Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to Bajaj Auto's Conference Call to discuss the fourth quarter and fiscal year 2020 financial results. We have with us Mr. Rakesh Sharma, Executive Director; Mr. Soumen Ray, Chief Financial Officer; Mr. Sanjeev Garg, Divisional Manager, Treasury, IR and FP&A; and Mr. Anand Newar, Divisional Manager, Investor Relations.

My name is Raymond, and I will be your coordinator. [Operator Instructions] We take the first question from the line of Ashutosh Tiwari from Equirus.

Congrats on very strong numbers during the quarter. Firstly, I want to understand how is the export outlook now because Nigeria is one of the largest market for us and crude has declined a lot. So how do you see the retail market -- retail in those markets exactly?

Ashutosh, can you hear me?

Yes, yes.

Okay. So you're right that Nigeria is right now facing twin issues of the COVID-related disruption in demand as well as the fall in crude. In our assessment, the fall in crude prices is not going to really -- I mean, if the crude stays at about this level, $30 to $40, because a couple of years back when there was a big fall, that is the time when these guys had resized their budgets, et cetera. So that's not going to create a big hole in the economy -- in the demand for motorcycles. It's really when crude goes -- when it was hovering at $10 or $11, we were getting very worried. But having said that, our greatest concern about Nigeria is what is going to happen to the exchange rate. There has been a devaluation. If that devaluation goes -- spins out of control and the naira devalues a lot, that is something which is going to impair purchase, and we'll have to watch out for it. For the moment, of course, I would say that the demand has been affected in the immediate term, of course, by -- because of COVID-related issues, which is all about lockdown and people traveling less and not being on the streets, et cetera. But in spite of all that, I would expect that in -- I mean, in May, we would still be at about 40% level of the retails of normal level.

Okay. In Nigeria, you're talking about or overall exports?

Nigeria. You asked for Nigeria, right?

Yes, yes, yes. But what about other countries? How is our situation? And Bangladesh is also a big market for us and other markets. How things are there?

Well, let me address that for everyone concerned. You see, almost all the countries -- actually, there is a lockdown, partial lockdown in every single country that we export to. So COVID -- there is no country which is escaping the COVID issue. In some countries, it is very, very severe. And in some countries, much less. But I would say that some of the better countries are at about 50% levels. And some of the worse of countries are at 0. Overall, I would say that our retails are tracking at about 35% of the normal rate.

Okay. And sir, lastly, how is the trend in domestic market? What are partial opening you've seen over the last 10 days? How are things shaping up over here?

Domestic market is, again, very difficult to call because things are only now opening up and it has been just early days. However, having said that, almost 50% to 60% of the dealerships are in the green zone. And these dealerships are seeing about 50% productivity in sales. So I would say, at an overall level, on the basis of very, very early information, we are looking at something like a 25% to the normal levels. Service is tracking at about 65% to 70% to normal levels. So obviously, as people are stepping out, they are wanting to get their bikes serviced because they're not being used for a couple of months. So that is to be expected.

Okay. In that protocol at least dealers will make some money.

Yes.

The next question is from the line of Kapil Singh from Nomura.

Firstly, congrats on a great set of results. I wanted to check on financials. We've seen a strong gross margin improvement. Could you throw some light into what are the factors that led to that? And how sustainable is it?

Kapil, Soumen here. There are 2, 3 things which have led to the margin improvement. One is the mix between motorcycles CV and exports has tilted more towards CV and exports in this quarter. Within motorcycles, we have sold more of S1 segment than we normally do. And last but not the least, obviously, ForEx has helped us in our realizations.

Right. Sir, possible to quantify how much is the ForEx contribution here? And also if you saw any commodity benefits?

Commodity benefits were very, very muted. They were no different from the previous quarter.

Okay. And ForEx?

Generally, you can take a number. ForEx is common knowledge.

Okay. So you're saying, whatever is the rupee dollar rate, to that extent, we can take it?

Yes. If you take a blended average of the quarter, I should not be drastically different.

Okay. And going ahead, because rupee has gone to 75-plus levels, how should we build this? Because Mr. Shama was also talking about currency crisis in some of the markets. So your thoughts on that, please?

So I think once bitten, twice shy. I think all of us know in FY '18, when rupee went to INR 73 and clawed back to INR 69. The INR 75 is a phenomena, which has continued for about 2 months now. There are multiple factors at play. I mean, oil has come down. So ideally, rupee should appreciate. But fiscal deficit is certainly going to go up. So rupee is going to depreciate. At this point in time, I would not like to predict too much. I would say, currently, we are sitting at a INR 75 realization. But we are not doing sales. If we're not doing sales that doesn't mean anything. We're doing very little of exports. So we will play it as it comes. If we get more than this year's quarter, it will certainly be a benefit. In certain markets, do we need to claw it back? Certainly, we will need to claw it back because the idea now is to ensure that we can make those volumes work when we come back to the normal level of sales. And for that, instead of pocketing those lost INR 2, INR 3 in our pocket, it may be worthwhile, in select geographies, to pull that money back in so that the local currency devaluation is partially mitigated.

Very helpful. Mr. Sharma, one question to you, please. I just wanted your thoughts on -- there is this thought that -- there is also a feeling that some of the customers would look at social distancing and may look at two-wheelers. Of course, there is a reduction or potential reduction in incomes as well. So where does the interplay land up once things start to normalize in your view? Is it -- how much demand impact could be there, say, 6 months down the line? Just your thoughts, even if you don't want to share any numbers. And also, will -- should we expect down-trading in the market?

Yes, there is a million-dollar question, which is in everyone's mind. So you are right. On the positive side, we definitely think that social distancing-related issues around use of public transport will impact the customer behavior positively towards owning of motorcycles or two-wheelers. We think that there is definitely another positive force of suppressed demand, which has been there. All said and done, half of March, April, May, people have not gone and maybe a little bit -- half of June will also go like that. And maybe not entirely, but a lot of it should come back. We also feel that given the flow of -- in the agricultural area, rural and semi-urban areas, the good harvest, the procurement price-related flows, et cetera, will cause some positive impact. But on the negative side, yes, some purchasing power has been dented, confidence has been dented. People are more conscious that the future is uncertain. Now exactly where the needle -- what the combination of the positive and negative forces will be is difficult to judge. I can say personally, we do feel that the first -- I mean even quarter 2 will probably go in disentanglement. In the sense that none of these forces can come into play if the whole -- the flow of business is so severely bottlenecked by one issue or the other, the opening and the protocols and et cetera. Quarter 2 will probably still go in disentangling, the ways of working and assuring people. But we feel that quarter 3, quarter 4 onwards, we should see a return. And we should -- we will be surprised positively compared to what we can imagine today. I think the situation in quarter 3 and quarter 4 will improve.

Okay. And on down-trading part?

On the down-trading part, you're right. There may be -- I think what will happen is that people will move towards the value that they are getting specific value. So what I'm saying is that they will not pay for bells and whistles. But I don't think that there will be a wholesale down-trading because those phenomena, which causes a person to buy a 150cc over a 100cc will remain. I don't think that will get structurally changed. But within the 150cc, you will certainly look at the value. I mean you will look at variants, which are -- which do away with the frills, et cetera. So I would say that in an overall segment structure, we may not see too much of a structural change. But within a segment, people might just go for better value.

So just to add to what Rakesh mentioned, we have seen it in FY '20, when the cost in price increase of CBS versus ABS of INR 500 and INR 8, 000 happened, there wasn't significant down-trading, yet the segment share came down, but it came down by 60, 70 bps. So there was no major down-trading in spite of the fact that a gap between a 125 and a 150 went up from INR 10,000 to almost INR 20,000. The other thing is possibly, what will happen is the lack of job or such things will make a person question whether to buy or not to buy. If the person decides to buy, he may like to, as Rakesh mentioned, may like to buy the cc that we wants, but without the whistles.

[Operator Instructions] We take the next question from the line of Aditya Jhawar from Investec.

Congrats on great set of numbers. Sir, my question is with regard to three-wheelers, just wanted to understand that three-wheeler, what is the share of financing? And how different is three-wheeler financing versus two-wheeler financing? Is there a share offer, kind of, a recourse to us because this kind of customer is the most stressed out in the period of lockdown? So are you guys experiencing any delinquencies in the three-wheeler finance? Or is it directly to do with the financiers, Bajaj Auto is not involved in this?

Well, Bajaj Auto Limited is not involved, Aditya, as you know. The financing is done by financiers, including Bajaj Auto Finance and other financiers. The -- in the three-wheeler business, the financing penetration is much higher than the personal segment of motorcycles. And definitely, at this point of time, there is -- with the almost nil road transport and people not venturing out, the three-wheeler driver has got no business. And the way this works is that there are daily savings and there are weekly remittances, monthly remittances, which have got obviously interrupted. And three-wheeler finance -- three-wheeler portfolio of the financiers would definitely will be seeing a very, very serious drop off, which, hopefully, as the lockdown is lifted, would start to reverse itself. But directly, yes.

But Rakesh, considering your comment on social distancing, people's ability to use -- not ability, but actually, they want to use the three-wheeler a bit relatively lower. So does that mean the outlook for our domestic three-wheeler business is not so encouraging in the near term? What is your thought on this topic?

So I will separate it in 2 parts. From a demand perspective, I think we are extremely well placed because the segment which is going to get shafted is going to be the larger three-wheelers, which is where the diesel and the larger three-wheelers, where we had a much lower stake. As you know, we have 85%, 90% market share in the smaller three-wheelers. And the largest three-wheeler is the one which is used almost like a mini bus where there is a lot of sharing. The smaller three-wheeler is the one which is where there is a -- a lot of it is private -- I mean, it is not sharing. People just -- it's not a stage carrier. So we see that in this situation, people will shift from the larger three-wheeler to the smaller three-wheeler. Secondly, after the BS VI, there is the round of price increases which have occurred in the larger three-wheeler versus the smaller three-wheeler. Larger three-wheeler driver will have to earn that much more to be able to pay the EMI. And that itself, COVID or no COVID, was going to be impairing the growth of the larger three-wheelers. So we believe that actually, the three-wheeler market will continue the way it is, but its composition will move very, very seriously towards the smaller three-wheeler.

Okay. And the final question is, sir, in terms of our inventory of BS VI, what is the current inventory? And considering the production ramp-up, the way it will happen in the next couple of months, what is our plan of getting the inventory back to the normal level of our dealership?

Well, after the whole March month, et cetera, we are actually not facing a serious inventory issue. And a minor adjustment of here and there, we should be able to be quite on top of it in June itself. So that's not such a big issue for us at this stage. We opened with a very, very sensible inventory. But of course, because of April and May, it has popped up, and we'll correct it in June when the dispatches really begin. We are -- our plants are -- overall, the 3 plants put together are at about ready to produce at about 50% to 75% capacity. But demand is nowhere near that level as yet. I told you that right now, retails are running at about 25% of the normal levels. Hopefully, this will increase to 50% next month, and we'll correct the inventory at that time.

The next question is from the line of Satyam Thakur from Crédit Suisse.

Sir, my question is on the price hike that you have taken across your portfolio recently. Based on various models, it looks like you've taken 1% to 2% kind of price hike and right up to 3% on a few higher cc models. So what has been the driver for this decision? Is it commodity movements? Or is it to give better dealer margins as another competitor seems to have done? So what's the thought process here?

See, this has actually been a continuous exercise for us since almost 9 months back, where we have been trying to improve the quality of our portfolio. If I may just say that one of the, actually, highlights for us from the '19-'20 results and particularly the -- and you're seeing its impact in quarter 4 is how we've tried to reshape our portfolio, and we are in a much better position going forward. And I'll explain that later. Now the way we have reshaped our portfolio is where we were selling 100cc only, and 92% of our sales was 100cc products and only 8% were 110cc, we've consciously moved to almost a 50-50. Today, 110cc accounts for 43% and 100cc accounts for 57%. This has further moved in favor of 110cc. And so therefore, when we move from 100cc to 110cc, we find that not only does the pricing improves, obviously, the margin improves, but also the benefit which we are giving to the customer because the 110cc is not just about the 10cc that is coming, that model is coming with a few more features which add value to the proposition. Similarly, we were not in the 125cc segment. We choose to come in with a high-priced 125cc, which is Pulsar 125cc, which is really an extension of the S segment into the M territory. So we are not really -- we are competing with the N segment, N3 segment through outside it through just pulling down the S segment over there. That has also helped us. So the drive towards improving our EBITDA, SKU by SKU, is actually commenced quite some time back and it is continuing. It is not going into dealer margins. These are things which we are just strengthening our portfolio.

Got it. And sir, just one follow-up on the demand discussion you have done so far in the call. You mentioned how retail run rate is at around 25% of the overall number now. But what kind of -- where are we on the inquiries and the bookings run rate? Because some of this retail run rates will be indicative of pent-up demand. But the incremental inquiries, where are we on that, on the bookings?

The current retails which we are seeing is mostly consummation of the order -- of the process, which has been initiated in March by customers. Our customers are already discussing. Some had paid advance, some had expressed a very strong interest. And I must say that in the first 1 week, it is both people, either they come of their own volition or the dealer who knows that these are the people who had expressed a firm interest on the dealer opening has gone back to them and said that let's finish our discussion. So a large part of the early retail is the completion of that process. In terms of fresh inquiries, I think what is going to -- what we are going to see is we are not going to -- if we just compare inquiry to inquiry, let's say, in June, to a normal run rate, we will see much lower inquiries, but we will see higher conversion rates. It means that the casual bias is going to reduce. It's the serious buyer who will step out. I don't think people will go and visit so many stores, which sometimes increases the inquiries. People will probably do their homework through WhatsApp and Internet and digitally and make fewer visits to a showroom. Therefore, the level of inquiry will reduce and we should see a rise in conversion rates resulting in the retail levels, which I indicated to you.

The next question is from the line of Hitesh Goel from Kotak Securities.

Sir, can you share your export outlook? I know it's quite difficult right now. But can you share in terms of what is happening in the market there? And are you guys gaining market share? Because our belief is that Chinese competition is quite fragmented in Africa, and you should actually start gaining because they are smaller than you there. So any perspective on what is happening in Africa and in Latin America?

Absolutely. The -- actually, if I comment on the previous fiscal, we have gained handsomely in Africa. And we are in a very, very strong position in Africa, whether -- not just Nigeria, where we are not just 40% plus market share, but the next competitor to us is probably 1/6 our size. So we have a very high share, and the competitive ratio is very much in our favor. East Africa, whether it is Kenya, Uganda, Ethiopia, Tanzania, again, excellent market share we've got. Southern Africa, Democratic Republic of Congo, excellent market share. Egypt, we are #1. So every -- I would say, we're heading towards almost a 38% kind of a market share across the African continent. So it's a very strong position. It's a singular brand, which is there. We have, of course, introduced 1 more brand in some geographies. But it's a singular brand, which is Boxer, which has got an unassailable position now. There's only 1 odd country -- 2 odd countries in Western Africa, Guinea-Conakry and all, where we have not been able to penetrate. So we are in a great position. And I -- and you're very right that the Chinese competitors are very fragmented. And they are more dependent on local buyers going to China and picking up and they're more sort of in a trading mode rather than in an OE mode. So there are no OEs, proper strong OEs except for 1 or 2 in some parts which are left, but there's certainly no pan-African Chinese OE who we are competing against. So as the COVID situation retreats, I think we will continue to profit from our strong position in Africa.

And sir, what is your understanding of the African market because a lot of these motorcycles are used for these motorcycle taxis. So how will the situation evolve because COVID is not likely to go away any time situation? So what are you seeing there? Are people still using motorcycle taxis quite extensively? Or personal mobility will start picking up meaningfully in Africa? How do you see this trend to evolve there?

We feel that, again, there will be no structural change to it. One, let's say, once the lockdowns are lifted, in Africa, people don't have any substitute. There is no public transport. And private ownership is still very, very far away. What has to occur is deeper penetration of retail financing has to take place. Over the years, this -- we have been chasing this idea of trying to create some kind of a personal segment. It's in our interest. We have introduced brands like Pulsar. We've done a lot of research. We have attacked more sort of mature markets of an industrialized parts of Africa, like Kenya, where the society is more industrialized. And we have found that there is still some way to go for personal commuting, personal ownership of motorcycles to come. I mean ownership of motorcycles for personal purposes. It is still some distance away. Whatever we sell is, actually, we are selling to the Indian diaspora in this segment. So 99% is still taxi. And we think in the medium term, it will remain like that. It will change only at a very glacial pace.

[Operator Instructions] The next question is from the line of Binay Singh from Morgan Stanley.

Sir, just a continuation from previous questions. Firstly, what percentage will Nigeria be for you for the March quarter?

Specific percentages we don't share, Binay. So Nigeria is our largest market.

Right, right. Because I know I gather that given the taxi ban in Nigeria, this percentage would have come down for us in the last few months.

One minute. Before that, let me just clarify. The taxi ban, it uses taxi, is something which the Indian media picked up recently because there was some CNN report, which -- there was a coverage of it. It has been something which is -- which has been around for some time. What has happened is -- and that, too, it is not for Nigeria. It is only for parts of Lagos city, and that order has been there for 2 years. And what happens is and the way the country operates, that there are times when they start to strictly enforce it. And there was a period when they were strictly enforcing it. And that might continue because it is a government order. And the chaos resulted from that enforcement was picked up and reported. So it was not something which suddenly happened. And in any case, it is only for Lagos city. And Lagos city, the industry is about, if I'm not -- for retails in Lagos city, is about 10% to 14%, if my memory serves me rightly, of Nigeria retails. There may be situations where there are dealers who are based in Lagos, but they're selling, wholeselling or they've got branches outside of Lagos. So purchase may be a different ratio. But Lagos city consumption is in the 10% to 15% level for the industry.

But it will be very helpful to get the number for Nigeria because currency devaluation is quite likely going by media reports and all. So it will be good if, at some stage, the management share that number. But broadly, listening to you on the call, and Rakesh, you have very extensive experience. Between India and exports, which one do you think will do better this year? Between domestic market and your exports?

Well, I don't know how to describe better because -- see, India was -- sorry?

Maybe in terms of lesser decline. So...

Yes. So that's what I was about to develop my thought. So if you are saying that India 2021 compared with India '19-'20 versus international 2021 compared to international '19-'20. I think one thing is -- I'm not -- it's not right to compare international with domestic because they are apples and oranges. If you're asking me whether India will decline more or less compared to the international market, that's a separate point.

Correct. That is the question. Yes, that is the question.

Yes. So it's very, very difficult to say. The early indication one is getting, is that they finally, they're both behaving in a very, very similar manner. When you actually -- when I was actually putting in the numbers, today, where we track retails internationally, also daily, and like if India is in the last 3, 4 days reached at 25% to normal level, international is working at about 35% to normal level. Having said that, I must add that the international retails of this week is also slightly bolstered up because of Eid, and there are certain markets, Egypt or even parts of Nigeria, Bangladesh, which are -- which see an uptick during -- even there -- I can tell you even because -- even despite the lockdown, there are dealers who opened up and they defied the lockdown because they wanted to sell during Eid. So that is both. So if I account for that, I'm saying that, okay, it maybe 30%. So it's like moving in tandem. So I would say that at this stage, I don't think there is going to be a very big difference in them.

And just lastly, could you give us a split between first-time customers and repeat buyers for your business in India? The domestic motorcycle business.

You mean last year?

Latest number you have.

Yes. See, obviously, we are not doing it right now. But what I can do -- I don't want to give you a wrong number. The number is not coming readily to my mind. But if you send me a message, I can separately communicate this for you.

So what you can do, Binay, is we will get the number from Rakesh. You can get in touch with Anand Newar, and Anand will share the number with you.

The next question is from the line of Pramod Kumar from Goldman Sachs.

Rakesh, Soumen, congratulations on an excellent beat. My question continues with what Binay was trying to ask on the first-time buyers, though you can share the number later as to what the proportion. But given the customer profile of a typical first-time buyer invariably, largely in the economic segment or commuter segment, what would be your assessment in terms of their behavioral change post-COVID and also the impact from the dislocation in the job market and also the flow of the migrant population back to their home set? So do you see this development as something which could hurt the entry-level demand more than other categories, from a -- purely from a risk aversion and also the -- what is -- the kind of job dislocation of what is expected? And when you lay over that, the impact of financing and available financing to this category because logically, the delinquency rates have to be higher in this category in a normal period, and that could spike. So how do you think about it from a customer prism or the customer profile, sir?

So I think this whole thing is unfolding -- still unfolding. But first of all, I feel that, like I said earlier, it takes a lot for the architecture to change substantially. So I feel that because there are some very, very strong reasons for that architecture. And when I'm saying about the architecture, there was the -- between the N segment and the S segment. The -- I don't think that shift will certainly change because of down-trading or anything.

No, no. Rakesh, apologies. I'm not even talking about down-trading. I'm talking about which kind of set of customer is expected to defer more, either the entry-level segment customer or the N segment or the Sports segment customer? I'm looking at purely from a customer profile because the markets look at it more from a price ladder perspective. I think the cheaper segment is the one which will sell the more.

No. I think that, certainly, it's the more vulnerable section of the -- that is the one which is going to get more impacted. So from that perspective, I feel that the entry-level segment, for 2 reasons, and I think you touched upon one. One is of course, the availability of cash in their hands is going to be severely impacted. Secondly, I also feel that finance, availability of finance, the financiers are going to make it more sort of difficult for them. They will be choosing the better customers in that segment. So certainly, the very much entry-level will get impacted more. The M2 and M3 progressively will get impacted less and less. There's definitely that point.

And the price increase of BS VI also plays out, right, because that's the retail, which is going to happen now?

Yes. Yes, of course, of course, right. So in any case, we were thinking that it's going to be a tough year because the price increase has to be digested.

Yes, yes. And sir, second question is on the -- sorry, on the three-wheeler side, domestic three-wheeler. Given what's happening and the fact that you talked about downsizing of three-wheelers there from large diesel three-wheelers to small gasoline three-wheelers or alternate fuel, given all that, would you be still optimistic that three-wheeler as a segment could outperform the two-wheeler segment in domestic given the points you laid out? There, you clearly see an element of down-trading to a category where you are more dominant.

There, I think it is more of B2B versus B2C. And hence if you were going to -- the price increase on a large passenger vehicle is more than a small passenger vehicle. And if you are not plugging 8 people, 9 people, 10 people, then you'd like to evaluate your economics, and possibly like to buy a smaller vehicles, take up less people because the cost increase has been lesser.

Sure. That's what I had mentioned earlier that the smaller three-wheeler is going to benefit. The other thing is that there is a huge push towards CNG. And the economics is really loaded in favor of CNG. So we will see a diesel-to-CNG transformation. And I think we will also see a lot of tailwinds for the cargo segment because the deliveries, et cetera, intra-city deliveries, et cetera, going to really increase. So the issue clearly is how fast the retail financing sector respond to the new realities. Definitely, things will be more difficult. Credit risk assessment will have to be made more sharply. There will be interruptions in the future because the COVID is not going to disappear, and there will be situations where geography might just get locked down and then the lockdown is repealed. And then again, it gets locked down. And therefore, normal flow of business is interrupted. And also the EMIs et cetera, gets interrupted. So those factors will -- but if we can have a good, solid retail finance response, I think the demand is there. And just I do got those figures out. The first-time buyers for us are in 2019, '20 are at about 56% to 59%, depending on the segment.

The next question is from the line of Gunjan Prithyani from JPMorgan.

I just had a follow-up on this retail financing. Now as you are opening up the dealership, have you sensed any difficulty in financing being available because clearly, some of the financials have pointed out a lot of stress on the auto book? So is that a worry because it becomes even more important in BS VI pricing environment that we have adequate retail financing available for two-wheelers?

We are not facing any difficulty as yet on the motorcycle two-wheeler segment because I think the retail finance companies are also very keen to keep their top line growing. And we think that there is adequate support. What is needed, I think, over there is some imaginative products which take into account some of the disruptions which the customer can face in the future. So I think the retail finance segment needs to respond to those things. But when it comes to three-wheelers, which is more B2B, there certainly, at this point of time, we are facing financing issues because the financing companies have not yet got their mind together on how to deal with the autorickshaw because you have to understand that, that business is not resumed. So at this point of time, first of all, the inquiries are very, very few. But even if there is an inquiry, a retail finance company, I suspect, does not know how to deal with this because they also can't see in the future. Personal segment is different because you've got the income proof and -- or you've got a fairly different type of assessment, which is taking place. So that's fine, but the three-wheeler is the one where we are facing an issue.

And could you share what was the financing penetration in the last quarter?

Gunjan, if after the call, you could connect with Anand, the nitty-gritties like finance penetration and payer sales, export/import, all that will be shared by Anand. We are conscious because we have quite a queue, so we'll skip it.

Okay. So just 1 question to you, Soumen, on the margins. And I apologize if this has been addressed early on. But I am just looking at the margin performance, and I do see there's an inventory adjustment out there. Could you explain that, how much of that could reverse? And given some of the comments that you made that within the domestic business, we are trying to make a calibrated strategy to look at the every SKU profitability. So if you can share your thought process around how we should look at the margins because I think the growth trends in both the segments, domestic and exports, are fanning out, I mean, decline is similar in both the segments? So how should we think about margins at least in the next 1 year or so?

Two questions. First answer, there is no inventory correction. It is our common accounting practice that either you show cost of goods sold or you show cost of raw material consumed and then do the change in stock. So there is no inventory correction in the books. It is just a way of representation, and every company has to give that change in inventory. Coming to the second question. See, we have had a run where we have been able to improve our blended EBITDA. Now as I mentioned, the blended EBITDA has not been because all my SKUs have seen an increase in EBITDA. It has happened through mix. It has happened through some smart pricing. I would not like to hold 19%. The difference between you guys and me is, you take the CSR, I don't take the CSR. So 19% EBITDA on a sustainable basis is clearly not something which should be factored in. But yes, we would like to see EBITDA improve in every SKU in every segment. However, as you know, I have got 4 segments and all 4 segments have a huge gap in their EBITDA. How the mix falls? I really do not know. Coming to your specific point that the decline in domestic and exports will be similar, I would tend to disagree. Industry, I think domestic will decline more than exports. Within that how we feel is a different discussion. But my sense is domestic is going to decline more than exports is going to decline. But don't take this as a cornerstone of our future margin.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

Two questions. Sir, would you be able to share export breakup for FY '20, region-wise, which you generally share in annual report?

So Jinesh, you can collect with Anand after the call. He'll give you the breakups.

Okay. And secondly, on FX hedges, what would be our hedges for FY '21?

So we are covered. So assuming that we will do whatever we are expecting to do, we are covered about 70%, 75%.

70%, 75% of pre-lockdown targets or the recent one?

Post-lockdown targets.

Post-lockdown. Okay. And lastly, the dividend, which we paid of INR 120 per share, is that the new normal in terms of the payout? Or that was one-off to take advantage of the increase in tax?

That's a very future-looking statement. I will not be able to comment because the dividend is decided by the Board. All that we can say is it was a special dividend, and we'll leave it there.

The next question is from the line of Pramod Amthe from CGS.

First question is with regard to exports. How do you look at the export basket as a proportion which goes to oil-producing countries? And considering the volatility in 3 years back and now, again, it's happening, is there effort to structurally move this proportion gradually down, might be, say, around 3 years or 4 years? And what are the steps taken there?

[Technical Difficulty] We seem to have lost the line from the management. Please stay connected while we reconnect the management line. We have the lines from the management reconnected. Over to you, sir.

Sure. Should I repeat the question?

Yes, please.

Yes. So this is with regard to exports. How do you look at exports? What proportion of your export goes to oil-producing countries? And considering that the volatility of oil and enhanced exports has been a repeating phenomenon in last 4, 5 years again. Are you structurally looking at reducing this dependence? And what are the steps taken? And what can be outlook to reduce it in 3 years down the line?

So we are -- we have not, I must say, looked at what portion of our exports go to oil-producing nations. But as you can well imagine, this class of motorcycles largely goes to emerging markets, which are based on oil or commodities, agricultural commodities, et cetera. Our approach is really to deal with each market at its own merit. And we have decided that we have to have -- we have to continue to increase our market share at a global level. Then, we are looking at each market at its own merit, and we are not saying that, okay, now we've got a problem in some oil-producing countries, so let's try to maximize market share in other countries. No, we are looking at maximizing market share in all the countries where we -- which we find meaningful in any case. So that kind of thing is not there. But yes, going forward, we're having a very strong momentum now and a really deep -- depth of experience, talent, product portfolio and understanding of these markets. We are now looking at taking up the market shares in some territories where we have not done so well or where we are new entrants. And I would say that ASEAN is an important focus for us. We do very well in Philippines. In fact, we become #1 in Philippines. And -- but we don't do -- we are not there in Indonesia as Bajaj, but -- and Thailand, but we are just launching, going to launch in Thailand. So we are going to pick up ASEAN, and we are going to really improve our market share over there. But this is not a response to oil getting into trouble, oil-lead countries getting into trouble. This is a strategy which is irrespective. Tomorrow oil goes back to, whatever, $40, $50, $60, it's not that we will take the pedal -- our foot off the pedal from ASEAN. But I would say that the most important market is ASEAN and followed up with looking at the right entry time for Brazil and Europe.

The next question is from the line of Aditya from HDFC.

Yes. I just had a question on the two-wheeler financing. What is the normal default rate, which happens in a regular year? Is it like 5% to 10%? Or is it higher?

Sorry, I mean we would not be able to off-hand quote this number. It is handled by Bajaj Auto Finance.

Okay. Sure. And obviously, tough to call the overall volume guidance for the year, but second half could see a good recovery if the monsoons are normal and the government lifts the lockdown. I mean just generally, how are you looking at it?

Yes. We discussed that earlier because of the -- we think that the positive forces will start to have an impact in the second half of the year, and we will see a smart recovery in the second half of the year. At the end of the day, it's an essential product. And we are hoping that this period, more than anything else, people will -- the different agencies involved will understand the operating protocols, procedures, and we'll all learn to live with COVID, and all those supply chain type of lines will get sort of disentangled, retail finance will get a better grip over credit risk assessment. And I think that could set us up very nicely for the second half.

The next question is from the line of Sonal Gupta from UBS.

Just -- I mean could you share Q4 export revenue number?

Specifics, please, Anand will take it up one-to-one and share whatever details are required.

Okay, sir. And just on -- I mean given the industry volume reset over this year and last year, do you -- what -- is there a need for more dealer support? Just some comments around how do you see that and condition of dealers and sustaining that network?

Well, our approach to managing the dealer network is, I think, slightly different from what we observed competition is doing. I don't think that the current environment and particularly the way this year is going to unfold. We discussed this earlier, there are some definite changes which are occurring in terms of customer behavior, which require a different set of go-to-market strategies. Our approach is not to subsidize the cost of the dealer, like paying some salaries or doing that. But we will be spending money on building new functionalities with the dealer, so that the dealer is better equipped to deal with, to manage the future. And then we will do together, whether it is a much superior level of customer experience, whether it is digital capabilities, whether it is more institutionalized way of managing exchange. We would rather invest behind building those capabilities in our dealer network than to give a margin and -- or be feudalistic about it and give a margin and just sort of subsidize the cost of the dealer.

We'll take that as the last question. I would now like to hand the conference back to Mr. Soumen Ray for closing comments.

Yes. Thanks. Thanks a lot, everybody, for showing interest on this call. We have done whatever we have done the numbers like here. The future is really uncertain. All of a sudden, in this call, there was not a single question on BS VI. So that is how life changes, something which was on the top of the mind of everybody on this call has now been taken over by COVID-19. We continue to march here and try our best to deliver competitive, profitable and sustainable growth. I'm aware that there are others also in the queue whose questions have not been answered. You all know Anand Newar, he's joined us as the guy handling IR from January. Please direct your questions to him, and I am always there if it is required. Sanjeev is there. I'm there. From all of us from Bajaj Auto, be safe, be good. And hopefully, we'll meet all of us on the other side of July, where all this is a thing of past. Thank you.

Thank you very much. On behalf of Bajaj Auto Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.