Greaves Cotton Limited (501455) Earnings Call Transcript & Summary

Yes. Dalpat here. So taking the first question on our CapEx, run rate continues to be on the same rate of around INR 12 crores to INR 15 crores a quarter. So that's going to continue on our CapEx front. Talking about e-mobility, maybe, Arun, you would like to add.

Yes. Yes. So you're absolutely right. The software capability becomes important as the products -- the next-generation products, which will start coming in, will have smarter connectivity features. And Ampere is also working on building that capability, both in-house as well as through smart ecosystem partnerships. And there are certain critical technology areas which we would be investing behind and building significant capabilities. And as we go ahead in the next-generation products, we will add more software and connectivity features on our scooters as well. If you see with Magnus Pro, we started some initial features around -- we had certain software control features like hill assist, which were relatively new in the industry. We came up with a renew feature, which -- limp home mode, which was in the last -- a few percentage of the battery, the product goes into a power save mode so that it can give additional 10 kilometers of range to the customer, which addresses the range anxiety concerns that the vehicle should not stop in the middle of the road. So some of these, we have already started building in, and we're actively working towards further improving the customer experience through software and connectivity features.

The next question is from the line of Rohit Suresh from Samatva Investment.

My first question would be could you give us some update on the CREST engine side? You were [indiscernible] previously with some OEMs in the quarter coming by. So if you could just give some update on that.

Thank you, Mr. Suresh, for your question. The CREST -- the reason why the organization invested in the CREST engine is still very valid. And this engine actually provides a far superior fuel efficiency than any of the conventionalized engines. We are -- it's a future technology. And we are actively working with customers, both in the automotive and nonautomotive space, where fuel efficiency is extremely important. And we hope that we will be able to give you some good news going forward.

Okay. Just I had another question. On the Ampere part, so just regarding the new retail outlets. So what will be the mix? Like few of the outlets have -- or Greaves or service part of -- what would be the mix between the OE pure retail outlet and a combination of the retail plus the aftermarket?

Yes. It's basically dependent on the dealer viability. And in some of the markets where the volumes are good to support stand-alone Ampere dealerships, there, we have expanded to almost 300-plus Ampere-dedicated 2-wheeler dealerships. In addition, like you said, in tier 2, tier 3 markets where independent volumes for 2-wheelers may not provide the necessary viability to the dealer and in areas where our Greaves network is strong, through the Greaves Care network, we are also selling Ampere scooters. So today, if we look at it, I would say that close to 20%, 25% of the sales would be coming from the Greaves Care network, and the remaining sales are coming from the Ampere-dedicated network. And going ahead, we will continue to leverage our complete mobility ecosystems and work on it. And if you look at it, in the past also, we have spoken about the Greaves ecosystem coming into play to boost the entire e-mobility adoption. So we have 10,000-plus mechanics. We have 6,500 retail outlets. There are 180-plus Greaves Care outlets. And this entire ecosystem, in a steady fashion, will start getting configured to support some of the newer initiatives as well. So it -- in a nutshell, it will be a healthy mix of the Ampere stand-alone channel as well as the Greaves ecosystem.

The next question is from the line of [ Manoj ], an individual investor.

Yes. So my question is on EMB segment. So considering that lithium-ion demand is high -- growing fast in India, so what are the measures we have taken to decrease the price of the battery? Because that would take more share from the price or the quote. So yes, that is my question.

Yes. So it's a -- lithium-ion battery prices are falling steadily, and it is helping improve the value proposition of the product. So -- while on an immediate basis, if you look at Ampere's stated objective that we play in the affordable mobility segment, so in the INR 35,000 to INR 80,000, INR 85,000 price bracket. So we remain true to that segment. As the battery prices are reducing, what we have done is, a, we have partnered with certain strategic partners in India so that the battery is locally sourced. That is point number one. Point number two is while maintaining the prices, we are also focusing on localization and better-quality partner for the nonbattery-related products and components and improving the product value proposition in terms of giving a higher range. So at the same price, now the products are giving 10% higher range. So that's how we have been approaching this segment.

Okay. So one more minor question. So are we going for fast-charging solution on the 2-wheeler anytime soon?

So the vehicles, the Magnus Pro and some of the higher-end vehicles are configured for taking faster charge. Having said that, 2-wheelers as a segment is not constrained by the charging infrastructure because it can be charged through conventional charging points in 4 to 5 hours for a lithium-ion battery. So it is not a constraint. But for customer segments who want a faster charge, our products are configured for faster charging as well as swapping as the case may be.

The next question is from the line of Ashutosh Mehta from Edelweiss Financial Services.

Congratulations on a good set of numbers. Sir, my questions are revolving around the CapEx plan. So if you can elaborate on what would be the CapEx -- what is the capacity expansion that we are looking at for Ampere in Southern India. While you have mentioned that the current run rate of INR 12 crores to INR 15 crores per quarter is likely to continue, both for Aurangabad as well as the Southern India plant, is there any additional CapEx that was taken? And while the cost reduction measures, we are looking at a 10% fixed cost reduction, what is the exceptional cost for this restructuring that is likely to be incurred over the next 2 years?

I think -- thank you. There are 2 parts of the question. One is the capacity on the e-mobility side. The second one is the restructuring cost. So let me take the first one. So I think like we've clearly said, when you look back at the last couple of years, as part of the transition, we've gone from 6 plants now to 1 mega site, which is the core Greaves, all the engines manufactured in one mega site in Aurangabad. Actually, it's 2 plant locations there. So -- but one mega location, if I can use that word, in Aurangabad, right, on the engines manufacturing. On the e-mobility side, clearly, with the demand coming in, we are consciously evaluating capacity expansion plans. We are in touch with a lot of state governments. And at the right time, we will be announcing our next set of plans for capacity on the e-mobility side. But the intent is to have a bigger plant in South India. That's the intent. Stay tuned for more details. Now for the restructuring cost?

Yes. So Ashutosh, in fact, this is a related factor. So as we are restructuring the group and consolidating at central locations, there are exceptional costs incurred for the moment. So in the quarter, we had a total exceptional cost of around INR 9 crore on the cost side, and we had a gain of around INR 4 crores. So net impact in the quarter was INR 5 crore. The second part of your question, in terms of next financial year, there will be some exceptional costs, which will come until maybe early part of the next financial year when we shift our -- one of the plants that we are consolidating in the Aurangabad further. So most probably by the first half of the next financial year, we will -- after that, we will not see any exceptional items.

The next question is from the line of Nikhil Upadhyay from Security Investment Management.

Yes. Sir, some of my questions could be quite basic, and I'm joining the call for the first time so pardon me for that. My questions are more on the e-mobility side. One thing which you mentioned that post-COVID, there is a bigger growth or volume adoption, which you are seeing on the e-mobility side from the consumer. So if you can just help me understand what exactly has changed. And secondly, the issues with -- the consumer have regarding the battery operability and the inhibitions, how are you trying to tackle that and improve the product acceptability among the consumers? So what efforts or what things you are doing on the ground to improve those, if you can just help me understand. That is one part. And second is on the profitability side. Just not now, but over a 3- to 5-year period, as I understand, as of now, your promotion cost and the cost of setting up the dealer would be quite high. So how do you see the overall profitability improving from -- for us in this segment over a period? And what kind of volume would you say that probably once we reach these kinds of volume, the profitability will start coming up in the business? So if you can just help me understand the road map in this.

Sure. So taking the first question. Generally, if you look at in the past few months, since the unlock began, the focus on the growth in personal mobility has been much stronger across industry segments, and the consequent impact of that is that the share of mobility has been down. So the 2-wheeler segment has, in general, performed fairly well. Also, what has happened is with some of the newer products, the products are bridging the gaps between the conventional engine-based vehicles versus the electric vehicles. And it's a technology curve which plays, and in the minds of consumer, it's a slow and steady process. Any new technology which comes in, there will be a time span for customer awareness to be built up, challenges like range anxiety, et cetera, to go away. So it will run its course. It won't happen overnight. But we are very confident that in the next 3 to 4 years, the adoption will be much faster. And our efforts are that how do we create the right base through the right channel, right product, right technology investments as well as the ecosystem enablers like service, like financing, et cetera, to be ready as that rapid adoption starts happening. Having said that, the business is still growing 2 to 3x on a regular basis, which we continue to focus on. That is point number one. Point number two around profitability, I think this is something which will play out over a period of time. Today, if you look at it, the industry is investing behind the products, also investing behind component ecosystem in the country through the localization programs. So -- which will have its own impact on the profitability side. But over a period of time, as volumes build up and as the industry matures and the lithium-ion battery prices come down, we believe that this industry will also start delivering profits. So I would kind of leave it at that without getting into absolute numbers. But the profitability in the next 3 to 4 years will start coming in for the e-mobility businesses as well.

Sir, just on the first question. I understand that there is an inhibition and it will go over a period of time. But just taking leave for -- from discussion with some of the competitors like -- who are giving a trial basis for the product for 5, 7 days, and if the consumer doesn't like it, they take the product back or basically either the consumer gets converted into the product. So basically, the whole idea comes down to creating the trials among the consumers. So how are you creating those trials? Or what process you are following so that the trials are happening? Because once trials happen, then only conversion will happen.

Yes so...

So that was where my point was.

Sure. So I think a good point. So if you look at Ampere, Ampere has started becoming very vibrant in the digital marketing ecosystem in terms of creating a brand awareness. The second part is there is also very strong trust on BTL activities in terms of customer camps, customer demos, et cetera. And with COVID, a lot of new initiatives like those step trials, et cetera, have started. So that is helping. The second part is the word of mouth. As the product and technology improves and the customer sees the edge, which Ampere products are able to deliver, it also helps. Now another customer segment is the entire B2B customer segment, where people are using electric mobility for the total cost of ownership advantage. In that segment, we have now 50-plus B2B customers, and there are regular repeat orders from customers where the vehicles run in a fairly heavy use conditions of 100 kilometers plus a day. So the vehicles are able to withstand the use and abuse in the B2B segment, and the horizontal deployment on the retail products also in terms of reliability is helping. Now today, we have almost 75,000-plus retail customers, and the number is growing fairly rapidly. So I would say that a combination of digital marketing, BTL activities and expanding the customer base, both in the retail and B2B side, is helping us and will continue to drive the future volume expansion. So as of now, demand is not a constraint, which we are seeing.

Just one last thing. If you -- as you mentioned, during COVID, we tried the domestic trial basis. If you have to give a conversion rate, so if 100 people are ordering the product, what is the conversion rate? Is it like 50, 60? Or is it still around 20, 30? And over the last 3, 4 years -- I'm not sure since when we've started this program. But since the initiation of the program to now, how has that conversion rate moved? If you can help me with that. Part one. Secondly, on the dealer network. Is the cost of setting up -- so my point is that the dealer which we are setting up should be, I would say -- I would intuitively think that should be a completely new dealer because if it's an existing dealer, it would -- he would see it as a cannibalization of existing brands which he is selling. So how are we going about on the dealer addition there?

Okay. A couple of good questions. So I think when you look at it, right -- let me take it one by one. I think we've increased our phygital efforts. So we have both in physical and digital. Arun touched upon a couple of the digital initiatives. We have seen a 60% growth in organic traffic, right, in the last few months. E-commerce sales have started. We started probably right in the middle of COVID with a new product launch called Magnus Pro, which has been received well. We started a virtual reality-based trials, which then led to a VR-based thing that would be sent to potential customers or dealers, right? And based on that, there were trials, rural demonstrations, capability trials. The conversions are increasing. As it leads to dealers, we are getting dealers -- glad to report that from both all new dealers as well as existing automotive dealers as well as very, very big auto dealers, so the demand, the interest from the dealer community is there and increasing. Last, but not the least, this is the beauty of the ecosystem play that we are playing between both the Ampere retail outlet, plus the Greaves Retail outlet. Keep in mind, when it's a Greaves Retail outlet, you have somebody doing a 3S, spares, plus service, plus sales, right? And depending upon the market, urban or semi-urban or rural, we are covering a lot of ground. And I think that's kind of what you're seeing from overall access to the dealer community, the digital marketing efforts as well as the brand awareness that's increasing. Conventional dealers as well as new dealers are coming into the Ampere fold, and we thank them for their interest.

The next question is from the line of Manish Goyal from Enam Holdings.

I have a couple of questions. First, on the new OEMs acquired. The presentation mentioned one OEM in India. So -- and a global niche small 4-wheeler OEM. So just if you can elaborate more as to what segment these OEMs are for, number one. And number two, on the CREST engine, you did mention that we are likely to announce an OEM soon. Sorry, but sir, we have been hearing this for a pretty long time, and we would really appreciate if you can kind of give us some time lines on that.

Thank you for your question. First, I'll handle the new OEM question. We have signed an MOU with both the domestic and international OEM. And we will make the announcement at an appropriate period of -- appropriate time. But the sales of these vehicles will start in a year, 1.5 years' time. So that is what we can announce at this point of time. Regarding your question on CREST, as I mentioned, the CREST engine, the basic principle of the engine is still valid. It gives us a new technology, and the technology itself is much more efficient than the conventional engines. One thing also I would like to mention to you, yes, the waiting period has been long, but the engine is a little bit ahead of its time. And therefore, when the fuel efficiency norms -- or stringent fuel efficiency norms come into play, this engine will take a lot of traction. And that is the reason why you are seeing a little bit of a delay in the certification of this engine. But we are very, very optimistic about the capability of this engine.

Sure. And on the Euro 6 engine, we had earlier mentioned that we were probably not able to pass on the entire cost simply. And now with the commodity inflation, what we are seeing for the last 2 months, so how do we see that price correction -- when do we see that price correction happening and then seeing our margins coming back to our historical levels?

So the BS -- the transition from BS-IV engine to BS-VI engine have been a tough one for the automotive industry as a whole. And the positive thing is that the engine has been very well accepted in the market, and the performance has been very good. As we go along, once the engine attains maturity, what you will see is a lot of cost reduction, the proper initiatives being undertaken in the material cost aspect of it. Yes, we have been hit by the material cost by -- because of aluminum and steel price increases. But all our contracts with our key customers are indexed with the commodity pricing. And therefore, any increase or decrease in the commodity price is automatically addressed.

That is getting reset now on an annual basis.

Correct. On an annual basis, it gets reset.

Okay. And sir, on the Ampere side, what is the -- so earlier, we were expecting EBITDA breakeven very soon. But we probably see that with sales increasing, the segment losses seems to be going higher. I understand that we are probably in the investing mode as well. But -- and in correlation to that, that now we are looking to further invest in a new plant. So what is the level when we expect the breakeven level and the business to become profitable? And what will be the CapEx for the new plant?

So in terms of profitability, Greaves, you know, is a profit-focused company, and a similar ethos is also being extended to Ampere. Having said that, it's an early-stage industry where still investments in technology, investments in people capability, investments in localization, et cetera, are required. And we are making those necessary investments into the business. So like I said, that has -- over the period of time, as the industry matures, the volumes matures, the profitability will come into this segment. Right now, it is about fortifying the base and ensuring that there are the right products and technologies which are available so that we can improve our market positioning and market share in the segment. So this is one part. The second part about manufacturing, I think we have a plan. And at the right time, we will come back with what is the quantum of CapEx which we are planning. But we are looking at it from a future perspective about how we will build a facility, which is -- which can become a strong mega site for electric 2-wheeler manufacturing for us.

Second, how integrated will this facility be in terms of...

Pardon?

If you can explain us, like will it be more of a mega assembly site? Or we will kind of have some kind of a backward integration. Or if you can give us a perspective on that as well.

So I think as we go ahead, we will talk a bit more about that. Maybe today, it might be cyclical and preliminary to talk about it.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Nagesh for closing comments.

Thank you. Thank you all for taking the time. Again, in summary, in the middle of the pandemic, we continue to focus on our defense plus offense strategy. We continue to take care of the things we control in terms of reducing structural cost, investing in people, technology, process and CapEx where it makes sense. We continue to be focused on profitable growth. Like was mentioned, I think the ethos of profitable growth will continue to drive Greaves. We've always been focused that way. We are getting into newer green shoot or green areas, which are -- which is the future. In this [indiscernible] world, we are focusing a lot of newer opportunities, and the newer businesses are beginning to show the results that we started with our original strategy 3, 4 years ago, which we said we wanted to get closer to the consumer, we wanted to make sure that we go through the entire life cycle value extraction, we wanted to get from organized to unorganized, we wanted to go from a product-only company to a product and a solutions and a services company. With that summary, I thank you all for your time. We will be happy to answer questions off-line or take any individual conversations off-line. Thank you so much. Have a great day.

Thank you. On behalf of Greaves Cotton Limited, we thank you once again. Stay safe. With this, we conclude this investor call. Thank you for joining us.