Eicher Motors Limited (505200) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. We welcome you to the Eicher Motor Results Earnings Call. On behalf of Emkay Global Financial Services, we are pleased to invite you all. From the management team, we have Mr. Siddhartha Lal, MD and CEO, Eicher Motors. And soon, we will have Mr. B. Govindarajan, Executive Director, Royal & Field; and Mr. Kaleeswaran Arunachalam, CFO, Eicher Motors Limited. We would request management for opening remarks, and then we will open the floor for Q&A session. Over to you, Siddhartha.

Thank you, Raghu, and thank you, Emkay, for hosting this. Hello, everyone, and welcome to the quarter 3 earnings for Eicher Motors Limited for FY 2021- '22. I wish you all a very happy new year. And as we all recover from this third wave, I do hope that all of you and your families are doing well. This quarter saw us strengthening our commitment to becoming a truly global company at Eicher Motors and a truly global brand from India, both Royal Enfield and VECV continued their strong momentum in international markets. Even amongst a challenging backdrop owing to the global semiconductor shortage and the onset of Omicron, we still registered a 28.1% sequential increase in Q3 revenues. The benefits of operating leverage and alternate sourcing were also visible in the sequential margin improvement. During quarter 3, not only did we commence operations at Royal Enfield CKD facility in Thailand, which is a really promising market for us, we also registered stellar growth in international volumes during this quarter. With this, Royal Enfield has now 3 assembly units outside of India, 1 in Argentina and other in Colombia and the third in Thailand now. Our continued focus on aligning the next stage of growth with a renewed ESG vision at Eicher Motors Limited. So Dow Jones positioned us as 1 amongst only 10 global automotive companies to feature its Elite list of Dow Jones sustainability Indices 2021 in the emerging markets category. Our manufacturing plant has also -- was also recognized by Frost & Sullivan as Royal Enfield's Vallam Vadagal plant received the Frost and Sullivan Gold Award for Manufacturing Excellence. With the CV industry continuing its recovery, VECV delivered strong growth in all parts of the business, including a 25% growth in top line and in volume and market share of over 30% in light and medium duty segment. We also continue to strengthen our product range to the launch of industry-leading Eicher heavy-duty coach and sleeper bus range during this quarter. So these are the intercity buses. At an overall level, there seems to be continued turbulence with the ongoing supply chain challenges and inflation. However, we expect the situation to gradually start improving over the next many quarters. To give you an update on our consolidated financials for Eicher Motors Limited. Our revenue was at INR 2,881 crores, which was a sequential growth of 28% versus INR 2,250 crores in Q2 and up 1.9% from last year. Our EBITDA was at INR 582 crores, a sequential growth of more than 35% and around 13.4% lower than Q3 last year. And our EBITDA margin was at 20.2%, up 1.1% quarter-on-quarter and 3.6% growth in the same quarter last year. And our profit after tax was at INR 456 crores, up 22% quarter-on-quarter and lower by 14.4% compared to last year. So that's the overall financials for Eicher Motors Limited. Now over to Govindarajan, Executive Director and in charge of Royal Enfield to give us an update on Q3 2020 -- '21, '22, sorry. Over to you, Govindarajan.

Thank you, Sir. Hi, everyone. Happy New Year. I hope you're all safe, and your family is also safe. Let me just take you through Q3 of Royal Enfield updates. At Royal Enfield, we continue to remain steadfast on our strategic vision of becoming the premium global consumer brand from India. Coming specifically to this quarter, let me share with you the update on the highlights for Q3 financial year '21-'22. Totally, we sold about 167,664 motorcycles with a sequential growth of 35.7% against 123,515 motorcycles in Q2 financial year '22. Ongoing shortages of the semiconductor chips has impacted our performance in this quarter. We're down by about minus 15.6% Y-o-Y. We are working towards developing alternative suppliers ecosystem to minimize the effect of the shortage. In fact, we have onboarded one more supplier and the third supplier is also in pipeline. Thereby, the supply situation will be easing out. Demand continues to stay very resilient, added by the launch of the new products and the festive season. Our market share in the motorcycle segment more than 125 cc engine size increased by about 2% to 27% in this quarter as compared to 25% in the last year same quarter. Royal Enfield had a market share of 9% in the overall motorcycle segment for November 21 -- this is only for December '21 As far as the network is concerned, we are continuing with our path of increasing, optimizing the network, and we have added about 12 large pharma dealerships and the total footprint as of now, it stands about 2,118 of which 1,065 was dealership formats and about 1,053 is a studio formats. You all have seen the international success has been outstanding for us. We have been continuing to have a growth and the momentum is very good. Our exports during this quarter stood at about 17,036 units as against 10,853 units during the same period last year. This is having a growth of 57.3% and more than 2x increase compared to Q3 of FY '20. Robust performance in EU and Americas with a market share in midsized segments fitting about 7.1% and 5%, respectively. Consistent growth in the market share from approximately less than 2% in financial year '18 with the launch of 650 Twins. The product which we have launched has had a very good traction in international market. Strengthened our international presence with the commencement of operations of our local CKD unit in Thailand. Overall, we have added 7 exclusive stores, France, Philippines, Argentina, Germany and Level multi brand outlets during the quarter. We now have 150 exclusive stores and 650 multi-brand outlets outside India. Non-motorcycling business, apparel, accessories and spares and soft products altogether, we continue to grow consistently. We have witnessed a sequential growth of almost about 8.2% on a year-on-year growth of more than 29.2% in the quarter. Total non-motorcycle revenue for the business currently stands at around 15% of overall revenue. Our constant endeavor to deepen the riders engagement with his or her motorcycle has resulted in GMA and SaaS verticals growing consistently month-on-month. Launched in India in September last year, the all new Classic 350 has witnessed a very enthusiastic reception from all our consumers. Since then, it has been unveiled at EICMA 2021 for Europe and launched in countries across Asia Pacific region. During this time, we have rolled out more than 100,000 units of the new Classic 350 motorcycles, which continued to receive an overwhelmingly positive response across the market. The global motorcycle show EICMA 2021 show casts the best from Royal Enfield's 1.8 years journey. The major centerpiece of the show was unveiling a project origin, a working replica of the first motorcycle -- motor bicycle from 1901, the mission that represents yet another chapter of Royal Enfield's illustrious history. We also showcased 12 iconic motorcycles from our history, one for each decade of our history in the unique showcase called [indiscernible]. Also celebrating our history was the 120th year anniversary addition of the brand's flagship 650 Twin motorcycle, the Interceptor 650 and the Continental GT 650. These were very premium, limited run special edition motorcycles, looking stunning and 120 of these units were sold in a record time of 120 seconds in India on an online sale. The SG650 concept motorcycle that we show cast created a lot of excitement. It's a futuristic concept that demonstrates our product design and development capabilities. Also celebrating 120 years of exploration and adventures was 90 degrees SOUTH, a quest for the South Pole. Our team successfully completed yet 28-day 310 kilometers first of its kind motorcycle expedition to the geographic South Pole. It was a moment of inspiration and pride for all of us as we saw 2 Royal Enfield Himalayan at the very end of the earth. Exciting initiatives in motorcycling apparels. We have collaborated with prestigious British heritage brand, Belstaff, to introduce an exclusive range of riding apparel. We commenced the second season of part of motorcycling, our marquee creative campaign, which sees a huge participation from artists and creating community and motorcycling enthusiasm. With a focus on enhancing awareness on the road safety and increasing adoption of helmets when we are riding, Royal Enfield partnered with Helmets of India, a nonprofit organization, creative initiative aimed at bringing about a positive changes in the masked perception of wearing a helmet in India. We have partnered with the renowned global artist to create the unique and evocative expressions of helmets, which will then be auctioned to raise funds for the causes. To conclude, consumer preferences for the personal mobility and premiumization continues to drive demand for the segment and for our products. As supply chain constraints are gradually easing out, we expect production to scale further soon with a slew of new launches planned in the near and the midterm future. We are excited about what's in store for the enthusiasts of pure motorcycling in India and in the global markets. Now I will hand over to Siddhartha to take us through the VECV performance and updates. Over to you, Siddhartha.

Yes. So this is -- the update for the Commercial Vehicle Limited. Our joint venture partnership with Volvo. So in the VECV, we had a revenue of INR 3,626 crores, which is up 35% from last year. The EBITDA was INR 242 crores is up 7% and an EBITDA margin of 6.7% versus 8.4% last year. The lower EBITDA margin was largely due to higher discounting and input cost pressures in the commercial vehicle industry. All of this is PAT of INR 66 crores. Overall, there is -- and there has been strong industry growth. So we're witnessing a quarter-on-quarter growth in the VECV industry. And the VECV continues to perform better than the industry backed by higher demand for CNG trucks and a solid response in our new export markets, where we've been working on for the last 10 years. So that's paying good dividends. VECV sold 16,044 vehicles in the quarter ending December 2021, registering a growth of 25% against 12,805 units in the same quarter last year. And LMD segment consistently performed well, maintaining a 30% plus market share and over 50% market share in LMD C&E segment. So -- and that's a segment that's actually growing a lot in these days. So there, we've been able to get very good market share. Our heavy-duty market share grew to 8%, which includes Eicher and Volvo trucks. But that's a very substantial increase in market share. Our exports have grown by 72% and we've added new markets in South Africa -- in Southern Africa, in Latin America and in Middle East. So there's been a lot of progress on that as well. And we've had some very good new product introductions with the leading intercity coach and sleeper buses that we -- that are built in our a Volvo Bus India Facility in Hoskote on Eicher [indiscernible]. So that's the -- we -- as you know, we recently acquired the Volvo bus business model into VECV. So the plant that was part of this deal, we've been -- we've now the bus which is, we believe, has an enormous potential in the coming years. And Volvo Bus launched India's first 13.5 meter and 15-meter chassis for intercity coach and sleeper application. In addition to that, we launched the My Eicher app. Within the My Eicher app, we launched gateway for connected vehicles based services to key accounts. So that's been also a very interesting addition to our services. We've added 37 new touch points in commercial vehicles this year and focused on improving presence in very large industry volume markets. So as a result, we've had -- our growth, our market shares continue in VECV. There are some concerns on industry-wide issues and profitability. Having said that, we are still ahead of others, while some of the other much larger single players are making losses, we're still in profitability. And that's reflected with the high discounts that others are making. We have to also match up to some of them to maintain our shares. So that's the industry outlook. Having said that, we are still doing very well. We're growing in market shares and generally, as a brand also performing very well in customer satisfaction and in brand salience. We've done studies recently, where now we're #2 in a lot of markets for brand salience as well. So that's it for now, and thank you very much for joining -- thank you very much for -- this is, let's say, the management section. Now over to Raghu for conducting the question and answer. Thank you.

Thank you, Siddhartha, for the opening remarks. As we go to the question-and-answer session. A couple of questions from my end. Firstly, exports have been robust. Can you provide some color on which markets hold strong potential ahead over the medium term? And what portion of sales would you be targeting from exports over the medium term?

Talking about Royal Enfield?

Royal Enfield.

Raghu, exports market, especially RENA (Royal Enfield North America), Thailand, LATAM, EU markets, in all markets, Royal Enfield is doing outstandingly well. Primarily about 2 years back when we were talking about when the new products come in and we prepare the market and we went in for the brand pool as a strategy. So when we actually gone in for 1 store, 1 location, the brand gets accepted, then we'll improve. And today, it is actually the success story which we created in India is more to the success which we can create in international markets. First, with the global product first, which we launched, which is the 650 GT, Interceptor and Continental GT, which got accepted very well. And now with the media launch and the classic 3 that they launched, we see our growth in the national market is going to be very good, and this is the starting point.

Raghu, on the forward guidance, we don't provide any color, as you would know. So allow us to discuss it as we move forward in the respective quarter for the respective quarter numbers.

Just a second question from my end. Dealers indicate good waiting period for Classic and Meteor models, especially for the given channel ABS vehicles. Considering the healthy order book, how do you see the production ramp up in coming months? By when do you see production consistently being over 70,000 units now that you are adding multiple vendors.

Yes, you are right. So we had only 1 vendor. And subsequently, we started adding the second vendor and now we are looking for another vendors also. For understanding purpose, it is slowly ramping up, not yet [indiscernible] I'm sure with all the automotive industry would have seen, it's not that it is completely behind us no issues type. But it won't be the situation which was earlier. It is going to continuously improve. The ramp-up will be happening. Yes, as you mentioned, we have a very good, healthy order book. Month-on-month, we see now with this versus addition, our production will be ramping up.

Starting with the question-and-answer session. We have the first question from Pramod. [Operator Instructions]

My first question is on the quarterly result. I normally don't like to discuss the margins, but there seems to be a sequential drop in ASP and also a drop in the gross margins quarter-on-quarter. I'm talking about September quarter versus the current quarter. So If you can help us understand because the volume run rate did improve and there were pricing actions, which were there, and you did talk about a very strong non-vehicle revenues as well. So just trying to understand, is it just a numerator denominator effect because of larger volumes and lower non-vehicle revenue numerator, which is hunting ASP. And related to that is the gross margin. Is it also because of lower percentage of non-vehicle revenue in the quarter compared to September quarter because gross margins have slipped quarter-on-quarter.

I think to start with, if you look at what we delivered in Q2, it's about 1,25,000 plus volume on which our exports was about 18,000. If you look at this quarter, the export revenue continues to be strong at about 18,000 on a base of 1,68,000. Our business has gone up where the ASPs are lower compared to our international business. So that's why you see it's more to do with the percentage of international business on the overall business, leading to the ASP drop. Now second point in terms of the GC, 80, 90 percentage of that is also more on account of the mix that we talked about. But at the same point last time, there was no large pricing actions in Q3. The pricing actions happened effective January 1, but there was aluminum inflation that we factored in Q3. Now coming on to the overall summary financials, we do see an operating leverage kicking in already. We've seen the financials compared to last quarter. And after adding in the investments that we have done in marketing, the EBITDA margins have already started moving up. Last quarter, we had the one-off that's at 9.1%. This was already at 20.2 percentage, which shows that the operating leverage has started coming in.

And on the export side, I understand ASPs are higher, but I think you may have mentioned that it's not still accretive because we need some more scale benefits on the export side. Is the understanding, right? And that 10,000 or closer to 800, 900 per month, will exports be accretive on the EBITDA margin front?

It is Pramod. I think different markets are at different levels of maturity. So some of the markets have already hit the accretive numbers and some of the market is still in growth phase where you will see margins further getting added as we look at the forward quarters.

Okay. Second question on the demand side, and I think that will be a both we can chip in. If you can help us understand because if you look at market data, your retail market share is 4.6, 4.7 which is one of the highest ever. It speaks a lot about demand for your brand and premium segment. It's in the backdrop of a very big industry demand environment. So I just want to understand from our perspective on demand tracking as to where do you see the demand in terms of monthly bookings and other activities, which you track like customer inquiries, conversion and everything. How is that tracking over the last few months, especially given Omicron in January and if there's any recovery in February. And looking forward, what could be the impact of new launches and also some color on the new launch pipeline? Is it getting delayed or you'll not backlog or just any color on the product action as well.

Of course, on the demand side, Pramod, it is slowly inching up. When the dealership openings are taking place even in as good as last month, there were some dealers which were not opened fundamentally because of the local restrictions and all those things. I think the booking rates are slightly going up. I would say rather -- and in a week on week basis, I'm just seeing it is a positive sign. Second, it is also supported by what. It is supported by, I think, our new launch Classic 350, which we have launched it in September , October. It has been a fantastic reception. And the bookings for those numbers are also going very, very steadily. So across month-on-month I'm seeing the booking numbers are going up.

And on the new launch pipeline. But Govind, does [indiscernible]. Do we still stick to a quarter launch kind of 1 launch every quarter, that kind of time line?

We have a very good pipeline of new products, which are lined up. So every -- at a particular interval where we have to launch those motorcycles into the market, we will be doing that. Siddhartha, you want to add something? You're saying something?

I just said that we do have a very strong pipeline. We're not going to tell you any further details at this point. And -- but yes, it's -- it's a very strong pipeline. We're very excited about it. There's -- and it's all out there. It's all ready. We're ready with a lot of products. So now it's just a matter of sequencing stuff over the course of the next year, 18 months follow that.

Next, we have a question from Jinesh Gandhi.

My first question is on the supply side. So you indicated we are seeing recovery. Would it be fair to say that the month of December was a proper reflection of normalizing of supply chain where we did 70,000 plus? Or that was primarily a play between single versus dual channel ?

I think it is what's available in a combination of dual channel and single channel ABSl. As I mentioned earlier, we had only one source. We actually inducted one more source. There is an initial ramp up, which was just coming up. And now the second source have to actually source the subcomponents across. So over a period of time, as I mentioned, between the last quarter and this quarter, there is substantial growth. And I see that month-on-month, it will be ramping up. So that's the confidence, which we are seeing it in the supply chain as of now.

Okay. Okay. And secondly, with respect to the distribution network expansion, so are we largely done with our studio network expansion considering that we've added substantial amount of stores in the last 2 years in the studio side.

Acceptable. As I mentioned, studio stores, it is almost about some 1,100 numbers. So that's the which is already there. Apart from that, what we are looking at is -- we keep on looking at where is the cluster, what's the kind of growth which is available? How can we go close to the consumer. That's the endeavor. So it is not just a number, but we can say the growth, which is taking place, especially in the rural economy, which is business getting opened up now. There is going to be more clusters and where we are not presenting, which we have to be present and then keep moving on. So as a strategy, studio stores is here to continue but it is not blindly going to hit some numbers, it is to see where exactly it has to be there. The quality of this place has to be very, very carefully chosen and installed.

To add upon, the huge addition that we've done, there's not a huge edition ahead of us. Of course, in strategic locations, we'll continue to add and continue to work with our dealers. Also last 2 years have been very tough for our distribution for all leaders everywhere because sales have been down. Service has been down, so service revenue has been down. So our job and what we are doing to ensure that our dealers are doing well, that there's -- their profitability is secured. We don't want to add a lot more channel before we ensure that all our existing leaders are doing well.

Okay. Great. And a couple of clarifications for Kaleeswaran. So one is on the commodity side, what kind of inflation we saw in third quarter versus second quarter? And the second question is on the staff side. Staff cost -- was there any one-off in this quarter as well?

There is no one-off in staff cost, Jinesh. And from a commodity perspective, roughly, it's about INR 2,000 per bike that we saw for Q3. Just that on the ad spends, we had larger spends of about INR 60 crores towards launch of Classic and the South Pole and CT cup that Govind talked about that will also incur in this quarter.

Next one is Nitin Arora from Axis Asset Management.

Just on the demand side, is it possible to share the waiting period across new models or let's say, to get the way you can share because when we call the channel, they tell us that they are -- the bikes are available, and especially the single channel ABS are available in abundance. So is it some specific models? What do you know where the waiting periods are very low because we are getting everything when we speak to the channel that there is a new Classic available and there is Meteor is available. If you can throw some light on this fast-moving model [indiscernible].

Nothing fundamentally just like this, what has happened is when we added the second source their capability was in the single channel supply. So that's when the single channel numbers were slightly better. But it is only a question of some 30, 40 days in which they have to come up and then frame their line for the dual channel. Now what is happening is the other source is also priming for the second dual channel. So in the combinations and all these things, which have to be homologated, we are quickly doing the homologations and all those things, and we will be ready soon for the channels, which will come in more. So you saw the single channel slightly more in the pipeline only because of that.

So basically - actually I can take that the bikes are available. I mean if one has to buy, despite the strong order book, you have the availability at the stores.

No, Nitin. It's not. I think single channels were available fundamentally because of this new seen supply due to this whereas all other models, we are still there in a very healthy waiting period or very healthy order book, thereby, there is a period there.

Why am I asking this is when we look at your production data. And when I see your retail, there's a big mismatch. Mismatch in the sense your retails are not stocking your wholesale. Despite the strong order backlog that you get because of Corona but suddenly in the third wave without any impact. The details are not talking [indiscernible] need your comment on that.

Details are healthy. I don't think there is a huge mismatch, which is a...

That's right. So let me add to what Govind said. The first point that you said, Nitin, I think in terms of single channel, that is one model and the country that's in Classic. The contribution of single channel within Classic to the overall portfolio is limited. There is a waiting period that is across Meteor and all the other brands in the portfolio. And within classic, the rest of the models within outside single channel continues to have a strong waiting period at this point of time. And that is largely on account of the supply constraint that we talk, which we think will get even out as we move into Q4, Q1 onwards. Now from a consumer demand perspective, you can look at it in 2 parts, what December is more transition period that you see. And therefore, there is a year-end transition that you also see. That's where you see a little bit of slowdown in terms of retails compared to December 2 other months onwards. So we don't see that as a major concern at this point of time. The demand and the overall booking trend continues to be positive.

Next, we have a question from Hitesh Goel. So I'm taking the question from the chat. Yes. First question is what are the outstanding bookings of Royal Enfield. Can you share this number for past 3 quarters? Second question is, can you tell us about your plans for electric motorcycle segment?

Hitesh, as a process, as we called out a few quarters before. We don't comment on the actual booking number that is available. But at the same point of time, the booking is extremely healthy. What we hold in hand and we talked about the bookings. Let me hand it over to Siddhartha and Govind to talk more on EV.

On EV, as we've said in the past, we have a strong team -- internal team. We have built a team capability, the infrastructure, the product road map, there's a lot of work going around in the background that we meet a lot of prototyping, a lot of work on new ideas and models and there's models in the pipeline. But as we've said in the past, at Royal Enfield while we are working very hard on EV, we're not coming out in the very near future at all or in the near future also with any product. It's all in the works. We think that it requires a lot more thought than what's perhaps being given currently to stick electric drive van into an existing type of vehicle. It's much more complex than that. And we are -- as you've seen in our new products, from the last 5 years, the every single new product that Royal Enfield has come out with has been successful and has done what it was supposed to do in the market. We're talking about the Twins. We're talking about Himalayan. We're talking about Meteor and our classic. So our concept is that we put a large amount of time, effort, energy capability behind the product that we've chosen to go after or the range of products that we've chosen to go after. And we put -- we make them extremely ready for market rather than just putting something and hoping for the best. So that's our approach. It's a deliberate approach. It's a long-term approach. We may not have, let's say, immediate product in the market like some competitors perhaps, and that doesn't worry us. We think it's a long game for VECV, and that's how we are playing it out.

Next, we have a question from Amyn Pirani.

My question is for Kalees. Clarification, you mentioned that there was a INR 60 crore extra cost in this quarter. But in general if I look at the other expenses, and if I look at 2Q and 3Q combined and if I compare it to last year 2Q, 3Q, because 1Q last year and 1Q this year, both were impacted by COVID. Despite volumes being down, the other expenses are materially higher. So is there some new kind of marketing expenses that you're doing right now? Is there some activity that you're doing? Or should we assume that this is the kind of expense level that will be there going forward?

So I mean, 2 parts to it. One, we talked about the marketing spend of INR 60 crores. These are specific towards launches that happened in the quarter and the investment that we did in 2 activities as part of our 120-year celebration, which is the South Pole ride pan GT. So I don't think so. This is a recurring one that we need to look at. Now sequential quarter, the other increase is also on account of the production ramp-up that happened last quarter to this quarter. We had incurred -- we have moved up from about 1.25 to almost 1.7 in Q3. But the second thing that has happened. And third is we have to incur about extra warehousing charges of about INR 7 crores, 8 crores, more to store the vehicles and keep it ready for classic. We talked it about in last quarter where we planned for launch in such a manner that the vehicle was available to the customer on day 1, rather having a large amount of waiting period and retailing of 25,000 was done almost in early October and September. So these were the 3 major things of which I do see the INR 60 crores is something not a recurring one.

Understood. Understood. And just to go back to the production thing. So we saw a significant recovery in November, December and December, in fact, you did hit that 70,000 number and then January, the number was again lower. So is this the volatility from the supplier or which is just a matter of time as the new suppliers ramp up? Or is there something else happening at your end? Because after December, the expectation was that at least it will remain in that range of November, December, but then January was even lower than November in terms of production. .

It is a supply situation only [ Berlin ]. So what we -- as I mentioned, when the new supplier was onboarded, at that month, they were also having the back end because it is being developed. So they also thought it will take some time, but they would be able to quickly come back and then give it -- now they also have to ramp up, so they are also ramping up. So it is only a question of the supply situation. As I mentioned, from here on, it will be actually a ramp-up, which we will see. Having said for everybody's clarity, not that the situation for one is completely cleared off, now that globally, the chipset availability is not -- has come. There's no extra capacity which is added. So mostly, it will be the disruptions which were there. Some plants up in fire there, there is sandstorm and dust storm which has happened in some other places, [indiscernible] -- and Malaysia flooding, all those disruptions, which actually caused issues in the supply chain of that. That will not be there hopefully, and that will have a linear supply situation. And that's why I'm saying that it will be a ramp-up from here on.

Next, we have question from Chirag Shah.

So sir, I had a question, I had a follow-up question on the single channel dual channel. So be specific product-wise company level, how do you look at the contribution of single and dual channel. How should we look at because it will have an impact on ASP, it will have an impact on how consumers are doing those 2 offerings. It would be interesting to share some thoughts for them.

Govind, let me try and do that. Look, I think the main thought is that we will have dual and single channel -- we will have dual and single channel available for our Classic and Meteor and Bullet. And we will let the market decide. Currently, the supply side is deciding. So it's slightly more bent towards what is available, and therefore, we're putting that in the market and sort of the market is pulling whatever is available really as such. Over time, as availability is not the issue. It is really for market to decide. We're not here trying to make decisions for the market in terms of what they should buy. And it will fall into a normal pattern. We don't know that pattern yet because it's controlled by supply side right now. It will eventually fall into a normal pattern. So yes, that's what we're saying. And once supply is there, it doesn't matter to us, right? Then it's really up to the consumer to see what they want.

And secondly, for Kalees, just for clarification. So there are no more under recoveries left on the commodities, right?

Roughly, it would be about the Q3 inflation that we talked about, which anyway, we have taken up a price increase in Q4 also. So we'll take it forward as it goes from now onwards.

And what was the price hike? I missed that number actually.

About 1.5% on an average in Q4.

Next, can we have Pramod Amthe.

A couple of questions on the export side. Seems to be like it's stabilizing at a particular number on a monthly basis. Would you be able to give a geography mix for your export either for last quarter or for the 9 months? How it is mixing up in terms of regions, one. Second, how do you work on the export side? Because for us, it looks difficult to credit your export momentum. Considering that you already might be having a demand pull. Do you work with a monthly order book, quarterly order book, which we try to fulfill or a yearly order book? Can you give a color how the actual execution of export happens?

On the first part, Pramod, well, we don't give a specific number guide. At this point of time, sort of the revenue was led by the entire EMEA. I think some disturbance, maybe if you want to ask others to me. Yes, perfect. It starts with EMEA and U.K. and then we have LATAM markets leading for us, followed by APAC and North America. Now in terms of demand, I think it starts with the same way that we work with the Indian market. It starts with creating the aspiration for the product, which is what we have been working for over a period of time. We started with the launch of Twins. That was a very, very big success for us in the international market. And then we started the trend moving towards Himalayan. And now Meteor has also been very well accepted in the international market. So it is not about chasing a particular demand number or our order book for a particular month. It's more about having a longer-term view. How do we invest in these markets? How do we look at creating the aspiration level for those markets and then fulfill the demand out of that.

Just to add to what Kalees was mentioning about an aspiration. At Europe, we actually started what is called as the Riders Club. Within about a month's time, 8,000-odd consumers, actually, they're signed up to that. That's how we wanted to create the market. That's how people have to become community. There's a pull. That's what we are doing it in India, and that's what is happening in this. So as even in APAC region, there are race, people are coming in. So primarily, what is happening is it is an aspirational pull rather than a push. So that we would like to continue even in international market.

And might be is to Siddhartha Lal. Considering that Harley has separated its EV division and has been able to create exciting with the spac deal. Do you see and also you guys are now more closer to the couple of markets, which might be right for the EV on the -- in this segment. Are you advancing your time lines for EVs considering the way the market is shaping up? Or are you getting more confidence now that the ecosystem is developing and hence, you can plunge in much earlier than what you thought?

I hope you heard me earlier, we won't plunge in. That's not our approach for anything. We don't plunge in. We are very deliberate. We take -- we do a lot of understanding of market, consumer and huge depth on all those areas before coming in with the right product, hopefully, at the right time, right? So the market is certainly evolving. The competitors are also doing a lot of things, some more visibly, some -- a lot in the background in any case. We are -- I don't think there's a case for enormously advancing anything as far as we are concerned. We are working on certain projects for the market. We have a new product introduction process. We're improving it. We're making it a bit. We're adapting it, of course, for EV. But it is a very genuinely amazing process. As all of you have seen, the kind of product which has come out, which is truly world class. I'm talking about the new product interaction process, which includes the product strategy, the program management, the engineering, the supply side, the manufacturing, the quality, all of that. It's absolutely tremendous and world-class and we're not shortcutting that in any form of manner for EV, especially not for EV, which is an unknown commodity in the market. If you look at motorcycles, there is no EV success story right now in motorcycles. Scooters, there is some trickle of scooters happening, certainly. It's not yet mainstream. It's not yet established as -- but the traction there will probably happen a bit earlier. Motorcycles, it's still a way out. The technology is not fully ready yet. It will be in a few years. and we're working towards that. And like I said, even in -- while there have been so many players in international, India, all sorts of markets, there is no success story of motorcycle 2-wheelers. Not to say that we're not doing anything. We're doing a lot, but it's not that the market is available or is there already. We have our take on it. We are working hard towards that thinking that we have in mind, what will be successful in the market commercially, what will be successful for the long term. And that's how we're going about it. We're not plunging in any market quickly just to -- either from a visibility perspective or from any other perspective. That's not our approach to business anymore.

Next I'm taking up a question from Binay Singh of Morgan Stanley. It's on the chat. Other 2-wheeler OEMs are seeing weak demand. How is demand for Royal Enfield? How is the demand in top 10 cities? How are the monthly bookings. Secondly, other expenses are up 35% Y-o-Y while volumes are down 15% Y-o-Y. What is driving other expenses?

So first question is about the other 2-wheeler demand and situation. If you actually look at what is happening in the entire 2-wheeler industry, even though the 125cc and below, which normally say it is a very highest number. There, the traction is slightly lower, whereas the higher CC premium motorcycles in a way. So that particular area is constantly growing. To that extent where we are playing, we don't see it to be a tough situation for the demand. What's the second call?

On the other expenses I will take that one. So Binay as we discussed earlier, that includes the spends that we talk on marketing of about 60 crores. If I adjust for that, the overall EBITDA from 20.2% moves to 22.2 percentage. And we also talked about the sequential quarter performance and the operating leverage up again.

Next, we have a question from Kapil Singh.

I just wanted to understand how you're thinking about pricing right now? Do you think it's at the right level more or less? Or do you think you need to take it up significantly -- and also, how do you think of the trade-off between volumes and pricing? Do you think there has been an impact on demand because of the price increases that we have seen or in your segment is not really significant?

Yes. I think too early to look at from a demand perspective, that has to be supply constraint. And therefore, we need to see as to what fully blown supplies, where does this stand in terms of a demand impact. Now coming back to the other question on how do we go about this, are these the price increase that we wanted to take it as such. These are cost pressures and not that we could give any consumer benefits to it, but largely, the cost per share that is on table, that needs to be passed on. If you look at the industry as a whole, the amount of price increase that has been taken across all players, we are in line. It's not that we are too off from that perspective. And the methodology that we use is -- it's a proper structured manner where we look at what's our relative price index to the competition and were a source of growth coming from, how do we benchmark and then we take a holistic call on pricing as such.

Add on -- just to add on Kalees is talking about on the pricing. What we have to look at the -- this is clearly this is actually help the consumer to navigate through this is about making finance availability at the locations where it is required at right interest rate and that's what -- and how do we support and that's what we are all working on constantly every outlet of ours.

Next, we have a question from Ronak Sarda.

Yes. The first question is on setting up the assembly lines beyond India. So one, can you help us understand what's the cost to benefit framework here? Why I'm asking is because, one, we have capacities in India. One is that, I understand the duty structure, but based purely from the capacities? And second, do we have to set up a dedicated supply or a vendor base as well. So how does that shape the profitability for exports?

Ronak, any facilities that opt for building any capacities. Primarily, what is happening is every country has what is called as a minimum work content, which has to be there. And there is a share of business, which you have to source some components to some percentage and you have to manufacture some components and you have to employ so many people. That's how the duty structure has to come in. And that's the reason which we are doing it. As far as the dedicated lines which you're talking about, probably -- it depends on the depth of manufacturing, it varies company to company -- I'm sorry, country to country. So what we have done is all of our exclusive subassembly stations, which are required only for our product, there, we have put dedicated where we can actually share it, for example, a conveyor line in which we don't need to invest or something like it or not the partner need to invest. In those areas, we have used the common lines. Testing anyway, it has to be different. So to that extent it is dedicated to product specific, which are to be specific, that has been made as a separate dedicated line. Wherever possible common lines which can be used, we have used the common line.

Second question for Siddhartha on VECV. One, we have seen the along the ICE segment are doing very well in the last -- in the last few quarters. And again, the CNG portfolio has done very well there, which has helped Eicher gain market share. One, how do you see Eicher's market share moving ahead, especially with competition launching their products? And how does Eicher share differentiate in terms of the product portfolio, especially in the CNG segment?

So in the CNG segment, of course, we have an advantage on product and on how we position ourselves and how we've been a relative early mover in that market. So we've really been able to do well in the CNG market. Like I said, in light and medium duty, we have around a 50% share versus 30% for diesel. So we are doing exceptionally well there. In the larger scheme of things, as you're asking about the positioning and market share evolution. Obviously, the big focus for us for the last many years has been on the heavy-duty part to get to a particular level on the heavy duty, and we're getting that now. So our view has always been that at 10% heavy-duty market share. We're a very substantial, let's say, players from many different perspectives. That's what starts a very strong virtuous cycle in the market for us. And we're very much headed towards that. Our entire product portfolio is renewed or, let's say, ground up new, not renewed. So our 2000 series is ground up new light and medium duty doing exceptionally well in the market. I mean even the people I talk to on the road in India, the just the look of the truck also people stop. It's like that level of interest that people have, and it's -- and of course, that's only at the skin level. The performance is absolutely outstanding. The 3,000 has really set its mark as the now ICE type of product, medium and heavy, perhaps a low heavy-duty product doing exceptionally well as well. And same with pro 6,000 to 8,000, I'm talking about truck size.. So we've got all that under our belt. We've taken the advantage of BS-VI, which others were struggling a bit more and we were able to make more headway. We are getting the type of put in the door or a number of -- the numbers we get invited now to customers to work with them or to -- when they're bidding for trucks or whatever. It's very high now. We've got our head into -- we've got a place in most of the deals that are happening now. Obviously, as someone who is growing and doing so well in the market, some of the -- or let's call it the incumbents are not delighted about it, as you can imagine, they're plowing money at deals. I mean, at such ridiculous levels that you can see their profit margins. I mean, a company which is 4x size should not be making losses at this point right we making profits, right? And that's because deploying money at deals at ridiculously low levels, which is -- and we take some deals, but we have to leave a lot of deals with them. They know where there. They know we are a better product. They know we have a better offering. Our uptime of our vehicles is what we really consider as the biggest selling point, which is the highest uptime in the market for heavy duty. So that's what's happening. They are actually doing so well against the competition that they have only one tactic left, which is to throw money on the table and to get deals at very low prices, right? So if they can sustain that forever, that's unfortunate to their shareholders. But from our perspective, you can see that -- one can see that we are making headway because we are able to actually be successful and still grow our share even though we make me profitable compared to the others. So that's really the outlook, which gives me a lot of, let's say, hope for the future that we are doing the right things and our competitors are left with only one solution, which is, I guess, for the long term, not the ideal solution for them.

We have time for one last question from Joseph George.

Yes. So I just had a couple of questions. One is you mentioned that you increased prices by 1.5% in January. I wanted to understand whether in 4Q over the December quarter, are you seeing incremental raw material pressure? Or is this 1.5 something that will flow through to the gross margins?

Listen, we will discuss about the numbers as we [indiscernible]. We don't need specific guidance on how is that panel. But nothing that we do in Q3. That's still be performed in Q3 with pricing.

Sorry, did you mean that in 4Q, there is incremental RM pressure forget the gross margin expansion part? Is there incremental?

Sorry, just record about the Q3 inflation.

Raw material pressure is slightly there, not yet has gone off. But the intensity of the raw material, inflation pressure I'm seeing, but it will pan out over the next 1 or 2 quarters to actually come, which update on the commodity pricing.

Understood. The second question that I had was on the INR 60 crores of lumpy marketing spend that you mentioned in the third quarter. But isn't marketing spend something that will continue because even in the future, you mentioned that you'll have maybe one new launch every quarter. So wouldn't this continue every quarter, maybe to a lower extent, but something that will be recurring going forward? Or should we look at about INR 300 crores as the right OpEx number for the level of production that you had in 3Q?

I think those are the 2 ways to look at, one is I think clearly, the brands can create the desire and operation. And the large part of the marketing spend goes in, we'll be curating percentages will average considering the demand and supply that we have today. We don't see that as a significant concern as we look at the forward quarters also.

Thank you. That brings us to the end of the session. Participants whose questions were unanswered, please reach out to the IR team, handing over back to the management for closing remarks. Over to you, sir.

Thank you very much for joining us for this session and look forward to talking to you in a few months.

Thank you very much. Be safe.

Thank you, everyone. Good evening. Bye.

Bye.

Bye-bye.