Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to Q2 FY 2024 Results Conference Call of Bajaj Auto Limited. My name is Rio, and I will be your coordinator. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Newar, Head, Investor Relations from Bajaj Auto Limited. Thank you, and over to you, sir.

Thanks, Rio. Good evening, everyone, and welcome to Bajaj Auto's Q2 FY '24 Earnings Conference Call. On today's call, we have with us Mr. Rakesh Sharma, Executive Director; and Mr. Dinesh Thapar, Chief Financial Officer. We will begin our call with an opening remarks from Rakesh on the business and the operational performance for the quarter, and Dinesh will take you through the financial highlights. We will then open the forum for the Q&A. Over to you, sir.

Thank you, Anand. Good evening, ladies and gentlemen, and welcome to our Earnings Call for Quarter 2. We deeply appreciate your presence here this evening. So let me begin with an overview of our performance in Q2. Yet again, we have delivered a record financial performance with an all-time high revenue, EBITDA and PAT, breaking our previous record that was set just last quarter. This performance is yet again a great reminder of Bajaj Auto's robust business model that reflects the resilience and vitality of a well-diversified business. Dinesh will take you through the financial performance. So let me focus on the business unit performance. Starting with exports business unit. The macroeconomic environment, combined with the new geopolitical issues remained uncertain. However, the world and, in particular, the financial systems seems to have adapted to this as the new normal, which is leading to some improvement in ForEx availabilities for trade. However, currency-led inflation has continued to dampen the pace of recovery after the sharp fall in H1 of last year. Overall, our exports are still at about 66% or 2/3 of the peak, which we had recorded in financial year '22. But sequentially, there is 8% to 10% quarter-on-quarter improvement in both retail and our shipments. And this has occurred across all regions. Africa is a double-digit improvement, powered by Nigeria on a quarter-on-quarter basis. Asia, MENA, which is Middle East and North Africa and LatAm, are single-digit improvement. We expect the recovery to continue at this overall pace. Return to peak levels of performance will be a slow and steady process rather than a quick one. Coming to domestic Motorcycles business unit. The industry recorded a growth of 5% to 6% year-on-year in retail for the months of July and August, followed by a 20% growth in September, therefore, delivering a growth of 10% for quarter 2 on a retail basis. In this, the 125cc plus segment continued to grow faster than the 100cc segment. In quarter 2, the industry rate of the 125cc plus segment shifted to 51%. Our retails are up 22% on -- in the quarter on the back of the 125cc plus performance which grew at 36%, significantly outpacing rest of the industry. Our market share in the 125cc plus segment is now 30%, and the segment accounts for 65% of Bajaj Auto's volumes. In billing terms, you would have seen a decline, but I would like to remind you here of this base of Q2 last year, where channel inventory was being refilled, post-resolution, of the semiconductor supply issue. And therefore, you would have seen a very sharp growth performance in quarter 1 which is also to be ignored because last year quarter 1 was very small for Bajaj Auto. The festive period based on last 3 days of retail has got off to a promising start. Based on this and also the kind of consumer sentiment we saw during Ganesh Chaturthi, Onam in certain parts of the country, we expect the industry to grow at about 12% to 15% over a like-to-like period last year. You know the Festive period is 33 days and it's a lot of shift by 15 days -- calendar days every year. So when we compare the like-to-like 33 days of last year with this, we are hoping that it will be a double-digit growth. Bajaj Auto should outpace this performance comfortably, again, on the back of a superior performance in the 125cc plus segment. Our strategy continues to drive profitable growth in the 125cc plus segment based on product differentiation and sharp positioning. Towards this, the upgrades of Pulsar 160 and 200 NS, the new Pulsar N160 have all combined to increase our market share. The recently launched PulsarN150 is positioned for a modern, sporty commuter, and has been very well received. Pulsar has deeply strengthened its leadership in the 150 to 250 cc segment with a market share -- with a commanding market share now of almost 40%. Almost 6 new launches and upgrades are expected in the next 6 months, which will further consolidate our vision in the 125cc plus segment and drive market shares to a new high. Commercial Vehicles. The hero business for Bajaj Auto this quarter is really the 3-wheeler business. It had a record-breaking quarter, with quarterly volumes touching a new high of 132,000 units and sales in September itself crossing 50,000 units. This translates into a growth of 34% quarter-on-quarter and 81% year-on-year, consolidating a significant leadership position with 80% market share in September. The performance is driven by capturing a very disproportionately high manner, the conversion of diesel markets to CNG. Our shares in cargo and diesel segment have also increased. All the increase in market share has been achieved, while improving EBITDA and pricing premium over competition. Electric 3-wheelers were launched in Agra, and we've completed the quarter of our pilot over there. And they've been received extremely well with Bajaj Auto E 3-wheelers capturing almost 70% market share in Agra within the quarter. We've commenced our Phase 2 calibrated expansion program, which would take us to 40 cities in the next 6 months. We have already entered -- after Agra, we have already entered about 10 cities. The big push will happen thereafter in FY '25. Our approach is to first attack markets where autos are not permitted, and this brings in new business to the company. It is important to state that at this point, the E 3-wheeler business is not margin dilutive for us. And therefore, we are keen to drive its expansion, while ensuring a very high standard of customer service. On Chetak, as mentioned before, supply chain work has increased our capacity and reduced costs, allowing us to open up the network, right price the product and drive sales. We are now in 120 cities with 140 exclusive sales and service stores, covering almost 75% of the high-speed EV market. Our market share has increased from 4% in FY '23 to 11% in September in retail terms. We are pushing for reaching the 10,000 sales mark this quarter and then building on it next quarter. Within Q3, we will present to upgrade and follow this up with a further expansion of the range in Q1 of next year. Our network alongside will expand to about 180 cities by the time we exit the financial year. Our premium biking business, Triumph. As you know, it has received a tremendous response since its launch early last quarter. Deliveries of the Triumph Speed 400 commenced by end of July, and we have received an overwhelmingly positive customer as well as professional user feedback, pushing us to fast-track deliveries to over 8,000 units in quarter 2, and we have conducted already tens of thousands of test drives. To support this momentum, we are building system capabilities on the front and the back end. Currently, we have a capacity of 5,000 to 7,000 units per month, which is being expanded further in coming quarters and should go up to about 10,000 units by the time we exit the financial year per month. This will allow us to take the brand to over 100 cities by the end of FY '24 from the current count of 20 cities and all this through best-in-class exclusive stores. We've launched the Scrambler 400 X early last week at an attractive price of INR 2.63 lakhs ex-showroom with a promise of delivering an on-road, off-road finesse like its elder siblings, the Scrambler 900 and 1200, very successful models worldwide. The early interest of this vehicle is encouraging. The professional feedback is also very inspiring, and we are eagerly waiting for a similar customer adoption for the Scramblers as we had for Speed 400. Export of Triumph bikes will commence by end of this month or maybe just first 2, 3 days of November. The product and prices have been unveiled in several international markets, and there is a palpable excitement about the arrival of the smaller clients there. This quarter, we have also launched the all-new Generation 3 Duke 390s and 250s in the KTM range. These Generation 3, Gen 3 KTM Dukes are a very good leap forward, combining KTM's READY TO RACE DNA and drawing from their largest sibling, the KTM Super Dukes. A new Husqvarna range is also on the cards, and we expect this refreshed portfolio to energize the sales performance. As we move forward into the rest of the financial year, our focus will remain unerringly on delivering outstanding outcomes in 5 business areas, which will define the company's overall performance. Number one, continue to drive growth in 125cc segment, building the Pulsar franchise through new launches. Number two, ensure 80% market share in 3-wheelers and steadily expand E-autos. Number three, ensure steady export recovery with a quarter-on-quarter improvement in sales in every market. Number 4, expand the Chetak business to 10,000 units per month based on new launches and good supply chain support. And finally, number five, scale up the Triumph sales in India and in due course, in overseas markets, too. With this, let me hand over the call to Dinesh to take you through the financial part. Thank you.

Thank you, Rakesh. Good evening, everyone, on the call. Thank you for taking the time this evening to join us. Let me start by saying we are very pleased with our performance in the context in which it has been delivered. It's been a record quarter coming on the back of what was the previous record quarter in the last -- in quarter 1 itself. As usual, let me start before getting into the financial commentary with a quick roundup of the operating context, which really helps underline our delivery of the results this quarter. On exports, you heard Rakesh talk about the environment, which remains very volatile with continued macroeconomic challenges across our key markets. We're doing well to really be able to build back volumes, trying to make each quarter larger than the previous one, we know that we hit a peak volume of 210,000 units in FY '22, when markets were buoyant and thrust with liquidity, that went down to 115,000 in quarter 4, it's back to 130,000 in quarter 1 and 140,000 in the current quarter. On domestic. Domestic motorcycles, overall industry motorcycle growth has continued with the first half being mid-single digit and Bajaj Auto clearly outpacing the market and a continued thrust on leading premiumization of the 125cc upwards, which is also well from the mix as well, has seen us outstrip the market by quite a multiple. The market for commercial vehicles has remained buoyant over the last few months, which has also led to us registering a record performance. Our industry, by and large, has revised to the pre-COVID levels. And you know, we've said this earlier that Bajaj had already recovered to pre-COVID levels a few quarters back, and we continue to outstrip the market and the industry. On commodities, by and large, I would say the basket was favorable. Commodity costs have softened, particularly on the metals complex, we seem to be fast approaching levels that we had seen in the back half of FY '23. You will recall at the last call, I had mentioned that we've seen a slight uptick on steel and aluminum, but that has settled down towards the end of the quarter, and we've continued to see stable and soft commodity prices through this quarter as well. And therefore, some level of tailwind to our profitability. The currency situation has remained stable to slightly positive with export realizations coming at 82.6 as against 82.1 in quarter 1 and 79.8 for the same period last year. Now with this operating context as a backdrop, I think we did a fine job of reporting our best ever performance on all accounts. On revenue, on EBITDA, on margin over a 5-year horizon and on PAT. Coming to revenue. Our revenues at INR 10,777 crores, representing an all-time high, was up 6% year-on-year. However, I'd like to draw your reference and Rakesh alluded to this, he mentioned that the base period, clearly, we are faced with a very stiff comparator. It was when we were filling back inventory having resolved with semiconductor issue. And therefore, I'd like you to focus a lot more on the normalized performance in the first half, which essentially points to a 60% revenue growth year-on-year. Now just to make the point before we get to the domestic business, which has registered another all time high and a peak performance. Just to bring data to live with numbers. You will recall that in quarter 1, we reported most likely growth, I'm just using motorcycles as an example. We reported motorcycles growth of 60% upwards on billing volumes and quarter 2, on motorcycle growth, we're down 23%, and that essentially represents the skew that we've had because it was coming off a depleted quarter 1 in the base and it -- in quarter 2 in the base, right. So therefore, when you normalize it, volumes for the first half are 7%, even though our billing -- our retail growth for both quarter 1 and quarter 2 and therefore, half 1 are close to 20%. So we sustained momentum in retail terms, which is really the health of the business, even though billing numbers and therefore, reported revenues have been skewed between quarter 1 and quarter 2. Our domestic business registered a new peak. You just heard that that's been mentioned on the back of 6 successive quarters now of double-digit growth, really led by the sustained competitive growth of the 125cc upwards on domestic motorcycles, the momentum on the CV business that has now hit a historic high. The last time commercial vehicles hit a record was way back in 2018, when it had done 122,000 units in the quarter. This is now the new record and a continuous scale up on Chetak. EBITDA came in at INR 2,133 crores, surpassing a very significant milestone of INR 2,000 crores in a single quarter and this is the very first time that we have surpassed it, registering growth of 21% year-on-year. Our margins closed at 19.8%, up 260 basis points year-on-year, driven by dynamic price and cost management, which accounted for the most part, better foreign exchange realization and a richer product mix, which more than offset or covered for the drag arising from the investments that we are making in growing our electric scooters business. On a quarter-on-quarter basis, our margins improved 80 basis points. You recall, we had reported 19% last quarter and largely arising out of the seasonal mix that we had called out spend on domestic motorcycles, given the festive season. So it was of 19.0, and so the 80 basis points that we have improved in the current quarter is really coming on the back of softer commodity costs and better product mix, really driven by the higher sales of 3-wheeler portfolio which has offset a part of the drag that we have on mix coming out of higher volumes into Nigeria. When you look at it from a price and cost perspective, I'd say pricing across the breadth of the business after adjusting for the pluses and minuses have been flattish. So really margin improvement sequentially coming on the back of softer commodity costs and an improved product mix, largely led by the buoyancy of our 3-wheeler business. Finally, we closed the quarter with a record net profit of INR 1,836 crores and a cash surplus of nearly INR 17,500 crores, having added almost INR 3,600 crores of free cash flow in the first half of this year, and that represents a very significant 60% increase over the same time last year. And this cash pile of INR 17,500 crores is after having disbursed nearly INR 4,000 crores of dividend. As you would make up the balance sheet therefore, remains very robust and healthy with this cash surplus and allows us enough fuel to be able to invest competitively for growth and investments as we look forward. I think looking forward, I think there are a range of priorities that Rakesh summed up with, and I'd like quickly call out before we hand over to you for questions. Our priorities, of course, remains to sustain the momentum that we are seeing in this business, both on top line and bottom line within the upcoming festive season, continue our market-leading growth for the entry 125cc upwards segment, build back export volumes and really inch it up as we've seen it gradually try to make each quarter bigger than the previous one in trying to get back to the areas of the 200,000, which could still be some time away, but really inching up quarter-by-quarter, step-up Chetak market share, which has now doubled over this last year from 5% to a market share of 11% at the end of September through a range of product interventions, activation and network expansion, retain the momentum on our 3-wheeler business and rollout to many more cities, the electric 3-wheeler which has received a very encouraging early response, scale up Triumph and capacity is being built both at the back end and the front end to really cater to an expanded domestic network that will be covering almost 100 cities by the end of the financial year and the start of the exports business that we hope to see in the next couple of months, essentially between December and Jan, as conversations with the Triumph are underway. And lastly, to sustain profit and margin delivery through dynamic P&L management and given the commodity cost situation as it stands are expected to be flattish in the quarter ahead. And so this remains a priority as we dynamically manage the business for growth to sustain our margins, as we look into the quarter going ahead. With this, I'd like to hand the session back to Anand and then open it up for questions. Thank you for your time.

Thank you, Dinesh. Rio, we can open the forum for the Q&A.

[Operator Instructions] The first question is from the line of Gunjan Prithyani from Bank of America.

Thanks for really comprehensive update on core businesses. Before I get to my question, I just wanted to check one quick thing. Were there any onetime cost we need to keep in mind around Triumph launch in this quarter?

Nothing of significance, Gunjan. There was, of course, a launch that would happen, but I wouldn't say, in the overall scheme of things was very significant.

Now 2 questions from my side. Firstly, on this 3-wheeler, clearly, this business has been surprising positively. I just wanted to understand if you can share your outlook in terms of what's really driving the market expansion here. And it was quite intriguing when you mentioned that the margins for electric 3-wheeler are actually not diluted. So if you could just share thoughts on how we should think about this business over the next 1, 2 years and this whole scale-up of electric 3-wheeler, is it contribution-margin positive? Is it EBITDA-margin positive? If you can share some thoughts around that?

So the E 3-wheeler business is its fundamental driver is the conversion is -- there are 2 things. One is of course in line with every other segment of the auto industry, there is a recovery post-COVID and people are coming back on the streets, and there is traffic and there is need for mobility and the earnings of the 3-wheeler drivers have improved, which has unlocked the retail finance 90% of the business is financed. So those drivers have started to kick in and drive the business. The second thing is that the country is very decisively converting -- or promoting the usage of CNG. And the CNG-powered 3-wheeler really deliver a much better economics compared to diesel-powered one. Now traditionally, our market share in the diesel segment was much lower. But on the back of products which are really best-in-class, we have enjoyed a very high market share in CNG-powered vehicles. And so as soon as the network, the pipeline network penetrates territory, we see a migration from diesel to CNG in a very powerful manner. And when that migration happens, the first choice is Bajaj Auto. So therefore, we are seeing CNG passenger level, market share of 90%, 93%, like nobody is able to sell any CNG 3-wheelers. And so much so that now the CNG distributors like the public sector undertaking, they work very closely with us because this auto line is -- gives them a good 8% to 10% offtake of their CNG. So they are also very interested in making this happen. So the system is working well. And I think this should continue. There are still vast areas left where the network is rolling in. Numbers are not coming to my mind, but I think the government this year has got some -- idea of some 4,000 new pumps being put in. And the more they do that, so the drive will continue. So the ICE business is set. The E-auto business, now you can see over the years, what has happened is that because the autos were restricted in large parts of North and East, it has given rise to this semi-organized industry or what we call the e-ricks which are both lead acid and now of course medium ion. And the need for mobility -- intra-city mobility has been very, very strong in the smaller towns of Northern India. I'm sure if you traveled to Saharanpur, Lucknow, and these states, you would have seen how choked the system is with these small 3-wheelers. And they are now 14%, 15% of 3-wheel mobility. Now when we enter with the auto, they don't require permits. So there is a very strong possibility, even though the autos are more expensive. There's a very strong possibility of converting the e-ricks, as they're known, to e-autos provided they deliver a value performance. So entire North and East is our first target, and that all should -- they don't sell too much of autos, ICE autos. And we should be able to get the E-autos moving over there. I'm going to let Dinesh take on the margin point. But yes, the pricing -- the way we have done the pricing, we find that we are largely more or less agnostic to E-auto or ICE auto.

Gunjan, to your point, the we are guiding for near parity margins between the E-auto and the ICE auto, it also helps, one, of course, incremental growth opportunity, but in many ways, it becomes agnostic of the fuel type as we sell across markets. But to the point that you asked very specifically, yes, it is a EBITDA margin positive. And a few reasons, the contribution of the battery cost and therefore the cell cost, the overall cost is relatively lower compared to the for 2-wheeler. We added significant costs or establishment costs for the -- we are putting up the new EV stream in the factory in Waluj, that some of the -- but we're not really expanding fixed costs substantially for it to -- the economics. Limited marketing and advertising spend given the very strong equity that Bajaj has as it goes into a number of its markets. And the fourth factor really is that P&I adds on to it as well because clearly, domestic value addition in the case of 3-wheelers is comfortably poised well over 50% to an -- P&I to flow into...

This is super useful. Just second question, Dinesh specifically to you, this dividend policy change. Can you talk us a little bit as to what triggered this change? And I do see the scope of fund deployment has been expanded to quite a few new inclusions. So if you can just give the thought process around it and earlier again, buybacks wasn't part of that shareholder return that you spoke about, that also seems to be included. So if you can just share what triggered this and why the change now?

Thank you, Gunjan, for picking it up because we were hoping it would come up in Q&A and therefore, we would answer it. But look, at the Board we discussed today, the amendments that we are making. I think taking cognizance of the fact that there are multiple routes available to really reward shareholders or pay out excess cash, right? And so what we've done is to really expand the relevance of that to -- the overall payout to shareholders, which will be a function essentially of the dividend plus the buybacks or any other such similar routes that might exist in the future. But really expanding the limit of a variety of ways by which you can return cash to shareholders. And the earlier dividend policy normally we had to cannot -- for it. So we think based on the PAT of the year and the surplus funds that are available on the balance sheet, there are various slabs that we proposed. We would fundamentally alter it, the first slab is at 50%, just similar to what it was in the past. The second slab was 70% and the excess of cash in excess of [ INR 15,000 ] earlier we used to say up to 90%. We just had greater than 70% because then it allows us as the Board the degrees of freedom to decide how we need to pay it out to shareholders over a period of time to -- to reap dividends and -- so we just expanded the remit to really call out that buybacks might be one more way of returning surplus cash to shareholders in the future and it remains a discussion of the Board that to do it through a mix of dividends and buybacks.

[Operator Instructions] The next question is from the line of Amyn Pirani from JPMorgan.

My first question was on exports. You mentioned that you are expecting a gradual recovery. Within exports, it seems that 3-wheelers as a category have been impacted much more than 2-wheelers. And I'm guessing it is because some specific markets, which were large contributors are near 0 right now. So if you can give some comments around how you see the 3-wheeler export recovering? And are there any new markets or new opportunities which could offset some of these larger markets like Egypt, which have gone into some kind of a regulatory bans kind of situation.

Yes. So you're right, the 3-wheeler recovery is slow, but -- and you see the Egypt hit us even before the downfall commenced in quarter 2 of last year. So that is something which has already impacted us. In terms of the CV, whether there's any other market which is behaving very differently, no, I would not say that. It's just that because the 3-wheeler is a more expensive product, it becomes that much more difficult for people to acquire it. It is following a very similar pattern as 2-wheelers. So it's largely country driven and a few percentage points behind 2-wheelers, but following the same trajectory as 2-wheelers. In terms of making up the deficit of Egypt, which was a very, very large market for us, we had got about 11 markets, which I would not like to name which are under the active business development. I don't think any single market will replace Egypt. But in a combination, if the markets improve, we will start to see this mitigation happening in these 11 markets. You see we have been through this cycle before. We used to export 20,000 units 5 years back, of which 10,000 went to Sri Lanka and then Sri Lanka banned it, but we went to 25,000 units with 0 in Sri Lanka. On the basis of opening up Cambodia, Philippines, Ghana, Mexico, Colombia, Bolivia, I can name maybe a dozen countries, which collectively combined to -- Myanmar. Combined to overcome this 10,000 unit gap. So that is how we sort of met the challenge of the ban in Sri Lanka. This is the same way we are approaching the Egypt issue. It's just that the macroeconomic conditions have made business development a little bit more difficult. But over a period of time, through these new markets, we should be able to overcome the Egypt deficit.

That's helpful. And just going back on the 3-wheeler or E-auto where like you rightly mentioned, you've already gained a lot of market share in the cities that you have launched. As you expand this, how do you see the value proposition of a CNG and the EV? I guess it's clear that both of them are winning against diesel, as a whole. But between the 2, I mean, is there -- I mean, CNG is still a better value proposition than the EV? How do you think you would like to position it as you expand going forward?

No, no. The E-auto is a better proposition than CNG. At this -- in these conditions, which are -- the FAME is not disturbed. As things stand now, with this FAME subsidy, E-auto is a better proposition than CNG for the driver. The other thing is that in a lot of markets, the permits, when people buy CNG vehicles, they also have to buy a permit. And that itself is very expensive. So the acquisition cost of -- in few markets, where it is restricted and new -- I mean permits are not freely available, in those markets, E-autos don't require any permits. So it's much, much better.

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

Congratulations on a strong set of results. My question is just to conclude on 3-wheeler ICE business. Do you expect the volumes to grow from these levels as we look ahead?

Yes. We think that the volumes will continue to rise on the back of the penetration of the CNG network and the recovery in traffic condition. But again, it will be a steady progress. I don't expect them to be rocketing upwards because we are at a very, very high level. And now to be frank, we have reached a very high level of market share. So the growth which we have seen in the last 6 months or so has been driven by the recovery of the market, penetration of the CNG network and expansion of our market share from 60% to 80%. In CNG, it has gone to 90%. So now I think we will ride the market growth rather than the combination of market and share growth. So therefore, there will be growth, but it will be muted. It will be lesser than what we've been experiencing now.

And second question is on electric 2-wheelers, just wanted to understand that when -- as we look to expand the portfolio, which segment customer are we targeting? And for example, what I'm trying to understand is, is the 100cc motorcycle customer also looking at electric 2-wheelers. Is it only the scooter customer who you think we will be addressing. And in that context, what kind of electric mix are you thinking about for scooters or for motorcycles going ahead?

We are targeting all those customers who are very economically driven. And for whom the scooter format is acceptable. So you will find that people in the -- adopting the electric 2-wheelers range from people who had previously owned entry-level motorcycle to somebody who is buying it in addition to supplementing a car in the garage. You have got the full spectrum of users. And the real proposition of -- the proposition, which is really getting traction of -- traction for 2-wheelers, electric 2-wheelers is, one, based on economics that simply as things stand now, people save money, depending on how much they ride every month. So anybody riding 50 kilometers and above saves a substantial amount of money by shifting from ICE to electric.

So just to conclude, I mean, do you think at some point, the ICE 2-wheeler industry sort of stop growing? Do you see that on the horizon in the next 2, 3 years?

I don't think so because if you sort of step back and see overall the penetration of ICE has been low, still some scope over there. The road building programs are always very good in terms of facilitating the sale of ICE, particularly for intercity commute. And if you see, we have not yet recovered to the '18, '19 peak as an industry. We are still at about 25%, 30% down over that peak. And I think the ICE industry very much dependent on how the economic recovery reaches the pockets of the customers at the bottom of the pyramid. As the economic recovery is happening, consumer optimism is improving, we are seeing an improvement in ICE. And therefore, we don't see in the near term that E 2-wheelers are going to apply the brakes on ICE. They will continue to grow the penetration. Having said all this, we have to see the recent data. After the recent FAME reduction, you will see the data in the last 3 months, high-speed EVs has been only 65,000 units per month. Festive may pump it up for some time, but they're only 65,000 because the acquisition cost is very high. It makes monthly sense, but the acquisition cost is still high. Most of the 3-wheelers, the on-road prices are -- 2-wheelers are INR 1.25 lakhs, INR 1.3 lakhs and the customer who is really receptive to this is the economically sensitive customer. So it's largely that is the segment. So therefore, the penetration has sort of slowed down.

The next question is from the line of Chandramouli Muthiah from Goldman Sachs.

I just had -- my first question is just a clarification of the E 3-wheeler profitability commentary. So I think we didn't make any statement that it is not margin dilutive from Bajaj Auto and also you sort of commented that it is on margin parity with the electric 3-wheelers. So I'm just trying to understand, is it sort of -- should we think about it as a positive margin product? Or should we think about it as on par with the corporate EBITDA margin in that 18% to 20% range?

I couldn't the understand the...

The line was a bit fuzzy, so we missed the question. But I think just to rephrase you're asking us whether the margin profile for the electric auto is at parity with the enterprise or with the CV businesses. If that's your question, I mentioned that the margin is at parity with our CV business after considering the impact and the benefit of the PLI.

That's helpful. My second question is on the electric 2-wheeler business. So you did mention a plan to get to 10,000-plus units per month there. And there was some commentary on the number of products that you might launch in the remainder of this fiscal year and in next fiscal year. So if you could just clarify, again, sort of what is the product pipeline in terms of sort of number of launches you're planning, this fiscal year on the electric 2-wheelers.

Chetak and Triumph, yes. So like I said, once the festival is over, we will be introducing new models in Chetak. And by the time we are sitting down at this time, let's say, next year, we will have a much fuller range. We have set up exclusive showrooms with one of the reasons why we were doing that, when we were thinking about whether to go to exclusive Chetak showrooms or take the easier way out of putting them in Bajaj showrooms like some other people have done, it was because we were sure that as this market grows, it is small right now. It's only 65,000 units, 70,000 units. It's not that -- but as it grows, it will need to be segmented and these segments will need different products. And we can see in the market also some companies have got a range of products. You can't do justice to a range of products, without having an exclusive showroom. So that's the reason that is always there in our mind. So starting from post-festive, we will have introductions, which will expand the range. So you can expect something starting from, let's say, November onwards and then something by end of quarter 4 and then further on in quarter 1 and quarter 2. These products will be introduced. I cannot really talk about what specific products, et cetera, at this stage. Just suffice it to say that we are entering -- we are now in a phase where we are going to expand the business volumetrically, expand retail network substantially and expand the range. So we are in that phase now, which you would have already seen with the rise in market share. We are only hoping that FAME doesn't play a spoiler and doesn't retard the penetration rate which has stagnated in the recent past.

The next question is from the line of Raghunandhan N. L. Nuvama Wealth.

A couple of questions to Dinesh, sir. Firstly, steel and crude derivatives have seen some increase recently. Do you expect some cost increase in commodity basket for Q3 versus Q2.

Thank you for your question. You're right. Very recently, there's been a slight uptick. But I think when I look at the forecast out ahead for this current quarter, which is essentially quarter 3, I think given the softening of some of the other commodity baskets, especially noble metals, which have kind of connected quite significantly. I think on balance, I would expect a quarter which is quite flattish on commodity costs.

Good to hear that. And Dinesh, sir, can you share some numbers on spares, exports and financing ratio for the quarter?

So exports was about INR 406 million for the quarter. You have our exchange rate which we sell, that's [ 60.6%. ] and finance penetration.

And also the spares number.

Finance penetration for the quarter for our motorcycles business was 77% and 90% for our 3-wheeler business, not fundamentally different from what it might have been in the previous quarter.

And the share of Bajaj Finance would be?

Share of Bajaj Finance would be 43% of the total retail.

Got it. And the spares number, sir, if you have it handy.

Spares is close to anywhere between INR 1,200 crores to INR 1,250 crores for this quarter.

And lastly, can you share the Triumph pending order book?

Sorry? Quite frankly, we are not -- I don't have that number readily. I don't have that number readily in my mind, but because we have stopped monitoring it, we were only monitoring the bookings when we launched the booking campaign. So now it has gone into business as usual as it is with Chetak or as it would be with any other motorcycle or 3-wheeler businesses, it's not something which we are really looking at. Before the deliveries had started, we were monitoring and we reached something like 18,000 at that point of time. We have delivered 8,000. But there has been fresh bookings also. So you can assume that it is still around 10,000, if not upward mark.

The next question is from the line of Mumuksh Mandlesha from Anand Rathi.

Sir, with strong festive growth expected led by uptick in consumer sentiments, how do you see the full year 2-wheeler domestic industry growth versus the earlier guidance of 5% to 8%. And can you indicate what could be driving the better consumer sentiment there?

I would wait till November end to see whether this fulcrum of festive growth is like -- is a more sustained improvement in the fortunes of the industry. Because one thing which we have noticed over the years, which you would have also picked up is that the highs and lows have become sharper. I mean earlier this festive accounted -- 33 days of festive accounted for 15%, 17% of the year, 12 months means 8% on the average for each month, but festive would account for double, which would be 16%, 17%, now it became 20%. So we cannot extrapolate this 20% and say that that's how the balance of the year would be. So therefore, I see that one would need to look at post-festive November to really take a call whether the fortunes of the industry have decisively shifted from the 8% range to the double-digits range or not. Right now, I would say, if you are taking a full year view point, I would still say that, yes, 5% to 8% is where the trajectory is. Let's see how it goes in November, and then we'll be able to make -- take a call.

And just on the EV potential for exports market for about 2-wheeler and 3-wheeler, I just want to understand, has those markets also developed any EV ecosystem there?

The penetration of electric 2-wheelers outside of Europe and rest of the world is very low, but they are on the horizon, and everyone is dealing with the issues of cost, price, margin, range anxiety and battery life and things like that. The ecosystem, I must say is outside of Europe is not as well developed as it is in India. But there are opportunities which are bubbling because of our very, very wide footprint all across the world. Obviously, we are monitoring these both for 2-wheelers and 3-wheelers. And appropriately, we will enter some of these markets. It's very much in our planning. And again, I don't want to sort of jump the gun and announce which markets we are entering, but very much in the planning.

We'll be able to take one last question. We take the last question from the line of Binay Singh from Morgan Stanley.

Just going back to the electric 3-wheeler comments that you guys made. Quite interesting to note that the profitability closer of the ICE version. I just want to understand, do you think that will also be the case when you ramp up that in India. Or is it just that you're in a small pocket so the competitive intensity over there is lower? And secondly, linked to that, when we talk about why the electric 2-wheeler margins are a lot lower than the electric 3-wheeler. Dinesh highlighted 3 things, right, PLI, battery costs being lower and secondly, lower advertising and sales spend. So looking at these 3, it's very likely that PLI will go in 2-wheeler also. So how do you see the 2-wheeler margins then trending over a period of time as like scale buildup over there. So any comments on sustainability of this 3-wheeler margin that we're talking about on a pan-India basis? And then any comments on the trajectory of 2-wheeler, how does that churn?

So I think there are a lot of things which need to be getting -- which should be clarified to you, so please listen carefully and take the notes. Because, number one, who told you competitive intensity is low in the market we have launched. We were, in fact, the last mover because there's already Piaggio and M&M and a host of other companies. So all the players who are present all over India are also present in the places we launched. The reason why we delayed our launch is when we did our testing and trials with consumers, we've got strong feedback about certain expectations. They had from Bajaj Auto because they feel Bajaj is the leader. So we had to go back. And last year, I was all constantly telling you that it has got postponed, it got postponed and it was this reason that we had to get the product in the bulls eye region and only then launch it because we didn't want to sort of -- so people had a head start over us. So I don't think that the competitive intensity, which we will now encounter as we move into newer and newer cities will be more or less. In fact, if we don't encounter e-ricks then it might be less. So I would say the competitive intensity is the same. The very important point which Dinesh highlighted as to the reason why the margins are different, which I don't know whether you mentioned or not. But the key reason, the biggest reason is that the component of the cost of the battery in the vehicles, the comparison between 2-wheeler and 3-wheeler is different. So 3-wheeler it is much less. Secondly, the 3-wheeler only the battery has changed for us, a little bit of some other stuff, which is -- it is essentially the same 3-wheeler. What we are saying to the customer technology may but [ Foreign Language ], essentially powertrain has changed and the 3-wheeler has remained the same. The marketing and all the other costs are a smaller factor. The PLI, I think, you're confusing PLI and FAME, the PLI is equally applicable to 2-wheelers also and to 3-wheelers also.

I was just picking up from the comments that Dinesh made. But to an extent, this is a very encouraging commentary, right? Because then it means...

Is this -- I also want to say when the space gets limited your ability to adopt one chemistry over the other also gets limited. Now when you have a larger spaced vehicle like 3-wheelers, you have options of different types of chemistries and different types of -- I mean we don't have to pack them so tightly and therefore, you don't -- you have a better flexibility in making more value decisions on the battery. So it's not just about that the battery cost is constant, and it is divided by the total vehicle cost. The battery cost itself can change because you have a greater degree of freedom in choosing a better value battery.

And then just to look at it in terms of growth because it's a good -- it looks like a good growth vertical for us that is.

It is.

And would you say that between all the business segments, just taking like a 3-year CAGR view or so, fair to say that the 3-wheeler business ICE plus EV domestic, should at least be on track or in a similar run rate as the 2-wheeler business? Because like this is opening up a new vertical, right, the EV side opens up markets which were earlier restricted.

Yes. So it will be on a healthy track. But at the same time, I feel that the 2-wheeler business for us and particularly with the now tailwinds supporting the top half of the industry more than the bottom half and that is our -- that's a playground that we have strengthened and the fact that we still have a lot of room to grow in terms of market share in the -- even in the 125cc segment. Now the whole -- the 250 to 500cc segment is opening up for us, thanks to the collaboration with Triumph. I mean, where we were in a very, very marginal presence through Dominar 400, and little bit of KTM. This is a vast segment, which is opening up. And the 125cc plus segment also offers us continued opportunities to increase market share. And for that, we are well placed in terms of our DNA is product innovation and leveraging R&D and all that. So I would say that the 2-wheeler business also has got very significant upside opportunity for growth. What was, let's say, a year back, not being -- we couldn't imagine it or envision it, what's the 3-wheeler opportunity. That was looking like tanking. But thanks to the surge in CNG and thanks to the recovery. And now, of course, the ability to take the e-auto and cannibalize the e-rick, 3-wheeler business also comes back very strongly as a growth vector for us.

Just lastly, how many electric 3-wheelers have we actually sell in the quarter, just last question.

600.

I'm guessing you're aware of it, but just for it to register with the rest of the audience. The B&I is about 13% once DVA norms are met and we're clearly meeting them very comfortably because we already have an existing auto business, a 3-wheeler business. So really the benefits of localization are being extended to that business. So therefore, we're meeting the DVA norms quite comfortably and also helps the proportion of the battery pack to the overall cost is much lower. So when you're meeting DVA percentage, the upside that we get on PLI is 13%, which is quite significant. And that, in many ways, helps bridge the economics of the E-auto with the ICE auto.

And that you are getting the PLI incentives. So is it already something that you're getting or you started to...

There is the process that the government has mandated which we are going through, which essentially involves a certain process that has to be followed with the testing agency, registration and eventual certification for PLI. So we're going through the hoops on that one. But the fundamental condition of domestic value addition being at a 50% threshold is comfortably met for the year.

In this quarter, there is no -- obviously no PLI incentive.

Because we started ramping -- because we have a product ready and we clearly wanted to do calibrated launch, so we've launched without the benefits of the PLI coming into financials at the moment. But we're going through the process of PLI certification. So we should have it at some point.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Anand Newar for closing comments.

Thank you, everyone, for joining the call. I can see a few participants still waiting to ask questions, and I'm happy to take those questions after the 8:00 p.m. today. Thank you, and thank you for a great festive -- all the best on a great festive. Thank you.

Thank you. Thank you, everyone, for your time.

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