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Tata Motors (TTM) Q4 2021 Earnings Call Transcript

By Motley Fool Transcribing - May 18, 2021 at 5:00PM

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TTM earnings call for the period ending March 31, 2021.

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Tata Motors (TTM 4.40%)
Q4 2021 Earnings Call
May 18, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, good day and welcome to the Tata Motors Q4 earnings conference call. [Operator instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Prakash Pandey from Tata Motors.

Thank you and over to you, sir.

Prakash Pandey -- General Manager of Treasury and Investor Relations

Thank you. Good evening, everyone. Hope all of you and your family members are healthy and safe during these uncertain and unprecedented times. On behalf of Tata Motors, I warmly welcome you all for our Q4 FY '21 results conference call.

Today, we have with us Mr. Guenter Butschek, MD, and CEO of Tata Motors; Mr. Thierry Bollore, CEO of Jaguar Land Rover; Mr. PB Balaji, Group CFO of Tata Motors; Mr.

Adrian Mardell, CFO of Jaguar Land Rover; Mr. Girish Wagh, president, commercial vehicles business; Mr. Shailesh Chandra, president, passenger vehicle and electric vehicle business; and my other colleagues from the investor relations team. Like always, we will start the system with a quick overview of the financial and business performance from the management and then followed by Q&A.

Over to you, you, Balaji

PB Balaji -- Group Chief Financial Officer

Thank you. Thanks, Prakash. So, stay warm, welcome to all of you. Thanks for taking the time.

As Prakash said earlier, I hope all of you are safe and sound. I intend to the presentation has already been uploaded into the investor portal, and therefore I'm presuming all of you had a chance to take a look at it and also have it in front of you. We'll refer to the page numbers and move forward with speed. Can we have the next slide, please? This is the Safe Harbor statement, move to the next one.

Yeah. An intense period of actions, as well as company actions that you saw in Jaguar Land Rover. Defender, of course, we're going to talk a lot about Defender today, winning the World Car Design of the Year. And almost 12 out of 13 now placed on electrified and you were there when the Reimagine strategy and refocus transformation was announced, and we'll talk about that later as well.

We'll be concluding charge in this quarter. With January -- this January of 6 billion on the lifetime savings, one of the most successful projects in the automotive world, and very happy with that. Next slide, please. In automotive, of course, we did see significant product interventions post BS VI.

And at this point in time, what is really happening is customers starting to experience the product and really giving us excellent feedback, which is also reflected in our market share, particularly in [Inaudible]. Tata Safari was -- the legend was reborn. Of course, it's a strong response into the market and PV has been a standard performer with Shailesh is going to talk about even more. And the cost savings target we had indicated 6,000 crores for the year, we ended up at 9,300 crores.

A strong performance there as well. And the promoters have completed their funding. The warrants -- remaining outstanding warrants have been exercised. Next slide.

From a performance perspective for the quarter, a strong all-around performance despite the pandemic, if you look at the full year. Full-year EBITDA of almost 30,000 crores. But if I look at close-of-home into Q4, the EBIT number that you see of 7.3% the highest rate that we would have seen in the last many quarters. We ended the year with a strong cash flow for the quarter as we look for the year being a positive free cash flow.

And overall, EBITDA margins have picked up. And if you look at the full-year number, EBITDA has improved despite a decline in revenue or volume increase which tells you that the business is getting intensively more stronger. And the implication of a strong business, what does it do when revenues come through is seen in Q4. That's all we'd like to see the business today.

Move forward. From a -- the numbers are there for the silver color, the net automotive debt. We have called out the deleverage plan when we announced it in the AGM. Happy to report that for the current year, we are lower than what we are disclosing debt of last year.

And every quarter, we have been reducing on net debt level and that is something which we are quite happy about. Next slide. What are the three things that actually -- which are a bit different to the rest of the floor would do? The traditional P&L analysis. First is JLR where we called out the Reimagine-led changes that we are doing to our strategy, resulting in a one-time non-cash writedown off 0.95 billion.

And the restructuring cost of about 0.6 billion. And this will impact us in FY '22, but even then, we'll deliver a break-even cash flow. But this is an important pivot that we have done to the business, and therefore these writedowns that we have taken will actually help us form a strategy perspective to grow fully into the electrification model. And Thierry maybe wants to talk more about it.

This will also give us a credit going forward in terms of a lower G&A charge of 150 million per annum. And also, the headcount savings, there are -- looking at about 2,000 our headcount. That will result in savings of close to 1,000 -- 100 million per annum, sorry. Despite these writedowns, the network continues to be strong at 5.3 billion.

So, that is the first one of the exceptional item. In the case of CML, we needed a sweet news. So, where the strong performance of the business, it's a significant improvement even well ahead of our own internal expectations. And outlook and earnings is strong thanks to the -- trying to make and our performance both together.

We have reversed the impairment that we have taken same period last year of 2,200 crores. We also had onerous contract provision for one -- from one of the vendors that is also being reversed. And therefore, this business is now well and truly performing to the extent that we want. And of course, more to be achieved with it.

PV subsidiarization, we had the shareholders meeting as well secured creditors meeting and got approval for that. we are awaiting the final NCLT approval that is now scheduled on June 14, and we are hoping to get their approval from there and for more that I've already talked about. With this, let me hand it over to Adrian to take us through the key highlights of JLR performance. Adrian, over to you.

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Many thanks, Balaji. Good afternoon, evening to you all on the call. So, the same format for us. Exactly, as Balaji said, the first half was the week half but we had a strong second-half performance, particularly in Q4.

Can everybody hear me? Particularly in Q4. Thank you. The 7.5% you see there. EBIT in Q4 was mostly an overwhelmingly underlying performance.

So, really pleased with that. You see the PBT 500 million, and the big free cash flow as well 729 million pounds. Full-year results on the right, but you can see a dramatic improvement to the previous year, even though FY '20 was impacted partially in Quarter 4 if you recall. Next slide, please.

OK. So, these are the headlines. Below that, we'll get into revenue details later in the presentation. Balaji has talked about the exceptional item and we'll go through the walks on cash flow as we normally do.

Next slide, please. Many points, I want to make an exception on those because I don't want to repeat what Balaji said. Was -- look, our assessment at the end of the year was very close to the preliminary assessment we made on February 26, 1.5 billion pounds. And just to remind you, you know, those products MLA made did not fit into the Reimagine strategy and they would not leapfrog the competition and we're all about being the best of the best, not just competing.

So, that's why we took the really difficult and emotional decision to cancel those programs. We are still working through the restructuring costs beyond the headcount of 2,000 people. And that's mostly about, you know, getting the right positions and the right people into the organization with the right skill sets. That's management-grades, you know, more people with specialist skills, which is fundamental to success in this environment.

Next slide, please. OK. A busy one but we wanted to show you several flavors of the retail data. Quarter 4 at the top, full year below.

Look, you can see the highlights and study it in your own time. But a dramatic quarter-over-quarter improvement on China, you know, in part because Q4 FY '20, of course, COVID in China first and therefore was impacted negatively. But nice year-over-year performance in North America as well, particularly in Q4. And the other regions are starting to build back.

They were limited impact, of course, last year, but they are starting now to build back with a huge order demand we have at this point in time. Almost 100,000 customers waiting to drive our vehicles. So, very, very healthy order bank going into Quarter 1. Next slide, please.

And this is it by family. Don't forget we talk a lot about the health of sale, quality of sale, and we're playing this back by sales family. Range Rovers versus last year were a little bit higher. Obviously, China is a good piece of that.

Take a look at the Defender data. Balaji said we would talk Defender. That 17,000 units in Q4, the highest quarter so far. We've talked to you several times about 5,000 units a month.

We have surpassed that already. Other data sets for you to focus on this page, 62% of our vehicles were electrified in one form or the other pure BEV Q2. And have -- so, the PRI's vehicle content is reducing quarter by quarter and that trend will continue, particularly now we brought out 21 model of PHEV vehicles that will continue going forward. More of our vehicles will be electrified going forward.

Next slide, please. OK, Defender. Look, this is really dramatic. I talked about 100,000 orders overall for our families of cars, more than 22,000 orders now for the Defender family.

You see the uptick here toward the right-hand side, say Defender 90,000 came on stream at the end of last year. And the solid line there, that is the retail data. 7,000 cars in March. So, we talked about 5,000 a month.

We need to now start talking about 6,000 to 7,000 units a month as that supply comes on. World Car Design of the Year, you would have seen that. Last one we got announced was Women's World Car of the year. So, this is definitely a vehicle that actually gets appeal across all the spectrums and all the genders.

It is a brilliant indication of what this organization can and does do. This is the best of the best and that's what we aspire for. Next slide, please. OK.

So, you know, you talked to us a lot about shares, so we've added this page, this point. Few things to draw out, our shares growing quarter over quarter but particularly growing stronger in those families, which we are focusing most on Range Rovers and Defender. That's the health of sale, quality of sale. We're not competing on total units.

We're competing on overall profitability. And this is shown, I think, perfectly by this page. Overall, though, you can see in total, our share has grown from 4.4% at the start of the fiscal year to 6% at the end of the fiscal year. And again, that's mostly around the Defender family and the growth you then see in the Range Rover.

Next slide, please. So, our traditional walks on profitability. I'm just going to draw a few things here. This one is Quarter 4.

Last year, of course, we reported a big loss. Some of that was as a result of those COVID provisions, favorable marks in provisions we put in place as the second-hand vehicle market collapsed at the end of that year. And this year, the 534 million. Things to draw out, we talk about the health of sale, quality of sale.

You can see a huge increase in mix actually there within the volume and mix, almost 200 million pounds within the quarter. And dramatic data on variable marketing. The other thing about the health of sale is, of course, you cannot oversupply to the marketplace. We haven't been oversupplying and our variable market is substantially improved because of that.

Almost half of that last-year number was as a result of the reserves we put in place. But I've talked to you several times about VME less than 7%. Our underlying number dropped to 4.9% in Q4 with the headline number at 4.4%, eliminating reserve adjustments. The other one I wanted to talk about and call out is warranty.

Again, we talked to you about this almost every quarter. We've been very transparent and very clear about what our intention is and what's likely to happen, and you'll see it in the data here, all right? '20 model year vehicles are substantially better than previous model years. We said that mature at the end of Q3 and into Q4 and we said our warranty as a proportion of gross vehicle revenue dropped below 4% toward 3.5%, slightly under that 3.4%. And I won't repeat all the other pieces, but there was a big favorable year on year on exchange.

Sterling depreciated last year, which meant our euro-denominated liabilities and our dollar- and euro-denominated debt was more expensive in sterling that gave us bad news last year. The other way, sterling depreciated post-Brexit, again, as we said it would. And that's given us that optical improvement on reevaluation. But great work by the treasury team in terms of the hedging levels we've had both on commodities and on currencies, which of course have helped as well.

Next slide, please. Full-year performance, I'd write different things on this one. Volume significantly low year over year, 120,000 units, down 1.2 billion. But of course, you know, that mix improvement has partially offset that.

You can see the full-year numbers for VME and for warranty. I wanted to draw out the engineering D&A here. As we have talked about this one a lot as well, and we did say to you the capitalized engineer would start to fall as our programs mature. And you can see here really for the first time the amount of capitalization is lower than our amount of amortization.

That means we're de-supplementing the balance sheet on these programs. And you will see in the back of data, substantially less capitalization particularly, you know, over these last few quarters versus previous years. And that trend will continue, we believe. And then the full-year exchange, which is -- which the full-year evaluation of the items I mentioned early on, reevaluation on hedges and on commodities.

Next slide, please. OK. Cash. Look at the middlebox.

Again, I've been asking you to look at the middlebox for the last several quarters. You'll see how dramatic our end-of-line cash position is. Almost 1 billion pounds generated, investment now within that 2.5 billion range, more than 400 million in the quarter. And we did reverse that working capital losses of Quarter 3 -- Quarter 1 as we went through the year.

So, that was behind the 700 million pounds cash flow in the quarter. Next slide, please. Investment, 2.5 billion was the guidance. Now, we said 600 million a quarter broadly.

We came in a bit lower than that. The guidance for next year is 2.5 billion also. I think it's reasonable for you to assume a plus or minus 100 million over the next years depending on where those investments finally get deployed and crystallize. But we were lower than the target for this year, 2.5 billion stays in place going forward.

Next slide. Charge. Balaji said we've now finished the program. We did exactly again what we committed to do, right? So, this is becoming a theme for us.

We make commitments and we deliver on those commitments. We said in April, we would generate 2.5 billion this year and that would take the program up to 6 billion. If we did and it has, you know, in summary for the program, over 2.5 years we took 1 billion pounds out of inventory. We took almost 3 billion pounds out of our investment.

You know, latterly, measured on a year-over-year basis, not the notional start point which we started off with, and we took 2.1 billion out of several areas of cost -- strategic costs. The Sapphire Program, all the things we've talked to you about previously. So, again, we did what we said we were going to do. The program's closed, but the power of the program lives on through Refocus, which has substantially expanded the scope of the program as well.

More in later slides. Next slide, please. OK. So, I introduced the slides to you at the Investor Day.

I won't repeat it all like I did then, but this is quite dramatic what the program's done. We've effectively reset the investment and the structural cost base eight years now. Go to the first column, break-even volume is 425,000 units in FY '14 with wholesale at 471, significantly cash generative. But we invested and we brought more structuring and more people in right through to the start of the Charge program in FY '19.

Break-even cash position was 600,000 units to that point. And even though in that year, we had a wholesale number of the highest in our history. We lost substantial cash. Charge started to bring that down pre-COVID to 500,000.

Obviously, we had a dramatic year. And the year of COVID as you'd expect, artificially low, including some furlough money there. But the big point here is we now know we've restructured, and we've rebalanced 400,000 units. So, we've reset this organization eight years, and that's before the power of the Reimagine and the Refocus programs kick in fully.

Next slide. OK. To say it in a different way, first three quarters before the program, 2.7 billion cash lost. Last three quarters of the program, 1.7 billion cash gained.

Since Charge started, net cash gain is almost 1 billion pounds. So, that's quite a dramatic turnaround as Balaji has mentioned. Next slide. OK.

So, those are the core finance slides. I'd quickly go on to the business update slides. This is the same as last time, you know, our electrified portfolio is now in the marketplace. Next slide.

OK. Reimagine strategy. Look, we took you through it almost two hours' worth of detail on February 26 on Reimagine, so I'm literally going to just hit a few highlights. Reimagine is there fundamentally to fix the problems we've designed within this organization.

So, the first thing clearly that comes out from Reimagine is we need to make Jaguar great again. The power of that brand deserves to be great and that's our intention to actually do that. Will be a copy or nothing. Upgrade into modern luxury.

So, an intent to the repositioning of this brand with luxury materials, as well as, obviously, a luxury external design. All of that is in process, we've made a lot of progress over the last few months. We'll bring those details to you going forward. All BEV Jaguar will be from 2025, let me remind you.

And Land Rover would have its full -- first full order from 2024 onwards. Our estimation is about 20% of our sales will be all BEV by 2026 with a commitment for tailpipe-zero by 2036. That's the intention and the commitments we made on February 26. They will not change going forward.

Next slide, please. So, how are we going to do it? Obviously, the first thing we're going to do is consolidate our architectures. Six architectures down to three. And most importantly: two, our Land Rover; one, Jaguar.

That will enable us to design those brand personalities specific to those two brands. No compromise here. No compromise. So, the freedom of the design and the engineering authority discretely within those brands.

That's something that other organizations and other OEMs don't do as well as we can do. This is a competitive advantage for us, and we are not going to give up that competitive advantage. Increased collaboration, particularly with our group, with Charter. Announcements will be made on that forthcoming.

Not today but forthcoming. Very excited about the speed of consolidation and synergy within the broader empire. And also working with external people collaborating to get the best. We want to be the best, the best, therefore you have to work with the best to enable and to actually do that.

And please don't underestimate. And many of those companies want to work with us. We are a brilliant profile company for them to wish to work for as well. So we're very excited about the collaborations we will be able to make in the foreseeable future.

And again, when we're ready to announce those, you will hear about it at that point in time. But we will also take on the other challenges we've created for ourself excess capacity. This is our production facilities. Obviously, we announced on February 26, our intention to consolidate our nameplate within facilities and also to repurpose the Castle Bromwich site after we finish building the current range of Jaguar vehicles there.

So that's what we intend to do, go under that modern luxury by design banner. That's what you should judge us by. Next slide, please. OK.

Mechanism. How are we going to do it? That's the refocus program. Exactly as we told you before, six pillars, three enablers across all of those pillars. Next slide.

Let me draw out some of it because, obviously, each time we talk to, we need to build on it a little bit. I'm going to talk about one of the pillars that wasn't a focus of charge. This is pillar two, this is program delivery, and this is where we're really tying in the pillars -- the item seven enabler, agile working. We've introduced some agile specialists.

We're bringing on agile people to add to our workforce. We're rolling this out, particularly within the engineering fraternity. We've already started with hundreds of teams, and we will have thousands of people working in those scrums, those sprints, empowered to fix the problems that we have over the course of the next six to nine months. What do we expect? We expect to significantly speed up our time to market.

You can see there what we're actually committing to a 40% improvement, and we also expect to improve customer satisfaction. Why? Because the input into the engineers and designers are coming from several different sources into the individual groups. And obviously, the engagement of those workforce and the speeding up will actually improve the quality of the engineered solution. And as a result of which, we will spend less, less time means less.

Less rework means less. Less iteration means less spend. So we expect a 30% reduction in spend, which, of course, will also help deliver those investment targets. The center on customer and market performance.

We talked to you in some detail about this two years ago, particularly to the U.S. market. We've significantly scaled this now, under that in-digital side of refocus where we brought our analytics team and our robotics teams together with data solutions, the problems we have in the marketplace. We've also scaled our intention here.

So two years ago, I talked about national sales company work. This is working directly with the dealers. And you can see there, again, the commitments that we're making through that analytic solutions and making sure we're providing the right cars to the right market at the right time with the right specifications. They sell quicker, and there's less marketing support around it.

We've already proven this out. This is the scaling of those ideas. Very excited about pillar five. And everything that isn't embedded elsewhere from charge goes into pillar nine.

So, you know, the 2,000 people coming out of the organization was the first decision we made. But we will continue our work, obviously, in terms of real estate consolidation post-COVID. And a lot of the other side of in digital, the robotics team are starting to help our teams become more efficient, taking administrative roles out, replacing with robots. So very, very excited about the scaling up of the program in terms of refocus and a fast start here, right? We've got the momentum of all the whole charge program into refocus, which is why we're committing to 1 billion pounds value in FY '22 of this program.

Next slide. Still problems out there, of course. You know, none of us will rest until the plan is vaccinated against COVID. We know that.

The speed to electrification is enhancing. Therefore, we need to make sure that we speed up as well, pillar two agile is part of that. And of course, you know, there are supply concerns, particularly as a result of the semiconductor post-COVID, and also the fire in Japan, which other OEMs have talked to you about. You know, we're not immune to them also.

But I didn't want to talk about the first half of FY '22. We'll cover that in terms of our Q&A. From a Q4 perspective, you know, we manage these challenges quite excellently within our results, as you would have seen, and our intention is to manage them excellently going forward as well. Next slide.

Next slide, please. OK. Outlook, very similar to what we told you on February 26. Also, revenue will be bigger this year than last year.

So in FY '22, and we're already seeing that in the first quarter. Of course, you know, despite the headwinds, the challenges, the supply constraints, we're reconfirming 4% or better EBIT margin for this year. We're reconfirming investments, 2.5 billion, and we're also reconfirming cash positive or better than breakeven as referenced here, despite the moneys we'll need to pay on restructuring the 500 and some million. All of that will improve through FY '24 because our underlying business is stronger than FY '22.

It's those challenges, which will hold us back. And the momentum of that transformation program will clearly build over the next several quarters. And we've got some superb product offerings: MLA high, Range Rover, Range Rover Sport, Defender 130 coming at us between those two periods as well. So we're very, very confident of being able to build not only our EBIT but reduce and eliminate our debt.

And I'll remind you in FY '26, our guidance, EBIT margin is 10% or better, not up to 10%, 10% or better, and that's what we intend to do. I think I'm back to you, Balaji.

PB Balaji -- Group Chief Financial Officer

Thanks, Adrian. Next slide, please. Talking about Tata Motors stand-alone numbers you've already seen. The callout I would make here is the spread between EBITDA and EBIT starting to narrow as the revenues start picking up.

But on an overall year, despite the fundamental grew 2% with revenues up 7% and EBITDA margin improving by almost [Inaudible] over last year. So that's a good place to be. And the profit before tax before exceptional items that of course, we talked about the PV impairment reversal in the exceptional items. But despite that, this quarter was a breakeven PBT.

Full year, of course, impacted by the first quarter and the second quarter that you saw. Free cash flow, of course, is strong for the year, third quarter in a row. And the full year also ended on a positive basis, as we had guided earlier. Next slide, please.

Same highlight. Maybe I'll just pick up one or two items here. I think the question on CV, if I look at the recovery, starting to move from M&HCV and LCV. So it's now -- those things are starting to fire well with higher demand from infra.

We're also seeing percentage of M&S in our overall portfolio also starting to increase. PV, of course, this is the highest sales that we saw in the last 34 quarters, doing extremely well. EV growing at 215%. So that's a whopping growth that we are seeing on the EV side.

EBITDA is the highest in the last eight quarters, and CV EBITDA within touching distance is a double digit that we talked about in the guidance. And PV EBITDA at 4.9%, well ahead of the breakeven that we indicated and absolute EBITDA highest in the last 10 years. So overall, domestic business has come through well across all the lines. Next slide, please.

The callout here, I think every line item with volume realization starting to go well. The one that's really applying the ointment here is variable costs coming from inflation on commodities that we are seeing. And that is, of course, going to be an issue as we go into Q1 as well. And that's coupled with lockdowns.

I'll talk a little bit toward the end of that front. Fixed cost controls continue to be tight, and that's the reason you see a benefit coming as volume is picking up. And the overall PBT margin of 3% for the quarter is something that we are quite satisfied with given the conditions. Next slide.

Similar to JLR, what's the central box where I think cash profit after tax well ahead of investments and even on a full-year basis. So the decision to actually cut back on investments proven right. And at the same time, we are not being pedantic about it. We did dial up the investment, particularly in PV as we started seeing growth come through.

As far as the working capital changes are concerned, most of it from a base perspective, we are reducing our inventory days, we are reducing our debtor days. And we are reducing our creditor days. So a combination of that, despite that, you're seeing -- starting to see working capital negative continue and the growth is coming through, you're seeing this number really spew cash. And [Inaudible] point here, as Q1 with the kind of lockdowns that we are seeing, this will unravel for a while until growth comes back again.

So that is the nature of the game that we are currently on to. Next slide. Investments, you've already seen -- I don't want to spend more time on this other than to say that we are managing our investment quite prudently in current conditions, focused on products and technologies. Next slide.

This is 6,000 crore target that we had given ourselves to deliver. And again, we have delivered 9,300. You will notice on the investment line, we did not meet the target because we diverted this money for unlocking growth, which is what you're seeing on the PV side. And on the working capital side, of course, a good number there.

Overall market share -- the same slide. Don't go change. Go back. Overall market shares have been sequentially improving as the year progressed, and we did end the quarter at almost 47% share, which on a YTD basis lands at 42.4%.

I draw your attention to the M&HCV market share improvement over the last four years. So we've been consistently increasing the share, and almost 400 bps added over the last few years. ILCV are also continuing to increase its market share momentum as it builds forward. The real callout will be on small commercial vehicles where I think we have a task on hand.

We did end the quarter strong in terms of pickup in numbers sequentially, it has been improving. But clearly, that is a number that is not acceptable to us, and we need to ensure that we work on that and deliver against it. Buses, I wouldn't say too much about. The other savings is completely repriced.

So very little to talk about. And this overall number actually got impacted by the small commercial vehicle salience disproportionately increasing in the first half of the year. And therefore, that is what you're seeing with numbers. No, excuses.

It is just the nature of the game, and therefore, we need to do a better job of picking up the small commercial market shares, which we are committed to. Next slide. Financials. Commercial vehicles, clearly, the revenue number is growing at 90% for the quarter.

Even on a sequential basis, the number is starting to increase. It is good news. EBITDA is 9.1, we talked about. And the gap between EBITDA and EBIT is starting to narrow.

Overall, on a full-year basis, EBIT was breakeven despite the [Inaudible] that was there in the first half of the year, as you've seen those numbers there. Let me hand it over to Girish in terms of how we see the current quarter and what has happened in the last quarter. Girish, over to you. Next slide, please.

Girish Wagh -- President, Commercial Vehicle

Yeah. Thanks, Balaji. So if you summarize the key points in last quarter. So I think most of the end-use sectors showed a strong recovery, of course, prior to the onset of the second wave of COVID.

I think our BS VI product superiority and the value-added services continue to be well received by the customers. And as a result, not only did we see sequential market share growth, but also our Net Promoter Score increased for third year consecutively and has now moved from 65 to 68. So at a high level, it continues to grow. We also did well in the nonvehicle business.

So we were able to improve our spare parts penetration by almost 500 basis points during the year, which also, therefore, increased its contribution to the revenue. We also increased the penetration of fleet age, our connected truck platform. And I think we have now a penetration of upwards of 90% in medium and heavy trucks. So those were the highlights.

And of course, we were able to reduce the EBIT breakeven by 25% during the year gone back. Now coming to the current quarter, of course, I think we are now challenged with the second wave of COVID. And there, we are focusing on ensuring the dealer's health. So we have provided support to the dealers through various initiatives especially in the area of liquidity, so ensuring that the teams are settled.

We are also giving, wherever required, support on interest on the stock to provide a P&L support. We are supplying vehicles to those geographies and segments where the demand is not yet impacted much and continue to monitor our pipeline on a daily basis. In terms of customer connect, that continues to be on a digital basis completely now. So all virtual engagement with the customers across all the segments.

We've also formulated a new set of standard operating procedures and communicated those to all the channel partners. In terms of demand fulfillment, so we are aligning our production to retail. So whatever has been the retail and one has seen a drop in the retail and if you see some of the highlights, I think one has seen a drop in diesel consumption. One has seen a drop in the fast tags.

One has also seen drop in the registration of the vehicles. So overall, I think the market has dipped, and we have immediately aligned our production to retail starting from the month of April, second fortnight. And we are doing so even in this month. And even this month, I think the production is lower than that of April.

So we are ensuring that we are able to break the chain effectively in all the plants by having sufficient shutdowns. And even on the days we are working, we are having just 50% of the manpower. We are, of course, looking at fulfilling the spare parts and international business orders, which continue to be good. But of course, in some of our international markets also, there have been COVID-driven lockdowns.

We started maintaining strategic inventory of critical parts, I mean, especially electronic items, which have been in shortfall throughout the last year and therefore, looking at those. And we also have formed a task force, which is monitoring the vendor site operation and health and also their operational requirements. In terms of cost reduction and cash conservation, we carried forward the learnings from the business continuity plan that we had last year. Direct material cost reductions are being expedited and pulled toward Q1.

We have deferred capex as regards to our earlier budgeted plan. We deferred by almost 30%. All the fixed expense reduction that we had done during the previous year has been put into action again so that we are able to sustain all the benefits. And the capex -- capital allocation has been revised for products with a large part of it now going for BS VI phase 2 programs.

So I think that's what we have done, and we align ourselves continuously with the changing market environment through the business agility plan. Back to you, Balaji.

PB Balaji -- Group Chief Financial Officer

Thanks a lot, Girish. Moving on to passenger vehicles. Next slide, please. Two callouts here.

Draw your attention to the growth numbers. Industry declined 2%. We grew by 69% and -- by Tata Motors' PV and the EV business within that grew 218%. So significant shift in numbers there.

Market share of 8.2, we talked about. Also, draw your attention to the penetration of EVs in our portfolio, which is 0.2% is now up to 2% and likely to increase further as we go forward. So, therefore, we do see significant change happening in the consumer segment and we are very clear, as Tata Motors, we will lead the EV disruption as far as India is concerned. Next slide, please.

Financials, delighted to see the EBITDA numbers consistently improving in the PV business as volumes are starting to come through. Mix is improving, and EBIT margins starting to come down as operating leverage improves -- rather as operating leverage kicks in. We are -- we believe this trend is not fundamental coming from the fact that the consumer is clearly looking to break free, and this is a shift toward personal mobility that we are seeing. And within that, our new portfolio is really firing in all cylinders.

So the consistency in growth that you're seeing is likely to continue. What's happening in Q1 this year is a different discussion, which we'll come to in a short while. So I'll ask Shailesh to talk about it. Shailesh, over to you.

Shailesh Chandra -- President, Passenger Vehicle and Electric Vehicle

Thank you, Balaji. So second wave of COVID has, of course, adversely impacted both demand and supply side. But the good thing for PV business is that we started the quarter with a very low inventory and a very strong booking pipeline for ourselves. And therefore, while Quarter 1 looks a bit on a decline, we have therefore articulated and operationalized the business agility plan to navigate effectively in this uncertain period.

And actions have been developed in three areas, which is on demand creation, fulfillment, as well as profitability. On demand creation, you've seen that because of progress of lockdown in the country since middle of April, it has really impacted the demand side, while in April, the retail and bookings dropped in the range of nearly 40% to 45%. But in May, it is trending at a much steeper drop with only, I would say, less than 20% of showrooms which are operational. And therefore, demand is expected to be significantly subdued in the Quarter 1.

As far as actions are concerned on the demand creation side, we are closely tracking the regional and segmental changes, if any. On the demand side, I'm keeping our offtake in production completely and into that. We are using digital, given the lockdown situation, this is what had helped us last year also, by leveraging it through platforms like, you know, Click to Drive and hyperlocal marketing initiative to ensure that even in the lockdown period, we are able to keep getting the flow of the bookings. And since we were less than 10 days of inventory at the start of the quarter, and this was due to demand being more than our supply rate.

Therefore, we are using this month to increase the stock in the channel and bring down the waiting period for our customers, which were pretty high, and therefore, this is an opportunity for us. Sorry, on the demand side -- sorry, on the demand fulfillment side, the supply side got impacted primarily due to the lockdown in all the major auto clusters, especially Maharashtra, I would say, latest one on [Inaudible] cluster, which has badly got impacted. And most of the suppliers are operating at 50% manpower or less. And also, semiconductor supply has further situated is what we have seen in this quarter.

While it was a concern in Q4, also that this quarter, it is further situated and a matter of concern for the coming months. And therefore, we are trying to maximize production to fulfill the demand and build strategic inventory. So we are continuing with the production in all our three plants. And we had taken shutdown for the first four, five days, mainly aimed at enhancing our capacity further while supporting the growth that we have planned for this year and also certain preventive maintenance actions.

On the profitability front, it's going to be impacted by the lower operating leverage and the commodity inflation that we are seeing. And therefore, we have initiated tight controls on fixed cost and also accelerated the structural cost reduction effort, which is now pretty much an institutionalized and ongoing initiative for us. And we have also taken price increase, which is in line with the industry. But the other one we pledged, we have also given the price protection for our customers.

And that basically has held by some -- avoiding any cancellations to the strong booking pipeline that we have. So that's from my side, Balaji. Back to you.

PB Balaji -- Group Chief Financial Officer

Thanks, Shailesh. Next slide, please. A quick peep into Tata Motors finance. They ended the year pretty strong.

Market share of 33, PBT of 266, grow significantly better than last year. And return on equity, which is the metric that they're pulling off there, of 9.2%. GNPA are also below five, and NNPA is below four. The key one is the cost-to-income ratio has been tightly controlled, at the same time focus on collections where we get at almost 105% in March.

But that's -- I really would love to draw your attention to the last two lines over there where next few months we do expect to see a challenge. And this time, it is different because it is not just about the transportation business that is getting affected. The collection infrastructure in terms of people who are going out there and getting -- collecting, we have almost 900 people who have been impacted by COVID who are people who have feet on the street. And unfortunately, we lost six of them in Tata Motors finance.

And therefore, we are wanting to be very careful with that sector of people and that will definitely have impact on collection efficiencies. We're already seeing it come down quite significantly to almost 80% level last month. And therefore, it's not an easy time out there in the field. And we are working closely with our teams, our customers, our people to ensure that we alleviate the stress.

But it is fair to expect that Q1 is going to be a significant pain, and we are having -- are listening to all the powers that we do find ways to alleviate the stress. So this is going to be a critical quarter for all of us from that perspective. Last slide. Outlook, I think you can see it, but Q1 FY '22 will be adversely impacted by lockdowns.

You heard Adrian talked, including Girish, Shailesh, and myself talk, clearly impacted by lockdowns, semiconductor shortage. We have a cup of woes that's quite full. So a strong end to the year. It's something that we were very happy with.

But then, of course, Q1, we need to deal with the stress. But we will come through strong. The fundamentals of the business as you have seen are very strong. And therefore, this makes us even more resilient in terms of performance.

And we will get there. And we are not changing any of our plans in JLR or TML because what we need now is agility, and therefore, that is what we are focused on. So with that, let me stop here and hand it back to you guys for questions that you may have.

Prakash Pandey -- General Manager of Treasury and Investor Relations

Thank you, Balaji. We will now start our Q&A session. We'll wait for a minute, OK.

PB Balaji -- Group Chief Financial Officer

Would you want to quickly explain, Prakash, the process?

Prakash Pandey -- General Manager of Treasury and Investor Relations

Yes, sure, Balaji. So all the participants on the webcast can use the chatbox option appearing at the bottom of their screen to submit their questions to the speakers. We'll wait for a moment while the queue assembles.

PB Balaji -- Group Chief Financial Officer

OK, let's get started. First question is from Ruchit Mehta, SBI Mutual Fund. Adrian, this is for you. For JLR, the Q4 in slide ASPs seems to be lower by 5,000 pounds quarter on quarter.

Could you walk us through the cost of the same?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yeah. OK, so let me go back to, you know, a couple of the points I've made in previous presentations. You know, different markets have different peak periods, different times of the year. Quarter 3, actually, you know, that's the peak selling period for China.

And therefore, there was a disproportionate value within our China business in Q3. And don't forget that means SUV 4 and SUV 5 vehicles. So the highest transacting price vehicles that we sell. Q4 is different.

Q4 has a peak selling period in the U.K. and not such a peak selling in China. And of course, U.K. is about SUV 2 and SUV 3 vehicles, lower transacting prices, lower gross vehicle revenue, and lower margins as well.

So you really need to start to look in plots where our peak sales periods are for our peak regions which will give you a heads up that our average selling price in Q3, unless there's something extreme happening, will always be higher than Q4.

PB Balaji -- Group Chief Financial Officer

Thank you. Thanks, Adrian. Second is from Prateek Poddar and I'll take this question. Tata Motors has been very clear that the equity fundraise would be the last resort despite such a good performance on both JLR and TML stand-alone.

What are the rationale of thinking for a fundraise? Prateek, you're absolutely right. It is -- it remains the last option. There's no change on that particular front. And also that just reason to add there, the board has deferred this position to a subsequent board meeting.

And the reason we had another medium coming up and from a flexibility perspective, we wanted to keep all the options open, and that is why we have not been clear in terms of what are the instruments that we will raise and how much will we raise. And that is something that was part of the discussions for them. Therefore, the board has decided we'll defer it later on in time given the performance that we have right here. And at the same time, we shouldn't forget that we are in the midst of COVID.

There are a fair number of challenges that we have outlined. And the reason we wanted to keep our options open was this, because there's an AGM coming up, and therefore, those enabling resolution, if you notice them, to read the notice carefully or to specifically put it as an enabling resolution. And that then gives us a good one year off not one -- not having to go back to the shareholders. But that is, of course, not subsequently from the -- on the board.

We have decided to defer it. So, therefore, that's the background thinking to it. Next question is from Yogesh Aggarwal of HSBC. JLR volume growth guidance of better than FY '21 seems very conservative considering the base effect in FY '21.

Can you please provide more flavor? Would it be a 20%-plus kind of growth? Adrian?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

So you have -- you're absolutely right. It is very conservative. And the answer is yes, it will be better than 20% higher than last year.

PB Balaji -- Group Chief Financial Officer

OK. Kapil Singh, Nomura. On JLR guidance of a point when you're to forecast, the company has been reporting JLR EBIT margin up around 7% for the last two quarters, plus you will get the benefit of nearly 100 [Inaudible] some restructuring costs taken in FY '21. So why is the guidance so low at 4% plus EBIT margin? What are the key factors that can take the margins down to 4%? Was there any reversal in residual values for JLR? And maybe that's a separate question, maybe we'll answer this one first, Adrian, and then the next piece.

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yeah, sure. Yeah. So let me take you back to half to FY '21 to answer the piece. Let me remind you what we've told you so far.

We've told you Q4 underlying is about 7%. Q4 is always our best quarter. You know that. Our volumes were 123,000 units.

So it's closer to an indicator of a normal quarter, but Q4 is normally stronger. Q3, don't forget what I told you. We were 6.7%, but we had a lot of reversals of residual values in PME in Q3. And the result of that, our underlying was a couple of points lower.

So I think it's reasonable if we choose you to assume based off what we've already told you that our second-half performance was close to about 6%. So why 4%-plus? Well, a number of factors come and go forward. We don't yet know the level and the scale of impact from the semiconductor challenges that the whole industry faces. Other OEMs have told you specific numbers, we're not going to do that.

And the reason why we're not going to do that is because we haven't given up on it. Right? We are working tirelessly to enhance our position every week, every day, every week, and every month. So I don't actually know where we end up from a volume perspective in Quarter 1. What I do know is we're optimize everything we possibly can.

Now, last year, in Quarter 1, we lost 13.5% EBIT margin. We could be EBIT lost in this quarter as well, but be very, very small if we are. So it will impact the full year. She is a key point here, right? Q1 will impact the full year.

However, depending on the speed and the balance of the industry response to the semiconductor build, I don't know how much of that we will then get back in Q2, Q3, and Q4. While I do know is if we can overcome those challenges, we will be stronger than the 4%. That's why we said higher. So it's speed of recovery for those challenges and whether we can catch back units are the two unknowns today.

And I really don't want to mislead you. So I'm giving you a baseline of 4% or better. And depending on how the industry can respond to semiconductors, the better we'll get bigger. That's all, Balaji.

PB Balaji -- Group Chief Financial Officer

Yeah. Thanks, Adrian. And second question for you again. Was there any reversal in residual values for JLR in U.S.

in Q4? Do you see more coming through in Q1?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

So we did reverse some of the residual values in the U.S.A. We've now made all of those reversals actually within Quarter 4. So no more to come. However, we did book some reserves in Germany.

So the net reversal in Q4 was very low, about 0.2%. That's all. So most of it is done. And we think also with the changes we made in Germany, we've contained and trapped those losses as well.

So overwhelmingly, we do not expect the VME to be driven by residual value improvements -- reductions going forward. What we do expect in this lean market of undersupply and significant demand is that under lab -- underlying VME to be better than we've actually previously communicated. That was 6% or lower. So we do expect that to continue, particularly with supply shortages.

It would be close to 5% of the first half as my estimate.

PB Balaji -- Group Chief Financial Officer

Yup. Thanks. Again, question back to you again. This from Satyam Thakur of Credit Suisse.

Could you help understand the moving parts behind the gross margins of JLR sequentially, quarter on quarter, fourth quarter over the third quarter? How much of the impact of higher raw material cost and what all went into offsetting that if you could quantify, please?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yup. So I'd refer to the response to the first question actually. The overwhelming issue is the mix of the vehicles we sell. SUV 4, 5 Q3, SUV 2, 3 Quarter 4.

So even though volume would have increased, we would naturally expect gross margin to fall Quarter 3 over -- Quarter 4 over Quarter 3 for those reasons, mix of vehicles and regional strength. We know that commodity prices are increasing. Is it not yet having a significant impact on our numbers, on our margins? In fact, Q4, from an overall material cost perspective, was lower as a proportion of gross vehicle revenue than Quarter 3. So limited today, we have a hedging strategy in place.

It will increasingly hit as we go forward, and those hedges roll off over the course of the next six to 12 months. If it becomes a particular impact on the data, we'll call it out at that point in time, not in the data today.

PB Balaji -- Group Chief Financial Officer

Thank you. The next one is from Jinesh Gandhi, Motilal Oswal. Questions on [Inaudible]. Can you discuss your fundraising plans with Kochi [Inaudible]? What would including equity? considering the sustained shop improvement in both JLR and India, why do we need fund -- any fundraising? That's first question.

I think, Jinesh, I'll answer that. It was an enabling provision that we took -- that we face this environment, COVID-based, too. There's too many things coming at us. So we want to be sure that we have the options with us.

It was an enabling provision. And at this point in time, the board has deferred it. Now, obviously, the strong performance of [Inaudible] and we will revisit that if required. So that's the way we're looking at it.

Of the 9,300 gross cash savings, how much of the actual cost savings? It's -- we have referred to it in Slide 37, Jinesh, costs and profits of 2,200 crores all of that. How much of this is sustainable? We are seeing the sustainable because I think Girish has mentioned on breakeven reduction, we're down by almost 25% for the commercial vehicles. Passenger vehicles have been by employment also includes savings that are coming through here. But do keep in mind, going forward, we need to take a look at those.

This will be the commodity inflation that's coming at us. These become the source of money to manage that inflation that is coming at us. Any tool like on the product pipeline post [Inaudible]? What new models can we expect post [Inaudible]? Clearly, that's something that we wouldn't want to discuss. The right forum for that will be the auto expo once we have made up our mind as to what we're going to show there.

So we will definitely share it with you. Next question is from Stephanie Wilson from J.P. Morgan. How much of the semiconductor and raw material issues respectively hitting the FY '22 guidance? Adrian, would you want to pick that?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yeah, I think I have actually already, Balaji, within my 4% or better question which I covered semiconductors, and within the margin question which I covered the raw material, so nothing to add to previous questions.

PB Balaji -- Group Chief Financial Officer

OK. Second, it's from -- the next one is from Basudeb Banerjee, Ambit Capital. Why the same led by one-off restructuring cost of 500 million to 550 million, JLR will be as if neutral. I'm too confident of maintaining operating cash flows and capex of 2.5 billion at last couple of quarter levels.

The next one is on in India. So, Adrian, would you want to pick this one up?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yup. Yup. I'll pick that one up. So yeah, we are actually confident.

But unless I say this, and I have to give you a different set of numbers, right? So the bottom line is our commitment is to reduce net debt and we won't go backwards. We will have a challenging Quarter 1 for the reasons already discussed, but we'll get that back over the balance of the year. And net debt was 1.9 billion at the end of March. But we expect at the end of March next year to be slightly lower.

But for the moment, our guidance with the uncertainties we've already mentioned, that is maintained as, you know, cash flow positive or better than breakeven despite the 500-some million restructuring costs. You take that away, it'd been 500-plus million pounds cash flow.

PB Balaji -- Group Chief Financial Officer

The question is for India. India capex outlook for FY '22, it seems higher than those made from the calls stated earlier. Plan for the year is more like 3,000 to 3,500 crores. The 1,800 crores for FY '21 in the [Inaudible] in the midst of a pandemic where we are fighting a business continuity plan.

Having seen three quarters of performance, we are very clearly seeing that once the pandemic and all of the lockdowns are out, there is definitely a demand resurgence that happens. And therefore, this time, it's not a business continuity plan, it's a business agility plan. And therefore, we want to be as flexible as we can. Obviously, if situation dramatically alters, then we will not hesitate to go back to the drawing board on this.

But at this point in time, we see the current issues are temporary, and therefore, we intend to generate positive cash flows despite those capex investment there, and they are going toward products and technologies which are going to aid growth. So we will not be pedantic about putting a number on there, we are watching it and moving it dynamically in line with demand out there. That's how we see it. Next question is from Rakesh Kumar, BNP Paribas.

If profitability continues to improve in JLR, is there a possibility that we could increase our capex plan to accelerate the reimagined strategy timelines, and what share of sales comes from lease sales in U.S. and Europe, and what other peak share of leases we have seen historically? Adrian?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yes. OK. So my answer to the first one is unlikely. You know, we got a real clear plan we're setting out, right? We're making sure that every element of that plan is fundamental to the success of this organization.

We don't actually think we've missed anything. You know, throwing money at this doesn't necessarily speed you up actually. So the agile approach, the scrums, the sprints, the empowerment, the making sure people are responsible to fixing things first time, So that will speed us up. And we've made a commitment actually that, overall, in time, we will be 40% faster than we are today.

That's a huge improvement, a huge commitment, and that's what we maintain. At the point in time as we go forward, you know, as we eliminate our debt. Just as the Investor Day, as we eliminate our debt and then decide what we wish to do with the cash flow positions, our TML friends, [Inaudible] friends, and our board will discuss what we wish to do. But the current plan stands, the investment guidance stands as well.

PB Balaji -- Group Chief Financial Officer

The lease sales, Adrian? What share of lease sales come from lease sales in U.S. and Europe? And what are the peak share?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yeah. Well, again, you know, we're overwhelmingly consistent with the rest of the marketplace. So U.S. is our highest leased market as you would, followed by U.K.

and markets in Europe, mostly Germany. I do have some data in front of me which suggests it's about 80% in North America. But that's consistent with the marketplace.

PB Balaji -- Group Chief Financial Officer

Next one is from the Ronak Sarda of Systematix. Let's take the In -- JLR pieces first and then do the PDPs later. For JLR, will lower D&A and employee benefit start reflecting from Q1? We haven't away gone back to the pre-drag exit phase. Should we expect JLR will focus mainly on profitable model? Second question.

And the last one on JLR, that's an easy one, I'll pick it up. For JLR, can we have an EBIT waterfall in sort of a PBT? You already have that in the slides, the bottom-line half of that. So you can use that. In case you need more clarification, do reach out to us.

Back to you, Adrian, for the first two pieces.

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yeah. OK. So let me take D&A first of all. OK.

D&A over the next few quarters will be similar to the second half last year. Don't forget, the MLA mid-vehicles were not available to be introduced in the first half of this year. At the point we would have introduced them, 12, 18 months' time. That's when the reduction in the D&A would have kicked in of course.

D&A will next actually change when we introduce our new models, Range Rover and Range Rover Sport in 12 to 18 months' time. Employee benefits, as we release those 2,000 people over the course of the next three to six months, then yes, the costs of people will actually start to fall as well. Hundred million a year we believe. But in a particular quarter, that filters down to 20 million or 25 million.

So I don't anticipate that to dramatically impact the in-quarter data you will see.

PB Balaji -- Group Chief Financial Officer

Then on I think the profitable model piece [Technical difficulty] although that we are looking at profitable growth here, and that's how it will be done. So no change in strategy then. Then on the PV impairment. Yes, these are noncash cost.

The question is, are these noncash costs? Are these reversals non-cash? Absolutely, yes, they are. Moving to the next slide, next topic. Amyn Pirani, CLSA. Given that the first Land Rover bevel will come in 2024, do you think it may pose a risk in model such as Evoque and Discovery Sport? Competition is already in the process of launching that.

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

We have a great Evoque and a great Disco Sport under our EMA platform shortly afterwards. So if it were to the time to new vehicle delivery is quite short, so that wouldn't be a concern for us.

PB Balaji -- Group Chief Financial Officer

OK. Again, on JLR, this from Jinesh, once again, Motilal. JLR realization declined sharply quarter on quarter by 9%. What are the key reasons behind it? I think we've already explained it extensively in the previous question, therefore maybe that's -- we'll take it as a given.

Order book 100K units for JLR, can you give some flavor on which models, region, and make up for this order book? Is this due to supply side impact? Are we done in the write-offs to streamline the new model of the business? Finally, on effective tax rate question as well for FY '22.

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

OK. Let me take them as you've asked them. So the order book, 100,000 units, of late has been growing about 2,000 units a month. You know, the phenomenon in our business that most of those ordering process up in the U.K.

and Europe and that's where 60% of the order book is, less in China and less in North America. That's just a buying phenomenon and a logistics phenomenon, right. Vehicles have to be there in place because of the pipeline to get them there is so long. So mostly U.K.

And your particular emphasis on our PV vehicles, they have had a dramatic impact in the marketplace. Some of those vehicles in some markets in Europe have up to a 12-month waiting list for. So clearly, you know, those customers are going to have to be super patient for us. So ultimately, yes, the answer is that is a result of the supply side and as we work through some of those supply issues.

Let me just reference for the moment, semiconductors. But there were also [Inaudible] issues, then we would expect those order books to actually start to normalize in six, nine, or 12 months' time. But we dealt with write-offs to streamline the new normal of the business, we believe so. We don't have anything left that we're aware of, right? We really think we've had a strong six-month review of what our strategy is and we think we've communicated that to you and we think we've actually made the adjustments we need to make.

And as you would know, our external auditors have been working alongside us for three months and they agree with us. So I don't expect any additional touch for any of the elements that we've actually communicated as a part of Reimagine. To date, the effective tax rate expecting FY '22, obviously, the tax rate has been pretty damn weird over the last 12 months or so because of losses and nonallowance of deferred tax assets as we've become more profitable. You know, obviously, that deferred tax position will change and we'll be left with a couple of phenomena.

We will be left with the phenomenon called overseas, we expect, obviously, the tax rate will now become unprofitable overseas so we will be paying tax as you were to see this time around and we would expect the deferred tax asset to start to normalize the effective tax rate. Also, I suspect that will happen later this year as our profitability grows in H2.

PB Balaji -- Group Chief Financial Officer

Is that it? So next one from Aditya Makharia, HDFC Securities. Congrats on the market share gains with Land Rover. What are the impacts that Tesla was having on the luxury market as the volumes are not 500k? Can you give some color on the same?

Thierry Bollore -- Chief Executive Officer, Jaguar Land Rover

Maybe I can take this one, Balaji. This is Thierry speaking.

PB Balaji -- Group Chief Financial Officer

Yes, Thierry.

Thierry Bollore -- Chief Executive Officer, Jaguar Land Rover

I think that even if we don't talk very often about competitors in this type of a decision, the reality of -- if you look at Tesla today is that they are not really in the luxury market. And more and more they are less to a certain extent. They started with the high-end premium. And now, if you look carefully at the range of cost and associated volumes, you would notice that it's more and more going to the premium, which is giving us a huge space.

PB Balaji -- Group Chief Financial Officer

OK. Thanks, Thierry. Question from Prakesh again. Can you share an update on what's happening with the BMW partnership on EDUs? Sergio was quoted last week by Reuters saying that JLR is exploring with BMW going with the partnership.

Can you share anything that is in these areas?

Girish Wagh -- President, Commercial Vehicle

Those -- we continue to work with we BMW and as such we are permanently exploring new opportunities concerning our, of course, you know, our core version. I mean, it will push through. But it's clear that we have stopped also our MHEV although we retained the IP on our joint ownership.

PB Balaji -- Group Chief Financial Officer

Thank you. Question from Pramod Kumar of Goldman Sachs. Given the actual ratio of pure EV demand led by competition launches and regulatory push, are you comfortable with your EV business? And is there a risk for JLR losing over demand and customer main share on EVs?

Thierry Bollore -- Chief Executive Officer, Jaguar Land Rover

Well, I think what is key and Adrian mentioned in that one of the previous questions is to be on time against the real demand from our customers. And today, the real demand of our customers is very much on the PHEV, as you understood. So we are glad about that. And at the same time, we are glad to see that the BEV starts really to take off worldwide.

And that's why we are fine with our timeline. For sure, we are clearly -- and we enjoyed the fact how well with our focused plan, we can see an acceleration of our processes in the company to seamlessly and excellently deliver what we promised, and we are going to make the best use of that.

PB Balaji -- Group Chief Financial Officer

Thanks, Thierry. This question is maybe for Girish and Shailesh. In terms of -- can you please guide for India's PV and CV growth outlook? How do you see it, given COVID's second-wave impact on semi-urban and rural areas? Girish, you want to go first, and then Shailesh, you want to take it up next?

Girish Wagh -- President, Commercial Vehicle

Yes, yes, Balaji. So seeing the last -- I know we have indicated that the BSVI of, you know, almost 750,000 to 800,000 for FY '22, in which we had predicted Q1 being around 170,000. And I think at the end of March and also in the month of April, we have come across this COVID second wave, which has indeed created a slowdown in their demand. And as we got into May, I think the slowdown has been even more as many states have wanted to lockdown.

And in the previous scene, the global industry volume has been just what 40,000. So I think of the tier projection for the entire year, we need to see how the states unlock, we just think that we're monitoring on almost on a daily basis though as the states unlock, and the freight starts moving in the country and get back to the people, we believe, I think we should be in a position to indicate what's likely to happen. So at this juncture, it is very difficult to provide a formal group although there could be some scenario as to when the economy gets back to the pre-COVID levels. But as we stand here now, it is difficult that we'll be able to get this 35%, 37% local-industry volume growth that we indicated.

For the exact number, maybe we'll have to wait for the next analyst call. Balaji?

PB Balaji -- Group Chief Financial Officer

Yeah. Shailesh --

Shailesh Chandra -- President, Passenger Vehicle and Electric Vehicle

Yeah. I'll just take this. Typically, in the CV business, the rural to urban ratio has been 40% rural and 60% urban. Last year it was slightly tilted toward rural where it gains the share by 102%.

So far in this year, we have seen that April was the only month that we saw that rural was slightly higher and that was because of the account of the lockdown enforcement being a big vehicle into rural areas as compared to urban. But the jury's out in terms of you know how this whole ratio is going to play out as far as rural is concerned. But clearly, we would expect that rural would stabilize around for people in urban areas this financial year also. As far as a rural collection for the PV industry is concerned, it was supposed to be in the range of 3.2 to 3.4.

As for the earlier, we estimate before we are now aware of the COVID second wave, this might decrease by 250,000 to 300,000 as one scenario that is being projected. But if the pent-up demand which is getting better in these two or three months as well as, you know, one is seems backed off the shift toward personal mobility might be coming in stronger given back to the customers are expecting multiple waves of COVID and therefore there is greater concern about the well-being and therefore there might be a bigger boost in mobility shift that we might see. And therefore, one can still imagine that this can be recovered losses that we're going to see in Q1. But as far as rural is concerned, we would still think that it will still remain around 40%, as for the demand we've seen in the PV industry.

As far as Tata Motor is concerned, since last year, our mix is more favoring toward urban, given that we -- the young and urban customers are getting more, you know, kind of excited about expressive design and the safety aspect, this is being more efficient in the urban center so that has been the same as the automotive PV business. Back to you Balaji.

PB Balaji -- Group Chief Financial Officer

Thanks, Shailesh. The next question is from Pramod. Any time when you can share any plan for the Indian car business? So far, no decision has been taken on this, Pramod. As soon as something comes up, we will definitely share it with you.

The question is -- this is on chip shortage. Can you give some more color about the chip shortage? How long will this last? How do you plan to mitigate the same? And also, doesn't that affect all of your plans in EVs? Thierry, would want to pick this up?

Thierry Bollore -- Chief Executive Officer, Jaguar Land Rover

Yeah, I can take that one, of course. I will not repeat the comment from Adrian, which were clear enough, I believe, on the shortage in terms of impact. I think it's important to say that during the first part of this crisis, the team did an incredible job to mitigate that risk to the extent that the impact I think on the Q4 of last fiscal year was about 7,000 units, which was quite limited without big consequences that were strong figures, as you could see. But you know, from a crisis, you will always learn, and you find opportunities.

And first, what I'm learning with the team is about our Tier 2 and Tier 3, our microprocessors suppliers, and the way they work, the way they operate, and at the end of the day, what's happening is that we need a change in the way we're operating our supply chain with them. And it's exactly what we are preparing at the moment to have a structural fix to this problem.

PB Balaji -- Group Chief Financial Officer

Thank you. Guenter, would you want to give us a color on the implication that may --

Guenter Butschek -- Chief Executive Officer and Managing Director

Sure, Balaji. My pleasure. As I already mentioned earlier by Girish and Shailesh, in the first quarter because of the dedication and commitment of the teams in PV and CV, although we had certain shortages, we could actually prevent the supply impacting our delivery position in order to give us the chance to actually meet the strong demand, it's already highlighted. As we expected that it couldn't get worse and felt pretty comfortable having the situation to a certain extent under control, we knew the situation has already, as mentioned by Shailesh on the one slide, has worsened to the extent that we see across the board significant constraints where we have maybe now working with the team based on the database established in the first quarter.

More or less so on a daily way, on the mitigation of the impact on production. What does it mean? We have actually looked deep into the easy use in order to understand which kind of chips, from which kind of supplier would actually use by our Tier 2 -- second-tier, first-tier suppliers in order to see whenever there is a constraint, which of the easy use and therefore which kind of components on what would be impacted. We started to establish direct contact with the chip suppliers although we are not contractually linked with them. Since we have established relationships from the past, it also helps to ensure that our demand got prioritized and could meet and parts were made available by the chip suppliers to our second and first the first-tier suppliers in order to have transparency in the first instance and, to a large extent, to also fully control the situation.

Nevertheless, as already indicated by Thierry, the situation at Tata Motors is no different from the one at JLR. It's a daily struggle and it requires lots of detail to be able to read your work effectively on a daily basis by the teams in order to keep the supply chain going in to limit the impact. Nevertheless, we expect the situation, as mentioned, will get worse in the first quarter. We expect some kind of an improvement in the second quarter but it's also because of the factors mentioned by Girish and Shailesh that we have started to actually build some stock because of some of the shutdown that we have experienced in the last couple of days because of the COVID situation in India.

And so they'd be hopeful that we can actually get back to full action in the moment we get out of the lockdown. And what is generally the expectation of the industry that as of the second half of the fiscal year, we are going to see a gradual improvement of the situation. To what extent? I think it would be too early and would be too much of a kind of crystal ball approach to say. As of October, we are going to be safe, but we expect at least a great relaxation of the situation under way for us.

PB Balaji -- Group Chief Financial Officer

Thank you. Thanks, Guenter. Question from Chirag Shah, Edelweiss. JLR commodity costs.

How do commodity contracts work? Annual, semiannual? Also, how does commodity hedging is different from revenue hedging? And if you break raw material costs into commodities and value add, how much will the commodity system be of the total RMC? Adrian?

Ben Birgbauer -- Treasurer, Jaguar Land Rover

Balaji, it's Ben Birgbauer, the treasurer of Jaguar Land Rover. I'll pick that question up. So I think on the first piece of it how does a commodity contract work, so I think it's different across different commodities and so it's really difficult to answer that question in the context of some of this event. I think on the second question around how is commodity hedging different, I think one thing I'd say is generally the horizon is shorter so on FX we go up four to five years.

In practice with commodities, we're really only going out about two years in quite a bit reduced percentage in the second year. I think the other thing that's worth mentioning is the hedge accounting is different. So we have hedge accounting for the FX. So essentially both the P&L impact of the hedge and the cash flow both occur when the hedge matures.

In the case of commodities actually, there's not hedge accounting so there's an immediate mark to market, which comes through our P&L and that's why you see that tendency that number in our profit bridges. But then the cash really flows when the contract actually matures. So there is a difference between the timing of the cash flow and the profit. And then I think on the last one, just what is raw material costs as a percentage of our RMC, I don't have that number at my fingertips.

But what I generally say is it's a second-order kind of number. I think that the commodities are a total value of components that we buy is smaller than you would think. Just for example in Q4, year-over-year commodities were worth 19 million pounds unfavorable despite the significant move in commodities that you've seen.

PB Balaji -- Group Chief Financial Officer

Thank you, Ben. And I think the second part of the question, can you assume from here on that there won't be any extraordinary charges, which I think Guenter has already answered. Let me take a question from all the input capital. JLR VME is being reduced by two to three bps year on year, can you sustain it considering our changeover in the coming quarters? Post demand will help you here.

The second part for automotive, Adrian will take it up. Adrian?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yes, of course, yes. So with the health of sale approach without taking out deliberately reducing dealer stocks, I think we took you a lot through that detail to the previous two presentations. That continues to be our intent. You know we were surprised by the scale of the impact to the marketplace and the speed of that impact and it's certain that when we have more supply concerns and demand concerns today, VME over that period of time will be at levels lower than I'd previously indicated.

Hence why I've said earlier, expect in the first half a number close to 5% rather than the 6% underlying we had previous to that. As we grow back demand then we'll see how the marketplace responds later in the year. But in the first half of this year, it will be certainly lower than the 6% guidance I've previously given and shown.

PB Balaji -- Group Chief Financial Officer

Thanks, Adrian. Second, I'll take it. This is on collections of Tata Motors. There are two questions on that, two people have asked the same question.

How is it performing post-COVID? As you we say earlier -- as I recall -- as I said in the presentation, we ended the March quarter 105% kind of collection efficiency. This has obviously come down to more like about 82%, 83% in the month of April, and we're expecting to go this -- to go on even further. So it will be a painful quarter for Tata Motors' finance as they navigate us because we should not award just cash flows. It's also more feet on the street and infrastructure.

So we are working through this and this will come back on track at the earliest. Obviously, ensuring the safety of our people. The second reason is the growth of CV, which I think Girish has already answered. Let me -- the collection question has already been answered.

Girish, the question is more to you and Shailesh. Price increases taken in CV and PV, so far this year. How much of that line-item impact is likely in Q1? Do you want to pick it up, Girish and Shailesh?

Girish Wagh -- President, Commercial Vehicle

Yep. Yes, Balaji. So CV we've already taken in price increase is overall 1.5% on January of this calendar year, which is Q4 of FY '21. And then on the PV, separately we took another increase of 4.5% across all the models, which is in this quarter.

So that's the kind of price increase we've already taken. In terms of raw material impact for the first quarter, I think it can be divided into two groups. One is the precious metals, which was going after so that is more internationally linked. And therefore, that is kind of going up and we have six-month contracts there.

The second one, of course, is the steel, which is under the -- linked to the international prices. It is also dependent on domestic invention. And as of now, with the upper demand going down, we are ready to have any dialogue in terms of the steel price increase. So that's the situation on the commodity cost in this market.

Shailesh?

Shailesh Chandra -- President, Passenger Vehicle and Electric Vehicle

Yeah. So I think the second part of the question was the response would be the same for PV as far as the price increase is concerned. In Q4 of FY '21, we have taken about 1.6% of the weighted average price increase. And then in April, sorry, in May, we have taken an additional 1.8% weighted average price increase.

Back to you Balaji.

PB Balaji -- Group Chief Financial Officer

Thank you. Maybe it's time for one last question. This is from the Shyam Sundar. Adrian, coming your way.

Can you shed some light on that CJLR business improvement plan? What's the timeline for EBIT breakeven for that business?

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Yeah, of course, Balaji. I mean, if you look at the data and in fact the charts, I should have called it out actually, the year-over-year chart does show quite a dramatic improvement last year over the previous year. I think the number is 99 million improvements, you'll see that. So my first response is it's already happening? It's already happening.

The health of CJLR is starting to improve. It's nowhere near where we wish it to be. You know what, the semiconductor shortages and CJLR would teach us a lot of things because, you know, a lot of our turnaround model in the import business actually was a result of deliberately constraining the pipeline, huge improvement in transacting values, reduced VME and gross margin. Some of that may be enforced over the next few months.

We'll see how the market responds. We hope the market responds favorably there. And the other side of this is the part of the Charge program, which we talked about as well last time to you. We now introduce the Charge program formally to CJLR working alongside our Chery partners and colleagues and, you know, we'll just be tougher on spend, right? We would just be tougher on spend because there are still opportunities for structural cost reduction CJLR.

So you think about how we've applied charged within Jaguar Land Rover, a resetting of eight years of ours took cost space. We haven't done that yet within CJLR. And so there are lots of opportunities. It takes a bit more time because we have to bring our partners along with us, of course.

But I do expect this going forward to find ways to actually improve our viability, profitability in CJLR. But it was a dramatic turnaround in the previous 12 months so please we shouldn't pass that point by.

PB Balaji -- Group Chief Financial Officer

Thank you. So with this, I think we would be on the dot, eight o'clock here. So thanks, everybody, from TMM and JLR side. And more importantly, thanks to everybody who attended the call, taking the time to attend the conference and understand our results.

Much appreciated. Do stay safe and sound and wish you all the very best to you and your families in the coming days. Thank you and we look forward to speaking with you in the next analyst call. Thank you, everyone.

Questions & Answers:


Operator

[Operator signoff]

Duration: 95 minutes

Call participants:

Prakash Pandey -- General Manager of Treasury and Investor Relations

PB Balaji -- Group Chief Financial Officer

Adrian Mardell -- Chief Financial Officer, Jaguar Land Rover

Girish Wagh -- President, Commercial Vehicle

Shailesh Chandra -- President, Passenger Vehicle and Electric Vehicle

Thierry Bollore -- Chief Executive Officer, Jaguar Land Rover

Guenter Butschek -- Chief Executive Officer and Managing Director

Ben Birgbauer -- Treasurer, Jaguar Land Rover

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