Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to Bajaj Auto's conference call to discuss the third quarter fiscal year 2021 financial results. We have with us today Mr. Rakesh Sharma, Executive Director; Mr. Soumen Ray, Chief Financial Officer; Mr. Sanjeev Garg, Vice President, Finance; and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Steven, and I will be your coordinator. [Operator Instructions] We will begin with opening remarks from the management, and we'll start with the Q&A session post that. I now hand the conference over to the management. Thank you, and over to you all.

Good afternoon, ladies and gentlemen. This is Rakesh Sharma here. Thank you very much all of you for joining the call. Let me begin by wishing all of you and your families a very, very happy and healthy New Year. Now it's a pleasure for me to report these delightful results for quarter 3. And I'm sure most of you have already had a look, in which we have recorded our highest ever turnover, highest ever PAT and highest ever exports. No doubt, there is a rebound effect or pent-up demand returning as economies emerge from the pandemic. But I must say that we take great satisfaction in the resilience, control and actually laser sharp focus demonstrated by our teams. As described in the previous quarter, our objective in quarter 3 continued to be: number one, to capture the demand recovery, both in domestic and international markets, so a lot of supply chain management; and number two, to ensure strong focus on margins in an uncertain business environment, and this is being done through tight cost management, which was launched actually around March, April; selective price improvements in the portfolio; and most importantly, driving off the premium end of the portfolio in each segment, internationally and domestically. Therefore, despite headwinds of logistics, supply chain disruptions and raw material cost increases, particularly towards the end of the quarter, the business has succeeded in delivering these record results. My comments on this are divided in 2 parts, for Q3 and then observations on the short-term outlook for the coming quarter. So talking about the quarter gone by first. We would like to highlight 2 key features of this performance in Q3. And why -- what sort of is the underlying driver of these top line record and bottom line record. The number one thing is the acceleration of the exports business. Now this is a result of a recovery in most overseas markets, combined with our strong position of being a player #1 or a strong #2 in these markets. And this has allowed us to get more than a fair share of the recovery. This has, of course, been made possible by some tenacious logistics management. South Asia, with the exception of Sri Lanka and Africa are back to pre-COVID levels. LatAm has at about 80% to 90%. However, ASEAN, where we have one of our key markets, Philippines, is still at 50% of pre-COVID levels. This has also meant that we are now seeing a rising proportion of higher-end Pulsars and KTMs even in our exports. There is definitely an improving trend in overseas demand for not just motorcycles, but also three-wheelers. In three-wheelers, Lat Am is back to 50%; ASEAN is struggling at 25%; and all the others, Africa, Middle East, et cetera, are running at pre-COVID levels, or slightly ahead of pre-COVID levels. Our information suggests that we have gained market share in almost every single international market and obviously, overall. The container availability posed a huge challenge and it still poses a challenge. Our management -- our horizon, which used to be 3 to 4 weeks, 2 to 3 weeks to get a container. Now we get 2 to 3 days' time to react. And almost every month, 15% of our order book is getting spilled over to the next month. We have tried to mitigate this by entering into long-term contracts with shipping lines for most key markets. However, we do expect interruptions will continue for another 3 to 4 months because a lot of the container traffic is getting sucked in by the China-U.S., China-Europe routes, which are offering very lucrative trades. In domestic, the key highlights are the remarkable performance of the Pulsar 125 as well as the super premium end of KTMs and Dominars. These, of course, on a volumetric basis, are a small proportion. The Pulsar 125 is a significant proportion now of Bajaj Auto. This has significantly lifted the financial performance of the motorcycle business unit during the quarter. Consecutively for last 2 quarters, we have now sold the highest ever Pulsars. Pulsar 125 is driving the industry itself by expanding the 125cc segment. The share of the 125cc segment in the Indian industry has moved from 19% in Q3 last year -- last fiscal to 23% in this quarter 3. Within this segment, our market share has moved from 13% in Q3 FY '20 to 23% in this current Q3. And actually, our exit market share in December in the 125cc segment is a whopping 28%. The march of the Pulsar 125 continues, and we can see from competitive reactions that it is causing concern in their camp. We are happy that our mainline Pulsars, the 150 and above, have held steady and cannibalization has been well managed. This was an issue which we were very alert to. But I can tell you that the core market share of the Pulsars 150 is protected. We have seen some cannibalization action in 150 Neon due to not just the 125, but also because we increased the price of the entry-level 150. Almost -- this price increase is almost 40% since it was launched in mid-2018. The growth story of KTM and Husqvarna bikes need to be mentioned. We have witnessed 35% growth in these brands in India. And you may have noticed while watching cricket that we are trying to build the 250cc segment through 4 outstanding models of Bajaj, KTM and Husqvarna, who are appealing in chorus to the customer to upgrade. We believe that our challenge over here, as it is in the sports segment, is actually to expand the cake and not just take a larger slice of it. In combination, this has completely offset loss of market share in the entry segment. Here, in the entry segment, we have not just raised prices, but we have also qualitatively improved our portfolio. So our objective, as we went into the pandemic in an uncertain demand scenario, was to make sure that we protect our margins, and that's what we have done even in the entry segment. And we've done that, like I said, by raising prices as well as by trying to sell the higher order variants, whether it's an electric stuff, where proportion of business has gone from 65% to 75%, whether it's disc in favor of drum or whether it's 110cc in favor of 100cc. On commercial vehicles, the demand has improved sequentially, albeit, at a slower pace. The demand for short-distance mobility remains weak, as most schools and offices are closed, and large population is still operating from home. Sales have recovered only to 40% levels. However, it's good to see that service is back to 90% levels, and we take this as a nice lead indicator. Within this, the cargo three-wheeler segment is outperforming others and is back to about 70% level of normal times. Coming to our immediate-term outlook. Domestic motorcycles is now running at almost equal to last year retail. However, you will see some very high-growth numbers in quarter 4 for the industry and for us. But that is due to the base effect of a very low quarter 4 last year because the industry and all the companies were preparing for the BS VI transition. My own view is that if I take a sweep zoom out and take a sweep of last 5 years and see how Q4 responds -- how Q4 follows Q3 and using that information sanitize the Q4 last year, the base effect, then I would say we are at low single-digit growth in demand. We hope to keep a pace a bit faster than the industry. But for us, most important thing is to continue to maintain the structure of our portfolio in terms of the mix, and 125cc as well as the super premium segment will be the key drivers for us. Domestic CV, hopefully, will climb up to 50% levels of last year compared to 40% in quarter 3. And that, I think, will be a very, very welcome thing for us to see the three-wheeler business adding 1,000 or 2,000 units. Internationally, we will continue to -- we'll continue our growth momentum. There is no base effect there. But we see double-digit growth of 13% to 15% across almost all markets. And if ASEAN recovers and the CV business environment improves, we think we will be able to deliver a best ever quarter 4 in terms of exports. On the cost front, there is an increase in raw materials in the coming quarter, as you all know. So far, we have taken price increases, first, to offset MEIS in our international markets, and then also some cost increases. We've taken a price increase even in January. And we are carefully monitoring the situation. Demand recovery is fragile. And price increases to recover cost had to be calibrated, and probably will extend over a period of time. So what I'm saying is that while the cost is going to hit us immediately, the recovery of this cost to price increases may be spread out over a period of time depending on response of demand and competitive action. ForEx realizations are expected to hold steady. Quarter 3 being a seasonally strong quarter. We may not get similar operating leverage in the coming quarter. Therefore, on a sequential basis, we may see some pressure on our margins on account of lower operating leverage and unrecovered cost increases. Having said this, there are a couple of tailwinds as well. We are hoping that the government will finally land the RoDTEP scheme and announce the incentive. And if they are going to be matching the MEI scheme, which we hope in the least, then we can assume that, that would be a 2% relief or a 1% relief to the -- to Bajaj Auto at a corporate level. And this would definitely offset the pressure on margins to some extent. We will continue, therefore, our twin approach of driving the premium end of our portfolio in each and every segment through innovation, communication and activation; and secondly, to keep up with the growth tempo and exports to deliver growth ahead of recovery in international markets. Thank you very much. And with this, we are now open to your questions.

[Operator Instructions] The first question is from the line of Pramod Kumar from Goldman Sachs.

Congratulations on a good set of numbers. Rakesh, if you can -- because yours is this first result in this quarter, if you can just help us understand the extent of commodity hit the industry is facing? And generally, what negotiations [indiscernible] went like? Is it because of the sudden -- sharp improvement in the global macroeconomic factory? Is it because demand [ mismatch ]? And what are the feedback you're getting about stickiness of this commodity rally? Are you able to kind of contain this inflation to a -- yes, sorry.

Yes, Pramod. Thank you. I would take the cost increase number of Q3 in upwards of 3% of top line. So that's a very large increase, headlined by base metals, primarily steel and aluminum. Now let us also say that whilst we are speaking of an increase, there was a reduction also which has happened some time back. So this is not like never before levels. There is -- if the economic activity is going to continue the way it is now, we are not getting any indication from any steel or aluminum manufacturer that they're going to roll back these prices anytime soon. So yes, as of now, with steel, they are here to stay. We do not have any visibility of Q1 of FY '22. But for Q4 of FY '21, yes, the hit is pretty large and driven primarily by base metals.

And the second question is on export side, Rakesh.

I'm so sorry to interrupt. But your voice is breaking up. Maybe -- may I request you to move to a better reception area, please?

Is it any better now?

Yes, sir, you may proceed.

Hello?

Go ahead, Pramod?

Sorry for this. Yes. So on the export side, Rakesh, if you can help us understand what is driving this sharp and sustained demand improvement there versus, say, domestic? And is it -- and how are we positioned on the inventory?

So Pramod, like I said, that Africa, which is our largest market, was not to begin with so badly affected by COVID. But it is now demonstrating growth even beyond pre-COVID levels. Latin America has returned, but okay, it's at 80% to 90%. South Asia, with the exception of Sri Lanka, has returned. Middle East has returned. ASEAN is very much down. So yes, the market -- largely, I would say, for motorcycles are operating at -- if I put everything together, at about 90% levels. The second thing is -- so basically, yes, demand has increased. Now in the period of April to July or so, we had corrected a lot of stock because there's a lot of money which has been -- which is -- which our channel partners have got stuck in that. And therefore, we actually are -- I would say, our stocks are slightly behind retail right now. So this is, again -- I mean we are going to be entering FY '21/'22, I would say, with a little bit of an appetite. So it's not that there is huge amount of stock. And finally, I would say that this acceleration in exports is nothing but a demonstration of our competitive position in these markets. We are -- this one metric, which we monitor very carefully, we are at about, I don't know, the latest numbers, but I know that pre-COVID, 85% of our revenue came from markets, where we are #1, #2 and in the minimum 25% market share. So we are not a small player in these markets. We've got solid position. The customers think of Bajaj top of mind. We've got the widest dealer network. We have got service. We've got -- a lot of people don't have assembly plants. They're trading. We're not trading. We've got assembly units. We've got people. We've got market research going on over there. We've got engagement through PR, advertising and digital marketing platforms. This -- all this is happening. And this allows us -- this deep market knowledge allows us to take very calibrated judgment on how much price increase to do, where to do, what not to do, which product to launch, et cetera. So I would say that the acceleration in export as the demand has returned is a reflection of the robust position, which the Bajaj brand and networks enjoy.

The next question is from the line of Binay Singh from Morgan Stanley.

Congratulations for a very good set of numbers. Just a clarification. So did Soumen mean that raw material as a percentage of sales, which was around 72% in quarter 3, will go up by 300 basis points based on spot level? Is that what you said, Soumen?

Yes, you can assume that.

Okay. That's helpful. And secondly, my 2 questions. Firstly is on the other expenses. We've seen this trend, and I think it will happen in other companies also that while top line is growing, the other expenses are declining. So how sustainable do you see this is? In the previous quarter, you had highlighted that this can come back at some stage. So could you talk a little bit about what part of it remains low and what part of it will come back? And the second question is on consol versus stand-alone. We see a nice -- like consol numbers are higher than the stand-alone numbers. So is this all profit coming from KTM? Could you share on that? These 2 questions.

So first -- second question first. Yes, everything is KTM's profit. KTM had a stellar quarter. So it has over INR 160 crores added to the consolidated profit after tax. The first question…

So there is no one-off from KTM because it's quite a strong number…

There is no one-off. Yes, they were going through a difficult time at the beginning of the year. And slowly they have come back on their way, whilst their volumes for this year would possibly be slightly lower than last year on motorcycles, but on e-bicycles, they we have done a phenomenal work with the opportunity of COVID. So -- but that is for later. Essentially, the gap between my PAT and consol PAT is KTM, my share of profit of KTM. Coming to the other expenses. Primarily other expenses is advertising and promotion. And in these times, generally, not only us, but our competitors have also kept the noise levels low. You would have also appreciate that scheme, the extent of which the consumer schemes ran was low. So my guidance -- or my suggestion is that this will come back to pre-COVID levels. We will see when we need to go to that -- those levels. But will that come back to pre-COVID levels? Certainly.

Okay. Okay. So there is nothing -- so travel and all, which would have come off would anyways be very small…

[indiscernible] really if it is, not even change.

The next question is from the line of Rakesh Kumar from BNP Paribas.

Congratulations to the entire team for a stellar execution. My first question was for Rakesh, especially on the domestic commercial vehicle part of the business. So in the coming months, as the schools and workplaces starts opening up and normalcy returns, and the demand for short-distance mobility starts coming back, how long do you think after that the demand for three-wheeler will start showing up in numbers?

Just arithmetically speaking, I'm seeing that there is a 10 percentage point difference. We are seeing that -- we have our ways of judging how the short-distance ride requests are coming back. If they are at 50%, we are at 40%. So I would say that it should follow very, very quickly. 2 things will start to happen. One is that the earnings of the drivers will go up. And so -- and consequent to that, the second thing which will happen is, the retail finance company will now -- will sort of be less cautious. And as you know, three-wheeler is almost 100% financed. And that would be very helpful. So I would say it would follow within the quarter if demand -- if the ride requests come back, within a quarter, it will start [indiscernible].

Got it. My next question was for Soumen. So we have seen a very stellar margin performance, strong operating leverage benefit this quarter. Is there any one-off which we should be aware of? Or is it entirely cost optimization, which is reflecting? And especially on the employee cost part, sequentially, over the last 3 quarters, we have been seeing it to decline at the time when we have been ramping up our production. What exactly is happening there?

Ramping up of production does not impact my employee cost. It impacts my procurement of sales because we really work on -- employees will not go up. We don't hire extra people. So yes, there are some corrections, some reviews. There are separations, routine separations. There are retirements, where the backfill is not done. So as we said, we are an organization who take our responsibility seriously. So whilst the employees have been impacted by either reduction of salary or being asked to go, we have looked at opportunities where we can optimize this cost. The current levels could be a little lower, maybe by about 1% or 2%. But this is the level which -- so this quarter's number reasonably represents the employee costs for this year. We had some stuff in the early month -- early quarters, which have got unwound. So to come to the main question, are there one-offs? In cost, there are no one-offs.

Okay. And when you said 1% or 2%, you implied what exactly, that 1% or 2%?

[indiscernible] was that we have some one-offs, but they are about a couple of percentage of the employee costs. So they can be ignored.

The next question is from the line of Raghunandhan from Emkay Global.

Congratulations on strong numbers. Firstly, on demand side, domestic motorcycle industry may get some support from student demand, urban demand going ahead. How do you see the outlook for FY '22? And secondly, in terms of electric three-wheelers, it's an area of opportunity. And one of your competitor, Piaggio, recently launched products. When would Bajaj enter this segment? And what can be the potential volumes there?

It's difficult to hazard guesses for '21/'22, but -- simply because '20/'21 has been such a low point, that we will definitely see double-digit growth. I would say -- I mean we can see in the industry something like 15% growth -- 15% to 20% growth is imaginable for the industry in '21/'22, barring no second round, third round, fourth round of COVID. So I'm making that assumption. But these high numbers also reflect the low base rate. The previous high of the industry, I think, if my memory says me correct, was FY '15. I would say that even after a 15%, 20% growth rate, we may still not be back to FY '15. But yes, we will be touching FY '18 also as industry. So that just to balance out the euphoria, which double-digit growth rate may cause. When it comes to electric, we are actively pursuing a very broad program of building three-wheeler and even our cute four-wheeler on the electric platform. We have -- these prototypes are under test. We are looking at various models where we can actually address range anxieties amongst -- range anxieties and operational profitability for our drivers. And the issue in my mind is less about just launching the three-wheeler -- electric three-wheeler, that is very easily done. We have the network. They can be the charging point. But we are wanting to do it, study it very carefully and capture all the positive developments in terms of cost reductions, et cetera, which are occurring in the industry, and then present the three-wheeler. You will see electric range of three-wheeler making their appearance commercially in this financial year, towards, I would say, the second half of the financial year.

Just a related point. Like for the next year, how do you see premium, executive, entry level? How would the mix go? Would it still be skewed towards premium given the trend in recent months?

Well, our strategy is to continue to drive the top end of the portfolio. Pulsar 125 experience has given -- has emboldened us to try and change the shape of the industry, and we will continue to push the industry into better products and premium products. We want to really expand the penetration of 125cc and above segments in the Indian industry. We see this as the best strategy to deal with a monolithic competitor at the bottom half of the industry. To -- we will compete over there also, but we want to compete on the basis of getting the customer to upgrade to better products and better formats. And in these times, 125cc performance has emboldened us, like I said, and we will continue to drive that through new products and very, very targeted communication. People -- and one evidence of that is the 250cc above-the-line advertising, which we have been pursuing. Now somebody can argue that the volumes are too small, but it doesn't justify putting out a television commercial as part of the cricket match. But it is reflective of our attempt to create categories. And if we believe if we create those categories, like we've done many years ago with Pulsar 150cc, we will retain, we will enjoy leadership. So that trust will certainly continue. And there will be regular product launches, which realized this ambition for us.

The next question is from the line of Chirag Shah from Edelweiss Securities Ltd.

So my first question is on the other expenses. So Soumen, if I go back, we had higher other expenses and now [indiscernible]. How much of these expenses are unlikely to come back? Because there is a permanent saving, then there would be some coming back to pre-COVID levels. So how should we look that? Is it a new normal that for the similar level of activity, the other expense long term would be down by 10%, 15%?

Chirag, there is no permanent saving. Everything will come back.

Okay. Including travel, including other corporate events, et cetera, most of the things can come back?

See, we have INR 500 crores of other expenses in a quarter. I'm not discussing whether a INR 2 crore item will come back or a INR 5 crore item will come back or not. I'm just saying directional, the numbers are lower. They are lower primarily because of advertising and sales promotion expenses. And you would note that the kind of intensity of promotion that has been in this festive is much lower than what was there in the previous festive, because everybody is trying to restrict utilization of their resources because we did not know how things will turn out. When corporate discussion comes up, I will not hold back the last INR 30 crores, INR 40 crores in order to maintain my EBITDA. We will deploy that money into the market.

And the second question was on hedges. Now that the positive tailwind on Y-o-Y basis is coming to an end, can you indicate what are the range -- forward ranges that we are working with for next year? What kind of number we should assume broadly?

I can tell you that if rupee remains at about 73, then we will be in market.

Okay. In market as compared to the current F '21, correct?

The fiscal is same. If rupee remains range bound and in the range of about 73, then we'll realize that.

Okay. Okay. Then you'll realize that. Okay. Great. And last thing on the tax rate. Just to understand, so I presume that even now the treasury income would be at a lower tax rate, right? You will have a lower tax rate on the treasury income?

Part of it, not the whole of it.

Not the whole of it?

Not the whole of it.

So that -- okay, so but we can assume this 20% to 23% tax rate as a normalized tax rate?

Yes, it is a 23.5% blended rate for the purpose of your…

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

Congrats on a very good set of numbers. And thanks, Rakesh, for your detailed opening comments. But just a 2-part question on the domestic motorcycle side. I mean, one, on the -- I mean like a couple of years back, you were trying to introduce the price competitors in both the segments, right? On the premium side, you had the Neon; on the entry side, you had cut significantly on the CT100. And now we're taking this pivot that we want to do more margin-driven products and improved portfolio from that perspective. So do we see that the market share objective is now on a backseat? Or -- I mean I'm just trying to understand what's the strategy because I think post-COVID, like you said that you've pivoted again towards margins. So just wanted to understand, one, on the entry side, is that going to be the strategy? And then on the premium side, I think it's a very hard thing to see the advertising happening for the 250cc and trying to build the portfolio there. So if you could just sort of talk about on the -- on this premium portfolio because if you look at the overall market share, in quarter 3, your market share is at 27%. I'm looking at 125cc plus category, the 150 and above, which is same as what Royal Enfield has. And -- so I mean what is the ambition here? And how do you -- now that the 125 has created a space of its own, but the 150cc and above category, how do you see this portfolio -- I mean strategy going forward? So if you could just talk about these 2 segments?

So I must point out that there is no significant pivot. We -- the strategy has remained actually the same, but we became -- we -- when the demand situation became very uncertain in post-COVID, we started to look at all the margin accretion opportunities. Let me think why it is not a pivot, though I fully understand that from your vantage point, it might be seeming that, oh we went out for low -- we went pricing both in 150 Neon and CT, and then now we are talking something. You are very, very justified in saying that. Let me take the 150 Neon first. How did the 150 Neon whose father actually was 150 Classic, which was nothing but just reducing the price. The industry event which had happened at that point of time was that the [indiscernible] change was taking place, which was taking the pricing of the 150cc up, and the 125cc segment was going to enjoy a tailwind. We were the only people who didn't have a credible offer in the 125cc. We wanted to have a proper offer over there. But to put these products together takes time. We knew when our product pipeline was going to push out the Pulsar 125. But we knew that there would be a time gap where the 125cc segment would enjoy a tailwind, competition would have product and we would not have product. So our move was a quick fix. We took the 150 Neon, separated it from the classic Pulsar and priced it to be very close to the 125cc segment so that we could enjoy some of the tailwinds which we're going to strike that sector. The moment we got the 125 -- Pulsar 125, the reason for existence of the 150 Neon shrunk. So we got its prices back. And of course, some parts of the demand got affected by it. If you see, we've increased the price of 150 Neon by more than 40% between May '18, when it was launched, to January. And the reason for that is not -- the reason was that because we said that now we've got a credible 125cc play, so the service which the 150 Neon was doing in playing a nightwatchman for that segment was now over and it could be retired into the pavilion. But, of course, net-net, we have monitored the total market share of the 125 plus 150 Neon. And we've found that we've gained much more in the 125, much more than what we had lost in the 150 Neon. So that seems like a pivot to you. But for us, it was a stopgap, nightwatchman move. It is similarly in CT100. In CT100, what -- came in a period where, again, we were facing an expansion of the M1 segment without having credible options over there. And we launched a very, very basic product at a cheap price to ensure enough throughput. Ever since then, from 2018 to now, our attempt has been even in this segment to continue to move the customer to the higher-end product. And I'll give you some data points over here. Between last -- last year quarter 3 and this year quarter 3, look at the portfolio qualitatively. Our electric start, which used to be 65%, is now 75%. 75% of our portfolio is electric start. We want to make it 100%. We want -- and there are very few countries outside of Africa, where this is used as a taxi, where people still go for electric start. It's the single biggest disruptor. We want to -- we want the whole country to move to electric start. We used to sell 6% of our entry commuter portfolio was having disc breaks, today 27% has. And we want every customer to enjoy disc break and the comfort and safety of a disc break. So it's a proposition, qualitative proposition. And similarly, almost half our portfolio is 110cc. So even in that portfolio, the fundamental strategy of Bajaj Auto is to try and leverage its R&D and upgrade the customer to qualitatively better products. This is about -- but the genius here, which sometimes we get it, sometimes we don't, and that is whether the proposition the customer is seeing is balanced with the extra price which the customer is paying. When that proposition -- when you find the sweet spot, market -- the market starts to move, like in Pulsar 125, we have demonstrated. But yes, there have been a couple of 110cc's here and there in CT110, where the proposition has not moved the metrics. But we will relentlessly keep on this platform and keep on trading the customer up. Between now and the next 36 months, I can tell you that this theme you will see played out in 1 product innovation, 1 new platform after the other. When it comes to the super premium, we will see, of course -- we will see the Pulsar ranges getting better product, better platforms, et cetera. But when we really get into the super premium, we know that we are battling somebody like Royal Enfield over there, which is not a product game. It is not just a product game. I think there is no doubt in my mind that we can make our product, which is better than competition's product. But whether we had the brand story, which packages this product is another matter. And as you move up the pyramid, the brand story, the brand appeal becomes very important. And we have to humbly accept the limitations of our brand. If you -- if our brand is not heritage and classic, it is not a scrambler, then it is not a scrambler. Just by making the greatest scrambler in the world, we will not be able to endear the customer because we do -- we lack a brand. And that is the reason why when it comes to super performance, we've gone to KTM and Husqvarna, and we are working -- we work with them to address the hyperperformance part of it. And we'll be working with Triumph -- we are working with Triumph, and we will -- you'll see the result. So we feel that, in all humility, we accept the limitations of our brand and get into these alliances and use these brands to crack open the super premium segment of India, expand it as well as take a bigger share of it. And we will see co-developed products, co-manufactured products coming out. The latest one, I don't know if you checked that, but we've got an Adventure too. Adventure is a very nascent segment in India. And now if we put out a Bajaj Adventure, it will have its own -- I mean this product is completely made in Chakan, right? So it will have its own limitations in terms of its credibility with the customer. Because when you're creating a new segment, you need the power of the brand. The customer needs to say, yes, man, this is an authentic brand who's telling me to go Adventure, right? And we are trying to create that by putting in the KTM Adventure 250 and the KTM Adventure 390. Authentic brand with great heritage, which [indiscernible] adventure, coming to the Indian customer and telling him that, listen, you got such a great country, why don't you embrace the adventure sport? When a great brand tells you that, the customer listens. And that is the whole attempt. And that is the way we want to sort of build our position in the super premium segment.

Great, sir. Great. If I could just ask, I mean, like a bookkeeping question. Could you indicate what sort of price increases have we taken on the three-wheeler side in the domestic market, if any?

In three-wheeler in Q2 -- I'm sorry, Q3, we have taken roughly about 1%.

And anything in January?

January is almost literally nothing, because anyway the industry is under [indiscernible], kicking up prices further doesn't help. So we've taken about 1% in Q3.

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

Continuing on the price increases. So for the domestic two-wheelers, what kind of price increases you have taken in the third quarter and in Jan?

Well, first quarter was again about 1% in domestic two-wheelers. And Jan is, well, a bit more than 1 -- one 1 quarter.

Okay. Okay. Okay. And secondly, with respect to some data points on export revenues -- revenues and USD/INR realization?

Yes. So realization was INR 73.4 and USD million was how much? 1 second, will tell you the USD million number.

No, I just wanted export INR crores, not USD million.

So export INR crore is -- export INR crores is about INR 4,082 crores. And we -- so this includes all countries, including Nepal. Nepal, we do Indian currency. The rest of it is in U.S. dollars, which is at INR 73.40 at $20 million with spares.

Sorry, spares, how much you said?

No, I said this number includes spares.

Okay. Okay. And overall spare revenue?

About INR 990 crores.

INR 990 crores.

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

I wanted to get a sense more on the CapEx required for the electric vehicle plant. I think you have mentioned around INR 650 crores. So how will that be distributed over '22/'23?

So first of all, it is not electric vehicle plant, Hitesh. This will be a plant, which will do -- this will do primarily high-end bikes, which is KTM, Husky and Triumph as and when Triumph gets launched. Electric vehicle, it can also make. But as of now, we are reducing some of the capacity constraints in Chakan by moving some of KTMs over there, so we will have some space in Chakan. So let's not get fussed about what will it make. But it will certainly not make Pulsars, that we know. So it will primarily be high-end bikes and maybe EV may come, may not come. As far as spread out is concerned, very little will get spend in this quarter. So eventually, it will be between FY '22 and FY '23.

So does that change your overall CapEx, because you do around INR 250 crores or INR 300 crores a year, so does that change your numbers on annual CapEx?

Certainly it does.

So it is incremental over that?

Yes, please.

Okay. So basically, we are looking at INR 500 crores, INR 600 crores kind of CapEx, I mean, for 2 years?

Yes, you could take that number.

Okay. And the second question on the gross profit per vehicle. It has improved substantially. You have given some titbits in terms of improvement in margins. Is it right to say that in the export business because of premiumization, you are basically approached and gaining market share in the export side. We have seen this super performance. And actually, also, you had alluded to that Pulsar 125 has gained at the expense of economy. So is this 2 major factors because of which margins have gone up?

There are actually multiple factors, and I would not get into the debate of calling major or minor. The factors are as follows. First, obviously, we are selling more Pulsars in India and rest of the world. So that helps because Pulsar as a brand gives us one of the best margins in two-wheelers. Second, the domestic motorcycle is not growing as fast as exports is growing, which means I'll get a mix arbitrage between export and domestic MC, which is partially offset by CV, but does not get completely offset. So between Pulsar and the mix of export versus domestic. Now does that mean that if tomorrow domestic improves, my margin will come down? It will depend on how much mix changes and how much operating leverage we get, because it is not as if that if domestic goes up, export is going to come down. It's just a ratio. But if the absolute goes up, then I would be able to leverage on my fixed overhead. For example, I can give you one number. Between Q2 and Q3 of the, whatever, 1.5%, 1.6% EBITDA improvement that you see, more than a percent can be attributed to operating leverage. So there are multiple things. What I would give -- what I can assure you is that it is not a flash in the pan. There are no one-offs. Will Q4 be less than Q3? Certainly, yes. But will we be directionally going towards a 19.5% EBITDA? Yes, but not at the cost of being competitive, but being among competitive. So we will remain competitive and find out ways. Please understand this is not being delivered by increasing price of my higher selling SKU by a higher percentage than my lowest selling SKU. As Rakesh was mentioning, it has been a mix of the portfolio. There are small opportunities of pockets where we see we could take up prices a little more than other places. And thereby, the portfolio changes. The Pulsar 125 migration of M1 plus M2 has obviously, helped because clearly, the kind of money that we make in 125cc is more than what we make in a 110cc or a 100cc.

Yes. I got. Just to my final clarification, export revenue is INR 4,092 crores in this quarter, right?

INR 4,082 crores.

INR 4,082 crores. Okay.

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

I just had 2 follow-ups. Firstly, sir, if you can talk about the financing side on the two-wheelers. From what I remember from the last call, we were still not back to normal. So if you can share in terms of financing where we are? And also within that, how are we progressing in terms of offsetting the reliance on banks, because they clearly seem to be calling out cautiousness on this space still?

Sorry, I didn't get the last bit. What did you say -- the last bit on…

The Bajaj Finance, clearly, they have been calling cautiousness still in this space. So how are we in terms of having other financial companies offset some of the impact that we are having with them withdrawing from taking -- essentially basically taking a more cautious view on two-wheeler financing?

Yes. So firstly, in terms of the financing penetration in two-wheelers, it is coming back, but more hard -- so it is, I would say, at about 63% level. It should be -- this I'm talking of overall financing. More importantly, the collections are coming back to the normal level. It would -- financing should be getting back to 70%, then one would say it's normal level. Within -- I mean Bajaj Auto Finance, which is as you know run at an arm's length from Bajaj Auto, it enjoys a 50% share, it is -- but more than a 50% share -- I mean it enjoys a 60% share. But more than the share, it is a very strong part of our proposition because it is part of our network. It -- thanks we share corporate name, brand name. It's a very strong proposition to the customers, et cetera. So there is no question of trying to offset Bajaj Auto Finance or whatever. We see that it is a very, very strong partner with us. In fact, we are looking at some innovative financing schemes, working along with them to catalyze the return of three-wheelers and to also accelerate share and recovery in motorcycles in some geographic pocket. The -- now this doesn't mean to say that they are the only financiers. We have strategic alliances with 3 or 4 other financiers and they're featured in the same manner. So depending on the risk appetite of each of the financiers, we have the full spectrum, which is available to a customer at the Bajaj Auto showroom. But by the sheer presence and by being joined at the hip with Bajaj Auto Finance, there is a greater scope for experimentation, understanding, sharing of data, et cetera, which occurs with that. With this improvement in collection, I think it will embolden the financiers and, of course, with the demand recovery. And obviously, I think that all the retail finance companies are very keen to get their denominator up. And I think we will see the losing of [ purse strings ], so to say, in the coming quarter.

Sure. The second question I had was on Chetak electric two-wheeler. Now, clearly, some of those plans took a backstep due to COVID last year. Are we -- is there any review of strategy out there? How are we looking at this pace over the next couple of years? I mean are -- I mean the initial understanding from the capacity announcement that you made in December was that part of it could also be used for electric. So if you can share some thoughts around how should we think about the whole electric two-wheeler strategy?

Yes. We -- as we have been saying, we said last time, and we have also talked about it during the launch of the -- of Chetak that -- we think that this is a very significant development for the industry. We are not sure about the timing when it will blossom completely. But we do not want to say it's a Kodak moment. We want to actually take this opportunity full on and leverage it so that we have a leadership position. It is with that idea that we have [ bid ] the Chetak. It's very, very unfortunate that despite an overwhelming response, which it received, due to the vulnerabilities in the supply chain, which is first because of sourcing being from Wuhan itself, and then after that the semiconductor shortages hit us, we had gone slow in -- in fact, we closed down bookings on March 27, and we have not reopened them because there was such a response, and we felt that if we are not able to service the demand in an acceptable period of time, there will be disappointment with the customers. So much to our disappointment, we have pulled back on the booking and on the rollout of plan. Through a combination of localization and vendor development, we expect to iron out hopefully all these vulnerabilities in the next 2, 3 months. And then we will open up Pune and Bangalore booking and start to roll out. And we expect if other things remaining the same, there is no more supply chain shock, we will by the time -- by this time next year, towards the end of FY '21/'22, we want to be in top 24 cities of India and seize the mind share of the Indian consumer when it comes to electric two-wheeler mobility.

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

Most of the questions are answered. Just I noticed during your opening comments, you mentioned some competitive actions for the 125cc because of the success of Pulsar 125. So could you give us some more detail that what exactly has happened on competition front?

Well, without naming people specifically, but -- see, within the 125cc segment, we have had astounding success on our disc variant, and we have pushed the industry of 125cc from drum to disc. So we are seeing competition following and coming out with disc variant, which is to be expected. And in post festive, even in January, we have seen competition. Particularly, we know, all of us know which models have got hit and who has lost share and who has won. And those models which have not shared, we have seen promotion schemes being in form of exchange bonus or loyalty schemes. These are being rolled out almost all over India. And we think that this is because they face headwinds in terms of their sales caused by the Pulsar 125 success.

Okay. And secondly, could you talk about the new product launch pipeline? What are you looking at across segments? And also, if possible, share timing for launch of some of the premium products like Triumph, for example?

See, the Triumph is into the future. And I must say it is an alliance, and it is Triumph brand. And I would let Triumph do main talking on that. It's only fair. But we have got a rich pipeline. You will see -- probably from the end of Feb, March, you will see upgrades, upgrades and new products being launched in the 100cc -- or 100cc, 110cc segment, then in the 125cc segment, also some 250cc's in the sports segment. You will see these launches in the next -- almost 1 or 2 upgrades or launches, I think, in every single quarter of this fiscal.

Okay, sir. And just one clarification. The export revenue that you talked about includes the spares exports as well, right?

Yes, it does.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Soumen Ray for closing comments.

Thanks a lot, everybody, as usual, for taking the time out and joining the call. I think this was a good quarter, as Rakesh mentioned in the beginning. And we will stick out to our strategy of competitive growth and in the process improving profitability. You may have some follow-up questions. Anand certainly and Sanjeev and me, we are available for anything that you want further clarification. Thanks a lot, and good evening.

Thank you. Ladies and gentlemen, on behalf of Bajaj Auto Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.