Questions on UK-India FTA: What happens to volumes? What happens to pricing? What happens to the Chennai plant?
First of all, if you look at the Range Rover franchise in India, Range Rover, Range Rover Sport, Evoque, Velar, all of them are already localized, manufactured on a CKD operation out of Pune already. And therefore, for these cars, there is no impact as far as this FTA is concerned. Therefore, there won't be changes. All the benefits in terms of CKD operations are already in the price and passed on. So no changes in price expected on any of these at this point in time. However, the future cars that are going to come in, the ability to access these global cars at global prices, that went up significantly because of this decision that has happened. Obviously, we'll have to see the fine print. There are quotas in it. There is also about a reduction over a phased period of time. All this fine print is expected. And until such time, I would only request patience from all of you. Till we see the fine print, we can interpret only if we see the fine print.
There is a step up in VME this quarter as well, about 80 odd bps. Can you throw some light on how we should think about VME going forward?
Yes, that's one also where we will need to look at what is going on globally in the industry. We've already mentioned that one of the ways that we would expect some of our competitors in the US., to react to tariffs will be to reduce their levels of VME. It is easier and quicker to do than changing price. So that may happen, that may not happen. I think globally we're still in a position where VME levels are on a trend rise, but it isn't dramatic and I think we will learn quite a lot from what happens over the US., in the next couple of months.
We will update you in terms of guidance at the Investor Day. What are the developments you are watching for? And how are you looking into this whole space in preparation for the Investor Day?
So one is, what is the implementation date of the deal with the UK? And will there be a EU-US., trade deal? And if so, what form and shape and dates will it take? So we're already six weeks into, in fact, coming up to seven weeks, into FY26 for us. So getting some of these issues sorted is going to be really important for us to make sure that we understand where the full year position is.
What are some milestones that need to be crossed for the India PV business to reach double-digit EBITDA margin? What are the rough EV mix for meeting CAFE norms? What do you see as a fair market share target? And how do you see the changes in this FTA agreement with global competition coming in?
As far as EBITDA margin is concerned, we were pretty much there in quarter four of FY24. And there's now a gap of about 2%. We exited the year at about 8.2%. Mainly, see, it is going to come from the cost reduction initiatives, which consistently has been delivering about, 2% plus of revenues. And then it's about optimization of pricing and VME, and also the model mix, which is expected to become richer with the new launches. So, all this would be in combination should deliver more than, 3% or so, but it will then get offset with some of the commodity price increases that we might see. Also, with every refresh, every new model launch, we are increasing the tech and feature in the car. So, those would be the offsetting, cost elements. So, net-net, I think we are very much on track towards 10% plus EBITDA. What is the rough EV mix, to comply to CAFE 3 norms? I think still this is under discussion, and therefore it will not be fair. But if we have to really go by what the government has been saying so far, or BEE, which is Bureau of Energy Efficiency has proposed, it would mean 10% plus EV penetration for a manufacturer like us. And, you already see that we are at 11%. So, we are pretty comfortable with growth coming in for us in future, and penetration aspirations being 30% plus by FY 30. Then the question was also on what should be the fair market share in electric market once all the launches of most of the peers come through in the next 12 months? See, we are aspiring to keep our market share above 50% plus. There will be short-term volatility, but our aim with all the actions that we are going to take - we see broadly four segments in the EV space now. One is the entry segment, which is that of city cars, less than Rs. 12 lakhs. There is a mid-segment which is also from 12 to 20 lakh which is seeing intense competition. And then there is a 20 lakh plus segment which is emerging. And the fourth segment is actually fleet. So therefore with all these actions in short-term and then renewal of our portfolio with more promising product in the 18 to 24 months, I think this should help us keep our market shares above 50% in mid-term.
Comment on CV - what's your outlook for industry?
So before I come to the growth, the few drivers. First is I think the freight rates are holding up. The utilizations are up on a Y-o-Y basis by around 2% to 5% depending upon the segment. Then as I said the sentiment index is stable and in fact gone up for tippers. So largely the macros are also positive. And if we leave aside the event that has been there for last two weeks or so, which has created some challenge in the northwestern states, I think overall we still feel that we should see a single-digit growth across all the segments and within the segments, slightly better growth for heavy commercial vehicles and buses, and slightly lower for ILMCV and SCV pickup. So that's how we see the likely growth. Within quarters, I think Q2 should see a better growth on a Y-o-Y basis, one of the reasons being the base effect. But otherwise, on the overall basis, I think we should see a single digit growth.
Questions on JLR: Emission cost increase was at GBP36 million - how much increase is expected ahead? On RR Electric, when is the launch expected? And tariffs for US - how much will be passed on to customers, demand scenario, benefit of cost savings, and CJLR volumes - have they reached a trough?
Emissions cost - this is also an area that is a little bit in flux, particularly in the US, the administration hasn't yet taken any actions there, but we know that they are looking at the California exemption. You would naturally expect our expenditure to increase year-over-year as a result of our BEVs being slightly later in the plan. But on the flip side, we know that Europe has taken a few actions to mitigate the level of their penalties. We know the UK have already taken action with the ZEV mandate to also mitigate some of the effects of that legislation. I would expect our emissions costs to rise. Range Rover Electric - the development's continuing. We're actually testing it at plus 40 degrees centigrade in the sand dunes of the Middle East and minus 40 degrees centigrade in the ice lakes of the Arctic. We will expect formal reservations in certain markets, let's say reservation fees, later this year. And the waiting list is currently at 62,000 people. On tariffs - we really welcome the deal that the UK and the US administrations have done. It provides a good level of relief from the sudden and very steep tariffs applied to the UK auto sector in April. The deal that's being done now between the UK and the US., should bring that down. However, it will still be a 300% price increase or increasing cost of tariffs versus where we were in March. So it's gone from 2.5% to 10%. CJLR - had a difficult year because the vehicles that it is producing are coming to the end of their cycle. Production in China of the Jaguar XF, XE and E-Pace will come to an end in September this year. Production of Freelander will start in the plant as the run out of our legacy vehicles comes to an end. JLR will benefit not only from license fees it will get from the Freelander brand and our helps and efforts in designing the vehicles, but also the 50% share of profits that the JV will make going forward.
How do you see the domestic M&HCV outlook for FY26 freight utilization? How is it happening for transporters? Also, impact of DFC? And cost of AC regulation?
As far as M&HCV outlook is concerned, I have already answered this question in response to a question earlier. So we will have around single-digit growth happening for the entire year. Within quarters, I think quarter two will see a slightly higher growth. Fleet utilization - I would say the fleet utilization is around 2% to 5% higher compared to the same period last year. And this is based on 800,000 vehicles that we track. As far as Western DFC impact - the Western Dedicated Freight Corridor will carry a lot of export-import traffic freight. So a lot of container traffic, therefore, is likely to move to this. And this may impact to some extent the tractor-trailer market. But net-net, I do not see much of an impact as we are here today. Coming to AC regulation - as far as cost increase is concerned, the cost increase in percentage terms will be lower or minimal for heavy commercial vehicles because the base cost is more there. So, the cost impact on the biggest vehicle could be somewhere around 0.5% to 0.6%. The cost impact for a, say, intermediate light commercial vehicle will be slightly higher, could be in the range of 1% to 1.2%. In terms of price increase, it will be in the range of 1% to 1.5%.
In FCF of FY25 working capital did play a big part - how do you see working capital trending in FY26?
Working capital is very seasonal for us, so Q4 is always very strong. That's partly because simply from a calendar basis, our production levels are higher in Q4 and therefore our payables are higher. So, you would expect that to come back in Q1. For the full-year, you would also expect that to come back a little bit, although we will keep the diligence on receivables, we will keep the diligence on inventory levels, so we will continue to drive it down. Over the last two years, I think working capital has been about GBP1.35 billion favorable. In the prior two years, FY22 and FY 23, it was GBP1.35 billion negative. So I wouldn't expect massive moves, but during the course of the year, there will be normal seasonal movements in working capital.
Update on the Chinese market - macro outlook, dealership consolidation, launch of EVs, Jaguar and RR, how do you see that?
Launch of EVs - I think I've already mentioned that we'll start taking reservations for Range Rover BEV this year. In relation to Jaguar, we'll unveil the first actual car, the four-door GT Jaguar, later this year, before that car goes on sale in 2026. The China market, it is tough. It's tough for everybody. We are seeing at least a slowdown in the rate of dealers leaving the premium western segments and are actually now moving to the scenario where we are looking to fill distribution holes. So that trend, I think, is reaching or will reach relatively shortly a flex point. We are focused very much on making sure we do not overstock the retailers in China. We've kept days of supply at the retailers at the end of this year, it was lower than both at the end of Q3 and at the end of FY24. So we will manage it very carefully.
Can you talk about region-wise growth? How should we look at warranty cost trends? Can you talk us through the various levers you're looking at to drive your EBIT margins?
Region-wise growth outlook for JLR - we do have a fairly balanced global spread of sales between our six regions. I do think that overseas is an area for us that has further growth potential. I mentioned that we sold 70,000 vehicles there this year. We sold 51,000 in FY22. China and the US, I've mentioned, the UK is recovering, and Europe, particularly Germany actually is quite strong for us at the moment. So I don't see a major split, a major change in our global sales mix. But I think if anything's going to rise, it's probably overseas, UK, and China is still one we're looking at. Warranty costs - it is one of the key missions that we have set ourselves to get on top of vehicle quality, and the time it takes us to respond to quality slips when we find them, and the amount of money that we get back from suppliers when it is their responsibility. I'm not going to anticipate at this point any major continued increase in our warranty costs. I think we're aiming to try and get them capped and then to bring them slowly down.
Given all the chaos that's happening, how should we see the first quarter?
So I mentioned working capital. That will definitely swing back in Q1. So a lot by a material amount. In terms of volumes, we pushed really hard in Q4 to make sure that we met our commitments to you and everybody else and that we get cash out of EBIT, so Q1 probably will not be as strong. We did also, as I've mentioned, deliberately push more vehicles through the import structure in the US to get them to the dealers before any tariff effects came in. So that was a bit of an acceleration from sales that we would normally have done this quarter into Q4 last year. So, it certainly will not be as strong in terms of sales, as we did last quarter.
When will legacy Jaguar Wholesales drop to zero?
So, we have already, ceased production of the Jaguar XE and XF, from and F-TYPE in Castle Bromwich, that was in May '24. In December '24 we ceased production of the I-PACE and the E-PACE in Graz, and we're also going to cease the production of the Jaguars in China that I mentioned before in September '25. So that will mean the last Jaguar that's getting produced is the F-PACE. That is produced at our Solihull plant in the UK, so that will go through the end of this year. That will be the last Jaguar vehicle that is offered for sale before we take Jaguar out completely and launch the four door GT, based off Type 00.
Why did other expenses drop so much this quarter - were there any one-offs? And the depreciation line is continuing to trend down - how should we see this?
Other expenses dropped quarter-on-quarter, it's largely warranty. The warranty is also one of the reasons why other expenses year-over-year is significantly up. So there's a bit of a timing effect as to warranty accruals to certain one-off campaigns.
In terms of emissions, will a delay in emission targets be positive for JLR overall, or will you need to step up investments in ICE platforms?
We are going to extend the availability of ICE solutions versus our previous plans, simply because consumer demand for those vehicles is there. Ultimately, this whole thing has to be driven by consumer demand. Governments cannot regulate you to do it, certainly in democracies. So we will meet the consumer demands. There is a large number of people in many different regions in the world that are desperate for BEVs. We will give them BEVs. There are some markets, for example, the Middle East, which will want ICE vehicles for quite some time in the future. It is no longer one car or one powertrain for the world. There are different sectors of the market globally that will require different solutions, and we have to adjust to give those customers in those segments the solutions that they want. So yes, we are going to invest more in keeping our ICE powertrains going, but we are also investing really significant money in making sure that our BEV vehicles get launched.
Shailesh talked about the PV margins. Can you talk about your drivers for margin improvement in CV - positive and negative?
Let me talk of the headwinds first. The headwinds I think commodity is after two years we see some headwind on commodity and this is coming from steel safeguarding duty. There is likelihood of some increase in copper and precious metals is something that we keep a watch on. So therefore, some minor headwinds I would say in commodity. AC regulation also we spoke what is the kind of cost impact which will be there only in trucks and lastly I think employee cost, similar kind of impact that we have seen in FY25. So these are the headwinds. I think on tailwinds or positives, I think we will continue to work on cost reduction. We have been able to get a good cost reduction delivery over the last two years and our aim is to continue with that. So net-net I think we are targeting to have cost reduction which is going to be more than the increases that we will see during the year. I think that is where we are. Finally I would also like to say that we will continue to increase the value being delivered to the customers whether it is through product improvements, product enhancements and also a large service portfolio that we now have including our digital services.
On CapEx plan - can you give us a plan for FY26?
It will be broadly in line with what is there this year. JLR is about GBP3.8 billion this year, it will be broadly in that zone. PV, CV together we did about Rs. 8,400 crore, that also will be broadly in that zone. But as we had clarified earlier also all of this will be funded by operating cash flows.
PV PLI has seen a sharp increase in fourth quarter. Anything to do with prior year, prior quarter volumes? What was the sustainable run rate for this?
So it has largely been flat, in Q3 -- the PLI accrual was about Rs. 180 crore, Rs.100 crore of that was pertaining to FY24 and Rs. 80 crore was pertaining to the first 9 months for two products. This quarter the PLI versus last quarter was flat at about Rs. 170 crore, so I am not sure whether we are doing right comparison on this number. This quarter out of this about Rs. 30-40 crores was pertaining to punch, pertaining to last quarter. For the full quarter it was about Rs. 120-130 crores and we should see that run rate continue for the subsequent quarters. We will have Nexon TCA certified also in Q2 when it's going to see a jump and then obviously Harrier.ev probably in Q3. So it is going to ramp up through the year.
What do you mean by protect EBIT? Does this mean that despite tariff impact, we are looking to protect absolute EBIT through price increases and cost reduction efforts?
No, that's fair. I mentioned beforehand, as it stands today, we have 1000% increase in our tariffs from Slovakia through to the US and assuming the government deal was immediate, when it says immediate, we still have a 300% increase on our tariffs from the UK to the US. So we do have to protect our bottom line delivery. And that's exactly what we mean there.