Tata Motors, Ltd. ADR (NYSE:TTM) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Binay Singh – Morgan Stanley: Hello, sir this is Binay from Morgan Stanley. I had two questions on JLR. Firstly, there has been a lot of news flow on inventory piling up in China. Could you throw some light on that? Continuing with the same, how are you seeing discount trends in Jaguar portfolio specifically across regions? How do you see the reception of the new Jaguars across regions? Lastly, we do note that FCF profile of Jaguar is slightly slipped on a quarter-on-quarter basis, could you throw some light as to what drove that?
C. Ramakrishnan – President and CFO: The first question was on the inventories and pile up in China as you called it, we haven’t seen that trend in our business. It’s not a correct statement as far as JLR is concerned, many of our product line continues to be on a pull mode, overall and in China. Without referring specifically to the discounts that you mentioned in the second question, I would say or if you take – I’m not commenting particularly with specific reference to the quarter, but in general, in the last year, year and a half, I think the variable marketing expenses in total have been going up, but we have not seen any alarming or significant increase there or bloating there in any of the market, but generally the trend has been on the increase since the low levels we saw would be about six – yes, about six quarters ago. Last, if I got correctly, your last question was on free cash flow. Was it?
Binay Singh – Morgan Stanley: Yeah.
C. Ramakrishnan – President and CFO: Jaguar Land Rover, as I said earlier is spending and investing a lot in the product development and the capital expenditure. The free cash flow for FY’13 was (GBP33.41) million after CapEx and product development spend of about – and negative working capital.
Binay Singh – Morgan Stanley: How has been the working capital trend in Q1, like I don’t have the data, but how has been the working capital for JLR in Q1?
C. Ramakrishnan – President and CFO: The working capital, it’s difficult to comment on a quarter-to-quarter basis, but in the first quarter, you will generally see an increase in the working capital requirements, that’s no different in this year.
Binay Singh – Morgan Stanley: Right, so it is more to do with a seasonality rather than anything…?
C. Ramakrishnan – President and CFO: That’s right.
Raw Material Costs
Kapil Singh – Nomura: Just wanted to check couple of things. Firstly, on the raw material cost for Tata Motors standalone, we’ve seen a decline in raw material cost of sales. So just wanted to understand, is it related to a lower discounting or is it because of a genuine decline in RM cost that you have seen?
C. Ramakrishnan – President and CFO: It’s surely not (lower) discounting, that would be an incorrect statement. The discount levels and overall net realizations have been relatively weak and have continued to remain relatively weak compared to earlier period that we have seen in the past. While we are moderating our variable marketing support and also making price increases here and there, overall, the market trend has been quite severe in this regard. The raw material turnover ratio, while it is difficult to give the break up on each quarter basis, in general, I think its contributed more by a combination of model mix as well as richer model mix can go to your result and overall lower percentage. Also the second factor that you mentioned, we have seen a relative steadiness in the commodity prices and we’ve also been undertaking significant cost reductions programs within the business. So I would say a fairly steady commodity price or softer commodity prices, material cost reduction and value engineering efforts and model mix…
Kapil Singh – Nomura: Sir, does the weakness in rupee put a pressure on cost going forward or you see raw material cost holding at these levels?
C. Ramakrishnan – President and CFO: I think we should relatively be okay on the rupee front on our business. Our exports tend to be generally higher than our import. The import content of vehicle (per se) is relatively less, but there may be some consequential impact that we may see, particularly if the material prices shoot up to (alliance or exchange effect) that we’ll have to see, but we’ve not seen this phenomenon in this quarter.
Kapil Singh – Nomura: Sir, secondly, just on the inventory levels, especially for heavy trucks, for both Tata Motors and the industry, if you have any thoughts where are we and have we done any further inventory reduction even in the first quarter or the retails and wholesales were largely in line?
C. Ramakrishnan – President and CFO: Generally, partly on account of seasonality, et cetera, towards 31st March, the inventory levels in the pipeline as well as the Company tends to be at a low point and it starts building up in the first quarter and second quarter for the busier period in the later part of the year. Since you asked basically about commercial vehicles, our inventories are very much under control, whether it is with the company or with the dealers. The inventories will be, I would say, on the lower end of the range that we normally operate, between 20 and 30 days. That seems to be more towards the lower end.
Kapil Singh – Nomura: This is for the Company and dealers put together?
C. Ramakrishnan – President and CFO: Yes, I’m talking about inventories been in control in the total chain.
Kapil Singh – Nomura: So that’s about 30 days with the dealers or with the Company and dealers put together?
C. Ramakrishnan – President and CFO: I would think it’s about three to four weeks – between three – it can vary from product line to product line. It will be between three to four weeks for the dealers, but at the Company it will be much smaller.
Kapil Singh – Nomura: For the industry as a whole, do we see higher levels or there they would be around similar levels?
C. Ramakrishnan – President and CFO: I think we would be operating at relatively at the low-end in terms of our industry phenomenon.