Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Bajaj Auto's conference call to discuss the third quarter fiscal year 2022 financial results. We have with us Mr. Rakesh Sharma, Executive Director; Mr. Kevin D'Sa, Officiating CFO; and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Stephen, 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 for the opening remarks. Thank you, and over to you.

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, and I hope the third wave remains in our course and peters out very soon. So we announced our quarter 3 financial results last evening. But I hope by now, you've had some opportunity to look into the details. Overall, quarter 3 was yet again a difficult quarter to navigate due to the combination of an uncertain demand environment even during the festival, cost increases and supply chain disruptions in semiconductors as well as in shipping. However, overseas demand recovered quite smartly, held steady. And similar demand in India also improved on the back of receding lockdowns. So in this milieu, we tried to keep to our strategy of strengthening our competitive position by upgrading our propositions across and within segments, by capturing a greater share of the recovery in our dealership markets like overseas and 3-wheelers and thereby, improving upon our financial results quarter-on-quarter. I now move on to the business side comments. Let me start with our exports business unit, which is now our largest business unit, accounting for over 56% of our top line. Quarter 3 was the highest quarter this year in exports with average sales crossing 219,000 per month. This was also supported by a high level of retail in the market. In fact, quarter 3 retail is a record for us and is the highest ever quarterly retail achieved in all the overseas markets combined. Consequently, we have increased our global market share in both motorcycles and CV, and market shares are held or increased in every single region of the world. By end of quarter 3, we have pushed through price increases of 5%. These are in retail terms. This is higher than what our competitors, particularly competitors based out of India, have done. And this performance, the record performance both in shipping and retail has been delivered while digesting the price increases at the retail level and navigating all the problems of shipping as well as shortages in semiconductor. The outlook for exports business remains steady, and stocks in most countries are in tight control. And we hope to replicate this performance in quarter 4 itself, though, because it's the financial year-end, there is some spillover of business which occurs into the new financial year. So you might see some impact of that towards the end of March. Coming to motorcycle business unit. The demand scenario continues to be muted as both billing and retail declined by double digits in Q3. One data suggests service stations declined by 11% for motorcycles in Q3 at an industry level. Though the auspicious days have only just begun in January, but our retail data confirms that January continues to show a similar decline in retails over January '21. All segments, entry, mid and sports, are in decline. There may be a few percentage point difference amongst them here and there. But largely, they're all in decline. All geographies, rural, semi-urban, are in similar decline. Cash sales are in decline but a bit more than finance sales. Retail financing-based sales have done slightly better. This all pervasiveness of decline suggests an underlying issue with both purchasing power and sentiment of the 2-wheeler customer. Over 60% of our customers reside in socioeconomic classes of C, D or [ P2 ], where, amongst other things, average income of less than INR 50,000 per month. And this segment of the demand turnover is yet to see restoration of purchasing power or will to purchase. Against this backdrop, our decline was lower than the industry, resulting in a gain of market share on retail basis. One, registrations again indicate an increase of 1.6 percentage points for us to a 20% YTD market share in FY '22 compared to 18.4% in FY '21. The rise in market share is driven by our upgrade strategy in 100cc as the kick start-to-electric start ratio has moved from being 25%, 75% in FY '21 to about 95% in quarter 3. That means 95% of our portfolio are sales in the 100cc-based electric start. Our effort has been to upgrade the kick start customer into electric start. In the mid segment, which is the 125cc segment, 22% of our sales now come from the premier Pulsar 125 NS. The 125 NS will be targeted at the youthful customer. It is 25% more expensive than the entry-level Pulsar 125 [indiscernible]. Today, Pulsar 125 NS, which was launched in April, it has established itself as the most aspirational 125cc bike. And like I said, 22% of our sales comes from this variant. This is again another illustration of the upgrade strategy playing out in the market. We are now going to extend the upgrade strategy in the sports segment, too, which has not seen meaningful product introductions for quite some time now. As you know, a new 250cc platform was launched by us on October 28, the 20th anniversary of launch of Pulsar in India. Both the 250S and N have been very well received by experienced as well as our mature riders. Our national rollout is unfolding in January. And we are seeing a 40% rate of increase in daily booking every week, signaling a good level of adoption. We will be seeking to expand the new portfolio. And we'll be making new introductions at regular intervals over the next 6 to 9 months, completely refreshing and upgrading the Pulsar portfolio. The Dominar 400 upgrade has strengthened its position as a sports product and has been very well received by enthusiasts. While it doesn't add much in terms of volume both internationally and domestic, however, expanding this segment and gaining share here and actually gaining customers here, there's a lot to dispatch here and to our franchise both in India and overseas. It is something which is sort of surging ahead in all markets now. Overall, due to the muted outlook of the industry and some uncertainty related to the third wave, we remain cautious about the environment in Q4. We expect it to be negative over Q4 FY '21. In this situation, our objective is to maintain our performance in Q4 compared to Q4 FY '21. The 3-wheeler business unit. The domestic 3-wheeler business witnessed significant improvement as economic activities almost returned to normalcy in Q3. We sold more than 52,000 units during this quarter, which was 18% higher sequentially and 52% more than Q3 of last year. Consequently, we ended with a whopping market share of 71%. In fact, in December, it was 74%. The business unit is not just leading overall but leading now in every single segment of the 3-wheeler market: Small passengers, large passengers and cargo. In the cargo segment, we have crossed the market share of 50%. The rollout of the CNG network continues to proceed strongly by the government. In this year itself, active CNG pumps and number of cities have increased by 50%. And this is -- this bodes very well for Bajaj Auto. We have a market share of 75% in this segment. And this is also, along with retail finance support, a key driver of the expansion of market share in Q3. Going forward, our intent will be to improve the quarter 3 level of performance. However, we have to monitor the impact of the third wave very closely. Currently, levels of -- inventory levels are very much in control. And if lockdowns do not disturb everyday traffic, we should be able to improve upon our quarter 3 performance in Q4. On electric vehicles, the urban business unit, urbanized business unit, we applied for the Champion OEM Incentive Scheme of auto PLI under, which we intend to invest over INR 1,000 crores in the next 5 years. This includes the early and first investment of INR 300 crores in Akurdi, which is right here in Pune, which is expected to deliver a production capacity of 5 lakh electric 2-wheelers per annum. The first vehicles are expected to roll out by June of this year. During this quarter -- during the quarter 3, I mean, we sold over 2,000 Chetaks and have an order book of close to almost 10,000 vehicles. And this is based on limited current footprint of being in 8 cities. Now we are seeing a better visibility in supply chain, which will allow us to roll into 12 more cities this year and progressively in the 9 -- next 9 months or so as the supply chain performance on EV components improve, and we are seeing that happening. We are going to cover the entire country. We are gearing up in our dealership, sales force, et cetera, for this rollout based on the visibility in the supply chain. We are working towards expanding the EV portfolio to cover different emerging segments, and we have a 3-pronged approach to really building the EV business. The first is that despite all the frenzy which is surrounding this whole subject, we are clear that we will prioritize certainty over speed to ensure we do not damage our nascent category and build a robust, dependable brand. I want to tell you as an aside that with the news of competitors who are hitting the market in October, November or so, we did see some cancellations in order bookings. However, with the passage of December and now in Jan, when the performance of competition is being witnessed and experienced by customers, our cancellations have dropped down to a trickle. So we are able to carry a very large level of bookings at the most -- at the highest most prices for an extended period of time. Hence, we are convinced that the most important thing for us is to establish Bajaj as a cheaper and a very dependable brand. The second part of our 3-pronged approach is to continue to build R&D and supply chain capabilities for the longer term, including through partnerships like with KTM or with the shared mobility investment we had in Q2. And the third piece in this approach is to expand our portfolio aggressively to cover different segments, standard and emerging in India and select overseas markets, through products which are designed and made to address specific use cases. This is what will leverage our R&D strength. We are not looking at important designs and slapping together the power trade so that we can speedily get into the market with a half complete product. We will prefer that our products are designed to address some specific use cases, like I said. Finally, a comment on our EBITDA performance. Comparing the underlying EBITDA of Q2 and Q3 showed a 0.6% point increase in EBITDA over Q2. In Q2, we had a runoff benefit of the cumulative gross debt in MEIS for previous quarters. So the underlying EBITDA as per our calculation was actually 15%. Now this quarter, we delivered 15.6%. The improvement is accounted for evenly by an improved realization of the U.S. dollar and price increases in the quarter, slightly ahead of the final cost increases which were experienced. All operating costs are tightly controlled. The outlook on cost increases are very gentle, 1% or so at this point of time in quarter 4. And this has already been passed on by the increases in early Jan. Thank you very much, everybody, for patiently listening in, and we can now open the floor for Q&A.

[Operator Instructions] The first question is from the line of Raghunandhan N. L. from Emkay Global.

My first question was company's thought process for electric 3-wheelers has been to provide an ecosystem for operators and not only a product. What would the ecosystem include? Also, competitors are focusing on battery swapping model as well. Would Bajaj also focus on a swapping option?

So the 3-wheeler development is now nearing its final phase, and we expect to be putting up the 3-wheelers for approvals by end of this fiscal. And then in the next quarter, we will launch them. We will have a comprehensive range, which covers progressively the cargo, the small passenger and the large passenger. We will be trying to use -- we will be using our current brand name and trying to throw over the enormous equity which we enjoy, the mechanics and drivers and fleet owners, into the electric side as well. We are gearing up our dealer network to provide all the support services. And these 3-wheelers will come equipped with telematics, et cetera, which will allow fleet owners a better sort of ability to manage their fleet and utilization of the cargo vehicles. This is what it is right now. And what was the...

Battery swapping.

Yes. The battery swapping part, we see that it could -- at this point of time, with the kind of numbers which are going to be in the -- seen in 3-wheelers, we think that the battery swapping approach is going to drive up the CapEx. Because till the time the part number doesn't cross a critical size, you need to have twice the number of batteries in the system as there are vehicles. Only then the customer will be able to get the battery as and when they want. At the current cost of the battery, having 2x number of batteries for this vehicle, 1 on the vehicle and 1 on the system, will drive up the CapEx of the system. It doesn't matter who pays for it, but it will be recovered in one way or the other as interest, et cetera, or [ used ] charge or whatever. So till the time this doesn't cross that critical number where the x factor comes down to 1.2x or so, like it is, let's say, for a 2-wheeler in Taiwan, as the battery costs plummet strongly, it doesn't make sense in the 3-wheeler segment, which is a commercial segment, to have a swappable approach. However, from a technology point of view, we are investing behind this. And we will have a range of 2-wheelers which will work on battery swapping. And we will see if we can do this through our dealers and other methods. This will allow us to have a net in the technology space. And depending on the commercial viability of this approach, we will play it out in -- whether it is 3-wheeler or the 2-wheelers.

My second question was, can you give some color on upcoming products in EVs and ICEs? In EVs, there are spy spots seen and media reports for electric scooter. There is also hope that electric motorcycles will come up ahead in collaboration with KTM. And also, if you can highlight the Bajaj-Triumph combined efforts for premium ICE motorcycles.

So most of our R&D efforts in terms of new platform is now focused on EV. We are focusing only on one platform, which is a new platform in the ICE range, which will hopefully expand and really bring a very differentiated proposition in the commuter segment in due course of time. Apart from that, all the new platform building is now taking place in the electric side of things. In that, we are -- we feel that the traditional ways of segmentation are not relevant in electric 2-wheeler segment at least, which was we were looking at commuter, we were looking at mid-range and then we were looking at sporty commuters and like that. But new ways of segmentation are needed, which are based more on people's preference for -- which are more on usage case. One may prefer speed. Somebody else may prefer brakes. Somebody else may prefer convenience of charging, et cetera. So we are looking at these use cases. And our objective is through these platforms, and I'd say there are at least 3 platforms in the R&D which are right now being conjured up, we expect to cover most of the use cases. And as and when we understand the use cases emerging, we will deploy the appropriate and the relevant platform. It is not possible to imagine all the use cases immediately. Therefore, we have looked at taking a platform approach, which will allow us to spring into development of -- to address a specific use case. I mean, there, to give you illustration, it could be -- obviously, the emergence of the delivery segment is obvious. But within the delivery segment, there could be a subsegment which prefers low speed, which is -- which doesn't require licensing. And there could be some subsegment which actually prefers high speed and long range. And both these require individually different and customized solutions. So therefore, our approach is to build together -- build these platforms, which will allow us to address these new segments over a period of time. We are collaborating with KTM. So the electric style powertrain is actually very, very suitable for some of the extreme sports motorcycles. We are looking at those. They do not find too much of an application in India, but they again give us a lot of manufacturing and development experience and access to global markets through the KTM brand or through the Bajaj brand. So that work is going on. We are also looking at different forms, not just motorcycles. But suffice it to say that beyond motorcycles and scooters, different forms are being evaluated. Some of them are already in place. You can go to the KTM website and have a look, but we're jointly evaluating different forms. And if they are applicable in India, we will present them in India or we will present them in some other overseas markets. With Yulu, we are getting very valuable information on how last-mile and first-mile requirements are there, how the low-speed delivery segment is shaping up. And we are working with them to develop a bike, develop a vehicle specifically to address this. And Yulu will -- most likely, they will be presented within 2022. So there will be a lot of activities, I think. It will first start with the aggressive rollout now of Chetak. Progressively, I think we are seeing a better and better supply chain visibility. So we'll -- so quarter 4 will be much better than quarter 3, and quarter 1 will be much better than quarter 4. We will roll this out. That's our first priority. And then progressively, the Chetak platform will be expanded. The KTM-based platform will be expanded, and the Yulu-based platform will be expanded.

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

It's really good to hear more about electric and your thought process. Just on this topic, you mentioned many times in the past that supply chain has been a constraint. I mean, I'm just trying to understand if you can give us more color on what are really the problem areas. Is it chips? Is it battery? And what are we doing to address that? Because we may have 0.5 million capacity coming on stream midyear. I mean, is it something that we are doing on the back end that this capacity can be ramped up when the demand -- when the EV transition accelerates? So the first question, on the supply side.

So we had a lot of trouble last year once the -- you see, we started in, let's say, April, May, June -- March, April, May of 2020. And then the -- and COVID struck us, and our arrangement which we had put in place, I don't want to name the vendor, but global vendors, reputed companies, those arrangements collapsed between those companies and their suppliers. As a result of it, there was a blowback on us, and our arrangements got impacted. And these were primarily in the battery side. And later on, because of the independent issue of the semiconductor coming up, we faced the double whammy of some of the electronic components getting into a problem. We -- over these last 6 to 9 months, what we have done is we have indigenized and we have internalized a lot of the components. And we put in new supply chain arrangements, which have fallen in place. And we will start to see that impact. We've also got the in-house technology with Chetak approved by ARAI, by [indiscernible] and all that. And that has started to roll out into the market since end of December. And now, of course, it is in full flow. Because of this -- I mean, debacle is a strong word. But because of this problem which we faced with our previous arrangements, and the configurations were based on those arrangements, it took time to change into a new configuration and put the new arrangements. Those have now been put in place, and we see that we see a better visibility because of that. Having said all this, I must point out that the supply chain environment for everyone, that remains uncertain because of the chip situation. We are now realizing, again, that there is a little bit of turbulence in that area once again. So we remain available as everyone does. But our specific problem, which was our base -- our old consideration was overreliance on one vendor system, that we have at least been able to utilize.

Okay. Okay. That's good to hear. The second question, again, I had on the 3-wheeler business now. I mean, I do understand CNG, and we are gaining share in cargo. But this is something that -- this is again a sector -- a segment which is very, very vulnerable to the transition. Now you did mention we'll roll out the products, but there is also a lot of new competition which is coming in this space. So maybe if you can give us your perspective as to, do you see this segment shifting very quickly to electric? And if not, what are the real challenges? Because you all have been speaking about CNG a lot more than electric and 3-wheelers.

Yes. First of all, I think that the CNG is a very, very good option when it comes to environment and operating cost. It is a product which the mechanics and the drivers really understand well. CNG network is something that the government is very, very keen to [ declare ]. I mean, you just have to go into the company's site and see -- not our company but the government's site, and see how aggressively the government has been rolling it out. And I'm surprised that the media doesn't pick it up, but it is one of those infrastructure projects which, over the last 2 years, has been very successfully implemented. And even this year, like I said, the number of towns and coverage is really increasing. And the moment that CNG comes, you can see very -- it's very clear that people really prefer going to CNG because it gives a huge improvement over the current operating costs over diesel or petrol. And that's why we support it. And we have always supported it. And we have always -- we have found that even internationally, wherever CNG is there, they have made a good impact. And why should we not pursue an alternate fuel? Because in any case, at the macro level, what we believe is that the 2 issues, cost -- environment and dependency on the dollar, which the government is trying to mitigate through transition into electric, is going to be served better if we sort of move into different alternate fuels. And even things like flex fuels, ethanol-based fuels, et cetera, it's -- I don't think just a move from petrol to electric is going to fully serve those twin objectives. So we are very clear. We are not going to bank on our pursuit and our expertise and our authority on alternate fuels just because electric is there. We're going to pursue -- continue to pursue that as we pursue electric. Now on the electric side, the issue is that there is -- when it comes to operating costs, certain -- compared to CNG, an electric vehicle is about 10% cheaper compared to -- LPG is about 20% cheaper. And compared to diesel, it's about 30% cheaper, the operating cost. But capital costs are higher. And therefore, there has to be a very strong retail finance support. In today's environment, stepping up retail finance beyond what it is already doing is a bit of a tall order. And it will still take some stabilization of the environment for retail finance companies to come in and say that they are going to now support purchase of a very expensive electric 3-wheeler when the demand environment is weak. So that is one constraint, but we'll keep working on that. We have BAFL with us, and we are constantly exploring opportunities there. The second is, of course, the charging battery. We will leverage our distribution network, and we will see how the charging anxieties can be addressed. It takes 3 to 4 hours, and parking where you can charge is an issue. These kind of things are there in the minds of people. So they unfold faster in fleet owners and cargo and small multi-load operators and those kind of segments. But the vast market, which comprises individual owners running a 3-wheeler, is an issue. And the final point, in an individual driver owner's mind is that what will happen to the battery? What will happen to the resell value? Today, it's very, very clear if we buy the 3-wheeler, what we will be able to sell it off at the end of 3 years, 5 years, 7 years. It's a mature resale market. The electric 3-wheeler market is not a mature one, and the resale price understanding is an important component in the purchase decision of an individual driver owner. But they will also get resolved over a period of time. So therefore, we see that it's not that the transition will be dramatically sudden. It is definitely one, but it will unfold progressively as these things -- these chips fall in place. And they will take some time to fall in place.

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

Sir, I wanted some color on the export market, please. Also, if you could cover things like plans which have taken place in markets like Egypt on 3-wheelers. And also, a little bit of contrast in comparison to the Indian market because we have seen these waves in export markets also, but the volumes there have been doing pretty well. So just some contrast as to what is going right in those markets compared to India in your view. And also, of course, the volume outlook, whether we can sustain the current run rate. That's the first question.

Okay. So yes, the -- over the last few years, the outside world sees a very steady volume in exports of 3-wheelers. But what is happening underlying this is a furious pace of business development. Now India being a mature market, the scope for business development only comes when there is a discontinuity like we just talked about one, which is the advent of the CNG 3-wheeler, one which will come out soon, let's say, in a few months or quarters, which is the electric side, which hopefully we will be able to cannibalize the fee rates, which are all these China-based [ credit ] stock, which comes. Now in the exports, we got a lot of learnings when suddenly, we lost out of our 22,000, 23,000 units per month, which we need to do, we should do 10,000 units in Sri Lanka. This was 6, 7 years ago. And suddenly, that thing got switched off because the Sri Lankan government came down on the 3-wheeler because of import duties, et cetera. And we were suddenly faced with a crashing 3-wheeler export sales. And we launched a furious development exercise at that point of time. And over the last 4 or 5 years, we have developed something like 23 or 26 brand-new 3-wheeler markets. Those previous countries like Iraq, Philippines had never ever seen a 3-wheeler. But our teams went out over there, educated, trained, supported, trialed and expanded the 3-wheeler market. So today, as -- before the lockdown and now this market is coming back, we're doing over 2,000 -- almost 2,000 units in -- of 3-wheelers in Philippines. Cambodia had never seen a 3-wheeler, And we were doing 1,800 units in Cambodia per month. Iraq, we are touching 3,000 units per month. It has never ever seen a 3-wheeler. It's -- and in the early days, we have developed Mexico, Dominican Republic, and I can continue. There are many, many markets. So we are continuing this learning for that. There is a constant -- there is a squad in the sports team whose constant mission is to develop 3-wheelers, and now we are looking at electric 3-wheelers very aggressively. And the development of the -- we are looking at that as an opportunity. So our -- when we look at what is in the pipeline, we believe that there will be -- the constituents in terms of the countries will vary. But we think we will be able to sustain, if not improve marginally, this level of performance in export of 3-wheelers. Egypt banned the 3-wheeler in October. But you would have seen in November, December and well into quarter 4, we will continue our export at the same level to date because the Egyptian government quite supposedly had allowed existing orders. So that's why the pace of export is continuing. And while that is happening, we are in dialogue through our partners there with the Egyptian government because the Egyptian government, a requirement of CNG, they want to shift to CNG. And till now, we've been only exporting gasoline. We are in discussions to then offering the CNG option. But also, in some parts of the city, they want a high-speed vehicle, a better-looking vehicle, et cetera. And we are in discussions with them. And hopefully, over the next couple of months, we will be able to resolve a few things. Because I must also say that there are many territories within Egypt and even in many countries, including places like Mexico, where there is no other -- a bus cannot go or a minibus cannot go, a car cannot go into those narrowed towns or in Lima in the favelas, et cetera. When a bus drops off a customer, a passenger, the passenger has to walk uphill for another 2 to 3 kilometers to reach his home through winding streets. And that is where only a criminal can take -- and if there is a woman who's come from shopping, et cetera, there is only -- these are the kind of people we are serving. And so it's not easy also to shut off this type of public transport without inconveniencing the customers. So through the twin -- the thing of engaging the government and secondly, furious pace of -- and continuous business development, we hope to sustain this level of performance in 3-wheeler exports.

And for 2-wheeler?

Sorry?

For 2-wheeler export outlook?

2-wheeler export outlook. The 2-wheeler export outlook, sorry, your audio was not very clear to me. Yes, the 2-wheeler export outlook in the short term, which is quarter 4, is -- will remain steady. But what happens is that the year comes to a close, and there is some spillover, which goes into April, May. So to that extent, we will see some reduction. Last year, we were building up stock. But at the retail level, it's all going very strong. And we are hoping to conclude the financial year with 2.5 million plus of exports, almost $2.3 billion and a very good surge in Pulsar and Dominar. And this gives us a great momentum. And the stocks are not very high. This gives us a great momentum of entry into financial year '23-'24 -- '22-'23, I mean.

Okay. And sir, second question was on electric. We've seen these bookings coming from Chetak, and we are operating at a certain price point. So I just wanted to understand when we are looking at these customers, who are these customers? Are they people who are using a current 100 or 125cc scooter or these are some enthusiasts who are testing out the product at this price point? The reason to ask this question is also because we are now putting up a 5 lakh capacity. So I just want to understand whether there is that much demand at this price point or you need to straddle a much bigger price range, let's say, from INR 100,000 or INR 80,000 onwards. If you can give some color on that as well.

Yes. Sure. See, first of all, you should understand despite all the media frenzy, let's keep our nose on the ground and see that today, the penetration of the 2-wheeler -- electric 2-wheeler is only 1% of the -- I mean, it's only 2% of the overall 2-wheeler market. So that is the play right now. Now within that, of course, if that has to expand to 4%, 8%, 10%, 15%, it will have to cover very different level of price points. There is no escaping from that. But stay within the current price point, also, there are opportunities which are more geographic in nature. What we have achieved till now is only on the basis of the 8 cities. And we want to -- the more we expand, we will be able to take the top of the pyramid in all these cities. But for it to truly replace the 2 -- ICE, we will have to go into different price points. Secondly, even examining who are the people that you ask -- who are the people who are buying that, we have been thinking that there is a price cross-section. I mean, to give you some color, if I look at Pune, which has got more -- high level of electric penetration, and this is where we launched our electric Chetak first, and this is where -- a market where we got most data because we've been operating it now for almost 1.5 years, so our sales from our showroom or dealer in the center of the city far outstrip by sales from our dealers on the outskirts, let's say, like in Chakan and adjoining areas of Pune. What I'm saying is that people you would expect, let's say, someone who is environmentally conscious, economically stronger, very urban kind of a persona to be the first buyer. But what we are finding is that, that person is there. What we are also finding is that there are people who are in suburban areas who are very attracted to the proposition of convenience. When we are looking at the language with people that they are preferring to choose, they're not [indiscernible] can be bought online, they're choosing vernacular language more over English, which suggests a certain socioeconomic class. We would expect people like to use English. But no, the vernacular language is being used. You can see today, if you're just driving around in Pune, you can see women. You can see men and women. You can see delivery drivers in the morning, coming and dropping newspaper on a Chetak. It does -- it is very, very heartwarming, therefore, to see at one level that electric as a concept is getting wide-ranging acceptance. And Chetak as a brand has also very wide-ranging acceptance. But for it to reach a beautiful penetration and not be it -- all this is happening within the 2% big one I'm talking about. But yes, going forward, one will have to obviously make it more accessible to different income demographic.

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

I had 2 questions. Firstly, on the margin side, good to hear that you've taken around a 5% price hike on the export front. So from here on, how do you see the margin trajectory for the business? The margins have expanded sequentially but still sharply down on a Y-o-Y basis. So what's the outlook on that? That's the first question.

So Binay, let me invite your old friend, Kevin D'Sa, who is officiating after -- as the CFO after Soumen. Let me invite him to talk about it.

Binay, what I see from a margin point of view is you're seeing a sequential improvement from 15% to 15.6%. And actually, I go back a little bit, as you can see, the margin was just at about 19.8% in quarter 3, nearly got affected significantly by the high cost increase in materials, which given the situation of demand and given the situation of the -- given the situation, we really couldn't pass on the entire cost. So I'm happy to inform you that in quarter 3, the entire costs have been passed on. And as a result of which, the margin improvement has been reflected with the material cost coming down by about 0.4%. In Q4, as Rakesh has mentioned earlier, we have estimated a bit of cost increase as we commented. Normally, it's a cost increase in the areas of steel, zinc and lead. There's a reduction in other metals like rhodium, et cetera. Cost increase that is there is not going to be too severe, but all that has been passed on to the customer. Now given the volume increase and a slight depreciation in the dollar that we hope to get, I think there should be a marginal improvement in the margins as we see from here. But this is -- at this particular point of time, we are taking the call. But it will be stable, and I very frankly say that it will be plus or minus 0.3%, 0.5% from what we see today.

Great. Great. And the second question is, when we look at stand-alone minus consol, which probably is coming from KTM, we see a lot of volatility in that number. It was around, I think, INR 300 crores in last quarter -- in the September quarter, INR 140 crores in this quarter. So could you talk a little bit about that, how to see this run rate going ahead?

Which is it, Binay, please?

KTM.

This is consolidated profits, less stand-alone profits, taking away the one-offs. This quarter also has a one-off. So in a way, I think it's all coming from KTM. So could you comment a little bit about the KTM profitability? We've seen a little bit of volatility in that.

Sure. So if I talk of the KTM and the consolidated profits, we always take KTM 1 quarter in arrears is the more -- what we consolidate. Now the first quarter would have been a little bit affected by the COVID. So the operating profit that KTM has shown is on a steady state going forward from the last 2 quarters. But over the 2 quarters, 2 things have happened. One, as we have explained, there has been a bit of a restructuring of our holding in KTM, that is Bajaj Auto Indonesia holding KTM, which was about 47.99%, got swapped to 47.56% of pure Bajaj AG. That in quarter 2 resulted in an exceptional gain of about INR 502 crores. So that's where the volatility came into the consolidated. Again, in this quarter, what has happened is we were left with 1.49% of KTM, which was sold in the buyback, resulting in a further gain of about INR 75 crores. For us, the quarter -- on a normal operating basis, KTM is showing a very steady profit over the last 2 quarters. Now the other thing I'd like to share with you is as of now, like I mentioned, we consolidated 1 quarter in arrears. So what we have consolidated in this quarter is the profit of KTM. As we go into the next quarter, we will be consolidating the quarter of pure Bajaj, which will be KTM plus the other electric businesses of KTM. So you could see a bit of a bump up there as well in quarter 4.

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

Sir, first question is on the 3-wheeler side. If you can help us understand in domestic as well as exports, the breakup between CNG and other fuel, how much in domestic market will be CNG of the total volumes and similarly in exports?

My -- I think about -- almost about 60% in domestic is CNG, which is in passenger and in cargo combined. Exports is much less. I don't have the number, but I can request Anand to give you that precise number.

Chirag, I can give you that number after the call.

Yes. Sure. Sir, secondly, on the EV side, there were reports around a few months back that Husqvarna's E-Pilen is likely to be manufactured in India, and it was supposed to get launched in calendar year '22. There has been some delay because of a variety of reasons. Should we assume this 500,000 capacity that you have announced also takes into account -- excludes 2 products? Apart from E-Pilen, that is the only product that they were looking to launch in FY '22?

Sorry, I didn't -- the audio was not very clear. So you were talking about Husqvarna, which models?

So there were 2 electric models that we were looking to launch in calendar year '22. That was showcased somewhere in April '21 and then updated in September 2021, and the indication was that they would be manufactured by Bajaj in India from a global perspective.

Yes. Yes. So that -- finishing that is going to be on the basis of sort of kits, which we will supply. And that's exactly how they are going to do it -- that KTM and Husqvarna will deliver it. This plant is not out from that point of view. But over a period of time, I'm not ruling out that -- I'm not saying that we will not make any Husqvarna or KTM electric over here. That depends on how it unfolds. But currently, what was discussed and what was -- what we had briefly talked about, that KTM is making on its own based on certain sharing of platform with Bajaj.

Okay. So this -- the plant that we have announced is excluding this development? As and when this development takes share, there could be further additions that could happen on the product side?

That's right. This is not because of the requirements of Chetak portfolio. And that is something can be needed -- or needs to be accommodated, we will see at that point. But it isn't considered for the Chetak portfolio.

Okay. And sir, just a follow-up question on Chetak and the EV product expansion that you indicated. Chetak is a very uniquely designed product, let me use, a slightly more nostalgia kind of a design, going back to the history, something like, say, a Royal Enfield in the motorcycle space. Do you think that there is a need for a slightly different sharing, designing also to expand the EV portfolio of Bajaj or Chetak type of designing with the design that you are working with?

So our objective is to -- we are seeing this as a [ white campus ]. And we don't want to paint a certain box of -- for the cheapest brand and then become prisoners of it. Because a very high level of marketing efficiencies can be achieved if we follow the harmonized approach of having the same name of the company, the same name of the store and the same name on the product. This allows a lot of marketing efficiencies and a very focused and strong, integrated brand development. Now in this, the downside could be that can one brand fit various form factors and sizes? And that's the opportunity we have with Chetak. If we take a very narrow view of it and say that, okay, CapEx is only that kind of a form, then we have become a prisoner of it as some other companies have become. And we don't want to do that. We want to garner the marketing efficiencies. And the more vehicles there are on the road, the more different types of vehicles are on the road, the brand only gets reinforced in the minds of the consumer. Because having multiple brands also causes choices -- causes cognitive confusion in the consumer's mind. So we are going to expand the Chetak portfolio, keeping the basic essentials of a Chetak ride so that people should be able to see elements. They should not look like a zoo where there is a zebra and an elephant and a giraffe and all put together under one brand, not like that. But the whole skill of the R&D will be to -- for people to be able to take benefit from different form factors and different sites but still see the unifying set of Chetak's design intent. And that is what we are working for. I mean, obviously, I cannot show you, but that is the kind of work which is now underway. And people in R&D and marketing are sitting together and saying that, yes, when you put the entire bridge together, it doesn't look as it belongs coming from the same parent or not. So we would go towards having different form factors and different styles under the Chetak name.

The next question is from the line of Nitij Mangal from Jefferies.

Rakesh, you made an interesting comment on how segmentation in EVs might be -- might have to be seen differently versus the ICE. In the context of that, how do you see a typical sports motorcycle customer today thinking about EV options? I mean, is it possible that a typical customer there might look at scooters as a form factor? So can that transition happen in a meaningful way?

So see, in the sports motorcycle -- see, in any case, a motorcycle allows much less space to the designer to work with the battery systems. And the more dense a battery is, which means less basic needs, then there are issues around heat generation when it sort of discharges or when it charges. Then how do you dissipate the heat? And secondly, of course, the cost of more intensely packed battery, because the space available in a motorcycle is less. But having said that, so therefore, you cannot have a very [ all familiar ], unless there is a change in technology. But assuming we stay with the current technology, because there is a lot of technical development taking place in the battery systems also, but keeping that aside. Now -- but there are certain sports bikes, like, for example, enduro or off-roaders, which need -- where electric is very well suited because it needs very high levels of start, and they need the ability to go from 0 to 60 kilometers per hour in a matter of seconds. And that an electric motor can serve much better than an ICE-based system. So in those extreme sports areas, I think the transition is to electric. And secondly, what happens is when you're using it for sports, it is imaginable that the person may not be too worried about range. These sports of off-roading, enduro, motocross, they take place in confined arenas. And they're not like touring or things like that. So there are segments of the sports vehicles which will see transition to electric, and that may happen. But in general, motorcycles, because of the reasons I described, faster in the commuter, high-end commuter or low-end commuter, will take -- still take some more time before people move, before they move to electric, yes. And whether a commuter motorbike owner will start to prefer electric, certainly, that possibility is there. It is not necessary that the electric scooters will cannibalize only ICE scooters. They will cannibalize commuter motorcycles also. Ultimately, the entire commuting, whether it's scooters or motorcycles, but the entire commuter ICE market is open for cannibalization by electric.

Understood. So it's a bit possible to assume that as the market moves from ICE to EV, the share of scooters might actually rise because that's the form factor which is easier to have an EV.

Yes. You can say if you put together the EV and the ICE, that there is a chance that the scooter market will drive it. That is actually the most attractive part for Bajaj Auto. You should see -- this is the point which I've not mentioned in my opening remarks, I should have, but it is opening up a vast new segment for us. I mean, for reasons which are well known, we have stayed away from the scooter market. But because the cannibalization will be faster in scooters because when it -- there are 2 things. One is the form factor, and the second is the powertrain. And the powertrain has implications of cost, et cetera. The scooter -- the downward -- or the [ riders ] preferring a scooter has already overcome the decision of the form factor. That means they've already said, "[Foreign Language], I will not take a motorcycle. I'll choose a scooter." And now the second decision is whether powertrains should be EV or powertrains should be ICE. So they thought the cannibalization will be faster in scooters and slower in the other, which means that what new segments open up for us in places like India and ASEAN, where there we are sort of always hampered because 90% of the market is non-motorcycle over there. And now this gives us an excellent entry into ASEAN and to the Indian scooter market.

Understood. And one more question. On the commodity cost side, I mean, you have explained how you're looking at the next quarter quite well. When I go back to precious metal prices, I mean, those are down very significantly. How much is that as a part of your total RM basket and especially rhodium, which was one of the biggest pressure points earlier?

It's not very large compared to the major cost for a motorcycle. For example, the biggest cost drivers will be steel, aluminum and, of course, rubber in the tires, et cetera. So this is a small part. But that fall over there would help us in the overall benefit on the material cost. It's not very large.

Ladies and gentlemen, due to time constraints, we take that as the last question. I now hand the conference over to Mr. Anand Newar for closing comments. Over to you, sir.

Thank you, everyone, for joining the call. I see quite a few participants waiting to ask their questions. So I will be happy to take those calls after 12:30, and thank you and stay safe. Thank you, everyone.

Thank you, everybody.

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