Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to Bajaj Auto's conference call to discuss the first quarter fiscal year 2020 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 Aisha, and I will be your coordinator. [Operator Instructions] And we'll start with the opening remarks from the management.

Good afternoon, ladies and gentlemen. This is Rakesh Sharma here. Thank you very much for joining the call. Unexpectedly, Q1 turned out to be a cumulative quarter, which was not really expected when we were doing some forward-looking in Jan, Feb and even early March. But thankfully, the pandemic peaked and started to recede, though it still remains a concern. Most of the country is now open with some restrictions on operating hours, as you know. But since offices, education institutes, and public places remain only partially open, traffic is low. And the restoration of normal retail is, therefore, high in motorcycles and lower in 3-wheelers. We are hoping this improvement trend will continue, particularly as the vaccination program advances. Even through the peak pandemic, which is very intense and swept the country, particularly the North supply chain demonstrated remarkable resilience based on the lessons from the first wave and coordination with local authorities was also much better. Everyone has got now a playbook, and this is allowed for continuity of operations while observing safety protocols. Hence, the supply side is generally ready to service higher demand levels. Some issues persist, like container shortages and poor visibility of semiconductor supplies. Internationally, most countries which we operate in, in Africa, LATAM and Middle East have returned to near normalcy. But the situation in ASEAN and South Asia, Nepal and Srilanka, a little bit in Bangladesh, is still difficult. As you know, Philippines in ASEAN, Cambodia, these are big markets for us, and they still remain closed. I hope you have had some time to study our Q1 results. I'll divide my opening comments into 2 parts. First is the highlights of Q1. It's difficult to compare this quarter with either the previous year or the previous quarter. So I'll stay with just pointing out performance highlights compared to our strategic approach. And the second part is the near-term outlook. As you know, we have been driving the business on 2 fronts, ensuring that we have the agility to recover in key segments and overseas markets as the markets return to normalcy. And second is to grow share in margin by driving uptrading or premiumization within segments and across segments, both in domestic and international. So coming to the highlights of Q1. First, the domestic motorcycle business unit. Here, I would like to point out that our share in 125cc plus segment on the top half, almost top half, which is 45% of the demand pyramid, increased from 22% to 25% in Q1, a clear #2 position in this very, very important segment. Now this segment, the 125cc plus segment, accounts for almost 60% of our sales, while in the industry it only accounts for 45%. Now this growth has been driven by Pulsar 125 where we have launched yet another variant in May, which is the Pulsar 125 NS, the most stylish, powerful and the most expensive 125cc in the market. It has met with a good reception. And along with the other 125 cousins, it has driven our 125cc market share to an all-time high of 28%. It is -- 125 NS also contributed significantly in lifting the EBITDA margins in that class. In the bottom half of the demand pyramid, which is the 55% of the industry, we continue to upgrade the customer through different ways, always conscious that the customer here is more price sensitive. So from KS, which is kickstart to electric start, from 100cc to 110cc, from drum-braking systems to disc-braking systems, offering the customer a very accessible and small step upgrade opportunities. Here too, we launched new models, the CT110x with a very bold style met with a good reception and plan electric start, which is making electric start accessible to a large number of entry-level commuters. Both these have contributed in driving our growth and share at the bottom half of the pyramid. At an overall level, market share in domestic business increased by 1.5 percentage points. And I would say that the quality of market share, because of the share of the differentiated products, I would say the quality of market share has also improved, and both are in line with our strategy. In the domestic EV business, the 3-wheelers return to normalcy, which had commenced from October last year and steadily, we were adding 1,000 units per month to the sales. was interrupted in April and May because of the severity of the second wave. However, the retail outcome of June is heartening. It is much lower than our previous FY '20 benchmarks, but it was much better than expected by us even in June, and we hope the trend will continue into Quarter 3, and we'll see a slightly faster recovery than we have experienced before in last year. However, even though the volumes were lower, but there's an outstanding achievement here secured by the business unit, and that is that not only are we an industry leader by a big margin, and we have always been leaders, but the margin -- the competitive ratio is now quite strong. Now we have achieved leadership in every single segment. The small passenger, the big passenger, cargo, diesel, petrol, CNG, whichever way you cut the 3-wheeler market, Bajaj Auto is a clear market leader. Now this puts us in a very good competitive position to take a disproportionate share of the recovery as it unfolds. On the exports business, the exports has now continuously breaching the 200,000 per month level mark and it continues to perform robustly despite drop in sales in ASEAN where Philippines is a very big market for us. We have the #1 position in Philippines, Cambodia, which is a huge 3-wheeler market for us. Uganda, which is -- we've got a 90% share over there. It's a big market for us in Eastern Africa. These are high-volume markets, but they suffered lockdowns and a huge drop in retail. But despite that, exports has come in with a 200,000-plus levels. Quarter 1 was our second highest quarter ever in our history of exports. Our global market share is therefore estimated to have increased sequentially by 2 percentage point in motorcycle and by 6 percentage points in 3-wheelers. Here too, the share of premium motorcycles, which is Pulsar and Dominar brands moved up from 19% in Q4 to 21% in Q1 with the Dominar 250 making its appearance in many high-end markets like Turkey, Argentina, Colombia, et cetera, and Mexico, and getting a very, very good reception. We now get over 85% of our revenues from markets where we are #1 or #2. This is an important metric, as I've been pointing out. We monitor it continuously, as it indicates pricing power and our ability to manage competitive threats. Indeed, it is because of this position that our pricing action to recover costs has been ahead of all the other Indian and Chinese competitors, quite ahead of. So the recovery of cost has been pretty good in these markets. Our exports to KTM continue to grow at a significant pace, 48% sequentially, powered by demand in the developed markets of North America, Europe and Australia. Some other highlights, we faced strong headwinds of cost increases, which was known about 3.7%. Of this, we could only recover about 1.5%, keeping demand sensitivities in mind. The backdrop is really of economic hardship and a fragile recovery. So the price -- the cost increase recovery needs to be calibrated with this in mind. And of course, we have to keep close watch on competition. But we believe our price increases, both in India and overseas were ahead of competition. Margins were further hurt by the loss of operating leverage due to lower volumes by about 1.6 percentage points. This was a little bit of a surprise because when we were entering Quarter 1 we did not realize that the second wave would be so severe, particularly in the North, which was experienced -- which generally has a mini season because of marriages. And that cost us about 1.6 percentage points of EBITDA. However, slightly better ForEx realization and better product mix mitigated these losses by about 1.3%. And this explains the difference between Q4 and Q1 EBITDA of 2.5%. Other highlights was TSX bookings that opened in Pune and Bangalore. However, we had to close them in 48 hours as there was a very strong response, and we felt we may not be able to satisfy the complete demand. Supply chain visibility on some of the imported components has improved. But still, we are not getting longer-term import certainty, though we see a strike rate of up to 1,000 units per month. Hence, further expansion is being planned, but cautiously planned. We have announced entry into 4 mid-tier towns Nagpur, Aurangabad, Mysuru, and Manglore. Now coming to the near-term outlook in domestic motorcycles. With near normalcy approaching in most geographies, we expect better retails compared to last year and last quarter. However, this may not translate entirely into billing because as compared to the same time last year, stock levels are higher this year. Last year's stock level in the channel were lower due to this transition from BS IV to BS VI. And when the pent-up demand release itself in Q2, billing was not only servicing the higher demand, but was filling up the stock in the channel, so billing was higher than retail. This quarter, this year, in Quarter 2, we expect billing to trail retail. Hence, we expect a flattish Q2 compared to last year. For us, performance will continue to be driven by the 125cc portfolio, as well as some of the newer models in the commuter segment, which -- where we are offering little upgrades. We have repriced the Dominar 250 as a strategic investment to expand the quarter later class. And we will be introducing the 3 new models in the sports segment as well as the commuter segment, which hopefully will inspire the customer to upgrade, which is in line with our strategy of taking the 100 Kick Start customer to Electric Start, the Drum customer to Disc Brake systems, the 100cc customer to the 110cc, the 100cc customer to 125cc, the 150cc customer to 250cc. We thought that it was important to make the 250cc, though volume plays small, but it's our investment to expand the subsegment. Domestic 3-wheelers, we expect a steady improvement. We should be in the tens of thousands and Q2 should be substantially better than Q1 and also Q2 last year. We anticipate the need for some close lessening with financials to ensure that the recovery is supported by the availability of retail finance and this is a critical success factor in ensuring that there is a recovery in this segment. Internationally, we will continue our momentum and expect to hold the current performance levels steady. If the COVID situation improves in ASEAN and a few other countries, which I pointed out, then this would be a bonus. But it may occur even if it improves in August, by the time we see shipments that may occur in September or October. On the cost front, there continues to be material led cost increase of over 3 percent -- points. New pricing announced in early July, both in domestic and overseas markets recover about 2/3 of this increase, but there is still some work to do. We will evaluate further the scope as the quarter progresses, and we understand how demand is rolling in. However, a better operating leverage, we certainly expect Q2 to be better than Q1, continued currency support and an improving product mix is expected to mitigate the cost increase situation which gets left over from the price increases, which we have taken. With this, we can now open the floor to Q&A. Thank you.

[Operator Instructions] The first question is from the line of Yogesh Aggarwal from HSBC.

Just have, Rakesh, a couple of questions. Actually, on your second press release on EV, the spend on mobility while it's heartening to see spend going up there, in absolute terms, it's still quite small. So firstly, can you talk about the plans there? This investment is for R&D? Or is it for manufacturing is it to develop the supplier base? So that was one. And secondly, you talked about Chetak. Is Chetak eligible for same benefits now because it was a bit surprising that most of the other EVs are eligible and Chetak wasn't earlier. So what's the update there?

Yes. So this is about the new EV company. Yes. So I do not entirely grasp your question, but I think you're asking about the announcement regarding the formation of the 100% subsidiary for EV. I think at this stage, you should read it as a strong signal by the company in this announcement of, ensuring that we have continued towards a successful company in 2-wheeler and 3-wheeler mobility. We want to continue to be so irrespective of whether it is ICE or whether it is EV. We recognize there is a need for agility. There is a need to hire better talent deployed in a different manner and to be possessed of a single-minded focus which sometimes as a division and a large company can get diffused. We want to, therefore, create the corporate space to pursue aggressively our ambitions in EV. The exact playbook is being worked out, but it will have a substantive operation. I mean all the operations relating to EV will be part of this company. And as and when the playbook is clearer and we have baked the whole story, we will be happy to share it. Now when it comes to Chetak, we -- Chetak's application for FAME is certainly been with the appropriate authorities, and we expect that to be cleared anytime now. The reason for Chetak not having the FAME benefit till now was because we prefer to be with a certain localization configuration, which while it took more time, but it allowed us to move to that configuration in one step instead of trying to do 2, 3 steps. And we just felt that from an operating point of view, it would be smoother. And therefore, we did not have -- we did not go in for the FAME benefit. However, we decided consciously to not let the customer suffer in this and the company sort of stepped in and provided and filled that gap, which, obviously, when we start getting the FAME benefit, we will withdraw and the FAME benefit will go directly to the customer. So it's very much on the cards now.

And just to add to what Rakesh said, Soumen here, Yogesh, we have started the company with authorized share capital of INR 100 crores and a paid-up share capital of INR 5 crores because you need some money to do the formalities. How much will be the investment, what we will do, that we will share as and when, as Rakesh says, the playbook matures and we decide what all to do and what to do and it is a situation to be communicative to you. But suffice to say, we really did not open a company to invest hydros and run the electric vehicle business. So on this page, just let's wait and watch. We'll come back to you when we are in a situation to share more details.

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

Just a follow-up from the comments that Soumen made. When do we expect more details on that? Because when we look at competition, they've announced tie-ups or they've already announced their CapEx target. By when do we expect Bajaj to make these announcements?

So I would -- I really do not know. Me, just telling you a number of either INR 200 crores or INR 2,000 crores how does it make a difference? Because unlike some of the other people, we don't need to raise money. We are sitting on INR 15,000 crores of cash. So setting up a factory, we don't need to go to people to ask for either debt or equity. So as I said, we are preparing plans. We will decide how things happen and will inform. What -- I don't want you to miss out the fact that an organization, which did not have any domestic subsidiary has chosen to focus on EV and start 100% domestic subsidiary. That is the first step. So let's wait and watch the space. We'll certain we understand the interest. And obviously, a company of our size and state has not just gone in with its eyes closed, just generally to see what happens. Wait and watch, there's a reason why we are not sharing so much. We'll share as and when things cook up, they are cooked well, and there is -- they're mature, which is worth sharing.

Right. Right. No, the reason we ask is that CapEx tends to lead product development, which tend to lead model launches. So just hoping that the company is aggressive enough on this segment. So...

Yes. So that -- yes, be that kind of effort is already underway. And we have a huge R&D apparatus. And we are collaborating with KTM. We are collaborating with vendors. We are studying the market in micro mobility segment with -- we have made an investment in Yulu and we are looking at their vehicles. We are looking at high-performance electric motorcycles and everything in the middle, and there is a substantive R&D effort already underway. We feel that this whole manufacturing investment, which in the past people have been talking about and which has been stoking some kind of excitement, frankly speaking, passes us by because we don't get very excited about it because we set up these plants very, very simply and easily. We announced some INR 600 crores, INR 700 crores investment just for KTM Triumph and other high-end bikes of Bajaj a little while ago. So it's not a very, very big issue in our mind that we have the resources. We have the engineering capabilities. We don't think that is something which is important to stand up and really start talking about. But yes, I agree with you that what is more important is what will be the product portfolio, how we will engage with that customer. And on that, we are writing the script. And when we can share, we will definitely share our plans. But right now, suffice it to say that there is a huge amount of focus internally in this area, and we are getting into a position so that we can move very nimbly here.

Just to add to what Rakesh mentioned, Binay, what is not visible, because we are a INR 30,000 crore company. So whatever INR 300 crores, INR 400 crores, INR 500 crores, we spend on R&D is not visible, because R&D is a lot of manpower cost, people cost. We have a 1,400, 1,500 headcount R&D. So a lot of -- so when people say I'm putting CapEx in R&D, some of these expenditures are revenue expenditure for us. It is already baked into my P&L. It doesn't become so obviously visible, so essentially, what we need to spend is on putting up a factory. On R&D, we do not need to spend like about $50 million or $100 million.

Right, right. No, I take the point. It's very encouraging to hear all this. As you are aware, there's a lot of investor discussion on this that led to the gasoline segment, which later on became very competitive and became very difficult for a company to enter and establish themselves. In fact, Bajaj often talked about that MeToo strategy doesn't work. So the only fair is that if some company very late in launching electric vehicles, then that segment will also get a little commoditized, so it may be difficult for the comes to establish themselves. But nonetheless, we'll watch for updates from your side. My second question is on the gross margin side. How do we see gross margins moving from here on? Because it's most likely that the domestic share will increase in the overall mix, exports will go down. And in that sense, where do we see, but at the same time, you will have 3-wheelers driving? How does the management look at gross margins moving from here on?

So I'll give you 2 answers, Binay. I think -- and this is a question which would be there in the minds of a lot of people. So I'll take a couple of minutes. So there are some headwinds and some tailwinds. I'll first tell you this, and then I will say what do I see as a net of that. The first tailwind that we will have is hopefully this quarter, the operating leverage will come back. I will not be a INR 7,000 crore per quarter company. I will become INR 9,000 crores per quarter company. So clearly, that leverage comes up with improvement EBITDA, not gross margin. On gross margin, we have, as I mentioned, as we have mentioned in the press release, we have an under recovery between cost and profits. In Q2 also, we will have an under-recovery. So the cumulative under-recovery will increase from Q1 to Q2. Having said that, the only good thing that can happen is if there is some ForEx, if the rupee depreciates further, we will get some more money. The mix will tend to get adverse, you're absolutely right. But as Rakesh mentioned in his opening remarks, let's wait and watch how much because as of now, the pent-up demand coming back has not been as fast as it was last year. So let us wait and watch how the mix plays out. But directionally, will the margins possibly be a little softer? I bet between better or softer, I would possibly bet around being softer. And, I mean, just to end the conversation, will the industry now come down to this 15% range of EBITDA? The answer is no. Because clearly, at these levels of steel prices, the near-term steel demand will not get impacted. But the longer-term steel demand will get impacted. For example, there have been articles around that builders are taking up prices of their flat by 10% for new bookings. So water will find its own level and steel prices will unwind. But for the temporary period, yes, we have a problem certainly in industries where steel and such metals are a large part of the product.

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

On EVs, I just wanted to understand in from you what is your thinking on how electrification will evolve in scooters, motorcycles and also 3-wheelers. How fast do you think it's going to be? Do you think that the recent government actions in terms of subsidies, which are coming through would accelerate the shift towards EVs in all these segments?

Yes. So directionally, I think it's very clear that the industry is headed towards more and more of electrification. But in spite of the heat and dust, which is being churned up over here, the transition will not occur suddenly or immediately. India is a complex country. India is a large country with a lot of diversity. Even if you take developed countries for the 4-wheeler category, whether it is the U.S., it's Europe, Australia or Japan, you have to just see the progression of the penetration of EV. Yes, of course, directionally, the world is headed that way. But it is going to be a gradual transition. Therefore, somebody commented on first-mover advantage. I don't think the jury allowed still, whether there is a first mover advantage or a disadvantage because the consumer is going to evolve, the technology is going to evolve, and you have to harness all that. So I believe that if I take a consensus of consensus, it's about 3 to 5 years where we will start to see EVs becoming a significant current portion of the 3-wheeler space. A lot of it rests. The government has shown its hand by backing it up. But still the acquisition cost, there is a gap between a substantial gap still between the ICE scooter and the electric vehicle scooter. Now government is plugging a part of it, but still there is a substantial gap. Yes, some people will have the ability to plug this gap further by using private equity money and all that, that's fine. It will help towards evangelizing the category. But it will take time for it to resolve because there is a second issue, which is a second issue in my mind. But nevertheless, it is there. It is about the range anxiety and the rate and the anxiety of adopting a new category. One point which I want to emphasize, which has been a very, very important point in our structuring of our planning, is that you do want to give a bad experience to a customer who is standing in the front of the queue to convert from ICE to electric. He or she should not feel that they'll be made a sucker out of by having an operating problem. So the ability to give a friction-free smooth operation to the customer, the ability to ensure it is very well supported, the customer is very well supported. Every customer is not digitally savvy and cannot work out the touch screens, et cetera. At that time, the company has to be there present through its service network, service people and engagement with the customer with systems and processes so that the customer has not changed and you get positive word of mouth, not just for your brand, but for the electric category. I mean if I -- we don't want to -- we don't want this to get stuck because we face this, for example, in developing this premium rating supply this category to the veins of the country, but we've got to that experience. So I see that this is very, very important. It's not just about giving a cheap price and throwing some 2-wheeler, and the world is just waiting to convert. They may buy, but there may be a problem later on. So I see that all these things when you roll in, what kind of experience the customer will get, how the costs and prices will move, petrol prices are moving up. I definitely see a 3- to 5-year period when the transition will occur. And this is a period where we want to make sure that we have a strong customer connect. We have strong customer understanding so that we can segment the market of a proper product backed up with proper service. We feel, ultimately the game will be back to style design performance price and all of this packaged under a trustworthy brand.

Very detailed answer. Secondly, on exports, could you just comment, we've seen COVID cases rising in some of the nearby countries and also some countries in Africa. So is the deman outlook still similar or is there any significant change from that 2 lakh per month kind of number. Also, you've talked about container shortages of late. So is that still continuing or has that resolved?

So like I said in the opening remarks, our current estimates are based on how the markets which are open right now. And like I said, the COVID is a big problem still in ASEAN. Retail is very badly impacted in Philippines, Malaysia, Thailand, Cambodia, Myanmar. Out of this -- in the ASEAN countries, Philippines is a very important market for us, both for 2-wheelers and 3-wheelers, Cambodia for 3-wheelers. And this is dampening the performance to some extent. Also 1 or 2 countries in Africa, mainly Uganda. and I think a country order in Latin America is where we are still facing these problems. So -- but the performance, that's why, it's quite exemplary because it is, despite these key markets holding us back. So hopefully, the pandemic recedes in these places, we'll be able to strengthen our export performance further. Container shortage is now a way of life and, I mean it is at this point of time, yes. There are always slippages, but it is affecting us in terms of taking up a lot of management time. And secondly, increasing the cost because the container goes up from $2,000 to $10,000 to Cambodia to Colombia and you're shipping 150 vehicles. You can see per vehicle, there is a big incidence of cost. We use 33,000 containers so it's a big exercise for us. But now it's a way of life, we are just learning to manage with it.

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

A couple of questions. Firstly, on the electric side. 3-wheeler operators seems to be sticking to CNG vehicles instead of EVs, possibly considering range or charging anxiety. What factors do you think could be necessary to trigger a shift towards electric? Also, any timeline for the 3-wheeler launch?

Yes. So that is a very good observation. And we have been struggling to establish a business case for electric [ vehicle ] opposite the CNG. The CNG footprint in the country is increasing at a very good pace. Our market share in CNG hovers between 85% to 90%. One of the big drivers for even this little growth which we have seen between April, May, June and now what we are experiencing, is driven either by the conversion of diesel vehicles into CNG or by cargo vehicles. And this drive of the government to build the network of CNG is a very significant drive. They are wanting to open 9,000 pumps by 2025. Today, there are 1,500. Every addition of every 100 pump stations, I mean, creates a market of 10,000 3-wheelers for the industry, out of which 90& comes to Bajaj Auto, recently. So it's a move we are completely backing. It's a very clean fuel, there is a thin sliver of advantage for electric 3-wheelers, if at all, depends on the electricity price in the state. But -- and the customers, if the pump is running good pressure, et cetera, then the drivers actually prefer CNG. So it's not going to be easy to change CNG-powered vehicles which are going to only increase into 3-wheeler. Irrespective of that, we are going to put in a similar and which is under testing like I've been saying, it's running in many parts of the country. And hopefully, we should be able to launch it by end of the year -- early end of the calendar year.

Thank you, sir. My second question to Soumen. A couple of things actually. There have been media reports indicating possible increase in outlay for RoDTEP scheme, any thoughts on when these export incentives could recommence because that can be a margin trigger? And secondly, employee cost was on higher side at INR 3.6 billion compared to average of INR 3.2 billion last 4 quarters. Any one-offs? And what could be the sustainable rate ahead?

I'll answer your second part first. So if you see last year, you would see that in Q3 and Q4. Our employee costs have come down. So we achieved certain terms of reference for retiral benefits which have led to certain reversals. So that INR 306 crores of March of Q4 of last year is more like a INR 330 crores kind of a number, INR 325 crores, INR 330 crores kind of a number. Now that, we obviously -- last year, there wasn't increments, which were given. This year, we have announced our increments and it is effective from first of April. Also, what has happened is during the pandemic, obviously, the number of debts have increased compared to what it was earlier. And we have a few insurance policies which covers employees on the time of their untimely death. The premiums of those policies is really shot through the roof. And I'm sure you will keep on hearing this more and more in every analyst call irrespective of industry. So these are primarily the reasons you can take the current rate as a steady state rate, because we have given increment -- I mean, the insurance will not be there, something else will be there. So you can consider, I don't think you would want to bother for the last INR 4 crores, INR 5 crores. So this is a steady state rate that you can assume. On the first question, if you know, you tell me, I'm looking at Rakesh, I'm asking him if this answer can be given. We can only say, yes, it is additive. Yes, there is a cumulative benefit which is waiting from first of Jan because that is what the announcement was. However, I have yet to get last year's MEIs and so on and so forth. But I don't know well. So I don't have an opinion.

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

So from housekeeping question. If you can share the export revenue and the USD realization for the quarter?

We know that. So we have kept it very -- the export total revenue was about INR 4,500 crores. And in dollar terms, what we saw in sole selling dollars, it was about $580 million.

A follow-up on the USD realization. Sequentially, there should have been benefits for us, right, in the quarter of at least 40, 50 bps on account of a better rate. Has that materialized? And how do we look at it going ahead? What is the broad range forward that we have?

So Chirag, I cannot give you the numbers of what is the range forward that we have. But if you look at the press release that we have given, we have mentioned that we have benefited because of the ForEx rate. So we have benefited closer to 1 percentage point, 1 PP because of ForEx.

And if you look at the last quarter in general...

Well, this is vis-a-vis Q4 of last year.

Yes. Yes. sequentially, yes.

Sequentially.

Similarly, if you look at Q4 of last year, sequentially, we were hoping that worst of the commodity pressure would play out in Q1. But if I understood correctly, you are further indicating that 3 percentage points raw material cost pressure happening in Q2 also. Is it the right understanding?

So I do not know the percentage because things are still fluid because conversations and negotiations are going on. But will we see a further price in material cost increase in Q2, the answer is the [ annuity local guess ]. This is not something only with Bajaj Auto, the entire industry will see it, and that is why you see there is a price increase, which has happened in almost all play payers effected from the beginning of July. So everybody in the 2-wheeler industry, and also, if I remember correctly, 3-wheeler industry have taken up prices effective first of July. Which is because the cost increase impact was not entirely felt. So last time when we spoke, there was a hope that Q2 will be muted. The reality has not turned out so, Q2 is as strong and as aggressive as Q1 was incremental.

If things are normal, it will stabilize where they are probably this is the last quarter where there is huge under recovery and hereon things should normalize?

I've just mentioned in the previous call. So I have now dropped from a INR 9,000 crore quarterly top line company to a INR 7,300 crores. Once I go up to and if everything goes normally, which is what the view is sitting today, I should get back to INR 9,000 crores a quarter on an average.

I was referring to this commodity pressure and the pass-through side.

So commodity pressure, Q1, there is under recovery. Q2, there is under recovery. So cumulatively, there will be an under recovery. Now will steel prices go up further? Frankly, I have no idea. In 9 months, steel prices have gone up by more than 50%. I don't think I've ever seen, in my 23 years, I have never seen commodities go up by more than 50% in 9 months, other than oil. So I really cannot comment with the Q3, how it will be. Because today, Q3, we have 0 visibility.

Yes. And one question for Rakesh. Can you update anything on new models that you intend to lend, maybe a big platform upgrade in any of the brands? Because there were expectations that next 12, 15 months, a lot of action is likely to happen from Bajaj Auto's table on your platform change or maybe even there is buzz of a new brand launch in 125cc category. So if you could share some more light, it will be helpful.

Well, you will see September onwards, substantive -- a new platform and some substantive upgrades right till in the next 12 months, there is a calendar where you will continuously see this, both in the sports and the commuter segment. In the next 9 to 12 months, we don't anticipate putting in a new brand. These will be housed within the same brands, which -- of our existing portfolio of brands.

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

Soumen, can you share USD-INR rate for the quarter, which we realized?

About 74.25.

Okay. Second question pertains to this new subsidiary. Would it -- would we be shifting this new capacity which you're putting of INR 650 crores in this or this would be pure EV only?

Which INR 50 crores?

INR 650 crore investment which are going forward.

No, no, no. The Chakan facility is dedicated to high-end sports bike, teetering to KTM, Husky and whenever we start manufacture of [trans tram], that facility has got nothing to do with electric vehicle as of now.

Okay. Okay. And last question pertains to 3-wheelers, so coming to Rakesh. We are indicating some bit of positive traction in the 3-wheeler side. however Bajaj Finance in their call couple of days back, indicated large stress on the 3-wheeler front. I mean almost 19% GNPA in the 2-wheeler, 3-wheeler portfolio, largely driven by 3-wheelers. So how do you see the financing side impacting 3-wheeler recovery?

Yes. So a lot of the impact is from the old book. What I'm really encouraged about is the progression which has taken place before the second wave and then off late in June, et cetera, where with the new financing norm, still we are seeing -- for example, I'll tell you, we were expecting 5,000 retails in June, but we ended up with 7,000. Till middle of June, we were thinking we'll hit 5,000, but it's -- and these are retail has got nothing to do with stock. And we have slightly upped our forecast to the plant for the month of July and which till now is tracking pretty well. Now these retails are occurring with the different financing norms. A lot of the hit to the financing companies is from the period of -- before the first morat and what was the aftermath of the morat, et cetera, which, of course, these financing companies are to now factor in, and we have to work very closely with them through our dealer network also in attacking the right segments, in helping them with all the information which they would want to assess risk much better. And it can be done because there are buyers which are coming back. The financing companies themselves are very keen to improve the denominator also. So I think they are a critical success factor, but we will have to work closely with them in managing and supporting this recovery.

So you don't expect financially as a standing up for recovery in 3-wheelers.

No, I don't think that financing will withdraw because there are, including Bajaj Finance, there are a lot of financing companies which are there out there here in the fray. But yes, the way we give finance, there may be bottom slicing of the more risky ones, there are distribution partners for financing those might get hit and stuff like that. But financing, probably after this will become more mature and more robust. But it will be in play, and we'll have to work closely there. No doubt, they're a critical success factor, but it's not a 0-1 situation.

Sure, sure. That's interesting. And just one clarification, you talked about the CNG ramp-up. So for every 100 pumps, you said, there will be 1,000 3-wheelers required...

No, no. I said, for every 100 pump stations, there will be 10,000 -- I mean this is a thumb rule. Somewhere it can be more somewhere it can be less depending on the size of the pump and a lot of -- there is an issue about how much pressure there is and all that. But yes, it is -- So what happens is that when the pump comes and CNG is a clear INR 1.25 per kilometer better than diesel. So what happens is if I'm owning a diesel vehicle bought from, let's say, a competitive brand because their competition is slightly used to be slightly better in diesel. And it is flying for about 3, 4 years, and I see another guy who is earning much more or saving much more because he got on to CNG, there might be an acceleration. I might not keep the old diesel vehicle for 5 to 7 years. I might just change from the diesel vehicle into the CNG vehicle. And these vehicles then get collected and they're resold in markets where there is no CNG as secondhand vehicles. We are seeing this kind of a pattern. And then they come to us. So it's -- So wherever the CNG pump comes, it creates a very good opportunity for us. It's on an annualized basis, which I said.

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

Just wanted an update on the Triumph JV. Where are we in terms of time lines for the launch?

So let me just correct you. It is not a joint venture. It's just -- it's an alliance. We are -- it's a strategic alliance without equity participation. So this partnership has actually got pretty hit by COVID because travel was not possible. And we are in the stage of having made prototypes and requires physical presence to correct the prototype, the clay models, then the prototypes. This whole process is taking time. we expect probably towards the end of FY '22, '23 to present the products in the market.

So there will be a delay of about 6 to 9 months based on what you're saying?

Yes, yes. What we had indicated earlier. Yes.

Okay. And just a second question, a slightly broader one. You have mentioned that the recovery in 2-wheelers is more k shaped with the bottom of the pyramid customer being impacted. Do you expect us to continue? Or do you think now with the COVID unlock happening, things would change?

See, in the immediate term, I feel that in the rush of the pent-up appetite releasing itself, we will not be able to separate the noise in the system. But once it settles down, I see that the bottom section of the society has got considerably weakened economically because the self-employed people, the tradesman, the people working in restaurants, bars, et cetera, they have -- their savings and all have got quite diluted. And we are seeing that there is a lot of weakness of purchasing power over there. The salary class and slightly better off, then come out almost unscathed from the pandemic because there was earlier a lot of fear that people will be laid off, salaries will be reduced. So there is not -- so economically, they're a bit -- they were not as singed.. And secondly, the security of fear of job loss is sort of disappeared. So because of these reasons, I think that the upper half of the demand pyramid or the upper 3/4 of demand pyramid, will probably continue to do better in the, let's say, next 12 months, forget the next 3 months where there will be a lot of pent-up demand and the bottom quarter or bottom curve is going to drag the recovery of the industrial base.

The next question is from the line of [Perinjan] from HDFC Mutual Fund.

So my question is on your new subsidiary. So when this new subsidiary gets created, then the entire R&D structure of your, I mean, electric mobility which is sitting in the Bajaj Auto, will that get transferred to this entity? Or I mean, it's still not clear.

So [Perinjan] as we have said, we have said whatever we could in the press release. It's a very evolving space. We are adapting to changing scenarios. We will come back to the investor fraternity and media at large, about when we are in a situation to share, what we will exactly do in the new subsidiary. I understand that the need of wanting details, but I'm humbly submitting that at this point in time, we would not like to share.

Sure. Okay. And just on the product development cycle. So if I say from, say, design to the launch, if the ICE engine motorcycle in scooter was typically taking, say, 1.5 years or 2 years. So what will be the commensurate launch? I mean the from say design to launch period for, say electric scooter from your point of view?

[Perinjan] this is a question which I don't think can be answered, because there are multiple things. On one way to look at it is if that battery technology that we are using in 1 is immediately retrofittable in the new model, then it comes down. However, if you are wanting a different performance measure from the newer vehicle, then a new battery has to be configured. But I would like to believe that at this point in time, it would be directionally longer ICE vehicle. But if the battery interportability is established between 2 innovation models, then that time can be cut down. But can I give you a 3.5 year or 1.5 years, the answer is no.

Okay. Okay. And in terms of your -- I mean, you said there is around INR 1,500 crores -- 1,500 employee in R&D side. So is the R&D team joint or is it, I mean, both the teams are different. And is there any hiring different timing policy for them.

Just repeat.

R&D is one consolidated R&D, it has got horizontals and verticals. It's organized on the basis of technologies, and it's organized on the basis of product segments. So as in, when a project gets underway, a Matrix team is formed and it pursues that project.

Sure. Okay. And lastly from Rakesh, is on the export front. So we have seen some kind of market share loss in share, probably in West Africa. So I mean, what are the steps we are taking to address that if we can answer that.

So I would say that, yes, there is a -- I mean, if you take the largest market, Nigeria, where in West Africa where we now have a 50%-plus market share. And yes, it has moved down by 3, 4 percentage points. And a lot of that is to the Chinese, where we have seen, particularly in the last 12 months, let me just think. Since March '20, when we were reeling under COVID in that April onwards period, the Chinese companies, the ports, et cetera, had bounced back and the sort of seized the initiative and they have come back. They continue to operate as do some Indian exporters on the basis of price. We don't want to go down that track. And our whole objective, let's say, if I just keep to the illustration of Nigeria, is that there is no shortcut to it, except to deliver an outstanding customer experience and we have invested heavily, heavily in a service network in engaging with the customer in product quality and having constant engagements with the customer and attending to quality complaints or any issues with the customer faces rapidly. Today, thanks to digitization, if there is a complaint experience by the customer and it comes to the dealership within a few hours, it is known. If our CTO wants, sitting in Apodi, wants to look at the complaint, he can look at it. But certainly, under him, there are teams which can immediately swoop down on this issue. I think that it is things like this. the product quality and customer experience, which will create a want for us and which will allow us to conduct this business at a respectable margin. It is impossible today to run the business sustainably for a period of time and drive scale in it at prices which are similar to Chinese prices. And therefore, we have not gone down that track. It gives some kind of a momentary release. And this is things like working with wholesalers, throwing money and discount with wholesalers and securing some kind of volumes. That is the way the Chinese operate some Indian companies also operate like that. But we have invested in our own network to deliver a customer experience. It's a bit of a rocky road, but I think it's more sustainable.

That was the last question. On behalf of Bajaj Auto Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines.