in China. Adrian, do you want to pick this up? I hope you're back.
Yeah. Hopefully, you can hear me now. Apologies, we obviously fell off the call at some point during the end of my presentation, but hopefully you can hear me. I'm not sure which data you're referencing here, but let me tell you what's happening to China in the data. The first point, of course, is there is a peak selling period in China, from the early part of November through to the early part of February, was the period last year.
It's basically Singles' Day in China through to Chinese New Year. That is the period which ourselves and all other OEMs will be selling most vehicles. You might be referencing a normal in-market falloff after Chinese New Year, i.e., February and March are lower sales always than December and January. Maybe that you're referencing.
If I give you the data sets, in Q1, even though China for us had pretty much returned to normal last year, we were up 14%. In a like-for-like period, taking out premium selling periods in a particular marketplace, like-for-like, we were better in China. Last point to make, our China volumes will start to reduce in Q2 alongside other regions for the reasons said, i.e., supply is starting to be reduced as a result of the semiconductor challenges. That's where we are in China.
Thanks, Adrian. Next question from Jinesh Gandhi , Motilal Oswal. One question for JLR. We have seen a quarter-on-quarter decline in gross margin despite a favorable mix and pricing. Is this due to commodity price impact? If yes, what are the gross impacts in first quarter and expectations for second quarter? Second related question, we have seen the material benefit of staff cost reduction due to restructuring as well as depreciation due to impairments. Are we expecting savings from these levels? I have a question for PV, which I'll take it subsequently. Over.
Okay. Let me take them in the order you've asked them. Commodity prices keep coming up. It isn't the biggest influence in our margin performance by far. Even though commodities are increasing, if I give you a value in the quarter, it'll give you a sense of that. It impacted us by about GBP 30 million adverse on a year-over-year basis.
If I compare that to the GBP 243 million improvement year-over-year in VME, you can see relative to variable marketing and the health of sale, it's a small impact, and we expect it to be an increasing impact, but relatively a small impact going forward also. Please, it's not commodity prices that are going to influence and impact what we do in performing going forward.
The VME pieces are much more impactful along with warranty, which is why I've consistently called those out over the last two years. Other points you reference in there, material, benefit of staff reduction costs. We've got a slide in the deck. You'll see, I think it's page 38. We don't need to go to it. You'll see our absolute costs in quarter one last year, which we had the furlough moneys in there.
We called out that number, GBP 115 million improvement year-over-year, last year compared to this year. There is a small cost increase versus quarter four. I keep saying to you, quarter four is your reference quarter here. When you look at the impact of staff costs, they have gone down versus quarter four.
Some people did leave in the quarter, and more people under the Reimagine redundancy programs will leave in later quarters also. You're asking about D&A. When you look at that slide, when you have chance to look at page 38, you will see that our D&A did drop actually versus prior quarter a little bit. I think you're probably referencing MLA MID here.
The point of MLA MID, of course, is those assets were on the balance sheet not yet being depreciated. The saving for MLA MID, which you may be referencing here, was actually a cost that hadn't then, at that point, come through to our income statement. Would have if we'd have brought those vehicles to the marketplace. There is a small reduction on the D&A. What MLA MID has done is stopped that number increasing by about half a percent of EBITDA going forward. You won't see a reduction, you'll see an avoidance of it increasing. Balaji?
Yeah. Thanks, Adrian. A question on Shailesh on PV. What's the current capacity and utilization? What is the scope of capacity expansion that are existing these locations? Other one, what are the pricing inputs taken in CV in first quarter and in July 2022? The CDP cell phone gate. Shailesh?
Yeah, Balaji. I would not get into the numbers in terms of capacity because it's slightly complicated from a shop to shop when we go. Broadly, if I have to give you the capacity utilization of the three locations in which we operate, I would say Pune and Sanand would be operating somewhere around 65% to 70% now.
Pune is going to go upwards from here because of the new launch, which is slated on Punch, which as you know, is going to get launched in the coming months. As far as Ranjangaon is concerned, which is the Fiat joint venture factory that we have, the capacity utilization would be greater than 90%. Our engine and transmission, which is powertrain capacity utilization, would also be in the forms of 90%, is what I would say.
I would take the first part of the question on the price increase, and then I will ask Girish to talk about CV. On the price increase so far in May, we had taken about 1.8% price increase in PV, and we are yet to take a price increase in the quarter two. Over to you, Girish, for CV.
Yes. Thanks, Shailesh. Yes, we took a price increase on 1st April, which was about around 2.5% across the range. Looking at the steel price increases, we have taken another price increase of around 1% to 2.5% starting 1st July. Those are the kind of price increases we have taken. I also saw a question on whether it's easier in PV or CV to pass on the cost increases. I think in both business units, it's not that easy to pass on. Our focus also therefore has been to look at what we can do on cost reduction first, and rest, of course, try and pass it on to the market. Balaji, back to you.
Thanks, Girish. Next question is from Stephanie Winston, JP Morgan. Because inventory is very tight, all OEMs are seeing pricing of mixed improvements during the business period. However, I am curious as to the ability to upsell customers with more marketing from ordering being done online. How does JLR management find customer behavior with order additional options, et cetera, for example? Adrian Mardell?
Yeah, I'll take that one, Balaji. Okay. A few things to consider here on this one. You're correct. Inventory is tight and become a lot tighter over the course of quarter one. That's absolutely correct. You're starting to see the first impact in that in our variable marketing. Obviously, that's the money we use to close deals, and the variable marketing support has started to fall quite dramatically, actually.
You will see already in quarter one, as a result of the pressure on supply, that the deals we actually did with customers were more valuable to us. Now, that was quarter one, and don't forget this challenge unfolded in quarter one. Going forward in supplement to that, i.e., in addition to that, and also to control our order banks, of course, we don't want order banks of four, five, six, seven months on average sales.
We're starting to actually take away the ability for customers to order, either in dealer or online, the lowest value derivatives. Temporarily, some of those derivatives will not be available, so they cannot be ordered. They would need to up-spec their request by nameplate if they wish to order 1 of our vehicles until we get back to normalization.
Those are two things. One already happening, existing deals in the marketplace with less marketing support. We're going on to the next stage of taking away the lowest value derivatives within a nameplate. Customers, if they wish those cars, will need to up-specify their vehicles for us to be able to deliver that to them in the marketplace.
Most of the second piece will start to impact in the second half of the year, not the first half of the year, because of course, our obligation is to fulfill the orders we've received already in the order banks, those 100,000-plus units. Balaji?
Yeah. Next question is from Pramod Amthe, Credit Suisse. Chip shortage is helping JLR system inventory reduce drastically. Do you see an opportunity to structurally reduce system inventory, or do you need to go back to March level, one? Second, China JV repeated slip into losses is a concern. Any medium-term fix needed here?
Okay, Balaji. Let me take them in order of being asked. Inventory at March, it was globally at GBP 3 billion level. Let me remind you, two years earlier, it was GBP 4.4 billion. We've not only been impacted by this supply shortage, we had already drastically reduced inventory by just over 30% across all nameplates, all markets, all regions.
Do I see an opportunity to reduce from that? It's marginal. If anything, on a number of nameplates in a number of markets, we now have too low inventory, and at this level, that is starting to impact the number of customer orders we can close out. Hence, the retail levels will be suppressed in quarter Q2.
What you'll find is it will continue to drop, but has now dropped to an unnaturally low level, and we do need to bring it back appropriately, actually, to levels we were seeing closer to February time, I'd say, rather than March time, actually, February last year time, as we normalize this position. Just around £3 billion is a good place for us to be.
There are marginal gains beyond that. China JV repeated slip into losses is a concern. Any medium-term fix? Don't forget the China JV has been impacted by the semiconductor supply as well. I did say to you, I think, at the year-end, we formally kicked off a charge improvement structural cost program in China. Our breakeven point going into the start of the year was above 70,000 units.
We're challenging ourselves to get down to 65,000, a 10% structural cost improvement, then below that. The other key metric in China that you wouldn't see, obviously, our quality of sale, this is for local cars, of course, and our health of sale. There were 30% discounts on a number of our products. Two reasons for that. There had been oversupply. Inventory at the dealers were 2.5 months.
They've now dropped to 1.3 months at the end of June. That's another great sign. The discount on average is reduced from 30% to 26%. That's another great sign. Don't forget, finally, of course, we're replacing two of the products. Range Rover Evoque extended wheelbase is now new in the marketplace, and the XF long as well. Both of those vehicles, effectively brand new vehicles, will start to improve. A mixture of all of those actions we've taken and are taking on structural costs together with supply, we think will improve the position in our China JV considerably.
Thanks, Adrian. Next question from Kapil Singh, Nomura. Let me give you a bit of a preview, sir. I'll take the India questions first and then come to JLR subsequently. You have a glass of water in between. India business, with reference to some media quotes today, can you please let us know how much investment does the company plan in charging infrastructure and scrapping units in India?
What is the scale we plan to build? What's the current EV order book in India? Kapil, yes, you're right. We did allude to that today, and we haven't quantified the amount of investment that we're going to put in place because this is obviously sensitive information. We'd like to keep it there. Very clearly, we see excitement in the EV portfolio, and we know that as and when charging infrastructure comes in, you are able to break one of the barriers to the adoption.
We are working closely with Tata Power on this one, and we definitely want to play a role in capitalizing charging infrastructure, as I called out even in the outlook slide as well. On scrapping units, we do see that the scrapping policy now formally announced. We would want to work with our vendor partners, and our job is definitely to come in in terms of being a technology provider for that, working with the world-class leaders in scrapping, whom we already are getting into conversations with. Thereafter, the job is to ensure consistency of technology being adopted across the entire ecosystem.
The ecosystem partners will be the ones who are doing the investments, operate it, and also make the profits out of it. We are able to ensure standards in terms of how scrapping is done, how recycling is done, how reuse is done, and ensure that this is sustainable and world-class in terms of what we bring as scrapping. Sizing-wise, we have said that we want to bring, we already have intense conversations with our ecosystem partners.
We have two or three should definitely come through during the course of the year. Over a period of time, we want to get up to at least 10, if not more. That's over a period of time as we start getting the unit economics right on that. That's the work on this. Current EV order book in India, Shailesh, would you want to pick it up?
Yeah, Balaji, I will pick that up. The current supply rate, whatever we have been supplying in the last two to three months, if I were to take that as the basis, then our order book would be anywhere between 14 to 16 weeks, I would say. This is going to get improved in terms of reducing this by increasing supplies. In the last one or two months, this has really shot up. It has doubled what bookings we used to receive. This is really going fast. Back to you, Balaji.
Thanks, Shailesh. Adrian, continuing on the JLR question, chip shortages. What are the specific factors affecting tier two suppliers, as referred to in your PowerPoint presentation? Do we expect a sharp revival in production in Q3 FY 2022 to more than break-even level of 90,000 units?
Okay. Thanks, Balaji. I'll start this question. If I may, I will ask Thierry, actually, He's leading this from the front. I'll ask him to comment. Bear in mind, Thierry is actually on the road, so we'll see how this works. In terms of the tier 2, what we would specifically have had in mind as we wrote that were the couple of significant issues we brought to your attention previously, i.e., the Renesas plant fire in Japan, which happened in the middle of March.
Yes, production is now back and being built back towards the 100% levels. We do expect that to increasingly improve as we go through Q2 into quarter three. Another one would have been the Texas snowstorms, which again, were around that same period in late February, early March also. Similarly, we would expect those facilities to be coming back on stream progressively as we go through Q2 into Q3. We're not in a position to confirm the production levels in quarter two at this point.
We have said to you our break-even is lowering. We expect it to be better than the 90,000 units by the time we get there marginally. We just don't have those confirmations from suppliers yet, and I really don't want to mislead you by saying probably.
Once we get to a point where we get those confirmations, if it's significantly different to what we've communicated, then we will communicate that to you. However, I would like to hand over to Thierry if he's able to hear me. As I say, he is on the road. He has a first-hand flavor of this, and I'm certain there are things that I would have missed from that response. Thierry, if you're there?
Yes. Absolutely. Thank you, Adrian. Well, I think what is very key in this very severe crisis that all OEM have at the moment with the chip supplier is that we are, let's say we are learning and we are learning very fast about the way our chip suppliers are working, what is their modus operandi and what are the needs they have in order to make it such that capacities and allocation of capacities is stable and efficient.
We have also learned that our tier one not necessarily are playing the same music as the one that the chip supplier would like and that we would like to play with them. That means, for example, having long-term contracts with them with a take or pay approach so far the capacity is there whatsoever.
The good news is that we are getting direct and we are doing that with our key vendor at the moment we speak. Far in the future, we have a clear structural fix to the problem that we have at the moment. JLR is well positioned to a certain extent because our size is considered to be quite small compared to some of our big customers, especially outside the OEM world. As such, it's also a very interesting approach that we are following at the moment with the chip suppliers and with our tier one.
Back to you, Balaji. Thanks, Thierry. The next is from Gunjan, Bank of America. A few questions. One is, guidance for the full year for FY 2022 for JLR. Are we still looking at a breakeven at 4% plus EBITDA as guided earlier? Can you please clarify on this one? Gunjan, I think as Thierry and Adrian just referred to, I think things are too fluid at this point in time.
It doesn't make sense to call a number out which, at this position, we are not able to meet. What we are calling out is what it is that we are seeing at this point in time, and obviously, as clarity emerges, we put it back again. We will definitely ensure there is no miscommunication happening from us on that front. That's number one. Any change to the launch timelines in JLR due to lack of visibility on semiconductor availability, Adrian?
No expected change in the timeline of the launch of our new product. Let me remind you, each time I communicate this, the timeline gets shorter. We expect some of that new product now to be in the marketplace within nine months, which is really good. The Range Rover, and then the Range Rover Sport, six months later than that. We don't plan to, in any way, slow down the launch of these vehicles.
Whether we find, as we launch, that some of those semiconductors are a problem on the new vehicle or not, we haven't got to that point yet, of course, because we're not yet clear enough on Q3 supply. Our intention is to absolutely push ahead in delivering those wonderful new vehicles to the marketplace when they're ready, and that's likely to be in around nine months time.
I think, maybe, if I may, Balaji, add something and complement the answer from Adrian. I think the company at the moment is experimenting a huge, intensive path of progress through Reimagine and Refocus. The fact that we are under tension because of supply doesn't change. At the contrary, that intensifies all efforts in order to go faster in our plan of progress.
Which means that the company is getting more muscular, is getting faster, is getting better synchronized, and that's the reason why we are just making such that the supply is coming back, and then we will show the progress that we have made during this period of time as well. Thank you. Thanks, Thierry.
The other is on the Indian business, saying that the market demand post reopening in the domestic market, is there any volume outlook for CV and PV business for FY 2022 that we can share? Wouldn't want to conjecture on volume outlook other than the fact that both Shailesh and Girish did allude to significant pickup that we are seeing in the market as we speak.
PV has been on a roll. As far as CV is concerned, we are seeing gradual demand coming back across all segments. A question to Adrian. VME levels in JLR are very low given supply shortages, and this is an industry-wide phenomenon. How sustainable is the number for VME and warranty for the midterm? The second on emissions, how do you think the powertrain mixes needs to move to comply with this?
Okay. Thank you, Balaji. VME, I'm going to interpret midterm post supply shortages rather than during supply shortages. Let me take you back to the announcements I've made previously. We were expecting variable marketing at that point in time to be at or around 6% and warranty at or around 3.5%. Once we get to a normalized marketplace, assuming there isn't a permanent correction here, I would anticipate that that guidance is still good guidance.
Although VME in the foreseeable future over this constrained period will be closer to the 4% or below level until supply has been adjusted to be commensurate with demand. I think it's reasonable for you to take that message away from today as well. From an emissions related penalty perspective, I've mentioned to you today the quarter one data.
Our total BEV and PHEV numbers in quarter one shown in the presentation on page 9 was 8.5%. At that level, it's actually non-compliant. We would need that number to grow through to double digits. Let me say in total, about 12% goes to get to a compliant portfolio. We know when we look at the order banks from our customers, we are at that level with a strong requested demand for our PHEV units. Again, it's about 12%, not the 8.5%, and we can see that within our customer order banks. It's just our ability to build those cars today which is holding us back and penalizing us from a potential fines perspective.
Thanks, Adrian. Similar question on mix, where you're saying that, this is from Satyam Thakur , JLR ASPs were up from quarter. Is this peak mix, or can this improve further in the near term? How do you see this shaping up once the supply starts normalizing from third quarter?
Yeah. Okay, Balaji. Thank you. Let me take that one. Look, again, I think you're asking me beyond the chips piece. I think there's two levels here, actually. I'm going to stay within the supply shortages for the first half and talk half two, because there will be shortages in half two. It's just the extent. I do believe the actions we've taken, trying to moderate the increase of the order banks, trying to reduce the lower derivatives within nameplates, of course, that's going to have a natural impact to reaching those average selling prices and improve even more the net transacting prices because of the lower VME.
I see those 2x actually increasing over the second half of the year, once we've supported the orders that have been put in place. Again, as we normalize post-crisis, it's more difficult, but don't forget and listen to Thierry's words. This will inspire us to actually even further accelerate our Refocus transformation program.
We're very focused within that program for all regions, improving health and quality of sale. You will see that coming back as increased transacting prices, net transacting prices. There will be a legacy as we roll out the program. Those transacting prices, like for like on exchange rates, of course, will continue to be strong, if not improving, going forward.
Thank you, Adrian. Question from Nishant Vyas from ICICI Securities. Can you shed some more light on the strategy of 10 new launches on EVs in India till 2025? Are the new launches going to be spread equally across the years, or is it going to be more back-ended? Any breakdown of target segments? How is the battery supply chain being planned in India?
Nishant, I think the way I would like to look at it is this is the plan and the aspiration that we're after. We are pretty excited by the speed at which the country is moving into electric. Particularly with rising fuel prices and charging infrastructure starting to come together, the barriers are also falling. Therefore, we believe the customer needs to be given choice. Given the choice, we will be an all-in player.
We've already called that out many times over, and we're just quantifying it so that we are able to put some meat to the bone that we have. The 10 new launches is definitely a part of the plan by 2025, reasonably well spread out. We wouldn't want to put out any specific target segments other than saying wherever the customer is going, that's where we would want to be.
Otherwise, we wouldn't be an OEM to begin with. Obviously, the back end will be fully integrated to ensure that the supply and security of supply are being maintained. At this point in time, this is what we are able to share, and rest assured that as and when we get closer to it, more and more color would be provided as we normally do. Hope that helps, Nishant.
Next question is from Jay Kale from Elara Capital. If things improve in second half for JLR, is it fair to assume that FY 2022 net debt for consolidated will be higher than INR 40,000 crores seen at the end of FY 2021? Great question, Jay. I think the point to be made is that at this point in time, out of the INR 18,000 crores outflow that we saw, more than INR 16,500 crores was just working capital.
We showed both in JLR and in Tata Motors that the operating cash less CapEx is actually near breakeven that is there. Therefore, at this point in time, wouldn't want to comment on how the year-end debt would be. We have made it very clear that as far as Tata Motors is concerned, we will be cash positive in the year, free cash flow positive.
JLR on a full year basis, work is still underway to actually figure out where exactly we would land to. We have clarified, Adrian has said it many times today, saying that we see improvement in second half. How big, how fast, how much revenue, how much profitability, all that depends on how fast the recovery on the semiconductor side comes through. Intrinsic, we are in a good place.
Now we need to serve the demand. That is where we are. Wouldn't want to hazard a guess on where we would land up in on a full year basis. Do keep in mind that the deterioration of this quarter, most of it is working capital, and we will obviously see a significant unwind of the working capital when its volumes start picking up. Adrian, anything you want to add to this?
Nothing to add to that, Balaji. No, thank you.
Okay. Question from Binay Singh on very similar lines, saying that if revenues in the second half of this year is going to be very similar to the revenues that we had last year same time, why would EBITDA margins be lower on a year-on-year basis? We haven't specifically called out EBITDA margin for the second half of the year. I must admit that I didn't understand your question too much. Adrian, unless you can figure out what he's trying to say.
If I may, Balaji, I think the question is misunderstood the outlook slide because the 6%, I think this is where I did drop off. I did explain it, but it sounded like I was talking to myself. The 6% is actually the underlying for last year, and the headline is 7.1%. The two numbers both relate to last year. We have not provided any guidance for H2 FY 2022 for the reasons said.
Yeah. Now I got it. Got it. Now I understand. Binay, I hope that's clear for you. We have AB Holmes from Sandbrook Capital. Three JLR questions, if I may. Do you think you can get to Q1 levels of absolute wholesale or better as early as Q3? Should we continue to expect emission charges in H2? Should we expect volumes at CJLR to follow a similar pattern to the rest of JLR? Can anything be done to reduce CJLR over its spot? Should we be prepared for more losses going forward? Adrian?
Thank you, Balaji. Do I think we can get to in Q3 to Q1 levels? Yes, we can. I haven't got the supply guarantees as yet to demonstrate we will, but we certainly can. That is certainly possible. That is not guidance. That's just what's within the range of reasonable outcomes, let me put it like that. Should we continue to expect emission charges in H2?
If I take you to the first piece of your question, if we have a profile in Q3 similar to Q1, I think it's reasonable to assume it won't be a compliant profile. That's reasonable to assume. So we would need to increase volumes above that Q1 level, in my view, for us to actually see the full power for that compliant portfolio. That would be my expectation here.
We would need to get closer to a normal level of supply, if not to the demand we have for us to be compliant in any given quarter. I do not expect us to be compliant in Q2 with that 65,000 unit volume number we've indicated. CJLR, I think it's reasonable to assume the pattern is the same, i.e., they will be impacted by semiconductor shortages similar to ourselves for the foreseeable future.
I did mention on one of the previous questions, we are absolutely working on reducing our break-even point at CJLR, and of course, that will be twofold, health of sale, quality of sale, reduction to incentives given by VME, but also structural cost reductions as well.
They obviously have a much lower cost base than here, and therefore the absolute numbers will be nowhere near as big as the reductions we've made in the core business. I do expect break-even to reduce below 70,000 units for those two reasons. Yes.
Thank you. Thanks, Adrian. Question for Mr. Girish Wagh from Satyam Thakur , Credit Suisse . What has been the quarter-on-quarter trends and discounts in M&HCV? How do you see that?
Okay. Thanks, Balaji. As I mentioned, we have taken a price increase on beginning of January and then again in April. Generally, when we take these price increases, these price increases get accepted as we go ahead in the quarter. By middle of the quarter or second month, I think generally these price increases get accepted. I would say in terms of realizations, towards the end of the quarter, we are back to the levels that we were in the previous quarter.
Okay. Thanks, Girish. Maybe stay on the line for a minute. In terms of pre-build inventory for retrofit, are you doing anything in CV? Similarly, Shailesh, for you in CV, and Adrian, for you in JLR.
Yes. Balaji, on CV, there is no need to keep inventory of finished vehicles. As I mentioned in my presentation, we are keeping strategic inventory of either semiconductors or semiconductor parts at part level in very few cases at aggregate level, but not at the vehicle level. That's not required because we are aligning our production to retail. Balaji, back to you.
Sorry, before I hand over to Shailesh, this question came from Chirag Shah at IIFL. Shailesh, on the CV side, any prebuild you are doing?
Balaji, given that we are always operating at the peak capacity of certain items, in the low industry volume months, we are keeping some finished goods inventory also, because of the uncertainties that we see on the supply side, given different kind of disruptions that we have been facing. This is limited to just 10% or so of a monthly volume, is what I would say. Rest is absolutely similar to CV. We are keeping strategic inventory of common parts. As I said that this is more towards preparation for new launches. Back to you, Balaji.
Got it. Adrian, on the JLR side, any kind of inventory you are pre-building?
Yes. We did build inventory for retrofit at the end of June. We actually had just over 7,000 cars in what we would call a work in progress or in your words, retrofit. Normally at this time of year, we would expect less than 3,000 units. We almost trebled the inventory at the end of June exactly to do what you're suggesting here.
Our expectation is a lot of that retrofit will happen in quarter two. What I don't know is where we will end the quarter, because obviously we'll make our decisions around September, what we retrofit build versus what we don't build as we go through the next three to four weeks post our shutdown period. Would you like me to continue with the question two, Balaji?
Yeah, but you already have covered that. This is on JLR plan for H2. That's something we already covered, Adrian Mardell. You've got another 3x , so I'll take the next question. Thank you. The next question is from Nitish Shah from Jefferies. Three questions, particular the second one we haven't covered at all. I'll probably take that first.
Could you explain the tax situation at JLR? Why a large tax expense despite negative PBT? How will this look in the second quarter and second half? I think we always maintain to look at ETR on a clear basis and very data-driven when you look at within the quarter. We think that contributed to the deferred tax asset that's not being recognized. Given the contained losses, the loss for the quarter should not be recognized. Within that, the U.K. system in particular had a higher tax loss.
The consolidated was under 10. There again, we couldn't recognize the tax loss there, DTA there. Both on pension assets as well as on hedging reserves, which go through OCI, as well as OCI had to be restated because the tax rates in have gone up from 19% to 25%. We should rightly be recognizing a DTA for that, which given the current tax loss position, we have not.
These obviously mean that as when the business becomes profitable, you are getting back into recognizing this. Do look at ETRs on an overall basis. There's no structural change in ETR as far as JLR is concerned. Adrian, anything you want to add to that?
Just the one point, I think, Balaji. Excuse me if I missed it. The line isn't so great. This is IAS 12, I think it is, accounting. It's accounting regulations rather than cash payments. At the point where we become sustainably profitable, this deferred tax asset will be created. It's accounting rather than cash, is the point I just wanted to make.
Yeah. Spot on. Those are good spots we should have added that. Thank you. Maybe time for one last question that is out there. This is from Nikunj. Let me pop it up here so that the rest of us can see it. Give me a minute, please. Yeah. This one, again, the JLR semiconductor issue, which you have already covered. The other is on the EV launches.
What is the CapEx plan for India EV business and be subject to the JV partnership with a strategic partner? As we have said, EV for us is a strategic call-out, and obviously there is a strategic partner for that or financial partner for that. We are more than happy to take it. Obviously this infrastructure will be implemented as part of our plan.
As the business is starting to do well and we're able to turn around, that also gives us more degree of freedom. Having said that, we will be open to any partnership as far as this is concerned. Nikunj, hope that clarifies that for you. I think with this, we have come to the end of the session. 8:00 right now at my time. Thanks all of you for joining in.
Thanks to the teams at JLR and TML for taking the questions. Hope we are able to answer all your questions to your satisfaction. Feel free to reach out to us in case there's anything else that you'd like us to clarify, and look forward to engaging with you in the coming days. All the very best. Do stay safe. Take care. Bye-bye.
Thank you.
Thank you, Balaji.
Ladies and gentlemen, on behalf of Tata Motors Limited, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.