Financial Results & Highlights Brief Company Introduction Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) is an Indian multinational automotive manufacturing company headquartered in Mumbai. It is a subsidiary of Tata Group, an Indian conglomerate. Its products include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment and military vehicles. It also owns the British luxury car brand Jaguar Land Rover. Standalone Financials (In Crs) Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY% Sales 11194.42 16477.07 -32.06% 10381.9 7.83% 35309.43 52776.21 -33.10% PBT -1023.85 518.02 -297.65% -1269.99 19.38% -2341.51 2133.42 -209.75% PAT -1039.51 617.62 -268.31% -1251.97 16.97% -2418.52 1914.41 -226.33% Consolidated Financials (In Crs) Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY% Sales 72576.2 77582.71 -6.45% 66104.51 9.79% 200983.7 217618 -7.64% PBT 1349.92 -29228.4 104.62% 621.23 117.30% -1267 -32636 96.12% PAT 1755.68 -26961 106.51% -187.7 1035.36% -2111.48 -29833 92.92% Detailed Results: 1. The company saw another dismal domestic quarter with revenues falling 32% YoY in standalone terms. 2. In consolidated terms, the revenues fell 6.5% YoY with JLR revenues rising 2.8% YoY. 3. Consolidated free cash flows for the company were at Rs 4000+ Cr for the quarter vs Rs (5000+) Cr in Q3FY19. 4. Consolidated finance costs for the quarter grew Rs 175 cr YoY to Rs 1744 Cr in Q3. 5. MHCV segment declined significantly with segment revenues falling 47.7% YoY. 6. System stock levels were reduced by Rs 3800 Cr to Rs 7200 Cr. 7. Wholesale revenues for domestic sales were down 25% YoY while retail revenues were down 17% YoY. 8. CVs were down 24% YoY while PVs were down 26%. 9. The company made investments of Rs 1318 Cr in products and technologies. 10. Tata Altroz has also received 5 Star global NCAP rating making it the safest car available in India after Tata Nexon. 11. In JLR, retail volumes were down 2.3% while wholesale volumes rose 2.7% YoY. China retail revenues up 24.3% YoY. 12. New Range Rover Sport sales were up 30%. Land Rover Discovery sales were also up 9.2%. 13. The quarter also saw an EBITDA margin of 10.8% for JLR. 14. JLR made investments of 892 million pounds into products and technologies in the quarter. 15. Overall consolidated EBIT margin rose 240 bps to 2.3% in Q3. www.smartsyncservices.com 16. JLR’s Project Charge has already completed its goal of cost savings of 2.5 billion by March 2020 and has already achieved cost savings of 2.9 billion till date. The company has launched Project Charge+ for an additional savings target of 1.1 billion pounds (0.4 billion in Q4 and 0.7 billion in FY21). 17. The Project Charge transformation has reduced operating costs by 154 million, investment by 200 million and inventories by 405 million pounds in Q3. 18. Free cash flows from JLR were at (144) million pounds which is up 217 million YoY. 19. New Land Rover Defender model unveiled which will be launched in Spring 2020. 20. New Jaguar F-Type was unveiled in December. 21. Tata Motors Limited remains focused on retail expansion and on a smooth transition into BS-VI. 22. TML remains focussed on expanding and capturing the EV market in India. The company already has a 43% market share in the nascent domestic EV space. 23. It is also looking into market development in the fleet segment for Tigor EV. 24. The company is also looking to continue to work with Tata Power to establish public charging network with fast chargers. It has already established 80+ public chargers in 5 cities so far. 25. Tata Motors Finance had a muted 9M with AUM growth of 7% YoY and NNPA expansion of 200 bps to 3.9% in the period. 26. On the other hand, the market share of the company has risen 24 bps YoY to 29.3% in Q3FY20. 27. Total disbursals have fallen 28% YoY mainly due to slowdown in the market for long haul trucks. Investor Conference Call Highlights 1. The company had some increases in manufacturing and material costs in the quarter. The management assures that most of them were binary one-off items. 2. The management has mentioned that a significant item in the cost improvements in the new Project Charge+ will be material cost reduction in all components of the company’s vehicles. 3. The management expects the CV market to start to revive with the government’s push on infrastructure development and replacement demand coming back. 4. The company will look to focus on demand recoveries in all of its domestic segments. 5. The management feels that the company is adequately prepared for the BSVI transition and thus it has already started to launch BSVI vehicles in the market. 6. Despite the rise in allowance of CO2 emissions target in the EU, the company will be focussed on transitioning all of its existing product portfolios into PHEV (Plugin Hybrid) versions. The company will also be driving more of its high-end vehicles portfolio to take advantage of this relaxed emission allowance. 7. The company has been aggressive in targeting savings of 0.4 billion pounds in Q4 under Project Charge+ as the management believes that the company has made good structural cost reductions and it should continue at a similar pace going forward. 8. The company has already amassed a 3-month order book for the new Defender model. 9. The management has stated that most of the cost savings will arise from advanced analytics and forensics which helps the company arrive at an appropriate amount of savings which it can negotiate with its suppliers. 10. The warranty cost for the company has been at 4% of revenues. 11. The depreciation will rise with the launch of Defender from 8th The management is convinced that this product should generate good profit for the company even if it incurs increases in investment costs. www.smartsyncservices.com 12. The management maintains that it has already gone after fixed cost structures and found that the scope for cost reductions is greater in the variable segment. Thus the company is focussing more on rationalizing variable costs at the moment. 13. The management has maintained that the upcoming reduction of workforce by 500 in the Halewood facility is not just for cost reductions but for increasing efficiency as the company is looking to invest 5 million and speed up the production line which will require fewer people t operate. 14. The main reason for the drop in realization per unit in TML was the rise in variable marketing expenses to clear out the existing BSIV inventory in the quarter. 15. The new Discovery Sport is set to go on sale from 20th February onwards. This model accounts for half of the sales in China and the company is expecting good demand for the new version. 16. The management has stated that in case the extension of the disruption from coronavirus in China, the company will only conduct an online virtual launch instead of a physical launch at the date. 17. The company is also looking to launch the new Jaguar XF in China towards the end of the quarter. 18. The company is not worried about the entry of Tesla into the Chinese market. This is because the company is operating predominantly by importing parts and most of its products are PHEV, mild hybrid and ICE in mostly non-competing segments. 19. The management has mentioned that the profit generation has not been as high as revenue and cash generation for the company because inventory was too high at the start of the year and the company is only now coming to normalized levels of inventory. The management expects inventory levels to bottom out in Q4 before rising with a rise in demand in FY21. 20. The management has guided that an EBITDA margin of 11.5% is a sensible number for the company’s wholesale business. The management believes that the PV business should turn EBITDA breakeven in FY21. 21. The management has mentioned that the normalized tax levels for the company is around 20%. 22. The management believes that JLR is doing well in the Indian market with 3rd largest sales for luxury car segment. The sales for the year is expected to be around 5000. 23. The company is seeing good demand for BSIV vehicles in the cargo segment. It is also seeing sequential growth in MHCV division. Analyst Views: Tata Motors continues to be on the slow path to recovery. The performance in JLR has been encouraging with revenues rising almost 3% YoY. The company saw impressive cost savings under Project Charge which spurred the company to target additional cost savings under the new Project Charge+. The performance of JLR in China continues to improve and the launch of the new models of Discovery Sport and Jaguar XF should help further. The brand relaunch of the Defender should help the company even more on sales in other markets like the USA and UK where sales have started to stagnate. But the threat of coronavirus and its impact on the company’s China sales in the quarter cannot be underestimated. It remains to be seen how this coronavirus situation pans out in the near future and how TML will recover in the domestic market where it saw a dismal performance despite gaining market share in certain segments.