Eicher Motors Limited (505200) Earnings Call Transcript & Summary

Good evening, everyone. Welcome to Eicher Motors Q1 FY '21 Earnings Call hosted by Emkay Global Financial Services. We thank the management for providing us this opportunity. From the management team, we have with us Mr. Siddhartha Lal, MD and CEO, Eicher Motors; Mr. Vinod K. Dasari, CEO, Royal Enfield; Mr. Kaleeswaran Arunachalam, CFO, Eicher Motors. I request the management to provide some opening remarks, and then we can proceed with the Q&A session. Over to you, sir.

Very good evening to all of you, and thank you for joining us for the quarter 1 results of financial year 2021 for Eicher Motors Limited. I sincerely hope that you and your families are staying safe and healthy in this difficult period. Last quarter, as you all know was extremely challenging for business activities and for businesses across India, across the world in most areas. In our case, both production and sales were impacted on account of the nationwide lockdown in April and in parts of May. And towards the end of the quarter, in June, we saw a good recovery in demand in the motorcycle business. However, demand in commercial vehicles remained weak across the industry. And as you would realize, the previous quarter is really not at all representative of the core business performance of Eicher Motors Limited. It obviously was impacted tremendously by COVID-related lockdowns, et cetera. So with -- in light of that, I'll tell you the consolidated financials for the quarter ended June 2020. We had revenue of INR 818 crores, which is down 66% from INR 2,382 crores last year for the quarter. Our EBITDA was at INR 4 crores. So we were just able to break even because of our strong business model that we have, we'll be able to break even at an EBITDA level with INR 4 crores of EBITDA versus INR 614 for the same quarter last year. Our profit after tax, we made a loss of INR 55 crores against a profit of INR 452 crores last year. This is largely due to the truck business, commercial vehicle business, where we weren't seeing any uptake in demand at all. Because on a stand-alone basis, Eicher Motors Limited reported a profit after tax of INR 12 crores. And so that's the overall business and financials that we have. So I'd like to hand the call now to Vinod. Vinod Dasari will take us the Royal Enfield performance. Thanks, Vinod.

Thank you, Siddhartha. In Q1, we had 58,400 motorcycles sold. It's down 68% over last year Q1 in the domestic market. In the export market, we had 64% down and we sold 3,400 motorcycles. The latter half of the quarter saw a quick ramp-up in demand. We are getting very good response, mostly from Tier 2 and Tier 3 cities. Bookings are almost back -- almost back at pre-COVID level, inquiries are certainly at pre-COVID level. And operational dealerships were as high as 90% by end of June. I think they've come down to about 75, 80 but because of some sporadic lockdowns here and there, but still doing pretty well. The motorcycle segment of 125 cc and higher was down by 76% and Royal Enfield was down by 68%, as I mentioned earlier, so our market share actually jumped from 22% to 30%. In U.K., we are proud that Interceptor was -- 650, one of the best-selling motorcycle. It was the highest selling motorcycle for the last year as well the Himalayan was the fourth highest selling motorcycle for the last 1 year from June '19 to June '20. Production-wise, we are continuing to struggle a bit because of sporadic lockdowns in our supplier areas, in some parts of Tamil Nadu also, it's picking up off late with some improvements in the supply chain and on that. But I think we are still quite behind our booking rate. We could have easily done another 20%, 25% more in July. But hopefully, things will improve a bit. We are continuing our expansion of our network. We added 38 Studio Stores in the last quarter. Taking our Studio Stores tally now to 638. Overall, now we have 1,559 touch points across India. We are also adding stores outside India. We've added 5 exclusive stores and 32 multi-branded outlets in several countries in France, Brazil, Indonesia, Mexico, Germany, U.K., Australia, New Zealand, Colombia. So all across the world. But to ensure maximum safety and convenience to our customers, we launched a contactless purchase and service experience. These included online booking and payment is doing quite well. Home test rides, service at your doorstep, we launched 800 motorcycles, a custom-built motorcycle, which is called service-on-wheels, and this can do almost 80% of the types of repair. We can change oil to do all kinds of stuff. It carries battery charges and all of that. And it can do right at the doorstep of our customers. And we've been engaging quite a bit digitally with our customers. It's been significant campaigns that we've ran compared to pre lockdown to post lockdown, we are about 3x to 4x the amount of digital engagement, our web visits were almost shovel from about 2.5 million last year in FY '20 to now almost 5 million. We won several awards, like I said, about the Interceptor in U.K. but we also won it in Thailand. We won the Himalayan, also won the best touring category. And one of the most interesting things that we did is we launched India's first ever exclusive women's apparel range for -- a riding gear range in India. Regarding our rides and events, we have canceled quite a few of our rides in India, almost all of them, including our marquee ride, the Himalayan Odyssey, but and we hope to come back as soon as the situation improves. But in other parts of the world where it is still allowed like in Thailand and Korea, we did some long distance rides that go as much as 500 kilometers at a stretch. In Europe, we continue to do fantastic brand building exercises, story selling through custom world live. It's an initiative that we launched during the knockdown period with the Royal Enfield custom team along with few major customhouses, series of weekly conversations. I think we did 8 of them. So the customhouses actually build a motorcycle live for everybody. A nursery of flat tracking in India, the Royal Enfield launched a slide school in November 2019 and to encourage the interest in flat track. We launched another one in June. And now we've tied up with American flat track and recently launched a slide school in the U.S. So still continuing activities across the world, and we'll continue to do so. So over to you, Siddhartha.

Thank you, Vinod. Just to -- sorry, just to correct 1 small point. Interceptor was the best-selling motorcycle in U.K. for the month of June, not for the year ending June, I believe. Yes. And -- but that's -- I think that's extremely significant. Just to belabor that point a bit that best-selling motorcycle, not mid-sized motorcycle, best-selling motorcycle in U.K. in June, and we've been coming up to that. But what it really means is that our strategies and our thoughts for international markets, you can see this as a lead indicator is really panning out. It's -- you see the reviews have been recently centering -- of course, throughout lots of reviews, picking -- us against our Interceptor, for example, against other European, American manufacturers and coming out on top. So we are really at that point where our products are making huge inroads into markets. And that's happening. I mean, we're seeing this as U.K. as #1 motorcycle, but that's happening across Europe, across U.S., across Latin America, Southeast Asia, the whole international strategy is winning out. And the interesting thing you'll note is that these are the new motorcycles. We'll always keep talking about Interceptor, GT and Himalayan when we talk about international markets because they are much more interested in the newer motorcycles that we're making, which is a testament to all the work and development that we've done for these newer motorcycles and gives us a lot of let's say, hope and -- for our newer motorcycles, they are still to come out. So that's -- that's on the motorcycle side. Over to the commercial vehicle side. VECV, our joint venture with Volvo. We had a revenue for quarter 1 at INR 640 crores, which is down 72% from INR 2,255 crores same quarter last year. We've made an EBITDA loss of INR 72 crores versus EBITDA profit of INR 137 crores last year. And profit after tax, we had a loss of INR 120 crores against a profit of INR 38 crores last year. So again, all as a result of much lower sales due to COVID. The quarter 1 sales were at 2,100 units, which is down 84% from 13,300 units last year. So it's an enormous drop. However, we did fare slightly better than industry, which declined at 91%. Which has been really tough for the industry this first quarter. Some positive and good news from VECV side. We've announced today, the acquisition of Volvo Bus India by VECV. So we have signed the agreement for the integration of Volvo bus into VECV, which includes the entire business really of Volvo bus in India. So the manufacturing, the assembly, the distribution and the sale of Volvo buses. We're already doing the service at VECV, we're already doing the service beforehand, so we were servicing the Volvo trucks as well. So that same exclusive network. We're extremely excited about this. We believe that this gives us the best portfolio in the country from heavy-duty and premium buses all the way to light, medium-duty and more mass market or maybe more value segment buses that Eicher brand has. So it gives us a huge variety of buses. It gives us a huge capability in the buses. And I believe, we'll be able to strengthen both these positions due to synergies that we're looking in product development, in purchasing and manufacturing. And with access to Volvo Group's world-class technology in buses. Volvo has an outstanding brand name in buses even in India. I mean it's really well known. The buses are extremely well-known in India. And we certainly aim to capitalize on that enormous brand salience in India, with more buses, which we will create jointly and also to be able to filter that -- some of the technology into the Eicher side. And some of the, and overall, we have a very strong view on buses in the next 5, 10, 20 years in India because of the megatrends of urbanization, e-mobility, connectivity, sustainability, all those are going to drive bus growth. And I think we're extremely well placed with the 2 brands, with the multiple plants now that we have. With the technology, and we plan to invest tremendously in buses in the coming years. We had a strong introduction across the range for BS-VI, it's been extremely well received, our BS-VI offerings. There was -- we were able to provide extremely -- we are able to provide extremely good fuel efficiency and refinement on BS-VI, I believe, compared to our competition. It's because we've been making lakhs, hundreds and thousands -- hundreds of thousands and even more Euro 6 offerings before this. So our capability of making such engines and putting together such vehicles is -- capability and experience, I would say, is of many years and much higher than any of our major competitors in India. As a result, we're seeing good offtake of Eicher BS-VI. And I mean, it's, of course, it's very small numbers right now because of COVID, but our market shares are looking very healthy in those small numbers. And we're seeing a lot of interest from fleet owners and truck owners that we may not necessarily have been getting earlier. So it's a small starting point, but we are very excited about what the trends are. In LMD, we launched a 16-foot haulage truck, which is the longest 4-tire offering in the country. We also launched India's first 54 tonne gross combination weight 4x2 tractor-trailer. Again, these are all different product segments that we are pioneering, in some cases, entering in some cases. And we've launched an all-new and wider Eicher Skyline bus, which introduces Volvo Group's engine platform. So they are new -- the advanced engine platform, the 4-cylinder version of that, which is the 5-liter engine has been introduced on these new wider Eicher Skyline buses. We've also got 100% connectivity on our trucks in -- on our series from 22nd of July onwards. So it's -- I think that's an enormous step that towards our objective of driving modernization in commercial vehicles. It's -- that will open up the doors for absolute connectivity of advanced telematics solutions to our customers. We have all new vehicles come with a 2-year subscription to this telematics which the company provides and free uptime services. We've got uptime centers which are monitoring vehicles on the road and giving feedback, calling in customers proactively. So there's it's a whole new paradigm shift that we're doing in VECV for the Eicher brand, in this case, to bring modernization and connectivity to our consumers, and predictively and analyzing what will happen to keep their uptime extremely high. As far as our plant and supply chain is concerned, all 9 units or facilities of VECV have resumed production activities now. We are at lower utilization of around 25% right now. Largely because of lower demand at this point. But of course, we can scale up as the demand scales up now. So that we are operational, things are moving in the factories. That's important. We have introduced a digital customer connect program. We're using a lot of new digital roles for sales and marketing, we're able to really make good inroads. We've learned a lot from staying at home and meeting customers in video conferences and being able to make big deals and have exposure to senior people in the management making the deals across geographies by video. Of course, there's still a bit of travel required, but in large part, we can -- we're able to accomplish, and we're really able to get our value proposition across very well -- industry as well. And almost all of our dealers now are operational. Throughout lockdown, we had 24/7 Eicher on-road service support for essential services. So we continue that for sure. And now, of course, the service centers are also back up and running. And like I said, we have a state-of-the-art uptime center, which is supporting our customers in this time. So -- well, in future as well. So just to keep the vehicles up and running. So again, on commercial vehicles, it's really -- of course, we've had a weak quarter. It's been a tough quarter. But having said that, there's a lot of positive news and a lot of progress. We continue to invest in different areas like you see we've acquired the Volvo bus business, which is very futuristic. BS-VI is doing extremely well. The connected vehicle concept has really come out strongly and the uptime centers that we're doing. So a lot of forward-looking modern techniques in order to pull the CV industry up in India. And just to recap for EML, we had a revenue of INR 818 crores for the quarter. We just were able to make a profit of EBITDA level of INR 4 crores and at PAT level, we had a loss of INR 55 crores for the quarter, but not including CV. So just on a stand-alone basis, EML reported a profit after tax as well. So that's all from us right now. And now looking forward to your questions.

[Operator Instructions]

Vinod, sir, I wanted to take this opportunity to ask a couple of questions. Firstly, dealer checks indicate large waiting periods, which is a very good situation to be in. How large is the pending order book and to meet this order book, what are the expectation of production ramp-up in August and September? Second question, exports has been a focus area and congratulation on the overseas achievements. What is the expectation on exports in medium-term on brand building and improving reach? And what is the expected share of volumes from export markets over the medium term?

So I guess 2 sides of the coin, if you say that waiting period is good. So if you're a customer, it's not good. If you're a company, you can argue that it's good, but I would rather not have my customers waiting. If demand far outstrips capacity, then it's good. But the capacity is today limited by supply chain. It's not limited by capacity that is invested into. So I would rather make more. We could have, like I said, at least another 15%, 20% more. We have roughly 40,000 to 45,000 bookings that are still pending. So we have a long way to go. This is not so much in our control, unfortunately, it's not like if it was only our production that we were not making we could have pushed it, but it's one supplier or another supplier, one day it is somebody in Pune, one day somebody in Chennai, one day, somebody in Aurangabad. So we're struggling through it. But fortunately, we don't have the issue of China sourcing. We don't source anything from China for that issue is not it. Regarding exports, we had focused on 3 areas. First is the developed markets, which is U.S. and Europe, which I had told you earlier that in Europe, we're doing very well, especially in the U.K. and other parts also. We're continuing to add the network. In U.S. also, we have very small numbers. We have 1% market share. Now we have 2.5% market share. We now have crossed 100 outlets in U.S. So we're doing quite well. Then we have the emerging markets of APAC and LATAM, which are very exciting, growing quite well. We are investing quite. We were 1 dealership in Brazil 2 years ago. This year, we'll have more than 20 outlets, similarly kind of growth in APAC also. The third bucket is in long shot territories like Africa and all of that, which we are slow on. We are not in any hurry, but we've picked 2 or 3 countries where we focus on. To answer your question specifically, exports used to make up about 2% to 4% of our sales, maybe up to 5% of our sales. Long term, our goal is to be at least 20% of our sales coming outside of India.

Our next question is from Pramod Kumar from Goldman Sachs.

Kalees, I just wanted to ask on the gross margin side. If you can just help understand what exactly happened in the quarter for the gross margin because there's a substantial slippage. And wanted to understand how much of this can be recouped over a period of time over the next 2, 3 quarters? And how much of this is kind of sticky cost increase, which was the BS-VI transition? That will be the first question.

Pramod. I think there are 2 or 3 part in terms of the gross margin bridge, as you would recall. So as you would recollect, in the last earnings call, we said our BS-VI migration is underway. Roughly almost [ 70, 75 ] percentage was through BS-VI in Q4. Now we have got that annualized [ 16 ] in Q1. Second is, as a part of the restart post COVID, we had incentive scheme that was launched, which also had a one-off impact in terms of gross margin. And third, I would also say that from a pricing perspective, our journey is still continuing. So we have passed on the costs due to BS-VI transition that has happened, but the pricing journey is still underway. So if you are to attribute the mix as of Q1, I would say, about 70, 75 percentage of this is due to the incentive that [ we ran ] and balance is largely on account of annualization of our BS-VI into [indiscernible]

So I -- yes, sorry. Yes. I just wanted to know how much of this will be able to recoup over the next 2 quarters? Because I understand a lot of companies are grappling with the rare-earth metal content, what mix works well for the initial transition. It's still early days, right? So I just want to understand how much of this can be recouped outside of the pricing action?

See outside of the pricing action, the incentive that we talked about is a one-off. So that by and large should come back. This probably will clear as we move through the respective quarters.

And the second question to Vinod. Vinod on the cost side, COVID has changed a lot of stuff for a lot of companies, and we've had a pretty high-growth in other expenditure over the years. So how are you looking at this line item over the next -- or in a post COVID world? Is this fair to expect a substantial focus on cost across every line item, and hence, a significant savings over a period of time? Is that a fair assessment?

Absolutely. I mean you could -- it sounds silly to say that COVID was a blessing, but that gives you an opportunity to question everything. Travel has obviously come to zero. But we're working just fine, productivity levels are back up to where it used to be without people going to office. So why do we really need regional offices. So we've actually started to shut down some regional offices and save some money. There's many other things that we are looking at. Kalees, maybe the fresh perspective is new, has attended office yet, but well that's something. So there's lots of opportunity for us to reduce costs and more than just reducing costs, Pramod, I think what Kalees will be looking at is, let's take a fresh look being over at our business to say what models, what makes, what territories, what solutions, what aftermarket, how can we enhance the profitability even better than what we did before. That's his goal, and that's what he's looking at. And in down times like this, it's best to take a look at a very stark mirror and question everything.

And finally, Vinod -- whatever you thought on the production hurdles and the catch-up you need to do and there is a festive season coming. What does it mean for our new launch schedule? And also, do we run the risk of missing out on the Diwali demand because your dealer inventory is 0, you got a order backlog of 40,000 to 50,000 units or thereabout. And you need to -- you had a wonderful season last year. So if you have to look at the growth again, that means the production run rate needs to be substantially larger going forward over the next 3 months. So how are you looking at the festive season in light of all this, and -- when you launched schedule.

The launch schedule is obviously delayed because what we are planning to launch in April, we will now launch it in August and September. And -- but fortunately, the festive season this year is in November and October. So by that time, we will catch up. And remember Pramod that we are actually operating at about only 30%, 40%, 45% of our capacity. We have a plant capacity of 100,000 per month. So the minute the supply chain starts, I have the manpower, I have the machine capacity, I could ramp up very fast.

Our next question is from Gunjan Prithyani from JPMorgan.

Okay. 2 questions from my side. Firstly, on this supply side challenges, do you anticipate that there's going to be any change in the new model launch plan?

No. I think new model launch plan was anyway delayed. Like I said, original plan was to launch in April, we will now be looking at September for lunch. So it's about 6 -- 3 to 6 months delay. There's no delay in development so maybe the other models will come a bit faster rather than normal 3 to 6 months between models, we will bring more new models at a faster rate once we get going.

But we're still sticking to the plan in terms of number of launches planned for this year?

This is something we can't control. We are not stopping any of our product development activities. We will have a series of new product launches starting from in the second quarter.

Okay. Just 1 more question. I sense there's an echo in my voice. Just on the booking cancellation, if you can comment, has there been any change in trends? Because I assume the demand which is coming right now is more an urgent demand. And we are unable to service these given the supply side challenges. So any change in trend there?

That's what we thought Gunjan, that this is a pent-up demand or something. It's not because it continued through July, and it continuing through August. So the bookings per day is still almost at pre-COVID level, and it continues for the last 6 to 8 weeks. So it's not like it was pent-up demand. Our inquiry rates continue to be higher than pre-COVID levels or at pre-COVID levels almost. So in that sense, this is not just a pent-up demand or a one-off kind of demand. I hope that it sustains itself, and I believe it should sustain itself.

Yes, the lead indicators are in the right direction also. It's not that -- so as Vinod said, the inquiry levels are also continuing to go up still. And I would say that in bigger cities, we're still below the beat. It's the smaller cities and towns, which have actually done better right now. So there's still some headroom in the bigger cities.

Next question from Satyam Thakur from Credit Suisse.

Sir, my question is on VECV side. A couple of questions. First on this Volvo bus business that we are getting with the steel. So does this come with debt as well? How much debt is that? And secondly, on the VECV side, in terms of the outlook for market shares for us, because we have seen that some of the peers, larger peers in CVs have gone with different kinds of BS-VI solutions, some have come with modular platforms, which allows them to customize orders. So what are you seeing on the grounds in terms of impact of this in the way how you're competing on the ground for market share?

Yes. So to my knowledge, there's no debt coming on the Volvo bus side. There's the business coming and the assets of the business. So -- and the people which are not -- it's a running business, but there are no debts there. On the market share side, I mean, honestly, it's very difficult to say right now, just because on VECV, I'm saying on Eicher brand, just because it's very low sales. Even on the Volvo truck side, we're over 90%, but that's, again, very low sales. So on the VECV side, in fact, we had much higher market shares in the last few months. So we -- what we should be around 30% in 5 to 15 tonnes we're around 36%, 37%, I think is in that order. What used to be 5-odd-percent in heavy duty, it's 10%, 12%. And I'm really happy about that, but I won't take that as a future norm just as yet because it could be because of other supply issues and others of from competitors. So we are certainly seeing the right direction as far as inquiries for our trucks are concerned, we have -- we're in a lot more deals than we used to be. Our customers are a lot more interested in our BS-VI offering than earlier than with the competitors. So I think our credibility on BS-VI is very high for Eicher brand, certainly. And therefore, we should see more and more traction on those fronts. So that's the general direction item, but we can't really comment much on the current market share because it's just because the industry size has been so small.

And has the BS-VI cost being passed on fully in VECV as well.

I can't say offhand Satyam, exactly. I imagine a large chunk of it has, but I can't say offhand right now.

The next question is from Venugopal Garre from Bernstein.

Firstly, just wanted to confirm some -- something on the booking side of things. So when you mentioned that, of course, the manufacturing run rate is lower than the booking run rate. So is it like every month you're accumulating something like 20,000 of backlog. So over the last 3, 4 months, you have anywhere in the 60,000 to 80,000 in sort of a backlog that you need to deliver? And also, I wanted to understand how does this bookings get impacted when your number of dealerships, which are open changes, for example, you mentioned that earlier it was 90%. Now it's in the 75%, 80% range. So that's my first question.

Okay. So in -- it wasn't 20,000 a month for the last several months. The bookings started to go up from June onwards. Till May, almost the entire country was in lockdown. So there was no dealership open. So the gap in booking to actual production started in June. It got expanded in July. And as of now, we are sitting at something like 40,000 to 45,000, it changes on a daily basis. On average, a dealer will sell 3 to 4 bikes per day. So if some are open, some are not open, it's not a huge impact. It depends on which city they are in, is in a small store, large stores, so on. So I can't put an exact figure as to how much will be the impact of 90% open versus 80% open, but it should not be a huge impact.

Got it. My second question is more on the manufacturing, especially the supply constraints. I just wanted to understand what is the primary driver for the constraint? Is it that there are certain components where you have a single source and that particular supplier is in a location where there is a shutdown, and more so what it means is that going forward, how are you actually then looking at your supply chain itself. In order to ensure that such sort of challenges you don't face because you would notice or a scenario where your competitors irrespective of which segment they operate in. They're in different geographies. And then you eventually competitively end up losing share because you are not able to manufacture. So from a supply chain side, not really a 3, 4-month this. Is there any thought process on how to base this?

So this is not where 1 supplier is down, let's say 1 supplier had a fire or something else, that could -- and if he was a single sourcer, it would cause problems. The supply chain for two-wheeler industry and for that matter most of the auto industry in India is around 4 places. It's in the Gurgaon area, Aurangabad area, Pune area and Chennai. And if one of these regions suddenly goes into a full lockdown, which we had in July, a week or 10 days of full lockdown in Pune and Aurangabad. So that obviously disrupted it for everybody, not just for us, and it affected every supplier, not just one. So it's not a question of having single source or dual source. Even if you have dual sources and they were in 2 different areas, which were under lockdown, they would affect. But I think most of the country slowly but surely is coming out of it.

Next question is from Kapil Singh from Nomura.

Yes. Okay. I just wanted to understand, firstly, in terms of long-term growth for this segment, what are your thoughts from the perspective that we have a capacity of 100,000 per month. So you've alluded to several new models. Can you give us a number in terms of how many new models can we expect over the next 2 to 3 years? And what is the long-term growth that you expect for your segment over the next 4, 5 years?

To be perfectly honest with you, I can't tell you how much I'll sell in August, but if you're asking me next for 5 years. But broadly, I will try to answer. I think I had earlier said that we had now lined up our product plan in a manner that almost every quarter, we will have a new model or a new variant. And we are sticking to that plan. The whole thing got shifted, but we have continued to develop the product. So we are ready with a whole bunch of new products, and we will continue to grow in there. Now if you look at Royal Enfield, a decade ago, we were selling 50,000 a year. Now we're selling 50,000 a month even in this downturn, roughly. And despite that, we are only at about 6% of the motorcycles. More and more people, as India is becoming wealthy, more and more people are migrating up to the middle segment, the midsize segment, which is 250 to 650 or 750 segment. And where we have substantially higher market share. So I think if that trend continues, and we continue to bring in new models, continue to expand our reach, continue to do lot more digital stuff, continue to increase our international sales, I believe we can continue our growth path. I can't give you specific numbers or targets that we have for next 3, 4 years. But we are doing all the key elements, expanding our product train, expanding our geographical, expanding our solutions, expanding our digital and expanding our network. So hopefully, these will all come together in giving us a much better future.

Okay. And secondly, I wanted to check on production. Just to understand this, because several companies based out of Chennai have been able to operate at 70% even in July. So was there any specific issue in case of Eicher Motors that we were operating at 40%. And added to that, do we need to build stock for the festive season? What -- I mean when you head into the festive season, what kind of inventory would you like to have?

So our inventory, I'll answer it in reverse. Our inventory is only at about 10,000 vehicles total pipeline, okay, which is very low. We'd like to keep it at least 3 weeks. So -- and we are down to less than a week. So that is not a good situation, and we need to -- and I told you the reasons for it. Even Chennai has 2 parts to it. Our plants are in Kanchipuram district in Oragadam. That was under lockdown. And Tamil Nadu government had refused transit between districts. So that caused the problem. So every day, there is a new kind of problem. Yesterday, for example, there was a transfer blowout in Oragadam. Now we're back up and things are okay. But -- so every day, there is a new issue. We're dealing with it. But if somebody operated at 70%, maybe they were in Chennai, they didn't have as much people movement issues. Maybe their supply chains were within Chennai or within Tamil Nadu, I don't know. We were affected more by the shutdowns in Pune and Aurangabad, and a couple of them in Chennai. So we are doing things like sending our buses to help our suppliers, people come to the suppliers' factories. We'll do whatever it takes. But the good news is our plant guys are finally under pressure to produce, which is a good sign. The good news is that our inquiries continue to be good, and our bookings continue to be good, and it's not a onetime thing.

Our next question is from Ronak Sarda from Systematix.

So first question is on, if you can highlight how contribution for the top 10 markets or 15 markets. And as you...

I'm sorry, I'm not able to hear you, Ronak.

Am I audible now?

Still not clear.

Is it better now?

Go ahead, let's give it a try. Maybe we take it from next speaker.

Maybe we'll next take the next question. It's from Jinesh Gandhi from Motilal Oswal.

First question to Kalees. You've talked about gross margin has been impacted by incentives almost 70%, 75%. But if we see on RM cost basis, on Q-o-Q, it's down to about 540 basis points. You're referring to 70%, 75% of 540 or you're working with some different number? Because there's also inventory change, which would have influenced this number?

Jinesh, inventory change has got nothing to do with this. It basically on account of the 70%, 75%, a gross margin level, incentives is what we have to consider.

So 70%, 75% of 540 basis points?

Right.

Okay. Sure. Second question to Vinod. With respect to bookings, while it's a very good sign that we are seeing bookings going back to pre-COVID level. But how do we read this number? So this, say, 100% of bookings are back to pre-COVID with just 70%, 75% of dealership being open? Or it's -- I mean how do you look at that?

Well, we are almost at pre-COVID level and inquiries are at pre-COVID level. Bookings are almost at pre-COVID level. So some days, there are 90% dealers open. Some days there are 50% dealers open. I think today, again, we are back up to 90%. So hopefully, if it sustains, then we have a demand which is back to pre-COVID levels or even higher.

Okay. Okay. And with respect to production, where are we now in August?

I don't know if we should be giving August numbers like this Kalees. Is that appropriate?

I don't think so, Vinod, that we will be able to give that. It's less than bookings if that helps.

Next question is from Yogesh from HSBC.

Just 2 quick questions from me. Firstly, we have seen some tough financing in cars. So are you seeing some of the inquiries getting down because the financing isn't available?

Kalees?

So if you look at our financing trend, Yogesh, I think, pre-COVID, we were at about, say, 52% to 55%, we already going up to 45 percentage. And the gap is more due to some of the cities which are yet to open up, et cetera. So we don't see financing as a challenge for us.

Okay. And secondly, so obviously, lots of talk about the new platform, new launches in social media. Is it happening that how are the customer inquiries on the new bikes and can they delay purchase for the next 1 or 2 months, just hoping for the new bike to come and then test it out, can that impact bookings or inquiries in the near term?

Yogesh, it's always a concern. I mean, anyone can answer that, but there's always a concern with any brand with any category with any new product, it's not -- but it's not normally such a huge concern, and that's not what we are facing right now in any case. So the bookings are there. There's no issue at this point in terms of people holding back or something. You can see that in the booking numbers, actually, to be honest. So it's not a worry.

If I could add to that, Siddhartha, that it's also because we've had such a good digital connect. As we are speaking, Royal Enfield launched the first ever Royal Enfield mobile app on our website. So we did a prelaunch, and there was so much interest that the Google connection crashed. So we had to hold it back and relaunch it. So now we are live again. So that's the amount of interest that our customers are seeing. I was saying earlier that the voice of -- share of voice actually went up 2% compared to last quarter itself of Royal Enfield in the motorcycle segment. So that interest is what is causing the bookings to be higher.

Next question is from Chirag Shah from Edelweiss.

So my first question is on new launches. Is it possible to indicate whether they will be in the same brand or you're looking to launch new brands, at least the new platform upgrade that you are doing. Because there are a lot of media reports, which indicate that there are a lot of new brands being looked at over the next 3 years.

To be very clear, it's all Royal Enfield. That's -- so it's all within the umbrella brand. Of course, the models -- we can't talk about right now in terms of what model name, it will be whether some may be replacements, some may be new, but we can't talk about that. But certainly, they're all within the Royal Enfield spectrum that we are looking at. It's not a different -- it's not an altogether different brand as it was. But beyond that, we can't really say at this point.

Yes. Second was, again, on production. Sorry to come back to that question again. So how much time do you think you will need to ramp it up to a normalized level of production, say, pre COVID level of production it 2, 3 months process, assuming there are no further hiccups because if it status quo scenario, how much fast -- how fast we can ramp it up right.

If there was no supply chain constraints, we could reach that level in 2 weeks here. Given materials we have manpower, we have machines, we can reach that very fast.

And as of date, are the supply chain consists still existing or they have largely been addressed?

No, they're still existing because parts of the country where there is lockdown, there are suppliers who have got COVID problems inside. So it is still continuing. But it's getting better day-by-day by day.

And if I can slip in 1 last question. And this is for Kalees. See other expenditure or line item that we saw in the quarter, does it have any lumpy effect? Or we should assume this is the base fixed cost that we have in other expenditure? Because this seems to be slightly higher when compared to some of the other companies have reported the numbers. So is there any spend that you have -- chose to continue on which is in form of investment in the quarter.

From a quarter perspective, if you look at it, there are no lumpy costs that is there entire. In fact, if we look at our marketing expense, et cetera, slightly lower than our previous quarter average.

So this is the element of fixed cost that we will continue, correct? That is the right way of looking at.

That's right. At the same point of time, we will also look at opportunities when we started the conversation by saying again opportunities to reduce cost across line items. That will be a continuous journey.

Our next question is from Jay Kale from Elara.

So my first question was regarding the customer profile. So the incremental bookings that you are like getting, if you just throw some light on what kind of customers in terms of what is the percentage of first-time buyers versus upgraders? And has that changed materially versus pre-COVID levels? And that would be my first question.

Too early to look at the data right now. I think we would believe that is a trend that we had of 85, 15 continues. At this point of time, there's nothing specific to state any change in that.

Okay. And if you could talk about sir, a little bit about the export markets as well, how has that shaped post-COVID? You did mention that bookings are quite high for the domestic. But how would the export market be shaping up in, say, European, U.S. market as well as the Asia markets.

Overall, if you look at it, our export markets are down by about 60% as compared to India, which was about 68%. And specific to RENA, I think, RENA had a faster recovery. So RENA, we could -- the drop was only about 20 percentage in terms of volume. Rest of the market is in line with the overall average. We see positive trends in RENA. That has picked up faster. Other markets are in line with the overall category drop in exports.

But would you be facing supply issues over there as well? I mean the demand being higher than supply over there? Or you'll be able to meet the demand over there?

No, it's not. Demand is still higher even, I mean, the export markets are clamoring for product.

Next question is from Sonal Gupta from UBS.

Just 1 question. I mean, like currently, you're operating with only sort of like 2 models, right? And you're still back to almost pre-COVID levels. So once the new launch is there, I mean, how do you see -- I mean do we see that then once you have the, I mean, full portfolio, you should see a significant pickup from there as well.

I don't know why you say 2 models. We have Bullet and Classic, and you have Himalayan and you have Interceptor and you have the Continental. And there are several variants of this in several colors, and we will show yes, Classic is our #1 selling model but we have backlog in Himalayan, we have backlog on Twin. We have even backlog in Bullet.

Sure. No, sorry. What I meant was like in the top 3 Thunderbird is obviously not there . And so in that sense, I mean, is that leading to some amount of customers who are sort of waiting for that product?

Well, we've had waiting for Royal Enfield product in the past, it's -- and thereby you were adding capacity. So I don't think there is cancellations. We watch that also. So customers are willing to wait. I don't want to keep them waiting for long. It's not in our control as much. As soon as the supplier situation gets better, we will resolve that, and I hope that we will certainly do that by this month end, if not sometime in the middle of next month, but definitely below -- before festive season.

We thank the management for the detailed explanations and insights. That was the last question. Over to the management. Sir, would you like to add some closing comments?

Siddhartha, you go ahead.

I just wanted to say thank you for attending this and to say that I just want to reiterate our position as Eicher Motors. All of our businesses that we have -- that we really look at business in a very long-term perspective, I mean, of course, this is extremely difficult time for everybody, but we look at this as a blip in the long term. We continue to invest deeply in our long term. We continue to look at the opportunities that arise during times like this. Either internally to look at our cost structures or externally to look at potential areas that we can acquire or do activities or enter markets or whatever. So it's very much business as usual with a sharper lens, of course, from the current perspective and using these opportunities. We are certainly continuing that forward march that we have been over time. All the, let's say, spends and all the activities that we need to do are continuing as always. So there's no dramatic shift that way. Of course, opportunities to reduce cost, to improve business operations to manage situation, manage supply chain, all of that. That's, of course, there's a big focus there. But everything else is towards the long-term aim of Royal Enfield becoming a global brand and towards Eicher becoming a modernizing Indian commercial transportation. So that's our focus -- continued focus in Eicher Motors Limited. Vinod any closing remark from your end and Kalees.

I wish, I could give a better, more clear answer. I know that you guys want exact date and exact numbers. Unfortunately, we are in such times of uncertainty that I can't predict exactly when my supply chain situation will be over. But I look at the positive side, I would rather have this problem then have a problem of demand, I have good demand. And on the back of our products, on the back of our network and on the back of our digital activities, I'm excited about this. Yes, it is a little frustrating on the supply side, but we'll manage. We'll get over it. Thank you very much, and all of you stay safe.

Thanks, everyone. I think as much as talent that we see on table, we also see this as a great opportunity for us to -- across revenue line and all the cost levels. We look forward to share updates as we move forward. Thank you.

All right. Thank you very much.