Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Bajaj Auto's conference call to discuss the second quarter fiscal year 2022 financial results. We have with us Mr. Rakesh Sharma, Executive Director; Mr. Soumen Ray, Chief Financial Officer; and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Sutosha, and I will be your coordinator. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. This is Rakesh Sharma here. Thank you very much for joining the call. I hope everyone is keeping safe and healthy. Because our Board meeting concluded only at 5:30 or so yesterday, so we announced our results, Q2 results only in the evening. But I hope by now, you have had some opportunity to look into the details. I would like to divide my opening remarks to 3 parts. We'll first focus on certain key highlights of Q2. I'm sure everyone is keen to know about how demand is shaping up in the [ first year ]. So a quick comment on [ first year ] and immediate outlook. And then regarding the announcement of the captive financing unit yesterday, we'll conclude with some comments on that. So let me begin as always, by first, reemphasizing our overall approach of driving growth, market share and financial performance through --upgrading the customer through better product propositions within segments and across segments in both domestic as well as international markets. We kept true to this in Q2 as well. This strategy leverages our R&D products, and it continues to work well for us. The domestic motorcycles business unit. I would prefer to take a H1 view over of industry performance instead of just making a comment on Q2 just to smoothen the base of last year. Because in the first 6 months, there are so many ups and downs, but most of the pent-up demand is released and exhausted by end of September also. So it is better to take a look at H1 to understand how industry is behaving. In Wholesale, our billing term, the industry grew by 7% in H1 compared to the same period last year. And our growth has been higher at 13%, leading to an obvious market share improvement. But in market share, I prefer -- we prefer in our company now, we'll be entirely led by one data because the billing data is also dictated by each company on strategy for managing the supply chain, stock, et cetera. One, because it is -- registration is the clearest reflection of retail performance. It covers only 85% of the industry. But that's a good indicator. It excludes at this point of time [indiscernible] Telangana and [ Capita ]. So we kick off the quarter at 20% market share, up from 17% at the end of FY 2021. This increase in market share was largely driven by advancements in entry commuter based on converting or upgrading kick start customers to electric starts and by Pulsar 125 in the midsegment through attracting top customers from 100cc segment on the basis of a very attractive proposition [ over 40 ] best-in-class performance in the 125cc segment. We have introduced 2 new products in April. So the last [ 2 quarters ] will run with new look CT 110X and our most expensive 125cc product, the Pulsar NS 125. Both have done well and sales have doubled for both between quarter 1 and quarter 2. Market share grew across all states, barring one, I think it was Odisha, where we need to fix some distribution issues. [ Finance ] sales grew faster than [ taxes ] and growth was higher in medium and large towns compared to rural and metro areas. In the intercity business unit, the domestic 3-wheeler business recovered very swiftly after the second wave. That's helped by the return of normalcy in terms of the opening up of schools and shopping areas across the country, leading to a rise in traffic. The business unit delivered a superb performance leveraging upon its leadership and deep connect with the franchise. Market share has now increased to 68% in quarter 2. And we are now the leaders in every single segment, in small passenger, in large passenger and in cargo, which we have entered only recently in the last 2, 3 years. Petrol, diesel, alternate fuels, if you cut the market basis, they're still, they're also -- in every segment, we are leaders. The last 2 segments, which is the large passenger and cargo, we adjusted leadership for the first time in Q2. At an overall level, we hope we will cross 20,000 unit retails in October, which will be a relief because the last time we did so was in March '20. Exports business unit. Exports continues to deliver a strong performance, managing significant shipping issues. An average rate of over 200,000 per month was maintained right through the quarter despite key markets like Philippines, which is amongst our top 5 markets, operating at just 50% level; and Sri Lanka continues to be at 0. 90% of our revenue continues to come from markets where we are #1 or #2. And in our top market, we either increased or defended our high market shares. We dropped our highest ever sales in Latin America as well as in the Pulsar brands. As a result, the premium part of our portfolio in exports continues to steadily expand, again, reflecting our focus on upgrading and premiumization. Dominar 250 started to find itself into several markets. And along with the 400, it has made excellent progress. We believe we are on the verge of leadership in the 250cc segment in 7 key markets like Turkey and Mexico and other markets in Latin America. This again goes towards premiumization and overall, trended the luster and the brand equity of Bajaj. Our share of [ core key ] commuters in the 150 to 250cc range now stands at an overwhelming 45% across all emerging markets. Chetak bookings have now opened in Chennai and Hyderabad, and we are seeing a very, very strong response there. We are now present in few cities that we are calibrating further rollout plan with supply chain visibility, intending to reach up to 30 cities still by March '22. We have over 45 months of bookings and our priority is to service these customers and restrained rollout in new geographies. On financials, as you know, the GST had announced the [ raise on the offset ], which has resulted -- which was INR 82 crores of earnings towards Q4 of last year and Q1 of this year. We have also received [ NEI ] benefits pertaining to previous year from April to December, which was an additional INR 60 crores. This has significantly bolstered the EBITDA performance. But it is important to separate this effect and look at the underlying EBITDA. Without this effect, the underlying EBITDA stands at 15% which sequentially is a decline of -- a decline from the 15.6% level of Q1. With that, of about 0.6 percentage points is entirely attributed to the under recovery of [ pricing-edged cost ] by pricing actions, which actually were carried out through the quarter. The only other significant point I would like to highlight is the impact of semiconductor chip availability. Though not as severe as for 4-wheelers, almost 20% of our motorcycle portfolio, which is a premium line, has got affected. Here, we have seen gaps of up to 50% in demand and supply, causing stock-outs across India and overseas markets and affecting the KTM, Dominar and Pulsar clients. We have taken a sanguine view of this uncertainty and believe that this may -- or we would like to assume that this may come -- carry on well into the next year for the next 3 or 4 quarters. Hence, we are preparing for the worst and taking countermeasures to [ rigid ] our portfolio as well as marketing programs, particularly in overseas markets, where we have some play. In India, as you know, there is statutory requirement of putting ABS in 150 plus. And we will try to mitigate some of the impact of this shortage. Of course, if there is -- the visibility improves and we start to get better availability, we'll be more than happy. Now a few quick comments on the current [ testing ]. So we are now in the middle of the 35 days [ active ] period with the [ states ] in the East and South to some extent are done with the [ testing ]. Thus far, the demand pattern has been quite neutral, with retail in a like-for-like comparison with last year being at negative levels. Rural demand lagged urban demand and entry segments are taking the big asset. Our view is that in the next 10, 15 days, there should be a marked uptake as decisions come to a close towards Diwali and [ Mantri ] days. But even taking that into account, the [ active ] period may deliver most likely a similar performance as last year same period. We will be taking this into account for planning production in the November to December period, deferring to ensure stocks that are not in line with the exact retail performance. Our stocks currently on the basis of current retail are at about 7 to 8 weeks, and we'd want to get them to under 6 weeks. The 3-wheeler business is very well poised. And based on the return to normalcy, we expect Q3 to be better than Q2. Similarly, we think exports should cross 200,000 per month throughout quarter 3, setting this up very nicely to deliver our highest ever performance in exports of almost 2.2 million, 2.3 million units. And with this, we will also cross the $2 billion mark for exports in FY '22. Headwinds on the cost side continue to less severe than before, but we are expecting cost increases of up to 2% in the next quarter. We'll be looking at passing them on based on an evaluation of demand sensitivities and competitor moves, particularly low segments where we are not leaders. Finally, as you all would be aware by now that Bajaj Auto in its Board meeting yesterday has passed a resolution to apply for the formation of an NBFC to serve its requirements of captive auto financing. Retail financing is expected to play an even larger role in the sales of 2-wheelers and 3-wheelers. Along with that, customer is clearly seeking a seamless and an integrated experience of sales, service and finance. To ensure that we have the flexibility and the command to deliver the experience to the customers as well as the ability to create customized solutions for new emerging requirements like financing, [ stock ] leasing of electric vehicles or [ say even a person's due ], we believe a captive finance unit will enhance our go-to-market capabilities. We will, of course, continue to engage and invest in our relationships with our current financers, of which, as you know, Bajaj Finance Limited is the largest. Combined with their power, the specialization of a captive auto finance unit, this considerably strengthens this important lever of growth. Thank you very much for listening in. And with this, we will open the floor for Q&A.

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

My first question is on the cost increases. Did I hear it correct that you said there should be another 2% price hike to offset all the cost pressures?

No, Binay. Soumen here. We have said that directionally, there could be a 2% further cost increase in Q3 over the base of Q2.

Okay. Okay. And so that's -- and so how much of sort of end consumer pricing do you need to take up to offset that 3?

So we think 2% is the cost increase with the business, which is nearly double-digit EBITDA. You need to pass the whole thing. But I think the point that Rakesh mentioned is not the mathematics of it. The point that Rakesh mentioned was we are getting -- we're already in the [ testing ]. Demand does not seem to be going up. There are competitive pressures. So the practicality of taking up prices itself is a big challenge. Remember, it is domestic or exports.

Yes. No. In fact, that's the question I was trying to get on. In the past, we've seen that sales promotion spending and advertising spend, a lot of that for the 2-wheeler industry was contained. So do you see those sort of pressures coming back now for the industry as there is muted demand, weak pricing and also electric vehicle headwinds coming through?

See, because the -- definitely when demand is not booming and there is a cost pressure from the raw material side, then looking at company costs, whether they are sales, promotions or maintenance or any other thing, this doesn't hurt this strategy or impair the company. We will continue to examine every single expense very, very closely. That is our nature, and we'll continue to do that. On the headwinds from electric side, on the ICE side, I will still not think that it has started to affect us. I think it has not even started to affect the scooter demand as such. There is a drift I'm getting from colleagues in other companies, which are -- which have got a much more substantive scooter business. What I'm hearing is that it is still not. Of course, in the future, this whole thing is open. We are a little bit distant from it given that motorcycle is probably going to be affected much later by electric and scooter.

That brings me to the second question on the electric side. We've started to see some of your peer group in the listed space announce capacities that they're ramping up on the electric side. Any plans that Bajaj would like to share on that? What should we expect in terms of the dedicated capacity or CapEx or anything on the motorcycle side on the EV side?

See, we have said this before, Binay, that in this case, our objective is really to build capabilities and attract the more premium end of the market and through that to get good mind share in large parts of the country. Our ambitions are not really only volumetric at this stage. In terms of manufacturing capability, we have indicated that we would certainly like to put in manufacturing capability of about 0.5 million units. But see, in our case, we don't need to take action for putting in, let's say, 10 million units. We find -- flexing capacity is very, very easy for us. So at this stage, we're looking at 0.5 million per annum. And we will watch how the whole transition unfolds. We will try to drive it in the areas that we feel are going to be beneficial for us. And we will expand capacity as and when required.

Binay, just to add to what Rakesh said. So it is very convenient for us, anyone to say that INR 1,000 crore number because the PLI needs you to invest INR 1,000 crores in 5 years. So I think the genesis of INR 1,000 crores is the fact the PLI volumes that you need to invest that INR 1,000 crores.

The next question is from the line of Pramod Kumar from UBS.

Rakesh, just one question on the -- the first question is on the EV subsidiary. What are your thoughts on the capital structure for this particular entity? And especially given your alliance with KTM and across AG, do you see them becoming a partner in your EV subsidiary? And also related to that, are you as an organization open to getting external investors into this particular subsidy given probably to fast-track investments depending on how you see the industry unfolding? So if you can just share some broader thoughts on this.

Yes. So for both the -- certainly, this is a very big move as we think from our side, the formation of the subsidiary and its buildup and its growth, et cetera. The -- one of the questions that are hanging, particularly, there is a clarification which we have sought from the government on the PLI. Because there is a little bit of [ convenience ] over there. And in general, investments made in group towards EV, in the group, irrespective of whether it's the subsidiary or the parent company, will get counted for that INR 1,000 crore [indiscernible] rate of capital investment. But there is some place where it is a gray area. So we have asked for some clarification to [ KTM ] and directly. Once we receive the clarification, we will be absolutely clear as to what kind of a body and structure to give to the subsidiary, whether its manufacturing should be here or manufacturing should be in the parent companies and stuff like that. So that is one -- because that also then drives the capital investment part of it. But in irrespective of that, in the least, of course, the front end and product development and many such capabilities will be invested into the EV company. We are, through the EV company, also looking at agile, [ smarter decisions ], very focused and dedicated way of working in EV. Now whether we will take in a partner, leverage KTM or somebody else or a financial investor, these questions, we have discussed. These questions will continue to be discussed, I think, for some time. It is early days for us to conclude on them, but they are very much on the agenda in the boardroom.

The second question is on the electric 3-wheeler. Because if I recollect right in the recent media interview, you guys have said that Jan to March quarter, you will launch your [ electric ] 3-wheeler, right? So just want to understand, given the cost dynamics and the use case, is it logical to expect that ideally, it should be a cargo 3-wheeler where you kind of tie it with online retailers like Amazon or a Flipkart, where there's a defined use case and volumetric data not exactly very weight-intensive data -- sorry, cargo? Are you going to -- or you think the passenger 3-wheeler market is also ready for electric 3-wheelers from a commercial standpoint in terms of having a competitive pricing and also having a quicker turnaround on the charging side and all of that? So if you can just share broader thoughts on that as well.

See the -- what I said was actually, that we are -- the prototypes are on the road right now. And we will be testing until January, February, March and post that, hopefully, we will be launching in the -- around the March to May period, depending on what kind of look-back we have to do after the test. So that's on the time frame. The -- while the case for -- on the personal side, which is the 2-wheeler, is largely driven by convenience and the operating cost where the personal customer thinks to sort of ignore the capital cost, which has already been made. And they get more [ weight ] by the monthly expenses, which, of course, is an EV scooter are much lower than an ICE. So to that -- and then, of course, there is this whole thing about convenience and the women not having to go to the petrol stations or service stations, et cetera. Look, I have a few more sort of reasons for the EV scooter to be bought. But when you then flip over on to the commercial side, this is a purely commercial decision. And the guy has to pay EMI, has to run more than the EMI, right? And look, when you compare like-for-like with a CNG scooter now, you know that the CNG program has been progressing extremely well and the government has put a lot of noise behind expanding the CNG network. So when you compare the CNG total cost of ownership, now we'll start not -- we don't look at only operating costs, but we look at total cost of ownership. Then the case for a EV 3-wheeler, whether it is cargo or it's passenger, is very similar or slightly weak compared to a CNG 3-wheeler. Of course, compared to LPG, it is slightly better and much better when you compare it to diesel. So therefore, the migration from ICE to lithium and powered 3-wheelers is probably going to take longer. In this, the Jack in the Box will be government subsidies, government support and government regulations. When government regulation mandates that you can only use electric 3-wheeler, then that demand gets created. But left on its own, the case for migration in electric 2-wheelers is far more strong. The case of migration in 3-wheelers is weaker.

Great, Rakesh. Final question to Soumen. A quick view on the margin outlook, given where we are on the demand side in domestic and also the commodity inflation. So if you can just share broader thoughts on how do you see margins evolving in the next few quarters. And also related to that is basically a new product introduction, which is a new Pulsar platform and what could that -- the impact of that will be in terms of our profitability because it is a big change which is expected with the new Pulsar. So if you can just share thoughts on that, Soumen, that would be great.

Yes. So first of all, on margin, primarily because of commodities. But see, the problem that is happening is it is growing year-over-year. For example, in Q3, steel seems to be stable. Some mobile metals have softened, but then aluminum has more than made it up. On one side, because of semiconductor shortage, there should be less demand for all of these, at least from the automobile sector, which will bring it down. But that is not happening because of multiple other reasons. When the semiconductor shortage goes [ up ], the demand for all metals will again come back with a bang. And most likely, it will drive up prices again. So to honestly speaking, at this point in time, the variability of auto demand because of availability of semiconductors and external reasons is making it very difficult to predict beyond possibly the next quarter. As Rakesh mentioned, next quarter, we have a cost increase of about 2%. We do not know whether there will be price that we can take up to pass this through and all that. So I would say margins would be under pressure. Coming to the point around Pulsar. I think this is one of those rare cases as where we are relaunching something which is already very successful. And to give our pool to the new product, you need to add things, which always costs money. So I would say that the upside that can happen is basis, the success of the launch as opposed to the intrinsic EBITDA of the product. The intrinsic EBITDA of the product will not be very different from what we are otherwise doing because we already have a very, very successful high-volume scaled up production of Pulsar. The new one, if it replaces some competition, get some market share, drives volumes up, then we can. But standalone, it will not make a very big difference in the EBITDA profile of the company.

Just to clarify on the pricing. But even if exports also, given the strong momentum and where oil prices is and what it does to the underlying economy in those markets, even export pricing is a bit of a challenge or it is much better?

So pricing is a very big challenge. And if you would have seen our results, we have shown a lower [ CV ] volume in exports in Q2 Compared to what we normally do. And that pressure, albeit very small and we have overcome it, has been because of our pricing. Because unfortunately, not every player in the global market is reacting to cost increases the way we are reacting. So that is creating further pressure and there are pockets when somebody is stronger and in pockets -- somebody has stronger. Wherever we are stronger, we are taking up prices, but the competition across, whether it is from India or outside the country, has not been taking up prices as much. Now I do not know why. Maybe they are more efficient in purchases or maybe it's a competitive matter, which is absolutely fair. But there is a big stress in taking up prices in export market. The point that you said about oil is restricted to a part of Africa. It doesn't apply to large other places. For example, Bangladesh, which is a very large player, and Nepal, which is a very big place, or indeed, South America, all countries, their economy do not depend on oil. So oil is restricted to a place where it is mostly bike taxis. So yes, the economy will revive and possibly, the driver will make more money, but that does not really swing the overall demand so much that we can take up prices in H1.

The next question is from the line of Gunjan Prithyani from Bank of America.

Firstly, I was just looking for a clarification on this captive finance subsidiary that you've -- the Board has approved. Is there anything that you can share in terms of the capital commitment that we are willing to put in this business? Because, clearly, if we start, this becomes the key captive finco for all Bajaj products and there will be a significant capital infusion needed here. And how do we split as to what BAF will do and what this captive finco will do?

So Gunjan, the second question first. We don't need to split. Just today other than BAF, there are 4 other finances. And there are a lot of dealer outlets where there are 3 of them present. It is up to the customer to choose what they want to choose, which is the offering and the comfort and so on and so forth. So that, we will leave the market to decide. I don't think that we are going to allocate the dealerships. On the first question about capital allocation, I mean, I think it would not be very heavy. Because, first of all, it's very all-in. As Rakesh mentioned and also on the opening remarks, we will now form a company, go to RBI, seek approval, get the approval and then kind of float it and do it. So this is not as if that initially, suddenly, everybody will come to me. This will take time to build up. Debt is always an option. So I think at this point in time, we don't need to kind of jump into a conclusion that Bajaj also will put INR 10,000 crores of capital and we'll earn only INR 500 crores of dividend. I think it's very early days. Initially, there will be obviously some capital put in to start up. But this is how the demand evolves. We will decide the debt equity allocation subject to, obviously, RBI norms and everything else. But too early to discuss that at this point in time.

Okay. Got it. And the second question I have is, Rakesh, on the 2-wheeler demand. Now it's been over 2 years, right, that this has been so weak and you've called out affordability has been the issue given the price increases over the last 2 years. But I mean this is essentially something pretty mass mobility, right? I mean what is it you think is really dragging down? And what can OEMs do to change this narrative? Because there's clearly a need for mobility. So is it that we need to relook at the price hikes that have been taken or we need to look at some financing schemes? Some thought process what can change the narrative on the demand for 2-wheelers.

Yes. So the issue is, I think, as people would say that automotive sector is a reflection of the health of the economy, I say that -- I add on to it, and I would say that the status of the 2-wheeler industry is a reflection on the bottom part of the economy because 2-wheelers are used by lower middle class and even lower socioeconomic groups. Like we said, it's a mass consumption. Now our peak was -- for the industry was in '18/'19. And since '18/'19, there is almost a 30% decline in the overall industry. We should have gone up. So there is a big gap. Probably, we are at minus 40% from where we were. And COVID has obviously aggravated the situation. But in some extent, it has put a cloak over some of the structural issues, which the segment is facing. And this is -- they're arising from over regulation. For example, the ABS -- even in Europe, ABS is mandated not on the basis of cc. ABS is mandate on the basis of power. And here, we have added costs because of ABS and taken the prices up, which has affected the demand in the [ lower ] segment. Similarly, the insurance, the GST, which lends an opportunity actually, all these have contributed. And actually, if you see the price of leading entry-level brand in these 3 years has gone up by about 40%. So given against the backdrop of, let's say, an economy for this segment of people, which is underperforming, this has had a difficult -- this has created a bit of difficulty. Now it's impossible for an OEM to resolve this. This is not something which is in our hands. The Indian manufacturing, and I can say for the industry, and of course, I can say it for Bajaj, is very sharp. It's very frugal. And the vendor system, the way costs are managed are very, very solid. And I don't think there is any fact over there to cut out costs and reduce prices and revitalize the industry. The only silver lining over there is, of course, obviously, as the economy improves, the trickledown will help. But the silver lining over there is the advancement of retail finance. With the ability now through various means and the government's push in this sector, both to banks and NBFCs, fintech companies, this whole area, this is a very, very exciting and a very positive thing because hopefully, it will take credit into the areas. And cars enjoy 85%. In many places, we have only got 20% penetration. So that is one silver lining. But overall, I don't think we can do anything from it. The upper half economically is performing well, better. There is better purchasing power. There is more consumer confidence in the upper half of the pyramid. And we in Bajaj Auto are, therefore, tending to focus on this segment. And here, our approach is to punch our way out of this through putting out attractive propositions in the product side, which we did very early with 125cc. As you know, we were the first one to make a slew of new launches in the 125, which has made us capture a 23% of market share in this segment. We will continue to do that. In 2 hours' time, we are launching our new 250cc Pulsar, which is the biggest in the -- the biggest Pulsar as yet. And in an effort to excite the customer, you excite them into putting their hands into their pockets and taking out that credit card and so I can get for the down payment. So that's the only thing which we can do. I think cost side, we're pretty well covered that at least for the upper half of the pyramid, keep punching away with attractive new propositions.

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

A couple of questions. Firstly, can you share the EBITDA on export revenues and our USD-INR realization?

Yes. So the INR -- Soumen here. The INR realization was, if I remember correctly, 74.9 for the quarter. The overall total export sales in rupee terms is about INR 4,150 crores.

Okay. Okay. And secondly, Rakesh talked about roughly under recovery of 60 basis points in second quarter. Any sense on what was the gross impact after the price increases of the -- prior to price increases of commodities?

Come again. Sorry, I didn't get you.

The gross impact of commodity cost inflation in the second quarter?

Yes. I can give you a number, just hold on for a sec. So the gross cost increase Q2 over Q1 sequential is between 3.5% and 4%.

Okay. And what kind of price increases will we take in second quarter and in October?

So our price increases were closer to about 3%.

In 2Q. And any price increase in October?

No, I don't remember. I mean 1st of October, 1st of October, we have taken.

That was about 1.5%.

Much less. Somewhat.

Okay. Okay. Understood. And lastly, from this NBFC perspective. So gradually, this will be replaced or making good for any shortfalls or primary [ BAF ] focusing on [ tolerance ] to net set sales. This is what the captive [indiscernible] good for that. Is that the objective? Or this is also to focus on the new energy vehicles where financing -- it's also the question given the emerging technology environment.

Jinesh, I think we are reading too much into it. I mean there is no segmentation that there is a gap. BAF has been financing BAL vehicles for the last 30 years. We tell that the -- as Rakesh mentioned, there can be a very good integration on the customer side when the OEM and the finance guy is the same. So there are some synergies which we have found out, which will allow us to serve the customer better. This is not meant only for EV. This is not meant to plug cost because it holds us there, then we did a plug long time there. So there is nothing of that sort. It's just another attempt to bolster because as you know, financing is a key selling tool in our overall industry. It's another term to bolster it by integrating the customer experience.

Right, right. And lastly, on exports. In the past, we have indicated Southeast Asian markets where we're not doing that great because of COVID impact. Are those markets now making a comeback, particularly in September, October? Or still it's well below its normalcy?

So they are coming back, but they're not yet fully back. Like I said, our largest market is Philippines in Southeast Asia, where I would say we're only at 50% level. So that's a welcome relief. Because 2 months back, they had 5% to 10%. So we're back to 50%. And hopefully, in the next quarter or so, we will see a return to at least 80%, 85% kind of a level. So they are coming back, but I would say 50% level.

Okay. Okay. And just to clarify this particular market share in emerging markets you're talking about, costs of 150 to 250cc, right?

Correct. 150 to 250cc segment, which is for the commuter segment.

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

Firstly, I wanted a clarification on electric vehicles. You mentioned this 0.5 million capacity. Can you tell us by when it will come? And does it include 2-wheelers and 3-wheelers?

The 0.5 million capacity I had mentioned was for only -- for 2-wheelers, scooters. The -- any investment for 3-wheeler will be separate and outside of it. The 2-wheeler capacity will be -- we are still looking at the location, but mostly, it will be in our existing premises in Akurdi. We have a lot of 160 acres. There's no production. There's only R&D center. So we are very well provided for space. The 3-wheeler investments will take place alongside the 3-wheeler plant in Waluj in Aurangabad. What was -- yes. We are just looking at just putting down on these sort of detailed plans and we'll be ready to announce the timing, et cetera, and probably a quarter's time. As we speak, engineering teams are sort of doing the layout, looking at the contracts, the tooling and all those other equipment lead times, et cetera.

Okay. I asked because we have 5 months waiting in few of the cities, right? So will we be able to expand in a big way only after this capacity comes up?

No, no, no. So we already have 5,000 per month capacity already. We can -- if we want, we can produce. The issue would be the shortages, the supply chain shortages. So this 0.5 million, what we are talking about is what further expansion over there. Our current capacity is -- the current demand can be met by our current capacity from our existing plants. There, the problem, like I said, is the component flow.

Okay. So as of now, it is 5,000 per month and additional will come with this 0.5 million whenever this comes or this even this 5,000 can go up with supply?

Yes. But this 5,000 is from the existing plants in the other premium segments. As you know, we are establishing a second plant in Chakan, which is for the premium end, KTM and then [ plant comes for plant ], et cetera. That ground breaking has already been done and civil work has started over there. So that will be the fourth plant. The electric plant will be the fifth plant. So now how this 5,000 sort of pans out with how it gets distributed is something with the engineering work will decide in due course. But yes, so that's the -- the overall is that current 3 plants go to -- 4 with the premium and then to the fifth with the electric and to the sixth with the 3-wheeler investment.

Okay. Basically, what I'm trying to understand, let's say, demand is less than 10,000 per month by December next year, hypothetically. Are we ready to supply that?

Let's say demand is what?

10,000 per month next year, December.

Yes, yes, of course. I mean if the demand, certainly, there is enough sort of [ flak ] in the system to divert it to electric.

The next question is from the line of Aditya Jhawar from Investec Capital.

Yes. A couple of questions. Can you hear me now?

Yes, go ahead.

Yes, yes. First is on Chetak. Since we have localized a large part of the supply chain since -- because of the same to eligibility, now do you have some kind of visibility on the cost reduction on Chetak going into FY '22, '23 and '24 since you would have tied up with suppliers for the next couple of years?

So I think we will not get into specific costs in terms of Chetak in next 2 years and all that. But yes, your point is absolutely right. We have been able to optimize our costs significantly, no point going into specifics of how much.

Fair enough. Now second question is on captive financing. Now if you look at our domestic business, it has overall declined by roughly about, what, 7-odd percent in which the decline for 3-wheelers was relatively lower. And Rakesh mentioned that the share of financing has increased. However, if you look at Bajaj Finserv, they have reported a decline in the AUM by about 16%. So was there any reluctance from Bajaj Financing trying to finance 3-wheelers and 2-wheelers? And because what we understand is that post COVID, the profitability of 2-wheeler finances has come under some spread. And do you think that we have lost some sales because of that? And incrementally, will it be a drag until the time our captive financing arm is up and running?

No, not at all. I would not say that at all. In fact -- if I sort of recall correctly, there was a period in April or so in the heat of the second wave, where there was uncertainty around financing, but that we were encountering, not from just BFL, but from all the finances because all the finances are naturally saying that where is this going, right? So I think it was an industry-wide phenomenon. And whether we have a captive finance unit or whether we are working with BFL or whether we are working with the likes of HDFC, et cetera, those questions will be addressed in a similar way by the finance company, irrespective of that status. So I don't think we lost share on that account. But I would say, yes, the industry as a whole suffered because there was shrinkage of finance across the industry. But once certainty has started to reappear from June, July onwards, financials have come back. In fact, I believe that in the 3-wheeler segment, some of our -- one of the reasons for our galloping market share has been the -- has been weak retail financing support to our competitors. So to that extent, I would say that we have been ahead in the game.

Sure. The final question is that what is the share of financing of Bajaj Finserv -- Bajaj Finance in 1H of '22 versus 1H of last year or 1H of '20 more normalized year?

So that will not suffice the hyper business that you have because, for example, in 2-wheelers, last year, the average of Q1 and Q2 was about 35%. This year, it is more like 39%.

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

My question is for Rakesh. Rakesh, in the past, you alluded that the 125cc category to take up the market share from current quarter odd percent, you will need more product introduction. Any more color you can add? Where are we in that fourth quarter? And when can we expect some product action?

So the NS125 was the latest introduction, and now that's already accounting for, I think, 25% of our 125cc portfolio. And with its much superior margins, that's a very, very welcome development. There are a couple of products, which are in the works. But I would say that nothing in the immediate term on the 125cc. We will still have to wait a few quarters before we have an absolutely new 125cc being introduced. But yes, it's an important playground for us, and we are looking at coming out with some differentiated propositions out there, which are something very different to what is there in the market, including different from the Pulsars, the existing Pulsar 125.

Secondly, if you can help us understand how does this financing in the international market work because geographies are different, dynamics are different. And any specific changes that have happened post COVID in terms of financing in those -- in the international market, if you can just help explain [indiscernible].

The financing, there are many different models of financing in the international market. The most mature financing models and slightly similar to us are in ASEAN area, where you have large banks and specialist auto financing companies. They actually run at much higher interest rates, IRRs, et cetera. So the impact of COVID on them, while it has been there on the volumes, et cetera, but they are -- because of the share [ gains ] of the very high, margins are able to take some of the NPAs far better. So we have not seen in ASEAN any major fall out of this, particularly I'm referring to, let's say, Thailand, Malaysia and Philippines, where we are majorly present. In a weaker economy like Cambodia, we are indeed seeing financing companies that sort of gone into SL, which has resulted in the 3-wheeler business getting -- these are financing companies operating largely out of Singapore. So they have shrunk their operations. So I would say apart from Cambodia, I have not seen an issue. The next region is LatAm, where the financing -- a lot of the financing happens to the retail chains, which become -- these are also places where they buy -- they sell motorcycles. And of course, there are banks also. And there, I would say, again, we've not seen any great impairment of financing companies or shrinkage or change in financing -- big changes in financing terms. They've all been under pressure, but they've been under pressure from a volume point of view rather than from a quality of finance point of view. And the Africa financing is very, very nascent. But what we are finding is that there are a few countries, like Kenya, Uganda, where either cooperative financing or bank financing has started to come in the horizon and is becoming a major factor for driving growth.

This is helpful. And one last question, if I can squeeze in. Soumen, on the other income side, if you can help us understand how to look at the [ treasury ] income because it appears we had a good quarter on the [ treasury side ] on the yield side as compared to some of the other cash-rich companies. So how should we look at that yield for the year if you can...

There's a dividend from DHL, which may be [ appreciating ] your idea, but which is [ I remember 45-odd crores ]. So if you knock off that 45 crores, then you should be okay. Also, my cash balance for the first month was much higher because we paid out the dividend in the end of July. So month of July, it was not INR 15,000 crores. We saw INR 17,000 crores. It was INR 19,000 crores. These should -- these 2 should reasonably explain the other income there.

And lastly, if you can just share revenues, do you generally share that? So if you can share that?

I can only share [indiscernible]. If that's not, I can't say. So sales, overall domestic plus exports, was INR 1,100 crores.

The next question is from the line of Amyn Pirani from JPMorgan.

Most of my questions have been answered. One thing on the EV launches in cities, you are currently in, I think more -- I mean lesser than most of the other guys. So is it a function of the fact that you are not sure about component production and hence you don't want to launch many cities or you're trying to maximize initially a few number of cities and then a launch in other places?

Yes. Like I've explained that there is no point having -- we have found such a great response to Chetak that we find it not right to go and launch it in 25 cities and spread the levers that are very thinly over the entire store. The advantage of, for example, you can check the plant data and will tell you that the market share which we enjoyed in Chetak in electric is already 40% in Pune, in Pune City. So we rather go -- it's a balance if we're to strike because if we try and service the entire demand of Pune, we will also get excluded from engaging with customers in other places. But if the spreadout is too thin, then we leave a host of customers dissatisfied. Because we were not sure about how the reception will be. But as we have gone, I think the platform, the [ Oragadam ], Bangalore, [indiscernible], this is absolutely standard and surprise us by the demand, which they are putting up for Chetak. So as a result, we are still okay. First, let's get the visibility and then open the market. But don't forget, besides the customer is that dealers are also making an investment. Now we can ask the dealer to open a store and then give him 1 or 2 vehicles, we want a proper store. We want all the investments to be made. And then to give that poor dealer only 2 or 3 vehicles, that will not be right. So these are all the things which we have to strike the balance.

And currently, you're selling Chetak just through exclusive? Or is it mostly the KTM pro biking format that you're sharing for the Chetak right now?

Our distribution format in Chetak is that we like to have one -- it's a hub-and-spoke thing. We like to have one experience center, where the customer can get a very good environment and expertise and support to deal with this. And then we used all the KTM stores for retailing. And there is a very substantial online consumer engagement, purchase and program as well. It's still -- he or she still need to come to the dealership for the final verification. But today, we have the capability of doing the entire transaction and the consumer chooses completely online. And only for the final physical verification with the RTO -- if RTO doesn't want that, then the customer actually doesn't need to come to a Bajaj Chetak showroom or a KTM showroom. So we have got that. We have the KTM store, and we have the experience centers. This is the sort of distribution format for Chetak.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Anand Newar for closing comments.

Thank you, everyone, for attending the call. In less than a couple of hours from now, we have the launch for a new Pulsar version coming up and request all of you to please log into social media sites for more detail. I can also see quite a few of you still waiting to ask questions. And as always, I'm happy to take this call after a few minutes from now. And wishing each one of you very happy Diwali going forward. Thank you.

Happy Diwali, everyone.

Happy Diwali. Thank you.

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