Eicher Motors Limited (505200) Earnings Call Transcript & Summary

Good evening, [ Neeraj ]. Am I audible? Shall we go ahead and start the call?

Yes, Raghu. Yes, Raghu, please go ahead. We can start the call now. Management is on the call.

Thank you. Thank you so much. Good evening. Good evening, ladies and gentlemen. Regret the delay in commencement of the call. On behalf of Emkay Global Financial Services, I take the opportunity to welcome you all to Eicher Motors Q4 FY '21 and full year FY '21 earnings call webinar. From the management team, we have Mr. Siddhartha Lal, MD of Eicher Motors; Mr. Vinod Dasari, CEO of Royal Enfield; Mr. Kaleeswaran Arunachalam, CFO of Eicher Motors. We thank the management for providing us the opportunity to host the call. We request the management for opening remarks, which can be followed by Q&A session. Over to you, sir.

Hello, good evening, everybody, and sorry for being -- for holding up this call. Thank you very much, Emkay, for having this call. And I hope all of you are safe and healthy, and your families too. And welcome to the Q4 and FY 2020-'21 for Eicher Motors Limited. After a soft start to the year, the automotive industry did witness a good pickup in demand as the economy started opening up, and the COVID situation began to ease during the latter part of the year. A buoyant demand, both from rural and urban segments, also supported by preference of personal mobility, helped the motorcycle industry register a strong growth of 20% in the second half of 2020-'21, over the same period in 2019-'20. A faster recovery in demand and excellent response to the launch of our all-new Meteor 350 resulted in a very strong order book for Royal Enfield. Our international markets too showed good recovery as the Americas region recorded a double-digit growth in a very tough year. The truck industry also showed equal resilience, with great recovery seen in the latter half of the year. VECV, our joint venture with Volvo, gained market share across segments. In the heavy-duty segment, we grew by 6% in 2020-'21, while the industry declined by 21%. And we achieved a highest-ever market share of 7% in the heavy-duty segment. Now in the wake of the emergence of the second wave of COVID in India, we expect the near-term demand and supply situation to be volatile in the industry. We continue to monitor the situation. Overall, we're confident of our strong business fundamentals to be able to withstand such headwinds. Last year, we committed INR 50 crores to the COVID relief and rehabilitation, and we've committed an additional INR 20 crores recently. We're working with state governments, district administrators and hospitals to provide medical equipment, medicines and other medical consumables to aid quick response. An update on the financials for the fourth quarter and for the financial year ended March '21. We're happy to report good quarter with significant growth across key financials. Our revenue for quarter 4 was the highest ever revenue for EML at INR 2,940 crores, up 33% from INR 2,208 crores last year. For the full year, our revenue was INR 8,720 crores, which was down 5% from INR 9,154 crores last year, largely due to a very curtailed Q1 due to the first COVID situation. Our EBITDA for quarter 4 was at INR 634 crores, up 47% from INR 432 crores last year. And for the full year, our EBITDA was at INR 1,781 crores, down 18% from INR 2,180 crores last year. EBITDA margin for quarter 4 was at 21.6% against 19.6% last year and 25% year-on-year increase in volumes. And for financial year, it was 24% against 23.8% last year, which was due to the 13% decline in volumes. Overall, our profit after tax for quarter 4 was at INR 526 crores, up 73% from INR 304 crores. And for the financial year, our profit after tax was INR 1,347 crores, down 26% from INR 1,827 crores last year. So that's the overall financials and update. I hand over to Mr. Vinod Dasari, the CEO of Royal Enfield, to give an update on Royal Enfield. Thank you.

Thank you, Siddhartha. Let me give you an update on Royal Enfield for Q4 and for FY 2021. In Q4, we sold 203,000 motorcycles, which is up about 25% over last year. Our exports were up 72% by 13,700. We've got strong response across the geographies. The launch of Meteor helped as well as the network expansion. In India, the demand momentum continued to be strong across the country. And Meteor significantly helped create an uplift in the market. For the full year, we sold 609,000 motorcycles just about, down 13% from 698,000 that we had done last year. Exports were down 8% at 35,700. Americas region however performed extremely well. You'll remember that there was lesser lockdowns in America, where there are significantly higher lockdowns in Europe. We had double-digit growth in Americas. Demand also swiftly came back in India as total bookings compared to year-to-year, we almost made up and actually exceeded the number of bookings for the full year. Our sales were a little lower due to the gradual ramp-up and supply chain constraints that we faced on. Overall, though, in production, in Q4, our production run rate remained quite steady, with the great demand that we were seeing for Meteor. We ramped up the production and it helped reduce the waiting period, which has gone as high as 6 months. Now it has come down a bit. Supply situation of certain electronic parts, which you've been reading across the industry and certain commodities remain quite volatile. Prices of some of the commodities, including precious metals, has put some pressure on the profitability for sure. We worked with suppliers to secure availability of parts to ensure continuity of production. We continue to produce at a decent pitch, not where we want to be, but not completely shut down either. We've taken about a 3% to 8% price hike across models since January, and we'll continue to look at that. And if more needs to be done more will be done. In India, we expanded our network significantly. We added a total footprint now is about 1,500 stores, 1,200 in cities. We had -- so now we crossed over 2,056 stores. We added 104 large-sized stores. So our large stores itself is more than 1,000. If you recall, we launched the Studio Store concept just a year ago, and we're happy that we've crossed 1,000 overall. We added 430 just in the last 1 year, despite all the lockdowns. Outside India also, we continued our rapid expansion in international markets with exclusive store count now going from 77 stores in 21 countries to 132 stores in 26 countries, and we saw a lot of expansion in France, Thailand, Brazil, Argentina. Equally, we entered new markets. We became the first automobile company from India to have a store bang in middle of Japan, in Tokyo, Cambodia, Costa Rica, Dominican Republic. And we opened a CKD facility in Argentina. The biggest story of last year, of course was Meteor, in line with our plans to expand our product portfolio in the global middle-weight segment. This was perfect for it. We launched it in last November 2020. It has won almost every single award that is there that I can think of in the auto industry, and it's won India's most prestigious award in Motorcycle of The Year. It won the best classic award in Thailand in Bike of the Year awards. It's truly a next-generation platform in the cruiser segment, redefines the riding experience. It's received fantastic response and feedback from customers and community on the level of refinement that we have done in the engine and -- as well as the riding comfort. It's launched now in U.S. and U.K. and Europe, in Asia-Pacific, and now it's coming up in LATAM, which truly helped us expand the cruiser segment in India and it's growing our presence in global markets as well. But it's not just what we launched, it's also how we launched with Make It Yours that became an industry-first or was an industry-first. It became an industry leader, creating a paradigm shift in the customer purchase journey. It allows customers to personalize and expand and accessorize their motorcycle to their desire from hundreds of thousands of potential options. All of our 2,000-plus stores are now MiY, as we call it, Make It Yours. And a large portfolio of our MiY is now moving to MiY with, Classic, Meteor, Himalayan and the Twins. And slowly, we've seen that the penetration of MiY is now as high as 80%, indicating that the customer loves these additional choices. And the added advantage is because of this MiY, the accessory level that we used to be at about 30%, 40% penetration is now as high as 70% penetration of accessories. Equally on the after-sales, the focus on providing a smooth and hassle-free riding experience, we created better access through service -- series of service interventions, the launch of Service On Wheels, which has more than 800 of them; a new RE mechanic app that we talked about when we launched the Meteor; 13 mobile service trucks, tied up with a leading taxi bike company so that we could offer pickup and drop to the -- all these have really helped enhance customer satisfaction and give the customer a peace of mind. We launched the Himalayan as a refresh in 3 new colors, a host of upgrades, including the Tripper Navigation. In a short span of 5 years, Himalayan has opened up a whole new category in the global adventures arena. And it's now 1 of our top 5 top-selling models in Europe, not just for us, it's among all top-selling modules it is in U.S. and Europe. And pretty simple, versatile bike, which is true of all Royal Enfield, it's authentic and simple and pure. Equally, we launched new colors on the 650 Twins. As we introduced the MiY, we launched 9 new colors on the Interceptor and the Continental. And along with that, there's a whole bunch of accessorization options that are provided so that it helps the customer personalize it as much as they can. We continued our process of significant and substantial digital transformation. With the pandemic, I think has really given this a boost. We expedited some of the work. We now have almost 8 million strong vibrant online community. The share of online inquiry increased over 2.5x, and the share of online bookings has gone up over 5x, given the conversion rate increase also that we see. Website visits have gone up to almost 66 million in 2021. Imagine that was 29 million just a year ago. The Royal Enfield share in the -- of voice in the 125CC and higher segment has gone up by 6% to about 29%. But nurturing the true spirit of pure motorcycling and self-expression, that has been our constant endeavor. And to celebrate the spirit of customization, we introduced new initiatives, especially the Build Your Own Legend, and the Style Your Own initiatives that were for next-generation of designers and motorcycle enthusiasts. And so in our endeavor to build the riding culture globally, we launched our first ever Riders Club of Europe. And this club shares programs, rides everywhere, brand experience. But in all in all, we were very focused on making sure that not only us, but our entire community of riders and suppliers and leaders who supported well COVID-2 initiative. So reiterating Siddhartha's point on the reappearance of COVID-led disruption, we continue to monitor the situation as it evolves and try to mitigate its impact. We'll continue to focus on providing the care and support to our employees, our dealers and our suppliers and our customers. The first half of this year is expected to be soft because there is lockdowns everywhere in the country, as you are aware. And the second half, hopefully, I think the curves will flatten out by about June, middle of June or end of June. Already, you've seen improvements in Delhi and Mumbai. So hopefully, from July onwards, or the latter part of June, it should start to come back strongly. So with that, I'll hand over to Siddhartha.

Hi, again. I just want to cover the financials and business update of our joint venture with Volvo, that's VE Commercial Vehicles Ltd. The revenue for quarter 4 was at a high amount of INR 3,602 crores. So that's up 71% from INR 2,100-plus crores last year. And for the full year, it was at 6,000 -- INR 8,676 crores, up 2% from last year. The EBITDA for Q4 was at INR 320 crores, which is up again substantially from the INR 37 crores last year. And for the financial year, the EBITDA is at INR 592 crores, up 43%. Overall, the EBITDA margin for the quarter was at 8.9% versus 1.8% last year. And for the financial year, it's 6.8% versus 4.9% in the previous year, largely due to improvement in realization and cost reduction measures that we were able to do. The profit after tax for Q4 was at INR 127 crores against a loss of INR 26 crores last year. And for the full year, the profit after tax is at INR 57 crores, down 2% from INR 58 crores last year. So overall, the sales units for the quarter were at 18,200 trucks and buses, up 56% from last year. And for the full year, we were around 41,300 units, which is down 15% from the previous year. And that downturn -- let's say that the 15% decline in VECV was actually much better than the 30% decline in the industry, thereby gaining VECV substantial market share in trucks and buses. VECV's export volume was up by 10% year-on-year as against a 29% drop in overall exports in 5-tonne and above segment from India. So again, increase in export market share. The fourth quarter did -- started actually on a positive note with more normalization of economic activities. We witnessed a significant recovery in the truck segment. We gained market share in FY '21 across all segments in LMD from 29.8%, that's light and medium-duty trucks to 30.6%. In heavy-duty segment, including Volvo trucks, so that's Eicher plus Volvo trucks, from 5.9% to 7.9%, and that's getting to a very substantial or reasonable volume or market share in India in heavy-duty trucks. We're very proud of that. And in bus segment from 14.1% to 19.9%. Our outperformance in market share was driven by successful introduction of BS-VI range, including industry-leading product quality and focus on aftermarket and parts availability. So our BS-VI has really been an absolute standout range of products, and we've managed that I believe much better than other manufacturers. And as a result, we've been able to really gain share post BS-VI introduction in India. We've also significantly enhanced our customer connect through both digital platforms and physical meetings. So there's been a lot of interaction actually happening now with our customers. We've got in the industry's first uptime center and resulting in a much higher uptime of trucks and buses on the road. And that's been an enormous advantage now for VECV. The new range of trucks and buses is 100% connected. They're connected vehicles, they're connected to our servers. So we're really able to monitor on a real-time basis what's going on all new BS-VI trucks and buses. That's an enormous industry shift and change as well. While, again, we currently experience the impact of the second wave of the pandemic with local lockdowns and increasing restrictions, we're confident that as the economy recovers, hopefully soon, the situation will normalize. And forecast of a good monsoon, government's focus on infrastructure and positive, let's say, policy stands, should support the demand, the increased demand for commercial vehicles in the coming period. So that's all from us at EML. Back to you for questions.

[Operator Instructions] A couple of questions from my side to Vinod. Firstly, can you give some color on current production situation. Easing of lockdown should drive a recovery, as you said, from July onwards. Can you talk about ramp-up of production in coming quarters, whether it can move to over 80,000 per month in second half of the year? My second question is on the product pipeline, if you can provide some color, it will be helpful. Media reports highlight new generation Classic, Hunter, Roadster, Shotgun. All of these seem extremely appealing.

Thank you. I think there are 3 types of supply chain concerns that we are facing. One is the global ship shortage that you heard about from other sources also. This is slowly but surely improving. There is also lockdown-related supply chain disruptions from Pune and Delhi belt that we were facing earlier. And the third, of course, was a sudden lockdown that was there in Tamil Nadu, which was expected, not sudden, I should say. But there were some -- they still wanted auto industry to continue, but certainly, they said 2-wheelers are not allowed. Only buses are allowed. So while we were able to handle it, some of our vendors were not able to handle it. And we also felt it was the right thing to do to shut down our plants, so we shut it down for just 3 days, Thursday, Friday, Saturday. We'll reopen on 31st. As I mentioned earlier, we have enough backlog of demand that demand is not an issue. I think by the time production comes back, the demand will see a significant pent-up demand. So I'm hoping for much better things. Getting back to 80,000 is not an issue at all. I think we'll easily get there. As soon as some of these supply chain issues die down, I think we will be get back to 80,000. As far as new models are concerned, as I mentioned earlier, we have several new models being planned once every quarter. I love the names that you are coming up with though and the media keeps coming up with newer and newer names. Even before we name them, I think we hear names from the media. So I can't exactly talk about which models and what names will come, but we have a very exciting pipeline. In fact, if I may say so this year will be probably the highest number of new models that you have ever seen from Royal Enfield being launched in a year. And that's the beginning of the pipeline. There's a whole bunch that is happening, and we are truly excited about it.

Next, we have a question from Kapil Singh of Nomura.

I'll just pick on what you mentioned. You mentioned highest number of new models. You've been talking about one per quarter. So what should we expect for this financial year? And second, just on the production side, I mean is there a thought here because last year we were struggling all through the supply that during the period when we are not able to retail, we produce a bit extra and then sort of retail it. So even if retail network is not open, you sort of produce more. And thirdly, just on the other expenses, if you can give some comments because it's a bit on the higher side, if there were any one-offs. That's it.

So I captured 3 questions. One was on product. Yes, we will continue to have one new model every quarter. Just because there is a delay due to COVID right now, I don't think we'll squeeze everything, but there are some very big models coming, and we are very excited about it. We have to do all the marketing and go-to-market preparedness for that. As far as getting back to 80,000 per month, when you just look at our Q4, we almost produced, what, 210,000, 220,000 at that point. And that was despite having some supply chain difficulties and all that. So getting back to that level or even higher is not an issue as far as I'm concerned, especially on some of the models where we used to have difficulty like Twins and Himalayans, which do exceptionally well overseas. We've added capacity. Even on Meteor, our capacity was, what, about 8,000 to 10,000. We upped it to about 15,000, and we are able to meet that quite well. So I don't think once this lockdown is over the production constraints will be visible. We will be able to produce as much. And fortunately, we have a backlog, so we can continue to produce. And by the time -- and just to get rid of the backlog, or just to -- not get rid, but just to deliver as per the backlog will take us at least 2 or 3 months. And by that time, I'm sure there'll be significant demand that will come back up. As far as overheads are concerned, Kalees, you want to comment on it?

Yes. Thanks, Vinod. So as of the overheads are concerned, yes, there is about INR 50 crores of one-off in that. On a steady-state basis, we see overheads to run around roughly INR 290 crores, which is in line with the Q3 run rate and lower than Q4 of last year basis the cost initiatives that we have taken. Reasons for the one-off largely is on account of one, we had a ForEx difference in Brazil. Going forward, we are planning to set off this loan and pay off so that the ForEx difference would go away. Brazil was a volatile country for various reasons. And that's the call that we took by Q1 we should be able to pay that off. The second is a provision that we have made for one of the vendor advances due to, on a conservative basis because the vendor has filed for [indiscernible]. So excluding that, the run rate is pretty much in line with Q3 and slightly lower than Q4 of last year.

Can we have the next question from Pramod?

And before I start the question, congratulations, Siddhartha, for great turnaround of VECV. I think all the things we've been talking about with the technology shift on BS-VI has literally playing off growth in terms of market share and margins. So congrats on that count. And moving on, my question is pertaining to Royal Enfield. And just want to clarify, Kalees, you said INR 50 crores one-off in other expenditure lines this quarter, right? Am I right? Did I pick that right?

Yes, you picked it up right.

Okay. And most of them should kind of not -- should reverse out from next quarter onward?

Yes. That's right.

No. Okay. That's good to hear. And Kalees, if you can just help us educate on the precious metal side because I believe your precious metal intensity will be much more higher than a conventional 2-wheeler company or a small displacement company and prices have literally gone through the roof. So if you can just help us understand how is the precious metal situation for you? And for a 4Q perspective, how much of the current spot out -- where was 4Q in context of the current spot prices on precious metals? And is there any scope for further optimization of precious metal where you can probably bring on rhodium and make to do with other cheaper metals? So if you can just help us -- help us understand this precious metal, Kalees?

Sure. Pramod, to start with I think the journey of precious metal started via the transition that we made from BS-IV to BS-VI. The consumption, as such, if you look at, say, a bike that is at 150CC or lower displacement compared to ours, we had about 30%, 35% more due to the segment that we operate, which is around 350CC to 650CC. So there is, one, a 35% increase in consumption. And that 35% lion's share is attributable to one metal, which is rhodium. And if you look at rhodium, specifically the cost of rhodium from where it was about a year back to now has now pushed up by almost 10x. So that's where you see the pressure on precious group of metal continues to be high in terms of cost, which is impacting the margins also. So if you see from a Q4 perspective, the incremental trends have continued, but not has been as severe as we have seen in Q2 and Q3. But at the same point of time, other base metals have caught up. So...

Kalees, can I add on the precious metals please?

Sure. Sure, Vinod.

I was just going to add that while you're absolutely right that we were about 35% higher than the normal bike, over the last 9 months or so we worked significantly on our engines' emissions and how we place the exhaust, how we do the coating, how we do lots of other things. I don't want to be let into the technical details. We did 2 projects. And together, we were able to reduce the amount of rhodium consumption by over 66%. And as a result, if you measure volume usage by Royal Enfield per CC, we are one of the industry's best, a global benchmark. So that's a recent achievement. It's not in the past, but it will come in future engines we will have lesser rhodium. Just -- I thought I'll add that.

Thanks, Vinod. So that's the value engineering that I wanted to add in terms of what we have done on the precious group of metals. Price, from an industry perspective, we see it going northwards only at least from a near-term perspective. So if I look at, say, next 9 to 12 months, both base metals and precious group of metals would continue to go up. But having said that, if you look at a year that has been significantly tough from an external environment, we have been able to pass on the entire cost increase to the extent that is feasible. So in the year, if you look at from an ASP to material cost, almost INR 12,000 increase on material cost has been passed on a like-to-like basis to where we were in YTD '19-'22, where we are. Now coupled with the value engineering that we have done on [ PGM ], plus in case, say, for example, in Q3, Q4 onwards if there is a little bit of softening on commodity cost, we should be able to see benefits accruing, but that's something we have to park it for another day to see how does it move in.

Second question is more for Siddhartha and Vinod. We have seen a substantial increase in the ASP overall and a lot of this is cost pressure, right, from ABS to FI, precious metal now. But just wanted to think as to where do you think you reach a point where pricing action incrementally could kind of dent demand? Because the reason why I'm asking this is that a lot of the customers will buy a Classic 350, which is our reputed brand and a lot of them are probably going from as 150CC and the kind of price gap has been widening, right? And what we've seen is like the 650 Twins, for example, a phenomenal value proposition if you compare the pricing of those products with anything else in the market. But we are struggling to sell more than 1,200, 1,300 units per month in the domestic market, with the phenomenal value proposition. So I'm just trying to understand, is there a point where you will have to probably start absorbing the cost inflation within so that you don't end up pushing the price too hard because part of this will reverse out with commodity easing, eventually, whereas reversal of price increases is not something which companies normally do? So how do you think about this contrary? Because -- and personally, kind of disappointed by the limited volume success, what you see with the 650 Twins despite the phenomenal performance and the value proportion what they offer. So sorry for the long question, but if you can help us understand this.

To answer your question directly, the 650 Twins reason you see lower volumes in India is because we exported a whole lot more. There is a seasonality of when you can export to U.S. and Europe because of the winter months. So we exported significantly more. So we have a big backlog on Twins, and I don't want to specifically comment on how much, but demand still continues to be there. And once we get the refresh and with MiY, there seems to be continued interest in Twins. Sid, do you want to add something to that, or...

So Pramod, very wise questions, of course, because that's obviously enormous area of debate in the company in terms of what is the elasticity of the price, right? And we are right now battling really unprecedented commodity cost increases. And obviously that's an enormous question in the company and in all companies these days to see how much we can pass on, how much we can absorb, how much value engineering we can do. So all of that is being dealt with in a very systematic and a very scientific and in consumer understanding type of way to see that we can pass on the right amount of costs which the company has to bear. So that's really -- you're absolutely right, that's a crucial thing. What that point is, is difficult to say. Of course, we find ways to try and proxy that and see whether we're not breaking the back, right, of demand. So till now, it's -- I think we're progressing in the right way. In terms of being able to balance, I said the cost and the pricing, so it's not substantially hurting us. Or hurting us from the perspective that the customer registers, oh my God, okay, this is now just way too much, and then the demand falls off a cliff. That's not happened at all. On the 650s, Vinod has said it all, but I'll just add one more point is that we are really long-term players also. So yes, there is increasing and we are improving and we've got some order book. But as you saw the Himalayan also, we had a couple of years, quite a few years of sort of, let's say, not as per our expectation, the volumes, right? It was not as much as we wanted. But we stuck with it. We didn't do lots of things. In that case, it was a lot of product improvement also. In Twins, that's not required. It's absolutely spot-on in every aspect required. But it takes time for consumers to rise up to a bigger capacity bike as well. So we're going to continue to invest in the brands. We're going to continue to invest in becoming the absolute -- no question asked, biggest, let's say, premium motorcycle. So I'm talking about Twins as premium, an upper premium really. We've captured the entire market. I mean, we are -- entire means above 500CC, I think we are most of the market already. So all the international players will come in, they're struggling I think largely because of us also because we just actually given such an amazing value and such an amazing motorcycle. So more so we're going to continue to press on and continue to -- and we have 4 million, 5 million customers on the roads. And those customers are certainly going to -- they are looking at upgrading. Now sometimes the upgrade happens immediately, and we are seeing upgradation to 650s, but it will also take more time. But we have the consumer base. We have the brand, and we are certainly on the right track for that.

Next we have a question from Jinesh Gandhi. Jinesh, can you go ahead?

Yes. So my first question is to -- primarily on the price increases which you have taken. So Kalees, can you clarify this INR 12,000 increase which you're talking of is this is since Jan '21? Or this is for the financial year as a whole?

This is for the financial year as a whole, Jinesh.

Okay. And any sense on the price increases since Jan?

So we have done couple of increases between Jan to March also. And there has been one that has been done in April too.

Okay. And what will be quantum for -- so that gets included in INR 12,000, right?

That's right. And INR 12,000 is not MRP. I was talking about the ASP. So that has happened over a period of time in last year.

Right, right, right. Understood. Okay. Second question is for Vinod. So you talked about order backlog of 2, 3 months in the sense that you said it will be cleared in the next 2 to 3 months. Would it be fair to say this is largely for Meteor and the new models because Classic feedback from the ground is it was readily available or waiting of be 10 days. Can you throw some color on what would this order bucket backlog will be made up of?

No, we don't like to give a model-wise backlog, but I must at least tell you that these 2, 3 months or more backlog that I said, it's spread across several models. I can't see any model which is not on backlog.

Okay. Okay. Right. And lastly with respect to the supply side issues, you talked about chip shortages. Hello? Can you hear me?

Yes. Yes.

Yes. So the supply side issues, you talked about chip shortage getting addressed slowly, but some other issues coming in. So would it be fair to say when you say supply -- your new model launches are on track, this is after factoring in for the shortages? Or there could be some influence of shortages on new launches?

No, no. I think we will still -- models -- new model launch development takes about 3 to 4 to 5 years depending on the complexity of the vehicle. So the models are ready. I want to be able to have a clear visibility of the supply chain so I can launch it in enough quantity and not be short of supply. So it may delay by a month or so, but I don't see any massive changes because of that.

Can we have Pulkit Singhal next?

So the first question is just trying to understand the consumer sentiment impact that COVID could have this time because it is lot more widespread and there have been lot more -- people have passed away, et cetera. So -- and people have had to spend a lot more on medical expenditure also this time. So can you help us understand whether this whole premiumization thing could get impacted because of COVID in your view? And have you seen any kind of regional variations in terms of either order cancellations in areas where there has been higher COVID impact, et cetera?

First of all, it's absolutely terrible the kind of impact that COVID had had this time and even last time. This time it is -- for all of us, it seems like it hit home. Every one of us has lost a colleague or a family number or something like that or somebody we know. So it's absolutely terrible. But good thing is that it's going away. People are getting vaccinated. Even in Tamil Nadu, which was the last of the places where it was still growing I think the curve as of this morning was that it's finally hit its speak and it's coming down. So hopefully, in the next 2 to 3 weeks it will go away. It's too early to say what is the impact of COVID because markets have not opened up. Maharashtra, Delhi, all of them still continue to be in lockdown, so our dealerships are all closed. So we don't know as of yet. I don't think it will have that much of an impact in the end. While there is a lot of grief and despair, there's a lot more people who will continue to want to travel by motorcycles rather than take share taxies or buses.

Right. Right. So second question and last one is on your distribution expansion strategy. I mean, given your experience of the 2,000 stores currently, how do you look at expansion further on from here for the next 2, 3 years in terms of Studio and large stores? And if you could share some of your learnings as well from the past expansion.

I think there is a combination of big stores and small stores depending on the capacity of that region to take it. Our focus is more on international expansion. The pace of expansion or the percentage growth is happening more in -- going to be happening much more internationally. So if you see that we had about 900 big stores, and we went to about 1,000, 1,056 or something. We had 0 Studio Stores, we went to 1,000. So now we have a good combination. And other than maybe one state, we are practically covered with our network expansion plan that we had. We will continue to do that as and when we create new models and there is more demand created from certain pockets, we'll continue to add that. Equally, slowly but surely there is a change happening that I see where people want to buy directly from the company, directly delivered to home. So in the long, long run, I'll have to say we'll have to relook at the distribution strategy overall.

Next can we have Pramod Amthe?

First question is with regard to the production challenge or the supply chain challenge. It looks like, as you alluded, that COVID-2 is much worse than COVID-1. And so wanted to get your last 6 months experience, structurally what have you changed in terms of managing supply chain so that you can give a confidence that this time you'll be able to ramp up much faster than the last year issue as demand seems to be still the better. But the supply chain, both domestic and international, is much worse in this year. And the name of the game seems to be the quicker ramp up anybody can do. So can you give more confidence and more color structurally or however you're trying to address it?

Well, the supply chain situation, to put it -- put some gist on it is what you say it's like [Foreign Language]. But you deal with a new thing every day. Why do I have confidence that we'll come back strongly? Because we have experience from the past. Even last time, we came back very strongly. We know which suppliers are going to be affected more. We used the last 1 year to create alternate source. We used the last 1 year to move those suppliers closer to us. Yes, there are some structural problems like the global chip shortage and whatnot. But overall, I think we have derisked our supply chain to some extent, brought them closer to us. And as and when it opens up, we should be able to bounce back very fast. And also I should add that over the last 5 to 10 years, there's a great deal of in-sourcing the Royal Enfield has also done, which has helped.

Sure. And the second one is with regard to the earlier question by somebody -- participant on Twins. Can you give some color in terms of is it the category itself has shrunk because it was a new territory you were embarking on? Or it's just a supply chain issue? And the second, is there any read-through for...

Sorry, I didn't understand the question.

The Twins products?

Yes, the Twins, I had said earlier that it was merely the fact that we were allocating more to international than to domestic market that it caused -- that showed lower numbers in India.

Or is there anything more to read for your new products, how you want to position them and how fast you want to refresh? Or it's just the -- or is there a category-related issue?

No, no, no. I think Twins continues to win awards everywhere. It continues to do exceptionally well in overseas markets. There continues to be a good demand even in India, which we are not able to meet. So we are actually enhancing the capacity, Twins and Himalayan. Both of them have now achieved the top 10 models in most countries that -- or the developed markets as well.

And sorry, just to add, actually you see the 500-plus CC segment 3 years ago and today, it's grown tremendously as a percentage. It's still not a huge part of the Indian motorcycling industry, but it has grown a lot as a percentage. And the entire growth has come from Royal Enfield. And we are clear leaders with -- I don't know the exact number offhand, but I would say 2/3 of the market at least belongs to us. So it's -- we have grown that segment. We're continuing to grow that segment. We're absolutely, let's say, determined to grow that segment over the course of time. We know the market the same way that we grew the market for 350s and also now the Himalayans, we know that that segment will grow over the years. There's no question. We just want to continue to build the story, the brand, improve the products and make sure they're relevant to customers.

Can we have the next question from Arvind Sharma?

2 questions from my side. First, on the numbers. The installed capacity at Royal Enfield I believe is around 100,000 by a month or, say, 1.2 million by year, but we are seeing numbers which are somewhere around 70,000 to 80,000. In the last few quarters, you've alluded it's because of the difference in the mix, demand and the mix produced. When do you think that the numbers will match up to the installed capacity? Or in other words, out of the 100,000 installed capacity, what is the maximum that Royal Enfield can produce and sell?

Well, I don't know when the supply chain issues will be resolved, but I hope sometime this year we will start to hit the run rate of something like 100,000, even in 1 month, if the supply chain helps us, we should be able to hit. But remember, 100,000 is a esoteric number. It is -- we never said that we have a capacity of 100,000 and hence 1.2 million. This has become -- keep coming back in the media and enough number of people say it, so it becomes like it's our capacity. I believe we can achieve 100,000, but that's 100,000 if I make it a one model. Remember, we have a limited capacity of Meteor. We have a limited capacity of Himalayan. So if -- I can't just make something extra even though the demand is here just because I have capacity there. So I believe that combination of these we will be able to perfect or will -- when everything lines up and all the stars align themselves, we hopefully will hit that level of production sometime this year.

Sure. And the second question, more on the 4Q numbers, this INR 50 crores of one-off, is that captured in the standalone or in the consolidated numbers? Because the INR 290 crores of steady-state, it means that INR 50 crores is the consolidated number.

I believe consolidated, but Kalees can answer that better.

Yes, it is consolidated.

So how much would that be in the standalone numbers, sir?

Standalone will be roughly about INR 25 crores.

The next question is from Chirag. Chirag Shah, Please go ahead. We'll circle back to Chirag. The next question is from Hitesh Goel.

Sir, my question is on this -- sorry to have more on the commodity cost front, but can you give us the -- what is the total commodity cost as a percentage of your ASP in a bike, including the precious metals? And I just couldn't hear properly. You said you've taken a total INR 12,000 from April last year to April this year in terms of price increase, right? Did I follow that right?

Yes, Hitesh, you followed it right. So it is from April last year to March this year. So the financial year of FY '21. So roughly, if you look at our material cost, we are roughly at about, say, 55%.

Yes. No, no. So that includes actually the vendor fixed cost, vendor margin, everything, right? I'm only talking about the metal part, which is precious metal, steel, aluminum as a percentage of ASP. So generally in auto companies, it varies between 15% to 25%. I believe for Royal Enfield will be slightly lower because of the ASP being higher. So if you can give me that [ ballpark ] number.

I don't have it handy. I can just come back to that.

Actually never look at it like that.

Yes, absolutely.

And we're not -- [indiscernible] we don't even give individual line item of commodity and all that. So...

Okay. Yes. Let me ask the question again, then what kind of price hike is required to offset the commodity cost increase which has happened in fourth quarter?

So I don't think so it is a straight match to say what is the cost increase that you'll be able to convert it to price increase and pass on. So it's going to be a combination of -- as we talked about, there's a pricing framework that we operate, how much of price that we can pass on to the consumer. Second is what are the cost projections that we have in terms of the metals and commodities and how will that move in. And third is what is the kind of value engineering that we need to do. And net of that, what is the price increase that we need to take for a particular model or an SKU. That's how the model operates. And as of specific price increases, you will hear about it as and when the action comes in the respective quarter. So allow us not to comment on the future on that.

Next we have a question from Chirag Shah.

Sir, I have a question on price laddering given the way cost inflation that we have witnessed over the last few years, is there any thought internally on what should be the starting point as far as price laddering is concerned for the products? Is it a rethinking or revisiting to that thought process on price laddering the entry point?

No. So Chirag, we are trying to do completely opposite to the typical concept of price laddering. We are putting the decisions in the hands of the customer. I'm not saying I sell this, and this is at this price, and I sell this, this is at this price. Here's the base motorcycle. You chose the model. And on that you could have multiple additions, multiple options. Like Meteor comes in 3 different base models, right? And you could choose up to 500,000 combinations, and you choose your price laddering. You choose how you want it to be so that the price is defined by the customer then.

And the second question on the 650 side, do you think there is a need for additional model or a product over there? The way we have in 350CC where we have -- and I'm including 400 also the part of 350, where we have 3, 4 offerings, do you need -- think that 650CC at this point of time needs more addition? Or is...

Chirag, you're asking a very cleverly worded question to try and sneak out of me what is our product plan on 650. I know you for many years. You are too intelligent a guy for me. But -- so the answer is yes. Okay? Yes, there is a need to think about every platform, Chirag. Why shouldn't we be thinking about other -- why only on Twins, why not on Himalayan, why not on Meteor and Classic or whatever? So every platform we should think about how we can meet other kinds of customers' requirements. Sid, do you want to add something to that?

No, I was saying well said. We think of them as platforms and to exploit as much as possible in as many ways as possible. But of course there's a business case for everyone. So if there's just very small incremental sales, that's not interesting for us. But if we find that there is a potential of much larger incremental sales, of course we try to exploit our platforms to the maximum. Having said that, to the earlier point, while we are launching a lot of new products, we are also very controlled. As Vinod said earlier, our product development process is 3 to 5 years, and we are very, very rigorous. We -- I mean, for a full new product, it could even be 4 years or something. So -- and beyond. So we're extremely rigorous. We don't launch just off the cuff, something interesting, let's quickly try and do something. No shortcuts, nothing. And that's what you've seen. I think all of you have seen and hopefully appreciated that all the new products that have come out of Royal Enfield are seen and are absolutely world-class. They're equivalent to Japanese, German offerings. And that's our ambition, to get to that level of product finesse or product quality. And I believe that's where we've gotten to the last couple of products. And therefore, it is -- while we're coming out with quite a few new products, it is still very deliberate. And not an over proliferation, let me put it that way.

Siddhartha, if you'll permit me, I think you've compared us to Japanese and European. Somebody made a video comparing our 650 to an engine, and we were actually better than them.

We have to try harder because we are starting from behind. So we have to try harder and we are better I think in many ways now for the kind of offering. A lot of them look at the, let's say, midsized segment as not so important. There is much more focus on the heavy-duty segments. So as a result, their effort and focus on these areas much less. Our products, you're absolutely right, I believe are way, way better. And that's why they're outselling even Europeans and Japanese and all of those, absolutely. Well said.

Any other questions, Raghu?

Yes. Yes, we have many more. I'll take the last few. Next, we have Satyam Thakur.

So would you please share how the situation on financing is? One gathers from channel checks that there is probably a meaningful drop in the collection of CMC of lenders to the [indiscernible] industry in April and May. So would you have a sense of how are our customers squaring? And how much of a drop in collection in CMC lenders would have seen -- our lending partners would have seen? And plus, what about...

We have not heard anything like that, Satyam. And in fact, Royal Enfield is probably the best customer in anybody's portfolio. So we've not heard of any such thing.

Okay. That's great to hear.

[indiscernible] the delinquencies, I don't know the latest numbers. I haven't talked in the last few months, but typically our delinquencies are a fraction of other 2-wheelers in terms of our...

Yes, it is the lowest in the industry.

Okay. That's great to hear that April-May has been decent as well. And the second question, on CV side, could you share what the industry has seen in terms of the discounting in the CV industry in the March quarter compared to, say, December quarter, what would have been the trend?

I can't say offhand really, to be honest. I mean, it continues. There's no serious abatement of discounts, but I can't say offhand whether it's marginally higher or lower, but similar levels, I'm assuming, right?

But I think VECV has actually not only increased market share, but also increased margins because they didn't play the discounting game.

Yes. So the general market is still suffering from that. But yes, we -- absolutely right, we've really been able to claw back and sell based on total value, as Vinod was saying. And I think we've succeeded and especially in HD, where we were a much smaller player, we've been able to grow and do well and profitably as well. So yes, absolutely.

Given the paucity of time, we come to the end of the call. On behalf of Emkay Global, we thank the management for the opportunity and request management for closing remarks.

So thank you all. Stay safe. I think while everybody thinks that this COVID is over and the things are back to normal, my wife is a doctor and she tells me it's not over. I know of people and friends who've got -- taken 2 doses of Covishield and still getting it. So please stay safe. Don't relax, mask up, stay social distancing. I think the supply chain problems, these are all short term. They will all go away once we've put this COVID behind us. And I think if we stay safe for at least another 2 to 3 weeks, we will put this largely behind us. And then we use that window before wave 3 for vaccination, and I think India will be safe. That's the message that I want to leave with all my team members everywhere and for all the well-wishers as well. So wish you all the best. Thank you.

Yes, likewise. Thank you very much, and stay safe. And as Vinod said, all of that which are still short-term in nature. And just to -- we show that at Eicher Motors and whether it's VECV and of course, RE, Royal Enfield, which we're talking about, we continue to stay exceedingly focused. There's a huge amount of management attention on the tiniest of details, and that's what really makes this company what it is. It's all about focus. It's all about, therefore, being able to react quickly because we are sharp. We've got a small product portfolio. We've got a small footprint, and we can really move things when we need to. So that trend absolutely continues even now. Thank you very much.

Thank you, folks. Stay safe.

Bye-bye.