Tata Motors Ltd. ADR Earnings Call Nuggets: Demand in China and Emissions Discussion

Tata Motors, Ltd. ADR (NYSE:TTM) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Demand in China

C. Ramakrishnan – President and CFO: I want to refrain from predicting the margins for the future. We would hope to maintain strong performance. As I said earlier, we will focus on improving our product volumes, growth and the profitable growth. The margin for Q4 is definitely on the higher side. There have been benefits on account of exchange rates, et cetera. The overall profitability in Jaguar Land Rover is helped or affected by multiple factors; foreign currency movements, market mix, regional mix, product mix, et cetera. Our target would be to maintain a healthy profit margin going forward. I don’t want to get into a precise number forecast. I missed the second part of the question. Can you repeat that, please?

Unidentified Analyst: Any one-time income or expenses included in this number?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

C. Ramakrishnan – President and CFO: There have been some write-offs and exchange valuation, et cetera, but nothing very significant. The exchange valuation has been there in the quarter. Maybe off; this thing we will share the details with you and the details in any case will be available in what we publish on the website. Ralf, would you like to add anything?

Unidentified Analyst: There has been a lot of concern around China and kind of slowdown in China from general macroeconomic standpoint. Can you give some color on how are you seeing demand in China and how do you expect that to trend for the rest of the year?

Ralf Speth – CEO, Jaguar Land Rover: So, the demand for Jaguar Land Rover in China is very strong. We grew by 48% last year. So you can see that we are in high demand. We have a very solid product portfolio. So, China is now the single biggest market, close to Europe. Europe is still the biggest region. And there’s, let’s say, a certain spotty approach that China will overtake Europe this year. Overall the economy slowed down, yes, but there is still a healthy growth in the market and we delivered 79,000 units to China. The overall market is roundabout 15 million cars. So, there is a lot of headroom and a lot of opportunity to improve our performance in China…

Hitesh Goel – Kotak Equities: This is Hitesh from Kotak. I just wanted to know what are the product plans of JLR. I mean, the launches on F-TYPE when it will hit different markets and also Range Rover Sport, if you can share that. And also, some sense on how the incentive levels are moving in especially China on the products, especially Evoque, if you can give some sense?

Ralf Speth – CEO, Jaguar Land Rover: Evoque is in very high demand. It’s a very solid profit with a very good product substance and a very good drivability, high quality (indiscernible). And therefore, the product is in high demand. Last year we sold more than 130,000 units and I guess we can achieve these kind of volumes also this year. Overall, we are going to launch this year eight new products. The F-TYPE, the stunning F-TYPE is a sports car which has unbelievable drivability will be one car, but all of the other ones, for instance, the all new Range Rover, all aluminum product is a very convincing products and therefore, based on the strong products we are convinced that we can continue our success story.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Kapil Singh – Nomura: This is Kapil from Nomura. Just wanted to check your growth expectations for various markets for Jaguar and Land Rover; if you can share some thoughts on the luxury car industry in particular?

Ralf Speth – CEO, Jaguar Land Rover: Overall, around the world, we see a totally different picture. Europe is definitely at the moment in a certain critical situation, but you should know that despite the crisis we could increase our volume last year by 18%. Now, this year, it looks like that it becomes even a little bit tougher. On the other hand, we see a light on the horizon coming up in the U.S. where the overall volume forecasts are going up. China stabilized and is growing further and also the overseas markets are seeing high demand or higher demand. Now, South America is becoming also stronger, but also Russia is on this kind of recovery path. Overall, around the world, we are cautiously optimistic, but it’s also quite clear, we cannot predict economy, we cannot predict future and there might be the very famous black swan around the corner; nobody knows about it. But if it continues, I guess then we can get a solid economy, we can look also in the solid future…

Emissions Discussion

Aashiesh Agarwaal – Edelweiss Securities: This is Aashiesh Agarwaal from Edelweiss. Sir, we had a couple of questions pertaining to emissions. If you could help us understand, there was this Emissions Environmental Protection Agency of U.S., they had issued some emission norms, which apparently is effective model year 2012 onwards. If you could help us understand where our products are specifically in terms of emission vis-a-vis those regulations and your sense on the China emissions? I have a couple of more questions on it. I’ll come back on that.

Ralf Speth – CEO, Jaguar Land Rover: In terms of emissions, and if you calculate it the other way round, in terms of fuel consumption, whatever you take at the end of the day we have to fulfill the requirements. There are totally different schemes in the market, whether you go to U.S., and even in U.S. you have different ones in between the states; California, for instance. Or you go to China or the rest of the world. And we have set up a program that we really fulfilled all this kind of emission. And one issue – one product, for instance, will be that we are introducing as the world’s first an SUV diesel hybrid this year and that will give you the evidence that we are really on track.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Aashiesh Agarwaal – Edelweiss Securities: So, if I can just take this further to understand, currently where do we stand vis-a-vis where we are supposed to be in terms of emission based on our footprint? This I was speaking with specific reference to U.S. So, based on our footprint and the weighted average footprint that we have for the entire fleet, where would our emissions be and where is it required to be? Because my sense is that we are falling a little short over there, if you could just throw some light on that, and how do we intend to take it forward? I understand that part of our strategy is regarding downsizing the engine and having lower number of cylinders. So, the Jaguar 2 liter; if you could also help us understand where is Jaguar 2 liter model vis-a-vis – in terms of what it is emitting vis-a-vis what it is supposed to emit?

Ralf Speth – CEO, Jaguar Land Rover: At the moment, please be assured that we fulfill all these kind of requirements of we are where we should be. And to give you another example, that’s not only the engine, but it’s the overall (drive strength), and as you know, we’re also introducing the world’s first 9-speed gearbox in an SUV. So, you will see we’re absolutely on track from a technology point of view. Also, in terms of future, in the near future I don’t see any problem fulfilling these kind of requirements, neither in the U.S. nor in China…

Ashish Nigam – Antique: This is (Ashish Nigam) from Antique. Sir, the Range Rover Sport launch in March was the fairly extravagant launch. So, how much in your view does that adversely impact margins by this quarter?

Ralf Speth – CEO, Jaguar Land Rover: Yes, the launch is always something different. But we are exactly on our track to fulfill our own forecasts. That means the vehicle is launching in a very good way. But we don’t speak up. We want to have quality, quality, quality first and whenever we have got the quality, we also will ramp up the volume. Whenever we have got quality volume will come on its own.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Ashish Nigam – Antique: And just a follow-up on that. Your margins have increased by 300 basis points almost quarter-on-quarter. So, how much is it possible to quantify how much was currency and how much was product mix?

Ralf Speth – CEO, Jaguar Land Rover: No. I only can echo the word of CR. We already highlighted that yes we are very eager to have healthy margin and at the moment really not capable to deliver you this kind of split you want to have of the margin, but maybe you can do it afterwards with the experts. (As they are working), they can do it.

Madhukar – Bank of America: This is (Madhukar) from Bank of America. Sir, out of your CapEx plans for this year, I just want to share what the strategy is in terms of capacity expansion versus investing on new products? And my second quick question is, Chinese media has been speculating recently on an ultra-luxury tax, what impact do you think it will have on the Range Rover in China?

Ralf Speth – CEO, Jaguar Land Rover: Overall, we are investing, as you have seen, roundabout GBP2.7 billion in the product creation process; in people, in products, but also in facilities. It’s a very healthy and very aggressive plan in order to deliver future products, in order to become an even more stable business in the future. In that context, as I mentioned earlier, we’re launching (probably) this year eight new products and you have seen some of them already, furthermore will come in the future. Overall, for the next five years, we are up for delivering more than 40 new products, which is a quite healthy development…

Mahantesh Sabarad – Fortune Financial Services: This is Mahantesh from Fortune. Firstly, a question on your local business. You had launched this car buyback guarantee; any color on that, what’s the progress on that? That’s number one. Number two, I have a separate question actually for – from the finance point of view, there was a GBP118 million Forex MTM loss recognized in the JLR (or) IFRS accounts. How will that play out in the next, let’s say, a quarter or two? We’ve already had one month gone by since the results were declared.

Unidentified Company Speaker: So I’ll try and answer the first question which is on the Manza buyback guarantee. This has been very well received in the market. This highlights our quality initiatives which we have done and puts our commit out there where we assured that the quality we now bring to the marketplace will underwrite the resale value. So this is an assurance which we’re giving to our consumers out there, that as we go forward, the quality of our products are significantly better, and that’s the attempt from our side and it’s been very well received by the consumers. I’ll hand this over to CR for the second aspect.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Mahantesh Sabarad – Fortune Financial Services: Before you hand it over to CR, just a follow-up, why not on the Vista, why not on the Aria, this guarantee scheme? What’s the financial impact of this Manza guarantee scheme that you have?

Unidentified Company Speaker: So, you will see a number of initiatives come from us as we go forward. The Manza buyback is the start of a journey, whereby we will assure our consumers about better quality coming out from our factories. The financial impact is not significant; it’s already factored into our calculations.

C. Ramakrishnan – President and CFO: (Indiscernible) help me with the answer for the second question; I couldn’t quite get it?

Vijay B. Somaiya – Head of IR and Treasury: Would you mind repeating the second question?

Mahantesh Sabarad – Fortune Financial Services: There was a GBP118 million Forex derivative loss; I don’t know what the components of that loss, but how will this play out over the next two quarters, because obviously it’s going to fluctuate with the currencies, and we have already been one month from the result date, so there would have been impact out of that GBP118 million into the accounts already. What is that?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Kenneth Gregor – CFO, Jaguar Land Rover: Yeah, just to be specific, as you rightly point out, within the result for the full year to March 13, there’s an GBP108 million of foreign exchange revaluation. The biggest elements of that are the revaluation of our dollar-denominated debt, so we have a fair amount of that. We have euro payables and we also have some foreign exchange currency options in dollars and then euros and those get revalued through the balance sheet each quarter. This particular quarter, sterling weakened from roundabout $1.60 at the end of – pound to dollar at the end of December 2012 towards closer to $1.56. Sterling to the dollar at the end of March 2013 and that caused the negative revaluation that you see here. It’s fair to say, it’s non-cash item in the quarter in which it arises. If you’ve followed results over the past four to eight quarters since we’ve had the dollar denominated debt and since the business has been recovered, you’d have seen that we actually get positive and negative readouts each quarter with this particular moment not being unusual. So, revaluation can go positive as well as negative. So, I think we call those out separately in the results so you can see it. And I think as analyst side suggest, you have to take it in your stride.

Mahantesh Sabarad – Fortune Financial Services: What would have happened in the one month that we are through in this quarter, what does that GBP118 million become?

Kenneth Gregor – CFO, Jaguar Land Rover: CR is just suggesting to me from a one month perspective is, what I’m trying to say is each quarter you could expect and each month you can expect as exchange rates fluctuate, you’ll see fluctuations up and down. So, fluctuations up and down that happen in the month are not cash related. You should look at this as being related primarily to that long-term dollar-denominated debt that have on the balance sheet and that matures over periods of four to nine years from now.