Eicher Motors Limited (505200) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Eicher Motors Limited Q4 FY '25 Earnings Conference Call hosted by Avendus Spark. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ram Seshan from Avendus Spark. Thank you, and over to you, sir.

Thank you, [indiscernible]. Good evening, everybody. Welcome to the earnings call. Pleased to be joined today by the leadership team of Eicher. We have with us Mr. Vinod Aggarwal, Vice Chairman, Eicher Motors, and MD, CEO of VECV; Mr. B. Govindarajan, MD, Eicher Motors and CEO of Royal Enfield; and Ms. Vidhya Srinivasan, CFO of Eicher Motors. I will now request the management to make their opening remarks. Please go ahead, sir.

Thank you, Ram. Hello, everyone. I hope all of you guys are doing well. Thank you for joining Eicher Motors Limited Earnings Call for the quarter and financial year ended March 31, 2025. It's been a very strong year at Eicher Motors. We have seen consistent growth quarter after quarter. And both Royal Enfield and VECV have delivered solid performances. We have stayed focused on building long-term value, and these results reflect that. Starting with numbers for the fourth quarter, Eicher had posted a record performance with consolidated revenue of INR 5,241 crores and EBITDA of INR 1,258 crores and profit after tax stood at INR 1,362 crores. Not just the past quarter, our growth momentum continued to show great results in the financial year ended March 31 as well, with revenue growing to INR 18,870 crores with an EBITDA of INR 4,712 crores. PAT for the year stood at INR 4,734 crores. The strong performance was a result of an all-round growth at both Royal Enfield and VECV. Now let me start with Royal Enfield first. We had one of our best years ever and maintained our leadership in the premium motorcycle segment, with the motorcycle sales crossing 1 million plus units for the first time in our history. We introduced six new motorcycles in the past year to strengthen our product portfolio to meet the diverse needs of our customers right here in India and across the globe. We launched the Bear 650, which is a bold new expression of our new twin cylinder lineup. The Guerrilla 450 powered by our Sherpa engine is a whole new take on the urban mobility and adventure. We also celebrated the year of Classic with the three motorcycles that really showcase our design and craftsmanship, Classic 650, which we launched recently, and Goan Classic 350 and of course, the Classic 350 itself. Our motorcycles continues to do well in the past quarter and in the financial year with the sales of 2,80,801 motorcycles in the fourth quarter, up by almost about 23. 2% year-on-year. And in the past financial year, we sold about 1 million plus motorcycles. It's almost 1,02,893 motorcycles to be precise, marking a 10% increase over the previous year. Our domestic sales stood at 9,02,757 units, which is up by about 8% on a year-on-year basis. Our international volume stood at about 30,900 units for the fourth quarter. And in the year-on-year, it grew by almost about 29.7%, touching [ 1,00,126 ] units. This year was a very meaningful progress, which we made in many other fronts also. We made our big move into our electric with the Flying Flea, a brand of Royal Enfield. We began with a showcase of Flying Flea at ICON, followed by unveiling of the two models, FF C6 and FF S6, which has received a very strong interest from all over the globe customers. We are on track to officially launch this. Our motorcycles continued to win a lot of recognition during the year. We received about dozen plus award for the design, innovation and performance of motorcycles in this year. Most importantly, I wanted to share with you that J.D. Power has ranked us as the highest in the overall 2-wheeler initial quality study, a direct reflection of our focus on the customer satisfaction. Beyond our motorcycle, the Royal Enfield ecosystem also has grown stronger than ever. We inaugurated a new spare parts warehouse in Mumbai in the past year. We now have 4 regional warehouses, including in Chandigarh and Mumbai and Calcutta. In addition to the business achievements, we also worth hard to bring riders together in the Motoverse. Normally, we have it in the month of November. This year, we saw a gathering of 10,000-plus customers riding into Goa to participate in the Motoverse. And part of motorcycling, we saw every successful season 4 with an increased participation during this time. Globally, our expansion strategy gained significant momentum this year. We inaugurated our first fully owned CKD assembly plant outside India and Thailand. We also began operations of a new manufacturing facility and flagship showroom in Bangladesh, enhancing our ability to meet local demand while maintaining our quality standards. Today, Royal Enfield ranks among the top mid-segment, motorcycle brands in the markets such as U.K., Korea, Australia, New Zealand. In all the markets wherever we are entering, our market share is steadily going up. As we said earlier also, we are looking at all these things for a long-term ambition. Equally important to us is our commitment to the social and environmental responsibility. Sustainability remains at the heart of what we do. Our motorcycles are designed for more than 97% recyclability and reusability. Our plants now consume about 86% of electricity from the renewable sources and are net water positive to the tune of 2.6x. We are also committed to send no waste to the landfills from our operations. We launched several green initiatives in Himachal Pradesh, Spiti and Lahaul District. This includes Camp Haru, our first green pit stop along the Leh–Manali Highway. We also launched Journeying Across the Himalayas as a first of its kind 10-day festival in Delhi that celebrated the region's natural beauty and culture. Now moving on to VECV, our performance has continued to beat the industry trends. Now I will request Mr. Vinod Aggarwal to talk about the commercial vehicles performance. Over to you, Vinod.

Thank you, Govind. Financial year '25 has been a record year for us as we delivered more than 90,000 trucks and buses and crossed INR 23,500 crores in top line. I'll begin with the financial performance for the fourth quarter and the financial year '24-'25. We had the robust sales performance of 28,675 units in quarter 4 of '25 and 90,000 units in financial year '25, our best ever performance. VECV revenues rose to INR 7,139 crores in quarter 4, up 13.8% from INR 6,275 crores in quarter 4 of financial year '24. For financial year '25 VECV revenue from operations was INR 23,548 crores, which is up 7.7% from the previous year. EBITDA stood at INR 732 crores for the quarter and INR 2,030 crores for the full year, up 18.4% from INR 1,715 crores in the previous financial year. EBITDA margin for the quarter was at 10.5% and at 8.8% for the financial year '25. And as you can see, the EBITDA margin has significantly improved from 7.8% last year quarter 4 to 10.5% in this current quarter 4. Profit after tax for the quarter was INR 457 crores and [ INR 1,284 crores ] in financial year '25, up 56.8%. Now we have record performance on many parameters, such as highest sales units with a growth of 5.4% against the market, which was flat at just around 0.3% growth. And we became #1 in light- and medium-duty trucks market share. We have now 36% market share in light- and medium-duty trucks, which is 5 to 18 tonnes, and we are #1 in the market now. And we had record sales of heavy-duty trucks, buses and spare parts in leading components and power solutions, which include gensets, as well as the industrial engines. We entered large, small commercial vehicle segment with electric first Eicher Pro X, which is 3- to 3.5-tonne gross retail rate. And we had highest ever quarter 4 sales for Eicher heavy duty trucks at 6,765 units with a market share of 9.1% in Eicher side, and including Volvo, the market share is 9.7% for the full year. In the light- and medium-duty truck segment, we sold 11,591 units in the quarter, achieving our highest ever market share of 37.1% in the market in light- and medium-duty in quarter 4. And we sold 7,568 units in buses segment, making it our highest ever sales in the quarter. And we received 5 Apollo CV awards, including prestigious Transport Solutions Provider of the Year. As the Indian economy grows and the logistics industry transform, VECV continues to drive modernization and remain at the forefront. During the past year, we launched 92 new production variants. These include Eicher LNG-powered trucks for long-haul applications. We also delivered over 50 Volvo FM factors for road train applications. We continue to develop electric and alternate fuel-base solutions on our existing product rates during financial year '25. We successfully launched the Eicher Pro X small truck specifically designed for 2- to 3.5-tonne segment. Delivery started with electric first, reflecting our commitment to deliver sustainable solutions to the last mile and delivery operations. On the sustainability front, the financial year '25, we made significant progress by addressing various elements. Driving inclusivity in the CV industry, the Eicher Pro X is assembled on an all women line at our state-of-the-art Industry 4.0 compliant factory in Bhopal. And this is the first time that we see the all women assembling the trucks on the assembly line in a truck plant. Our renewable energy capacity is the 4.5-megawatt roof of solar project expected to reduce emissions by 25%. We also recycled 52 million liters of water at our Bhopal plant through an artificial water reservoir that also sports local words and fish. Furthermore, our carbon offsetting efforts continued with the planting of 66,000 trees anticipated to offset 660 tonnes of CO2 emissions. Now I hand over back to Govind for further updates.

Thank you, Vinod. Before I move on, I would like to briefly touch on some key changes, and I'm sure you all would have followed in our Board. Siddhartha was the MD and CEO of Eicher Motors, has taken over as an Executive Chairman of Eicher Motors. And Vinod, MD and CEO of VECV commercial vehicle business, is now, apart from the MD and CEO of commercial vehicles he is the Vice Chairman of Eicher Motors' Board, and I took a larger role as a Managing Director of Eicher Motors. And we also welcomed new directors who bring in diverse experience from different sectors to Eicher. Their combined insights are already adding meaningful value as we plan for the future and navigate an increasingly dynamic environment. At Eicher Motors, this year, it has been a phenomenal growth for both Royal Enfield and VECV with all the steps into the new year, which we are confident will continue to build on the success with many more exciting things ahead. Thank you all for being with us on this call today. We can now move on to Q&A. Over to you, Ram.

[Operator Instructions] The first question is from the line of Binay from Morgan Stanley.

My question is relating to margins. Could you comment about on 2, 3 things on that first is that we've seen raw material to sales trend up in this quarter? Secondly, in the earlier conference call, we had highlighted that Q3 had a lot of one-offs in the other expense line item. What are your take on the Q4 other expense number because it is almost flat quarter-over-quarter? And thirdly, the cost relating OBD-II B, have you passed that on fully to the consumer? What was the price hike? That's the question from my side.

Yes. I think. There are a number of questions over there. So if I can address as far as gross profit is concerned, I think if you're talking quarter versus last quarter or -- I'm not quite sure what you're talking...

Quarter-over-quarter.

Yes. So basically we are saying versus last quarter, we are talking about the 30 bps on account of model and variant mix, which is really higher share of some of the models where like Battalion Black where we are seeing very good traction and growth in terms of absolute sales. I think if you step back, I think the big message that we kind of talked about several quarters now, including last quarter is that our focus is on absolute growth and absolute gross profit growth, not necessarily on percentages. So I think as part of that strategy as far as both the new classic as well as the new Battalion Black, we have made a lot of additions to the product in terms of features, et cetera. And we have effectively kept -- while we shaded the cost, we have not changed it in a percentage basis. So I think about 30 bps on account of the model and varying mix. We have about a 20 bps impact of higher commodity prices in steel and aluminum. And about 20 bps which is on account of some inventory provisions for a few old bikes. So effectively, that is what is causing impact of, I think, approximately 90 bps versus Q3 [ of this year ]. As far as other expenses are concerned, which is I think your next question, I think I had not necessarily talked about any specific quantum of one-offs, but let me address it as well. Versus Q3, we've had an increase of about INR 9 crores as far as other expenses are concerned. Out of that, we've had a INR 30 crores reduction in marketing expenses versus Q3. We've had -- while launch and event expenses have reduced versus Q3 to increase investments and sustenance. And the Classic volume growth is reflecting that. For example, we've had a growth of 15% in the last 6 months. In addition to that, we've also had about a INR 20 crores increase on account of volume-related expenses because we've had a significant increase in volumes versus Q3 as well. So there are about INR 20 crores on account of that. INR 19 crores is impact of expenses that we've incurred in Europe, where a few distributors are under liquidation. So this is something that is an impact that has happened. And yes, that's essentially what is happening.

Last question, so largely, both are in a way -- there is no one-off in the other expenses in Q4?

No. We are not to announce because you guys then come back and tell me. So I think making the INR 19 crores of Europe, we can say.

And now with the recent Hunter launch that we've done, do you think this -- the gross margin trend will, trajectory-wise, remain the same? Or have you passed on all the costs that you've added to the vehicle in the early launch?

Yes. That's a leading question. As Vidhya was mentioning, it's a balance between the growth and the profitability percentages. We have been now saying that we have to grow in a market. That's what it is. The initial belief which we have is when the more and more competition is coming, the whole segment will grow. And in the process, we'll also grow in that. The whole segment, I think others are not able to grow the market. So the leadership as Royal Enfield, we have continued to hold that responsibility of growing the market, which we are doing. And second, as you had talked about the gross margins and the absolute percentages. More and more, we will add value to the product to the consumers. That's what is the requirement now in the market. As Battalion Black, when we launched, we launched it at an accessible price point because we really felt that is required for us to take the market. And which was not growing, which has really helped in the way we thought, and it has really grown, almost about 22% over the previous year. Because the product was conceived right, it was positioned right. The pricing was right for it, and it has really helped us. And similarly, Classic 350, when we came out with the refreshes, we passed on only the cost, but we added value more into the product, not the absolute profit percentage, which we are not looking at. Until as of now, with the refreshes, we have taken a price increase. It may not be to that level of the profitability, but what is more important which we have to look at is, now value engineering will start kicking in for all these platforms. And that's the direction which we are working on and improving even the profitability. That's a directional thing.

I think our volume focus is the right strategy. And just on OBD, if you could give the cost, that's it from my side.

OBD-II B, the cost increases for all these products -- first of all, OBD-II B, we have transitioned seamlessly. Not that we had excessive motorcycles of previous questions and all those things. You all know every time when there is a statutory thing comes because we are a retail-focused company. We don't build inventory into the system. So to that extent, we didn't have much of an issue in that transition. And whatever the cost increase which had come up, and that, we have added up into the product and we passed on.

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

My first question is just on your outlook for FY '26 in the domestic Royal Enfield, exports Royal Enfield as well as the VECV businesses, I think last year, we had started the fiscal year with expectations of 10% volume growth for the premium motorcycle category and I think we were a little slightly higher than that on the full year. I just want to understand how you're thinking about premium motorcycle category for FY '26 and with your product launches, Hunter 350 Plus, looks like there are a few more on the way, how you think about Royal Enfield's prospects in this space and the VECV as well?

Yes. Let me just close on the 2-wheelers, and Vinod will talk about VECV. Financial year '25 has been good for us in the growth. We have crossed 1 million motorcycles, which is in the history of Royal Enfield and a company which was almost about decade back, was looking at only about 100,000 motorcycles in 1 year. We have crossed 1 million. We grew the market, and the growth primarily came from the focus of delivering the pure motorcycling experience to the customers. With the motorcycles, which are very differentiated, and look-wise, fit and feel wise, it has to be very differentiated, and that's what we have been consistently working on, which has really helped us to grow the market, where we are almost about 88% market share in the middle weight. And our focus is also continue to be in the middle weight and that's where more and more product we launched. And we'll continue to have products coming up, refreshes coming up even in the year. What's happening in India, where -- which we would like to talk very openly about that is -- last year also, the rural market has been very good, and urban market growth has not been so good. It was slightly muted. This year, with the tax cut, especially on the income tax credit, we expect the rural -- sorry, the urban growth will start coming up back. We are seeing the positive sentiment at least now, even in the month of April in the urban market, rural market has continued to grow. So that way, premiumization is continuing. Mid-size, we have been growing with a lot of motorcycles, which are going to come and which has already been launched. And our expenses, which we have been putting behind in the marketing activation, we do see even in the coming year, the growth will be good for us. That's on the domestic. On the internationally, you also asked, Chandramouli?

International and then VECV update.

International, first, we also crossed about 100,000 motorcycles. It's backed by solid retail in all the markets. We are #1 in U.K. in the middle weight, #2 in Argentina market and #3 in Brazil market. Brazil market is opening up. During this year, we also entered into the new market, Bangladesh, which is showing a very good sign for us. Over the years, we have been developing the brand within the riding community and the events. And of course, with the motorcycles, we are actually the top 4 mid-weight motorcycle brands in many countries across the world. Even now the international markets, the sentiment is so, so strong, it is not that way. As I mentioned last call also, we are cautiously optimistic about the international market. But our retail has been good. Our interest on product has been good. In fact, we launched the Himalayan in Brazil very recently because it takes time for the entire home allocation cycle. There's a huge reception for that product in the Brazil market. So when a product is hitting into the market, and the market is right, and we are going to work on brand building in a very different way. That's how we feel that the growth is going to be very good. With the tariff situation, I'm sure some of you will be looking at what's the scenario, how we are handling it. In some of the markets, especially U.S.A., we do have a stock to overcome the riding season at the pretax level itself, pre-tariff level itself. And we are continuing the exports as of now. So we do see even in the export markets, the growth will be very good. But what we are doing at the back end to get the export market growing in the long term, I think that's where the focus more and more which is. Now probably VECV, Vinod can add.

As far as VECV is concerned, as we have seen last year, we have grown by 5.3% as against a flattish market. If you see all the segments, we have grown in all these segments. Our market shares have grown in all the segments. And of course, this is based on our continuous expansion of our distribution network. We have currently more and more territories. So we are penetrating more and more into the distant markets of Eastern sector as well. And of course, we are also opening more of the company-owned dealerships in some of the difficult locations. So therefore, all these steps are helping us to improve our market share. Going forward, we are expecting that the market will continue to do better because there is economy is growing, and this is expected to grow this year also 6.5%. Replacement market is expected to remain strong. Infrastructure investments are expected to remain strong. Therefore, the fundamental factors are all in place. Now of course, there are always some hiccups here and there because of sentiments or because of -- like, for example, this recent war, which was there, this would have brought down the sentiments. Similarly, if there are some other such factors which drops the sentiment, but that brings down the demand only temporarily. On the fundamental factors, market will continue to remain strong and will continue to grow in the short to medium term.

Got it. That's helpful. My second question is on just a couple of data points. If you could share the full year export revenues as well as the non-motorcycle revenues, please?

Full year what?

Export revenue.

Yes, 13.5% is our share of international markets, and non-motorcycle full year is close to [indiscernible].

So you said 15% for nonmotorcycle?

15.8% for both domestic and international, put together for nonmotorcycle.

Got it. That's helpful.

The next question is from the line of Gunjan Prithyani from Bank of America.

I just wanted to go back to the margin question. If you -- there were 2 things that we spoke about last quarter. One was this EV and we had a lot of events that we had bunched up last quarter, right? If I roughly remember, the number was some INR 60 crores, INR 70 crores. So I'm just trying to understand, was there anything specific such sort of events which were there in this quarter that we didn't see any reduction quarter-on-quarter on that front? And also, if you can talk about this INR 19 crores liquidation expense that you spoke about, what is it -- what does that pertain to?

So Gunjan, if you recall my last quarter, what I said was that we had the increase of [ INR 70 crores ], some part of it is because of one-off. So this time when we talked -- when I mentioned it earlier in this call, what I said is there has been a INR 30 crores reduction of marketing spend versus Q3, which is really the sense that we have the events and launch-related expenses which we had in Q3, which we did not have in this particular quarter. The INR 19 crores is because of there are some distributor under liquidation that -- settlement expenses, et cetera, pertaining to that.

Okay. And I'm just directionally trying to understand, like there is clearly -- it's good to have the growth back. But I'm just trying to understand how should we think about this line item? Because there has been a pretty big step-up. Is it that we do need to do a lot more in terms of the marketing interventions? Or you think now we're at that steady state of marketing interventions and you know it's more about bringing refreshes, et cetera? I mean, just some color, how do we think about this line item?

Gunjan, it can't be static, first of all, because we always have to look at the funnel. What we look at is every month, we'll start looking at what's the kind of an inquiry, what's the booking, what's the conversion. And also on the brand track study, we have to triangulate it and then see where we need to spend money. And all the new brands like Guerrillas and now the new Hunter with the new color base which we launched, all those areas has to be continuously on the brand-building exercise and the market activation. Will we do like what we did last year? May not be. Will we not do like last year? We may have to do it depending upon how the brand track is actually showing us. Is that, yes, some area, you have to do a marketing activation to grow. Because growth is a one driver, and everything have to actually work around that. And that's why we always say that don't look at an absolute -- don't look at the percentages, look at an absolute value because that's how the growth in an organization can get propelled.

Okay. Got it. And just on the Hunter, the refresh that you've made. Can you just talk a little bit about what is it that we're trying to target here? Because there were clearly agenda set with Battalion Bullet bring the retro look back. What is it that we're trying to do with this and our expectation in terms of what it does to the brand, given that it's been at 15,000, 16,000 units per month run rate. Are there wide spaces that in terms of geography, we are trying to plug some thoughts around what are we trying to get with this refresh?

Yes. So within Hunter, we launched in August 2022. The thought process at that point of time was when we launched this product, it has to get us a new set of customers. There should not be cannibalization into the Classic. That's the primary thing which we went in, and it has really helped us to get almost about 15,000 numbers, average of about 14,600 numbers. But over the years we have crossed, we all know about 0.5 million under sales from August 2022. What we set out, it has done well. But we also saw, as I mentioned in our studies, we saw that the growth is a bit muted and it has a very good potential. And we went to the market and we're trying to understand what does it require for doing more. And we could see that we have to do a bit more brand activation, sustenance activities for the product and also product intervention. That's why on the product, if you look at, it is for a city condition usage, tight traffic conditions. So we wanted to bring in assistive clutch, which we offered into this, ride comfort, which we have increased, and ground clearance slightly, we have increased in this motorcycle. We have brought in LED headlight into this. [ Tripper bot ] is added, USB charger is added and new color variants, which are added. Why are we doing all these things is primarily because there is young consumers who are looking at. Now the marketing activation for Hunter to be towards a younger audience to make it cool and vibrant and youth focused brand Hunter. And that's where is the focus which is going to be for the coming year, and that's why we came out with the refreshes with all the feature additions. The next growth phase, which has to tick in after our activation starts in, Gunjan.

Okay. Got it. And just last clarification on the tariffs. Did you mention, I mean, anything how does it affect our North America exposure? Any sense that we have? How should we be thinking about that?

Two things. First is because of the tariffs, say, initially, there was high, than 90 days a break and there is something which is going back and forth. As I mentioned for the riding season, first of all, we have protected with an inventory, which we were having there in our warehouse at Dallas. So to that extent, the season was not missed. It is also pre-tariff rate. So we are not changing the MSRP at North America. Now that tariff situations are being discussed, we are watching it and correcting the FOBs and all those things to be, the MSRP is not altered much for our consumers.

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

Sir, just wanted to understand your thoughts on the growth profile of the market. If we make 2 broad buckets, 350cc and above that. When you look at growth, there's some increase in mix for the 350cc. So when we're looking at things going ahead for next, let's say, 2 to 3 years, how do you see that? And any factors here that you would like to share that why the 350cc mix has gone up? Because you have 650 also, we had -- or 450 also, we've had good launches. And the base is low. So the growth would have been higher there as well. So any thoughts there?

I think at 350cc, we came out with a lot of products during this year, so as even in 650cc and in the 450cc, the Guerrilla, which we launched. So everywhere, we have been looking at products which has to come in, which gives a differentiated experience to the consumers in the white space. We constantly look at where is the space and what is that we can do. And every product have to give different experiences. If I have to tell you about the 350cc segment, and that's a segment which is almost growing and it has given a growth for us in the last year. And in the 500cc plus segment, we are almost, what, 95% plus. That's where our strong position is. But we do have products which is there in all those cc segment. With the activities which we are doing around the community marketing and with the refreshers which are going to come even in this year and finance availability, all those activities is what we feel that the growth is going to continue. And the fundamentals hasn't changed, right? The premiumization is continuing, the money availability in the urban market is going to be better. Rural is growing. So when the whole 2-wheeler market has the positive sentiment, normally, the premium motorcycle sales also goes up. And that's the trend which we have always seen, and that's the positive trend which I'm seeing even now.

Okay, sir. Do you see the mix shifting towards 650 or 450 over the next 4, 5 years? Or you don't see any significant change?

Look, I think the percentages which they are actually at the stage. So the percentage of growth may be very different because the base is so low. But I don't see that 650 to 350, there is going to be a complete switch and flip which is going to happen in the next 2, 3 years. But wherever the growth is happening, our products are there, and we will continue to have more products in those areas. So that at least we are there in the consumer's mind that when they see that I need a product at a particular cc level, Royal Enfield product is available in their lives.

Sure, sir. And sir, one question was on the CapEx plan. If you can just give us an update, how many new launches we are planning next year? We had, I think, 6 last year for Royal Enfield and what are areas will the CapEx go towards? And one housekeeping question just on the commodities, if you have any outlook to share and any pricing changes that we have done? That's all from my side.

That's all? So I expect our CapEx to be between INR 1,200 crores to INR 1,300 crores next year, which is largely towards investment in EV manufacturing facility, product development and new listing. I think as far as the launches are concerned, we'll get into specific items about the launches closer to the date of the launches. Though of course, we've said that as far as EV is concerned, we've talked about the time lines publicly. I think the other question you had was about...

Commodities.

Commodity prices. I think we are seeing volatility, and I think we've talked about 0.2% that we've got impacted because of steel and aluminum prices as far as the current quarter is concerned versus last quarter, but we are waiting and watching to see how it kind of plays out. So at the moment, there is a lot of volatility happening, as you know. So it's difficult for us to comment. But we'll keep you updated in terms of impact in the coming quarters.

So, so far, there's no pricing change?

Pricing change, as we said, we've taken about 1.15% increase in some select models on April.

In April itself.

Yes.

When the OBD-II B transition, which was coming up and then the new year was starting, so we have taken that. And if you remember last year, full year, we said no price increase because we want to add value to the consumers. And that continues. But this year, as Vidhya was mentioning, we have taken 1.15% in select models in month of April itself.

The next question is from the line of Raghunandhan from Nuvama Research.

Thank you, sir, for the opportunity. Congrats on strong volume performance. One clarification. Within the gross margin on a Q-o-Q basis, you indicated that -- Vidhya ma'am, you indicated a 20 bps provision relating to few old bikes. So if you can just expand on that? And that's a one-off, right?

Yes, that's -- yes, that's a one-off.

Understood. My first question was on Classic 650. Given the strong umbrella brand of Classic and how do you see the potential for that model going forward? And how has been the response so far?

Raghunandhan, response is too good. I mean, we are very happy with the way consumers are looking at. Honestly, we are looking at will that be the trigger for our upgrade cycle. Because the initial responses that consumers who have been having Royal Enfield, who bought the Royal Enfield 350 maybe about 8 years back, 10 years back. They all started looking at Classic 650 as an upgrade model. So to that extent, the interest is very good. And it's just 2 months. It's in the ramp-up stage. So we'll wait for another 2, 3 months to see how this really performing, but it has a huge traction even in the international markets.

Got it, sir. And considering the strong volume performance, what are the plans to expand capacity? Like currently, our capacity is 1.2 million units, and there are months where we are very close to hitting the full capacity. So how do you see the expansion? How much expansion are we planning?

As we always mentioned, Raghu, it's -- our capacity, as you mentioned, is about 1.2 million with the plants, and we also have Cheyyar, where we protected the land, and we also have the sheds ready. And all our manufacturing facilities are done in a modular way. So what we are looking at even in this year, as Vidhya was mentioning about the CapEx, some CapEx goes in -- and wherever there is a capacity enhancement, which has to be done so that we will be using it, and we will take the capacity up for the new models which we launched.

So what would be the capacity at Cheyyar, sir?

No, Cheyyar is actually a plant, which will support on their back-end operations like the chrome plating, coatings and all those things, surface finishing for all [indiscernible] plants. That's how it is envisaged as of now.

Understood, sir. And on the export side, what would be the share of global CKD plants in overall exports? And how are you looking at capacity addition in these global plants like, for instance, in Brazil, you were actually increasing capacity because of the strong demand. So if you can talk about that?

Yes. So Brazil, you all know, because of the tax sector, unless otherwise we have a CKD operation, we can't enter into the market, as the CBU will only be losing money. We also put our expansion on hold because the CKD facility have to be ready. Having said, CKD facility with a third party also has a particular quota. They also don't have unlimited numbers which they can produce. So initially, we worked with the third party. Now we have added one more party also. So that the year's requirement is done. And parallelly, we are also evaluating what does it mean for us to be of our own and what's the kind of an investment and what the capacity which we have to build. Because Brazil is a very good market, which Royal Enfield products are getting accepted very well. We are already #3 in the Brazil market. And last year, we have made almost about 22,000 and odd numbers in the Brazil market. So that market is receiving products from Royal Enfield very well. As I mentioned, we launched the Himalayan just about a month back, and the reception has been outstanding. So it's an important market for us, and we are committed to invest and build that market.

Got it, sir. And just lastly, on the dividend payout, the payout has increased and we are closer to a payout ratio of 40%. But compared to a couple of other 2-wheeler mass market companies, our payout ratio is still on the lower side. How do you see that increasing over the next few years?

[ Vinod ], would you like to...

I think we have been -- if you look at the past track record, so we have been consistently paying out around 33%, 35% sort of the dividend payout. And this year, we have improved it, depending on the -- our better performance. And going forward also, I think we will be open at looking at what is the right payout ratio based on the performance and the cash situation. So I think this is a good improvement over the previous year, which the Board has considered and given that...

Got it, sir. Thank you very much and wishing you all the best.

The next question is from the line of Amyn Pirani from JPMorgan.

Sir, on VECV, a request as well as a question. Given the increasing importance of this business and the way it has been improving its financials, it would help if we can also get some broad cost hedge like raw material, employee and other expenses instead of just revenue and EBITDA and PAT because the kind of improvement that it is showing, it will help us to get a better sense as to how things are going there. And hence, the question is that after having flattish margins for a while, in the last 2 quarters, we've actually seen significant improvement in margins. So any broad sense as to whether it's driven by gross margins, whether there is some operating leverage playing out in other expenses? Is your pricing momentum vis-a-vis competition improving? Some color there will be very helpful.

First of all, I think our financial statements are part of our accounts. So you get the full details there on the NPL cost and the part of the accounts annual amounts.

Annually, yes, sir. Quarterly, we don't get -- annually, we definitely get that. You're right.

It can be given if you want. I think that's, let's say, this can be given. I think [indiscernible] can -- you can share that. That's not a problem. As far as the margins are concerned, it's a, I think, combined result of better price management, operating leverage as well as cost management. So there is a consistent focus on improving the transaction prices and reducing the discounts. And also taking the price increases whenever it is possible and also getting to better product mix, focusing on those products where, of course, the margins are better. So I think this is a gust of the consistent focus, and we would like to continue that same focus, and let's hope that we are able to maintain or improve these margins further.

Okay. That's good to know. And sir, just a follow-up. Obviously, 4Q is a seasonally strong quarter for the industry. So I'm guessing that maybe we should not extrapolate the 4Q number into a full year. But any broad indication, like do you have a target of like when should we see like a double-digit EBITDA margin for the business on a full year basis? Is it something that you are expecting in the near term? Or is it something that could take some more time?

I think it will be difficult to give the actual guidance on that. But of course, you can -- you have the quarterly results for all the quarters. You can see the things are improving. And let's see, I think that will be the effort. I can't give you the numbers that how it will go. It is very, very difficult to predict.

The next question is from the line of Sanjaya Satapathy from Ampersand.

Yes, sir, I couldn't understand whether this gross margin that you're talking about, a 20 basis point negative impact. Can you just explain what exactly it is?

Which one? What are you referring to in the 3 pieces, is that what you're talking about?

The gross margin, it seems like there was some 20 basis point negative one-off. I couldn't understand that part clearly.

So basically, because for some of the -- so it was essentially some inventory provisions that we created against old bikes, et cetera. So that is what it was around. If you want, I can give further details separately.

No. Is it like a regular year-end activity or it was something special for this year?

Bikes, et cetera, where we cleared up some of the old stock.

The next question is from the line of Sonal Gupta from HSBC Mutual Fund.

Sir, I just wanted to understand, right, like our previous peak was maybe in FY '18, '19, if I recall correctly. And since then, of course, we've crossed. And I just want to understand like over the last 6, 7 years, right, like at that time, Classic used to dominate the volumes now and volume mix is more diversified as well on the domestic side. Could you give us some sense of how the customer profile has really changed? And I mean, like how do you see the customer -- I mean, some sense on the customer profile today really speaking? And what would be the share of top 20 cities in our overall volumes?

Sir, please stay connected. Just give me a moment. Ladies and gentlemen, thank you for patiently holding. We have the management line reconnected. Over to you, sir.

So just -- I mean, like versus, say, last peak in FY '18, '19 to now, we've crossed to a new peak in the domestic market. But I was just trying to understand, like, I mean, versus over the last 6, 7 years, how would the customer profile have shifted, right? Like at that time, Classic used to be really the dominant part of the portfolio. Now it's more diversified as well. And in terms of -- I mean just trying to understand, I mean, like whichever ways you want to segment the customers and how are you looking at the profile now, really speaking in terms of -- I mean like age mix, income mix, anything that you can give?

Yes. At a point of time, in Classic was [indiscernible], which was pulling the full company. At that point of time, the people who are looking at average age would have been almost about 38 to 45. Over the period, we have added products which has actually brought the average age of Royal Enfield customers lower. And when we launched, it actually brought in at more about 24, 26 years as the average age. VTR, when we brought in, that also brought in the younger audience. So more and more, what is happening is the younger audience are coming in. So the average age of the customer profile of Royal Enfield has drastically come down. This is a good sign. That is where the growth is happening. And our first-time buyers has also increased almost close to 19%, all those young guys who are looking at. So all our products, which are now targeted towards more and more younger, youth, cool, that's where the products are coming. That's where the traction is. That's how the average age is also coming down. But some products, maybe Classic 650, if I have to talk about, that won't be at a very young age. Obviously, the average age will be higher because that's a product which is in a way as an upgrade product for people. There, the average age will be slightly higher. If I have to give you some numbers, around 30-plus percentage of the consumers are below 25 years as of now, overall aggregated level, but the product level, we have to see. And another about 60%, 65% will be about below 35 years of age.

Got it, sir. And sir, would you give us a sense of what sort of medium income level would be there for the customer?

Very difficult because we always believe the product and the brand has to be the guy who's actually sitting in the car and the guy who's driving the car, both should aspire to own a Royal Enfield. So it has to be at an accessible price point. I can tell you in other ways, maybe we will do a bit more better and send it to you, is that our finance penetration is also going up. So it is almost now what, 61% is our finance penetration, which is also showing there is a good traction for even the younger audience.

And just lastly, how much would be -- I mean, like how much would top 20 cities be of our volumes now?

On top 20 cities, it will be about 18% to 20%, 22%. That's the range.

Got it. Got it. Great, sir. Thank you so much for answering the questions.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you very much. It's been wonderful talking to all of you guys. As I mentioned, Royal Enfield, both at VECV and at Royal Enfield at Eicher level, we are focused on what we need to do for building the future growth, and we are confident with the current market situation and the kind of product which we are having at Royal Enfield and from VECV, our growth is in the right track. Thank you very much for joining this call.

Thank you.

Thank you.

Thank you. On behalf of Avendus Spark, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.