Eicher Motors Limited (505200) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. On behalf of Emkay Global Financial Services, I take the opportunity to welcome you all to Eicher Motors Q2 FY '22 earnings webinar. We regret the delay in commencement of the call. From the management team, we have Mr. Siddhartha Lal, MD of Eicher Motors; Mr. B. Govindarajan, EV 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.

Hi. Good evening, everyone, and thank you for joining us for Eicher Motor Limited quarter 2 of financial year 2022 call. We are discussing the financial and business performance of the quarter ended September 30, 2021. Through this quarter, we've really remain committed to our long-term strategic objective of becoming the premium global consumer brand from India. And while there's been a lot of disruptions as all of you know and lots of things going on in the world, things are starting to look up a little bit at this point, but especially so for us in our international markets, which we've been working on for many years. We registered our strongest ever performance in the international markets for the second successive quarter this year with more than 132% year-on-year in. Our international sales and retail network have been consistently growing at a very good pace, indicating a growing resonance and preference for Royal Enfield brand in global markets. So we've really started establishing the brand, establishing our distribution, establishing our proposition and growing in many international markets around the world. This quarter was also very important for Royal Enfield with the introduction of several new initiatives and of course, most importantly, for the launch of the all new Royal Enfield Classic 350. The Classic, which was launched originally in -- over a decade ago has been the main product of Royal Enfield's huge growth over the last decade. And this was an enormous endeavor for us to replace our most important product in our portfolio. And I can tell you that through the launch in September, Classic has had an exceptional launch and exceptional success from the launch. It is based on the new J-Series platform. And of course, it combines the timeless design and legendary characteristics of the classic motorcycle, which has been loved by so many people around in India and around the world. But we bring those entirely new refinement to the Classic experience with the all new Classic 350, and that's what's really been appreciated tremendously. We've had tremendous reviews from customers, from dealers, from media, from around the community of Royal Enfield. And we've seen a really, really good response. So we're delighted that the most important product in our portfolio has been overall and entirely from scratch and relaunched entirely new. And we're really seeing the benefits of that now with increased interest from consumers, increased inquiries. All of that is really picking up for Royal Enfield. On our commercial vehicle side, that's VECV, our joint venture with Volvo, with the second wave of the pandemic subsiding now and business picking up, the CV industry is seeing a recovery and did grow significantly as compared to quarter 1. We also marked the quarter with a strong performance in the light and medium duty. So that's 5 to 15 tonne segment with a market share of 34%, which is a very high share for the Eicher brand now. Our overall production, of course, both for motorcycles and for commercial vehicles continues to be impacted in the last quarter due to ongoing [indiscernible] shortage of semiconductor chips. Recent lockdowns in certain source markets have impacted September volumes. However, slowly, the situation is improving by the end of September and through October, we've seen the situation has improved marginally, and we expect continued improvement in supply situation over the course of the next couple of quarters. But it's a step-by-step improvement. It's not a dramatic improvement. So we're working hard with our supplier base and others to continue to improve the supply side. An update on our financials, the consolidated financials for Eicher Motors Limited for the second quarter, which -- the revenue, which relates only to Royal Enfield business as opposed to VECV, which is separate. So those results will be separate. The revenue for EML consolidated is INR 2,250 crores, which is up 5.4% from same quarter last year. The EBITDA, we managed to maintain a INR 470 crores EBITDA versus INR 471 crores last year, so approximately the same level. While the sequential growth of EBITDA was at 29%. And the EBITDA margin is at 20.9% now as compared to 22.1% last year. And sequentially, it has, of course, grown compared to 18.4% resulting in a profit after tax of INR 373 crores. With this, I'd like to now invite B. Govindarajan, who is Executive Director at Royal Enfield to take us through the highlights for the quarter for Royal Enfield. As you -- Govind joined us now for the first time in this meeting, and since he's taken over the new role as the Executive Director of Royal Enfield. Govindarajan doesn't need much introduction because he's been with Royal Enfield for around 2 decades now. And in his previous role, Govindarajan was Chief Operating Officer at Royal Enfield, where he was leading the entire technical areas, including product development, manufacturing, sourcing, quality, all of those areas and has had enormous success in establishing the technology centers in U.K., India and in all the fantastic new products that have been rolling out of Royal Enfield. And now his new role includes the entire commercial area as well of sales in all the revenue areas is including this tough function. So Govind, with that, over to you to give us an update on the Royal Enfield performance.

Thank you. Thanks, Siddhartha. Hello, everyone. Delighted to join in this call with all of you. I'm extremely happy at this stage in leading this Royal Enfield when we are charting the new growth and the success story for the next one decade. As Siddhartha mentioned, we continue to work towards our vision of becoming the first premium global consumer brand from India. And all of efforts are focused towards achieving that. We have a fantastic strategic business plan, passionate people and the full lineup of new products, as he mentioned, all those things are intact and now what we are looking at is executing it to take it to the next level. Specifically coming to this quarter performance, which is there. As Siddhartha mentioned, we sold about 124,000 motorcycles, which is actually down by about 17% compared to last year of the same quarter. You all know, production has been impacted let alone for Royal Enfield for everyone in the automotive industry is primarily because of the global shortage of the semiconductor chips. Firstly, if you ask me what's the situation? How is it there? It is improving. From the last week of September itself, the situation is actually improving. As mentioned, it is not a drastic improvement, which was there in September, but October, we could see the improvement have been slightly better. And in November and December, it has continued to grow in terms of supplies. So that gives the confidence that in H2, we will be doing better. But the supply situation has to be seen continuously in an agile way because it keeps varying depending upon the situations in various countries. But the positive news is, the supply started coming in in a linear form and the countries where it was having major issues because of the COVID, all those things have opened up and the supplies are also ramping up. As OE, we also have started looking at other ways of more semiconductor chips to working with other suppliers and all those things. So to that extent, the quantity is going to be going up. So all the actions which are required to increase the production are on way and we are all on the job continuously. That's about the domestic market. And the international market, we have a great success as Siddhartha was mentioning, we have grown by almost 152%. Last quarter, we sold around about 18,000 motorcycles compared to the last year, which we sold only about 7,800 motorcycles. This is what actually looking at around 18,000, 19,000 vehicles were what we were selling almost 2 years back. So that's the full year volume, which we actually started selling in 1 quarter. So our international market is starting up a great success story, which is going to be there for us. As far as the network expansion, we are continuing that in India, the network expansion is actually to the deeper penetration into India via the Studio Stores formats. In this quarter, net we have actually added 14 new Studio Stores and 20 large dealership formats has been added into this. And in the international market during this quarter, we have added new exclusive stores in Colombia, Philippines, Brazil, Mexico and in LatAm markets, and 3 multi-brand outlets. And as of now, we have almost about 150 exclusive stores and more than 650 multi-brand outlets outside India. So our growth story for the international markets with the fantastic new products which has been launched and the expansions which we have been doing systematically and the acceptance of the product and the brand actually is showing us the path of the growth in international market. As Siddhartha was mentioning, during this quarter, we launched the all new Classic 350. Fantastic reception. Product has been doing outstandingly well. The inquiry levels are very, very high. And this product, in fact, one such thing is the higher end of this particular vehicle, the chrome version, which is getting accepted more and more, which also in the vehicle we are giving the Tipper as an MIY option into that vehicle. Overall, when we were launching this product, one is about the product, a level with which we have to launch the product, which is what is an acceptance, which is there. Along with that, we also came out with accessories, about 35 genuine motorcycle accessories, which we also launched, which also has given the motorcycling experience, which is there, which has very a high traction. The earlier product, which we launched compared to Classic is the Meteor. That's the J-series transition work starting out, Meteor is actually was the product like Thunderbird when we wanted to move on in the J-Series from the UCE engine. That's what is Meteor. Meteor is continue to impress us in terms of numbers. It is growing. Internationally, also, it has got accepted very well. In fact, it's received the most prestigious MCN award for the retro motorcycle category. In every market where we are entering with this particular motorcycle, Meteor, the acceptance from the consumers and the enthusiasm with which people are actually wanting to ride the motorcycle has been very good. And it is continues to garner that sort of more people coming in into this. In terms of -- that's about the motorcycle which we talked about. All about this apparel, if I have to tell you what all the initiatives which we have done, we have extended the MIY program to a range of riding jackets with a focus on safety, comfort and fostering filled of self-expression. We joined hands with DCS, I mean the world's best riding boots manufacturing company in offering a range of C-Certified riding and the life cycle cycle shoes. In celebration of this 120th year, this is what is this year, we unveiled an exclusive range of bespoke limited edition helmets, consisting of 12 designs, one for each decade of the brand legacy. These helmets retell the stories of the brand and the customers now have an opportunity to own a chapter from the Royal Enfield history. It has been a good success. It's been received very well. About the motorcycle rights and events in this 120th year as it was being celebrated, we are set to undertake a first of its kind motorcycle expedition this year, which is 90 Degree South. With the 2 Royal Enfield riders on our Himalayan motorcycle, they will actually be riding on to the South pole, which is in the month of November with the flag off is by the -- in November from the Cape Town. This marked the foray into the major expedition, which is going to be there. We also marked the foray into the track racing with the launch of Continental GT Cup 2021 in partnership with the JK Motorsports. We have concluded the Round 1 and conducted the tenth edition of One Ride, which 1 of the world's largest curated single day ride across 35 countries, with a focus on encouraging responsible travel amidst the global rider community in able to leave every place better. With all the recent launches and the platform changes, which has been already done and the expansions footprints, which we have been talked about and our continued focus on all the other initiatives, which we have put into a strategic business plan, we are very excited about our growth journey, which is going to be there in time to come. Compared to -- as I mentioned, compared to Q1, Q2, the next quarters are going to be better because of the supply situation, which is becoming better. Now I will hand over to Siddhartha Lal to take you through the VECV performance. Over to you, Siddhartha.

Yes, just 1 second, I'm just pulling the -- as you said, the CV industry is looking up somewhat since on the pandemic related issues. And from a financial perspective, the revenue of VECV, which is our joint venture with Volvo, the revenues were at INR 3,153 crores for the quarter, up around 80% from same quarter last year. EBITDA was at INR 170 crores, up 44% and EBITDA margin at 5.4% of sales versus 6.7% last year. There's a minor profit after tax of INR 18 crores, up from a loss of INR 7.2 crores in the same quarter last year. Overall, sales were at over 15,000 units, up 85%. The economic recovery from the COVID wave 2 is underway. And sectors like construction, mining, e-commerce, CNG have witnessed growth in the last quarter. So there's a general improvement in a lot of segments. Industrial goods segment has also picked up now. We've had particular success in CNG trucks, which have been growing rapidly, and therefore, light- and medium-duty trucks, we have witnessed a shift of almost 50% to CNG because of rising diesel price. And the Eicher Truck and Bus brand is very strong in CNG as well, and we've been benefiting from that. In the last quarter, we expanded the network and have 26 new aftermarket touch points. We expanded and been addressing a lot of underrepresented territories, including in the east of India and some other parts, and we continue to build a strong and agile network, which is certainly added by our own established company-owned, company-operated establishments as well, which have been growing in numbers. VECV did record a strong growth in the quarter, outperforming the industry. The industry grew by around 85%, and we had a stronger growth than that. Yes, resulting in a market share of 34% for light and medium duty segment, which is a very strong market share for VECV India. We've had some strong new introductions. We launched a new range of 6 heavy-duty Volvo FM and FMX trucks, which are a very high-end trucks mainly for mining and other similar applications. These were launched in September, become loaded with absolutely world class -- top-of-the-line world class features to boost productivity, improve safety and enhance driver comforts. The truck has addressed the many applications at mining, road construction, infrastructure projects to very large projects and over the national cargo. Our relatively new plant for commercial vehicles at Bhopal, which caters largely to our light and medium-duty trucks, was declared the winner in supply chain management category, by the Machinist magazine. And the bus plant, our Baggad bus plant was awarded the smart factory of the year, by manufacturing [indiscernible] magazine. So again, lots of accolades and reflecting the quality and the supply chain improvements in VECV, which are absolutely top of the Indian leagues. Looking ahead, VECV continues to develop alternate fuel powered vehicles, investing in electric vehicles where we have a very strong 9 meter electric bus offering. And we have other products in the pipeline in fuel cells and in other related technologies. The production linked incentive scheme announced by the government supports investments in these new technology areas. The sectors announce will support use of advanced technologies by mitigating some of the initial costs of implementing such technologies. And by aligning with existing schemes such as the AatmaNirbhar Bharat and Make in India, the PLI scheme will support investments and growth in the Indian auto industry. So particularly in commercial retail segment, which is recovering from the pandemic. So with that, I'd like to thank you very much for joining Eicher Motor Limited's earnings call for quarter 2 of the financial year 2022 today. So thank you very much. Wish you all a very happy, prosperous and safe Diwali, but we're still here for some questions that you may have. Thank you very much. And over to you for question and answers.

[Operator Instructions] a couple of questions from my side. Congratulations, sir, on good results. Firstly, can you provide some color on the order book considering the new Classic 350 and also considering that supplies are lower than that of the demand, if you can give a direction as to how strong the order book is and what kind of strong visibility it provides for the future? Secondly, can you provide some more color on the level of penetration of MIY app by how much has the accessories revenue increased for New Classic in comparison to the earlier version. For Meteor, I recall that it was 1.7x compared to the earlier version, which was Thunderbird. That's also from my side.

Thanks, Raghu. I think as we -- as a practice, we don't release the numbers on order book. But at the same point of time, the response for Classic has been phenomenal. I think it has been a bottom of buildup product. The all new Classic has been very well received across. The initial bookings that we have received has been pretty encouraging. And the transition planning that we did as part of -- amidst the semiconductor shortage has also helped us to ensure that a good amount of retails have been completed and there are vehicles on road for the customer to come out with a review. So that has been really well received in terms of the Classic launch. So what's the second question you had, is in terms of GMA, right? So the overall MIY penetration at this point of time, is about 90% plus. And our GMA penetration has already reached about 80% plus in H1. In terms of the absolute revenue per bike on overall basis, Meteor and other products put together, we are seeing close to 2x increase in terms of the value per bike that has gone up. Classic, it's pretty early days right now. Maybe we should wait for 1 more quarter to see as to how much more we can do in Classic also, but the success has been similar.

Moving on to the participants now. Firstly, we have a question from Chirag Shah.

So my first question is to Kalees. On the ASP, if you look at it, there is a significant jump on realization. So if you can throw some light because it is a strong Q-on-Q 25% jump. I presume there is a spare part revenue angle also in that.

Yes. Thanks, Chirag. I think it's been a combination of multiple factors, the ASP increase. I think over the last few earnings calls, we have been consistently talking about the pricing journey and the pricing increase that we need to pass on, considering the impact that we had on the material cost and commodity cost increases. So about 2/3 of the ASP increase that you see is on account of pricing increase. The balance 1/3 is a combination of increase in international mix. We talked about the movement in international mix that we have seen. And it also includes increase on account of GMA and space business also.

I was referring more from a Q-on-Q perspective because there's a 14% sequential jump.

Right.

So -- and our international mix is largely stable, a little bit here and there.

On a Q-on-Q, it is largely the pricing action Chirag. So between July to September, we have taken a pricing action in July across all models. And September, along with the new Classic launch, we have done one more on the price increase.

Okay. This is helpful. And if I can just squeeze in one more question. Just to understand, again, on the demand side. So looking at the tailwinds that we have, it should not be difficult for us to have a annualized volume number of INR 8.5 lakhs, INR 9 lakhs, which we used to do earlier. Is it a right approach to look at assuming the supply bottlenecks get sorted out over the next 3 months or 4 months. Let's hope for that. We can achieve that 70,000, 75,000 kind of a run rate. Is it a doable run rate on annual -- on a sustainable basis?

The capacity built of Royal Enfield is known to you. And today, what is there is -- there is no investment which is required and wait for realization of the capacity or the delivery. It is all about the availability of the chips. That's the only thing which is holding. As I mentioned, from September 3 week onwards, the supply situation seems to be easing out. And any amount of the chips which are coming up, we are only ensuring [indiscernible] that we will not hold any inventory. We'll convert it immediately and take into the market because we have a healthy order book.

I was more referring from next year perspective, F '23 onwards. We should be able to those kind of volumes.

Yes, Chirag, well, we don't give absolute forward projections in terms of what is the number that we would land on. But the gradual progress on ramp-up of production is something you would have seen to where we were in, say, August and September and hope we have landed in October. So we are slowly coming out of the semiconductor shortage. You will see gradual progress happening, and we'll move towards a run rate that we were delivering somewhere in Q3 last year -- sorry, you were adding in.

No, I was just adding that Chirag, of course, the size of the market is important in terms of how the motorcycle market develops. And now we are a reasonable part of it and especially the premium bike market developed. So as long as we see some growth in that Royal Enfield continues to hold and increase share. So by that rationale, we should certainly grow Also, of course, without giving any -- without any talking about any particular numbers, now I can say it because earlier you saw always asked, but now I can say there was certainly a bit of fatigue in the old Classic 350, right? So -- and there's a bit of waiting. So people knew that there was a new Classic 350 coming. We couldn't say all this in the last quarter, but it's true. That does happen after motorcyle has been around for 10, 12 years in our case, the Classic 350. So certainly, we are seeing a renewed interest in inquiries and all of that. So how that translates and all of that, that's our work to be able to translate all that into good volumes. But there is certainly tailwinds or good thought process from that side. There's no question about it. And we've seen that in Meteor as well with the uptick compared to Thunderbird, for example.

Next, we have a question from Binay Singh.

Just to reconfirm to what Chirag asked. So is it fair to assume that you took a 14% price hike? Because you're saying that the entire ASP sequentially increase is driven by price hikes because our checks don't point to that level of price hikes. So could you, sir, just confirm that if there's whole price hike?

So 70% of that is about price hike and balance is about non-motorcycle mix, Binay.

Ok and secondly...

Also I would add that, Binay, we've been also with the constraints, we're able to sell higher better -- within let's say, Meteor, for example, we're able to sell higher value products. So that also gives us better margins. So product mix has helped a lot within the model and of higher margin models.

That is helpful. Secondly, if we see the start of this slowdown was in a way marked by the insurance cost hikes that happened in 2018 towards the end, so how do you see the customer acceptance of these price hikes because they [indiscernible] with commission changes and all these, and now with commodities, we are seeing prices inching up across 2-wheelers. So do you see this could have a dampening impact on demand or any anecdotal trends you are seeing in order books coming off after the hike?

A very good question, Binay, it's very difficult to respond to that. I mean, the suddenness of commodity pricing -- commodity cost increases and, therefore, price increases have been difficult for the numerous to bear. There's no question about that. And it does affect the market affects us. There's no question about that. It's just -- we are assessing in many different ways, but it's very difficult to assess the exact elasticity because there is a supply constraint right now for most of the segment. So there will be some elasticity, not inelastic demand, right? So there will be some of that. But having said that, right now, the -- for us, the indicators are good in terms of -- reasonably good in terms of fresh inquiries, fresh bookings and other such things. So there is no question if we were at older prices, maybe the inquiries and bookings would have been even higher. That's very possible, but we will never know about that. But it's still at a good level. I think when you balance profitability and growth, I think we are -- hopefully, we believe it has the right level where we -- we got a bit of growth, but we're still making -- potential growth once we're able to make enough motorcycles.

Next, we have a question from Nitin Arora from Axis.

Just again, sorry for asking the Classic response. In the last year, when we actually revealed our order book number, and this was the same time, Diwali time, and those order book implied that we're going to cross the huge numbers, but I think we never crossed 50,000, 55,000 on an average. I'm trying to understand, as Siddhartha you said, the response has been spectacular. The bike looks amazing. The response what we are trying to understand from the market is either it's replacing a Meteor because engine is the same, it's just the styling is different. And the response has been okayish, it's not that great. It's not that bad. I understand you said the picture is very colored because of the supply chain part. So just wanted to understand how confident are we this time, given there has been an overall slowdown on [indiscernible] went bad. And then December, if the bookings are very high, that December, nobody will take the 2021 model. Everyone wants a new model. So you have a -- or any company would have a higher chance of cancellations coming in. So just to delve a little bit more on it, you always guide us in a right way Siddhartha, so if you can delve us more how to look at this aspect of it.

I will let Govind also just respond to that. I mean, honestly, Nitin, it's a lot of it is very, very tough to answer in this situation of limited supplies because even though we have very strong order intake, even that is limited because -- our delivery promise is -- it's a bit far out. So people who want delivery for the festive season, we're not able to give it to them. It's just impossible for us. So there is some postponement, there is some change in people say we will look at it later. So there is -- because the availability is weak, there are lots of other issues. As availability goes up, we'll see how things evolve. But I mean what you said about the short-term situation that will apply in every year basis. I mean -- but even if there's a usual blip in December, which happens, we still have a very strong order book. There are -- some people who care about a December bike, there are a lot of people who don't as well. So I don't think very short-term issues, we are not worried about these kind of things because that will even out and that always does. In the larger scheme, I think what you're absolutely right to try and understand what you are trying to understand is that where does -- where do things land that once things are stabilized. I think for Classic, the crucial thing is that it is accepted and understood very well what we are offering, what we're giving. Of course, we need to continue to build on it. Nothing is going to happen on day 1. So we have very strong order intake, but it doesn't mean we can't continue to improve it. But we're not -- we're approaching, let's say, improvement of order intake on Classic 350s also from the front foot, not on the back foot. Also, we are not driving as hard as we could also possibly in terms of, let's say, marketing investments and other such things because we have a lot of people who are inquiring, but they're just not coming in because of the delay, right, in terms of delivery. So all these things need to be ironed out. Hopefully, I think it will take H2 for some of these things to get ironed out, and hopefully, going into 2023 -- sorry, not '23 financial year '23, so that means in 6 months timeframe, we should -- things should steady up a bit. So Govind any further insights from your side?

Yes. So let's just add, the question was also like what is that after the Meteor, now the Classic, what's happening between this. Very clearly, the Meteor consumer profile and the Classic consumer profiles are different. The Meteor actually, which has in your way evolved and then replaced the Thunderbird, the franchisee has actually doubled from the Thunderbird to now. And once we launched Classic, we were looking at how the Meteor is behaving because the new engine, which is there in that is that the engine, which is getting accepted and all. The inquiry level of both the products are continued to grow, and the booking rates are also going up. So it is not a concern at this stage. As Siddhartha was mentioning, the coloring as of now is fundamentally because of the chip shortage situation, what comes first and how is that and all those things, so hopefully, within a quarter of time, this all will get settled. It is not -- if you're looking at it is not -- because of Classic coming in, Meteor volume is coming down, no. The good news is both our inquiry levels are going up and booking levels are going up.

And just one question to you only. Why the staff cost is down so sharply if you can help us, let us know on this.

Nitin, staff cost includes one-off of some of the unlisted ESOPs of about INR 40 crores.

Next, we have a question from Pramod Kumar, UBS.

Siddhartha, kind of centering with the questions on demand and what's happening in the broader industry, right? We are looking at double-digit decline for the broader industry and the effective demand so far. And therefore, with inventory, they're not able to sell. So in that context, and especially given the price increases what you guys have taken, if you can just help us understand how do you -- how are you seeing order intake at the dealership level? Because festive season, I think a lot of customers may not get the bike, but they may still put down a booking on the official case side. So if Govind, you can help us understand how has been the booking trend on the ground so far for you? And how does it compare to, say, last year or the year before? Because if there is a big demand and customers are waiting. I'm pretty sure there will be many more who would like to at least put down a booking, especially given how meaningful improvement is there in the J platform. So if you can just help us understand that. And also the -- is there an increasing fallout rate or a drop in conversion rates because of the price escalation as well because that's also been quite sharp, right?

Thanks, Pramod. But Govind, I think you're best to answer.

So the first question, which Pramod asked is about the festive time, how was that? But I'm sure more than us, you'll all be tracking. The 2-wheeler is down by almost about 17%. So that's the first time in this particular area, which has happened, I suppose. During this time, what has happened to Royal Enfield let's say if in case we look at, the inquiry level, which we are talking about and the booking rate is not the same drop. So that gives us a positive indication that if in case the vehicle availability is there, we can convert more. So that's a positive sign, which is coming up into this. What's the second question Pramod was asking? Pramod, what was the second one, which you were asking?

Yes. And in terms of the bookings overall on the Y-o-Y and also the price increase if there is any push back that you're getting from customers?

From the customer -- generally Pramod, as Siddhartha was mentioning, there is a concern in the market about the price increase, right? Because the price increases primarily has happened because of the statutory compliances and because of the commodity increase. If it is a feature-driven price increase, consumer looks at it in a different lens. And these are all the things which structurally gets in. But with the right level of the price increase and the demand, which has continued to grow, we feel that -- it is okay. It is not hurting us at this stage. But that's not a proxy to tell you that whether it is really -- there is an issue or not because of the pricing, which will take some time for us. The thing which has to be looked at is from the financing, which has also be an enabler of this. If the financing is made around as an enabler to look at it in the EMI term, that's what the consumers look at it. If we can work around an engineers way that there are different ways by which we make them to feel on the total cost of ownership, maybe the number of months are increased so that the monthly EMIs have dropped off. These are all the things which will help them to see that the cost of acquisition is not very high. But this all -- one will like to go and then spend more energy and all those things provided if you have more motorcycles in hand. That's where we have to look at it. Post COVID, if I have to tell you because all of us have been looking at what's happening between the inquiry revisional. The working inquiries are going up. For us, the working inquiry is going up, the conversion ratio is also very high equally. So the velocity is very high. So when that shift is happening, we are just waiting, yes, the supply situation is using. It is going to help us. And that will take us to a higher number, and we will be back to the higher run rate. That's what is the thought.

And Govind, related to that, how is the first-time buyer's strength for Classic bookings because that's your record brand primarily. That's a brand which got the story going, right, to where we are. So -- and are we seeing some of our replacement demand from existing Royal Enfield customers, given how significant the improvement is versus the old platform versus the new platform, right? It's the same spec, same CC, but the performance is of a much higher level, right? So are you seeing that bit as well?

It is too early Pramod to be honest because for a consumer because Classic you see, which we have been adding a volume in the last 4, 5 years for him to have a replacement cycle, which kicks in maybe another about 1, 2 years' time. That's the time probably they will be looking at this particular vehicle as in a replacement because it's a very refined in a different kind of machine, we just want to give them an outstanding experience. Whereas this is also helping us to reach out to our CRM to their other consumers. And the first-time consumers percentage is actually coming up to price even in the Classic 350, the new Classic 350.

The reason I ask that Govind was the increased prices of the product will generally will have a positive impact on the retail value of the existing motorcycles, right? So that can be used as a way to kind of get some of the replacement customers thinking about probably the value at beginning is probably more than what they bought several years back, right? So that itself would be a good [indiscernible] for them to relook. But part for that. And final question from my side on export. The momentum seems to be very strong given that we are entering -- we are approaching the winter season in many of the end markets, right? So what explains the strong momentum in exports? And given the momentum going into December, should we expect once the riding season opens up in especially North America by March or second quarter of next calendar year. Are we looking at a much higher export or a run rate for us as a company on a sustainable basis?

It is, Pramod. As I mentioned, compared to last year, 2 years back, as I mentioned, we were selling 19,000 for full year. Now we are talking 19,000 at 1 quarter level. That's how the exports business is coming up. And that doesn't come up just because some were not, right? Because systematically Royal Enfield has been working on it as we were just talking about on that. If you look at what is that we have done as a team, first, we brought in the -- our Continental GT Interceptor 650cc at a global product level and the quality level got established. Then we brought in Meteor and now Classic 350 and the J-Series products, which are there. The lineup is very strong. Second is all these products when we are launching the acceptance is very well. They are also the other countries' statutory requirement will revise environmentally Euro 5 compliant motorcycles, which is readily available when you get into this. So our establishment of the multi-brand outlets, our own exclusive stores, which I mentioned, as good as about 750 overall multi-brand outlets and our stores outside India, the brand full excellent product. So we have a prescription for actually getting into to create a success story. So from here, what we are looking at is our export story is going to have a big success story, which is what we can create is what is our confidence.

And to that of course, there is a large seasonality for exports, but that's also we're able to met that somewhat because we have enough warm countries that we're exporting to also. It's only the very cold countries where there's a very high seasonality. Having said that, actually starting December, Jan and February is where the most amount of shipments need to go to the cold countries, so in North America, Europe, the buying season is actually April, May maybe June. That's it. So you will see -- it's really the last quarter where we will have to ship out all the vehicles for these countries. So there will be a pressure on us to get that because if you don't do that, you miss the entire summer season. The summer season is selling in April, May, June. That's it.

Next, we have a question from Arvind Sharma.

First question would be on the platform. Now that the bulk of your volumes are in th J platform. Is an inherent increase in efficiency as you move from an older platform to a newer platform? Just asking this question because as we've been hearing about the margin part. Is a platform shift and a better use of the new platform have a part to play in this profitability?

Arvind, new platforms are not always to be looked at like that. When we sign up a new platform, we look at it what is that any platform, the actual product coming in is at least about, say, 3, 4 years' time frame. When you do that at that point of time, when we sign up, we start looking at it down broad 3 years, 4 years, what the consumer wants to have a real experience. So sometimes the platform actually comes from there. When we are doing it, what is required is some of the positive points have to be enhanced, some of the negatives of the existing one have to be knocked off. So net-net, on a total cost of ownership, it has to be looked at from a cost perspective, scale perspective, quality perspective, what experience we will give it to them, what performance we have to give it to the consumers. So that's how the packages of any platform is done. If you're talking about, is there any efficiency which will come up, yes, at an every stage when we are bringing in a new platform, Actually, we also go through what is the efficiency we can extract, efficiency need not be always from cost angle, it can be from any angle as an experience which we have to give it to the consumer.

Sure, sir. And second on the order book that you've had, given a lot of these orders would also be because of festive season. Could there be some cancellations in case, as you said, if Royal Enfield is not able to supply to all those orders, do you foresee any cancellations?

The indication as of now is not so, so the percentage of cancellations, which we have to track. Cancellation is, in my opinion, an which comes at a later point, right? If there is a shortage of the situation, the inquiries and bookings will be the first point of a question. And there, we see a lot of positive traction. So when somebody is seeing that, yes, there is a supply situation, there is a waiting period, but still the inquiry and the bookings are going up, it does means consumers are willing to come and then look at Royal Enfield motorcycles and experience what the product can offer. So cancellation -- once they are coming to us, the way we will engage with them, the way we will convert with them and all those things, it's a journey, it's a consumer journey. There we have to look at it. But as of now, it doesn't show that there will be any cancellations.

Next, we have Gunjan Prithyani. [Operator Instructions]

Just 2 follow-ups. Going back to this whole margin performance this quarter. If I look at gross margin per unit, this is the highest that we have done. And even if I were to look at the price increases that Kalees spoke about, it seems we have taken more than what the cost impact has been. I'm just trying to understand the sustainability of this INR 72,000 gross margin per unit, I mean, how should we think about it? Is it that because there was a shortage in this quarter, we tried to service more of premium product? I mean, is -- or this kind of mix is sustainable? Just some color on that one is?

Let's take it in 2 or 3 parts, Gunjan. I think let's start with first, the international mix. I think we have seen a sustainable international run rate now for the last 2 or 3 quarters, talking about 18,000 to 20,000. So that mix is only positively improving and therefore, the ASP and the gross margin realization that needs to have on that will continue. Next comes the non-motorcycle part of it. So we talked about the investment around MIY, the reserves that we are getting on account of MIY and the average ASP increase on account of MIY and the penetration, more importantly, has gone up. So the activity that is going to help us in increasing ASP and GC on that also is permanent. So that's -- nothing is going to change. If not, we'll only see a similar traction of what we have seen in other products across the portfolio on MIY. Then in terms of the mix. I think some of the product mix that we have, largely, if you look at it, say about last year, we did not have a Meteor. It was largely a Classic mix, which was significantly higher. Now we have a Meteor, now we have a Classic and the mix is only averaging out. I don't see an aberration in terms of how the mix can change. Yes, there could be a supply-led concern here and there, which would have helped us to move on to a premium line within the same model. But that, I would say it is pretty minimal and short term in nature. But in long term, the mix should continue to where we are.

Okay. This is very helpful. Just a second question. On the product pipeline, should we assume the most of the big action that were to happen this year have happened now. Now the focus is going to be on getting the supply in place? I know you don't talk about models, but general broad commentary will help us think about the product pipeline.

So this product pipelines are not to be seen only in the short term, right? Any product pipeline for an organization have to have, at least for 5 years, what's the thought process. Specifically, if you are looking at all our actions of them, our major platform, the changeover, which has to be done, that's completed. We are into an execution path. Having said, any products and the adjacencies which we have to come up with, and any new products which we have to come up with for a specific set of consumers, which is possible for us to exploit that also we are continuing. So our product pipeline is continuous activity. There's nothing called it is all done and dusted. Now it is only an execution, no. We have to continuously keep coming out with the new products, which we are very clear what it is, how it is at what point of time we come up with.

Yes. But one is, of course, from a COVID perspective, there was some changes. And second, even from a supply constraint perspective now, we have to consider when to launch, what to launch. So there are some evolutions to our original plans, which will always be there in a situation where the parts are not available, et cetera. But we do have a strong pipeline of product for the next few years coming up. So that's all baked in already.

Okay. Just Kalees, one clarification. You mentioned that the ASP because of MIY has been almost 2x. Is that understanding correct?

The overall bill value is about 2x increase. So a 2x increase for accessories only.

That's right, for accessories...

Not for the bikes. So the accessories, so because people are buying through MIY, they're actually purchasing more accessories. That's the maybe 100% more than [indiscernible].

That brings us to the end of the session. Over to the management for closing remarks.

Thank you, Ragu. Thank you, Emkay for hosting this, and wishing you all a very happy Diwali. Thank you very much.

Thank you very much. Wish you all a happy Diwali.

Thanks, everyone. Wish you a happy and safe Diwali.

Thank you, Thank you, everyone. Wishing everyone a wonderful Diwali.