Greaves Cotton Limited (501455) Earnings Call Transcript & Summary

Ladies and gentlemen, Good day, and welcome to the Greaves Cotton Limited Q2 FY '22 Earnings Conference Call. From the management, we have with us Nagesh Basavanhalli, Group CEO and MD; and Dalpat Jain, Group CFO. [Operator Instructions] Please note -- I would now like to hand the conference over to Mr. Nagesh Basavanhalli, Group CEO and MD of Greaves Cotton Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everybody. I hope everybody is doing well, staying safe. I welcome to you all to the Greaves Cotton Q2 FY '22 Earnings Call. Let me begin by giving you a little bit of an overview on the business. And Mr. Jain, our CFO, will give you through the financials. As some of you recall, we started on a diversification journey from a single customer, single-player, single industry 4 years ago. So where are we today? Our diversification strategy has positively paid off. There is a consolidated revenue growth of 13%. Getting into the key highlights, New Business continues to accelerate. New Business now accounts 40% plus -- 4 0 percent plus contribution in terms of the overall business. As you may recall, in the last quarterly call, we had talked about the restructuring of the group into Greaves Engines, Greaves Electric Mobility, Greaves Retail, 3 primary business and 2 small enabler business. But when we -- so let's talk about the 3 primary businesses. Greaves Electric Mobility records an 85% increase in volume, 111% revenue growth in Q2 FY '22 versus the previous year. In terms of the Greaves Retail AutoEVmart, which is one of the earliest multi-brand EV players in the country was launched this past quarter, and it's receiving very good inputs. Restructuring and consolidation, efficiencies, which we've been working on for the last 4 quarters, are expected to result in an annualized fixed cost reduction, and later we'll talk about that. With new products, financing and higher demand coming from growing network, Ampere and Greaves Electric Mobility. And in Greaves Electric Mobility, today, we have Ampere, which is 2-wheeler, E-Rickshaw ELE brand and we have the MLR. And in the case of October, we are seeing good traction as well in addition to the best ever quarter, the previous quarter. We've also invested more than INR 300 crores into the Greaves Electric Vehicle business. So -- and we will continue to keep looking at forward-looking businesses and how to drive future growth. Then when we look at it in terms of 3-wheelers, this past quarter, we have completed the acquisition of MLR Auto, which gives us access to L5 cargo and passenger 3-wheeler; ELE E-Rickshaw. With this, we have strengthened our position to become one of the largest players now catering to roughly 85% of the last mile mobility segment. We will continue to mobilize India, generate gainful employment for lower end of the pyramid, especially with our E 3-wheeler users as well as contribute towards building the nation responsibly. Greaves Electric Mobility now accounts for 25% of the overall revenue. Auto Engines or Auto Engine segment has had short-term challenges post COVID 1 and 2, and that -- we are watching that segment very carefully for a recovery going forward. We are happy to also say that the other businesses, non-auto engines business as well as the Greaves Retail Businesses, have seen growth. In the past quarter, we have also launched a high-speed E 2-wheeler, Magnus, MPR -- from the MPR portfolio, which is the Magnus EX with 100-plus kilometer range and which is a comfortable family scooter. With this extended range and now Ampere being available in diverse segments, both in the B2B and B2C sides, we have a good coverage This, along with other ecosystem force multipliers, whether it's spares or service or financing, we believe this all goes well for the Greaves Electric Mobility. We have also talked about a Ranipet factory, which is our mega site, and that's coming out well. And we believe it is slightly ahead of schedule, and we believe this will help us scale volumes and make Greaves Electric Mobility where we really need to go. Commercial production, in this case, will follow shortly. We've also talked about the AutoEVmart and the strategy to electrify India and get into multi-brand vehicle. With this, let me hand it over to Mr. Dalpat Jain, our CFO, to go over the financials. Thank you very much.

Thank you, Nagesh. Good afternoon, everyone. As Nagesh has described, the company is going through a transformation where we are saying -- we are seeing our core business have an impact on its revenue, but other businesses are fueling the growth. So in the quarter, we had a consolidated revenue of INR 374 crores, which is a 13% growth over last year's same quarter, and 63% growth compared to preceding quarter, that is Q1 of FY '22. Out of the 4 business units that we have, the 3 that was Non-Auto, the Retail Solutions and E-Mobility reported healthy growth year-on-year. E-Mobility grew by 111%. Retail Solutions had a 27% growth and Non-Auto had a 33% revenue growth. Auto engines continue to have the impact of surplus inventory, which was there at the OEM end and the impact of post-COVID impact on shared mobility. So there, we had a E-growth of 57%. Our focus on working capital and cash management help in generating a INR 35 crore of free cash flow during the quarter. We ended the quarter with INR 265 crores of cash and cash equivalents. In terms of share of E-Mobility, now it's almost 24% to 25% of the company's revenue, and its volume as well as revenue are growing month-over-month as we progress. The demand is quite high in this particular segment. The restructuring exercise company had undertaken over the last 3 years has started yielding results on the cost base. Compared to FY '20's cost, the overall annualized fixed cost has reduced by INR 45 crores, and that is getting reflected in the P&L. So breakeven point for the engines has come down with that. Company's focus on the New Businesses, particularly in the E-Mobility space will continue. The investments that we have made so far, as Nagesh mentioned, are INR 300 crores, and company committed to further investment as we go forward. The couple of developments post quarter end. Company subscribed to 26% equity in MLR Auto. And with that, we have got the presence in L5 segment. And company also completed the acquisition of remaining 26% stake in Bestway which has presence in E- Rickshaw under ELE brand. So with that, we have further strengthened our E-Mobility portfolio. With this, I'll open the floor for questions. And both Nagesh and I will be happy to take up any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus Securities.

So firstly, On the Electric Mobility side, 2-wheeler side, volume is around 10,000 for the quarter. What was the share of the high speed? Because if I look at the vahan data, the volumes are not much so -- is the mix more [indiscernible] this quarter?

So Ashutosh, 2 factors. The vahan data speaks about the retail sales. And in the quarter 1, as we had seen because of COVID-led shutdown, the primary sale could not happen, and that led to a shortage of high speed at the secondary end. In the quarter, we high-speed at almost 30% share of the total volume, and we are picking up further on the high-speed production. So that share will increase as we move forward in the third and fourth quarter. So that -- these are the factors between the volume that we have in our presentation versus the vahan data.

Okay. So incrementally, the share of this high speed will further increase from October and all. Is that correct assumption?

That's correct. That's correct. So month-on-month, between July, August, September, this has increased. The average is 30% that I spoke about. And as we move forward, it is further increasing with the focus on the high speed production. And localization major part having completed now, our supply chain support partners are also getting stable.

Okay. And which part is mainly facing issue in terms of shortage?

Those are chip-led parts, so particularly cluster. So some of the specific components, there was a problem in the past quarter. Nagesh, you want to add?

Yes. So yes, so I think big picture, High speed is going to increase. I think the trend we are seeing month-on-month like Dalpat said, October, where we've already recorded, I think it's in the deck, recorded over 5,000 plus sales. High speed is a much higher percentage than we have seen in the past. And localization, a lot of the hard work is done with our partners here. Supply chain remains a concern globally for a lot of the industry, not just us. And we are dealing with the people, either the chips, the ECUs, basically, a lot of the components that we can work with Tier 2, Tier 3. So we are doing what we can to look at the needs, not just for 1 month but also for the next 12 months and how do we manage that. So our supply chain teams are very active. We are definitely a very high percentage of localization, but some of our Tier 1s have supplies coming from outside and in some of this constrained environment. So we are managing that. That is one risk we are managing right now. But demand continues to be very high, both for high speed and low speed, and it's very evident with what we are seeing in the field.

Sir Nagesh, you mentioned that in October and all that -- high speed provision has gone up and not. So is it like -- now more than 40%, 50% of sales is coming from there -- volume basically.

Yes, so it's early days. As you can imagine, it's not even -- it's still 26. Yes, the trend is there. The good news is Magnus has been received very well. There is a wait list for Magnus. And now with the addition of Magnus EX, we have a longer wait list. So the demand is much higher. And yes, high-speed demand is there, and it will continue to increase. I don't want to give a percentage right now, but in the next couple of days, once we close the month, we'll know. But yes, it is definitely increasing, and you should see that trend

And lastly, the losses [indiscernible] could have been widened. One is that option that take increase in this option. But where did you exclude that INR 7.7 crores. And first is that, where is that recorded that cost item. And in the remote [indiscernible] a loss of, say, INR 12 crores, INR 13 crores. So how do you look at the losses in this business going ahead?

Yes. So 2 factors in Q2 in terms of the E-Mobility losses. One, the option where the final transaction is completed now. The differential of the valuation has got accounted in the other expenses, and that's an impact of around INR 8.5 crores, including the expenses which are incurred related to that transaction. So that -- once we exclude that, there is a loss and that loss is because of the interest -- the investment, which has gone in the people, the structure to have the higher revenue because, quarter-on-quarter, the traction is very high. And we have readied our infrastructure, the people and marketing expense to lead to that higher revenue growth. And the third factor is the commodity price increases and impact on the RMP. So the gross margins have been lesser than what we had in the same quarter of the last year. So 2% impact has been because of this commodity price increase, which will neutralize as we go in the coming quarters.

The next question is from the line of Ashwin Agarwal from Akash Ganga Investments.

Yes. Sir, I just wanted to get a confirmation about the segmentation. Can you just give us the wide area scope about the year 1 volumes in Tier 2, Tier 3 volumes about E-Mobility.

Ashwin, we don't give the breakup, but we have given the segment level volumes in our investor presentation, what will be total 2-wheeler volume, 3-wheeler volumes. The 2-wheelers was at around 10,000 plus in the quarter. We have equally spread out network across India and our distribution between Tier 1, Tier 2, Tier 3 is fairly equi-split. So I would say between passenger and cargo, we have 55% but that is for 3-wheelers between 55-45. And rural versus urban is 70-30. So 70% of the revenue of our sales is in the Tier 2 and Tier 3. 30% is in the Tier 1.

Okay. And my second question is, like as our nearby competitor, has been spending a lot of cash burn to regenerate this type of this market growing on. So have we all been planning for any cash burn or rate of any direction?

So Ashwin, as you know, we have enough cash flow and a strong balance sheet. Whatever is required for the business, we are going to have the needful resources. But at the same time, Greaves has always been very focused on the right profitability and the cash flow. So we are not going to have a cash burn for the sake of it. We are going to invest behind marketing people to have a long-term growth but, at the same time, focusing on the profitability as early as possible.

The next question is from the line of Vimal Gohil from Union Mutual Fund.

Dalpat, the first question is for you. If you can just -- I couldn't find out our regular [indiscernible] around the segment revenue breakup. If you can just help me what would be the contribution from engines, aftermarket, E-Mobility and others.

Sure. It's there in our investor presentation Vimal, but in the quarter, the E-Mobility had a total revenue of INR 90 crores out of INR 374 crores. The Retail Solutions had INR 88 crores of quarterly revenue and balance was from Greaves Engines.

Okay. And aftermarket?

That's our Retail Solutions, aftermarket plus BS-VI, so that Retail Solution, which was INR 88 crores in the quarter.

Okay. Engines you said was INR 90 crores right?

E-Mobility, INR 90 crores and balance out of INR 374 crores is the Engine. So INR 180 between these 2 segments and remaining INR 190 crores in the Engine.

Right. Okay. The second question is on the high-speed segment. You said that this quarter, it was 30%. What was the number for Q1 FY '21 and Q -- I'm sorry, Q2 FY '21 and Q1 FY '22 last quarter in last year?

So Q2 FY '22, as you know, the high-speed was very low. I don't remember, but until H1 of last year, we were at close to 15%, 20% in high speed. Q4 last financial year, we were at 40%. Q1 this year was impacted by COVID.So from primary sales perspective, there was nothing in that. COVID, in fact, also had impact on our supply chain, and that is where local supplier base got impacted with the one overall supply issues, which are led by the global chip issues. And that is where the share of high-speed in quarter 2 was at 30%. But like Nagesh mentioned, with the increased focus on the high-speed, we are seeing month-on-month growth and higher manufacturing of the high-speed vehicles.

So basically, if I were to look at the trend in first half of FY '21, you were at 15,20. You reached 40. For Q1, you were -- it was negligible. For Q2, it was at 30. And now you expect it to go to whatever, 50, whatever.

Yes. And just to add to that, just for memory refresh sake, Q1, because of Coimbatore, having a very bad COVID influx, our plants were down for 8 weeks. 8 out of the 12 weeks, we were down. right? So Q1 in that sense was an aberration. But yes, the overall trend that you touched upon is correct.

Okay. So if I were to look at the wholesale market share, okay, our total market share in Electri-vehicle if you could just give me some numbers on Q2 or H2 of FY '22.

So Vimal, this is our -- the public data on vahan, FADA and some of the internal data that we have -- our total share in Q2 was at around 15% in 2-wheelers, including both high-speed and slow-speed.

15% quarter-on-quarter. Got it. And okay, okay. So it is pretty much in line with what you had done in FY '21, the full year of FY '21. You have maintained your market share

That's correct. In Q2, we are back to the similar level with good segments together.

Okay. Fair enough. And sir, last question was on Genset, so this Government of India is paper on reducing your emissions due to your Gensets, so what is our recourse for this? How do we sort of get impacted because of these numbers because Gensets I believe is a good contributor and it has been felt. So how do we -- what are our plans? So some of our larger competitors have announced that they will be looking at the assets which are made for -- from renewable energy, et cetera. So what are our plans to [indiscernible] for Gensets.

For Gensets?

Yes.

So about 4 years ago, when we started the diversification, right, we said we will go to a pre-agnostic approach. Obviously, in Auto Engines, we have seen that. In Non-Auto also, it will follow. And clearly, we are well aware. And like you're saying, I think we've seen a good uptick on Genset's sales, especially in the last couple of quarters with hospitals in this. And we will continue to evolve that technology -- as we go forward, we clearly are committed. We are working on the CPC before. In fact, we will be ready at the time. And that technology and the fuel type also we will continue to work and we will deal with any regulations that may come up.

So what you're saying is that basically, would be in line with your lower emissions teams to the technology that will come up will probably not be impact -- will not get -- this particular business will not get as impacted going forward because...

We'll continue to -- yes, we'll continue to keep investing in newer technologies like we have done on the auto side. That's the point, yes.

Right. Sir. And if I could push in one more. Sir, in H1 of FY '22, what was the CapEx that had went into Ranipet.

Ranipet total CapEx, so far, we spent is around INR 8 crores.

Okay. Okay. This is the total CapEx in Ranipet?

The actual spend that I'm talking about, the actual cash flow.

And by the end of the year, how do we -- how much do we expect to spend here?

Vimal, I'm not in a position to answer this right now. As you know, we don't give the forward guidance. Overall CapEx plan for the business, as we have told earlier also, total investment in the business, we are going to upward to INR 700 crores. INR 300 crore, we have -- more than INR 300 crores we have already invested in the business so far.

Right. But that INR 700 crores was -- anyways that was 10 years but yes.

Over the period of 10 years out of this INR 300 crores have got invested and a lot of it will be front ended every year as spoken earlier.

The next question is from the line of Ashutosh Tiwari from Equirus Securities. [Operator Instructions]

So on this Non-Auto engine volumes, I think there is a fall in Y-o-Y. Is it the COVID impact? Or are you seeing that some stagnation is coming through in this segment? And how should we look at going ahead?

Two parts, Genset has seen a very healthy growth. And because of that overall pricing mix of the business, we would have seen the volume versus revenue growth is far higher than the Non-Auto. In the other segment, which is in the farm equipment in May, there was a onetime impact last year. Because of the lockdown in the first quarter, there was a pent-up demand, which led to a high volume in the month of July and August. In the current year, the -- though the lockdown was there, but at the same time, they were -- as you know, the quarter 1 revenue numbers were much better in the Non-Auto. So volume overall to Non-Auto, we should look at from the half year perspective. And we expect the volumes to go up. Second issue was on the farm equipment, where some of the products were imported. And there has been ban on the import-linked product. So now we have tied up with the local manufacturer, and that volume will start from quarter 3.

This is related to farm equipment, you said.

That's correct.

Okay. Okay. Now regarding Non-Auto engines, which are using [indiscernible] all. So there, the drop is not related to rural, right?

No, there a drop is related to the pent-up, as I mentioned, in the quarter 1 of last year, last year was complete lockdown. So quarter 2 had a onetime impact. This year, that is spread out between quarter 1 and quarter 2.

And secondly, on this electric 3-wheeler side, probably we are doing 1,000 units per month right now. So which -- let's say, which states you're seeing better traction? And how do you see this whole space or next 2, 3 years? How do you see the volume ramping up in this initial segment? And also you acquired Teja brand for this L5 Auto. So what is the plan or the -- I mean, 1 to 3 years period?

Sure. Ashutosh, I will say on the first part of your question about the traction. So it's the eastern and the northern state where we see the highest traction and the growth in the West land of UP, Bihar. So that's the right where E-Rickshaws are very popular, and we are seeing a good growth coming in from these states. Primarily, the segment is catering to the guy were having and rickshaw or the cycle rickshaw. They are now moving up to a E-Rickshaw and we are able -- the person who was earning less than INR 100 a day. Now with the E-Rickshaw will be able to earn more than INR 300 crore, INR 400. So that's a segment which is getting converted to what E-Rickshaw. On the long-term part and the volumes, this is one of the segments which is having the highest penetration of E-Rickshaws. I will let Nagesh talk about the reason and the strategy which we have towards E-Rickshaw as well as the L5 data that we have acquired now.

So let me start with the E-Rickshaw. E-Rickshaw itself at the bottom of the pyramid, I think it's a great success story. I mean there is obviously unorganized players and organized players. Amongst the organized space, we're one of the serious players in the top 3, top 4 players, right? So -- and that the market share continues to grow, right, in the E-Rickshaw market. And we are seeing the monthly trend go in terms of 1,000-plus units of sales, that's been talked about, right? When you look at the monthly average from almost nothing, now we have grown like 3, 4x, right, in terms of where the monthly average run rates are, right? The volumes also have grown in terms of the -- roughly the 1,000-plus units that I was talking about, right? Where do we see the sales? It's obviously in the North, in the East and a very strong focus in terms of lives and livelihoods. Right after COVID 2, also, we saw a lot of traction. Financing is a key part in this. And I think with additional financing, this segment will continue to blossom. Longer-term, in terms your other question, we see this market transition between their asset to also lithium ion model, right, and some of the unorganized players moving away and organized players getting a lot more traction. The expected CAGR will be good. We believe the CAGR in this segment because it's again lives and livelihoods. And at the end of the day, if you look at any of the analysis, right, third-party analysis, the E-Rickshaw part continues to grow. And I think we are well positioned in this. We saw this early. Just like the 2-wheeler, we saw this trend early, and we are, I think, in a good position to capture the growth there. Now coming to the Teja the 3-wheeler. So this was part of our strategy, right? We started with 2-wheeler. And then we moved to E-Rickshaw. Now the last piece was the E3-wheeler, which is really the MLR brand, right? And we're just getting started. We just closed that a couple of days ago. So I think as we look forward into Q3 and Q4, you're going to see a lot more action there in terms of the E 3-wheeler -- Electric 3-wheeler as well as the traditional 3-wheeler sales there. as we go forward. Again, there, financing will play a key and building the dealerships will be the key. So some things that I think Greaves Cotton has done well or Greaves mobility has done well. So we are quite confident when you look at both 2-wheeler plus 3-wheeler, that this addresses pretty much with our platforms now being available on 2-wheeler, E-Rickshaw, on 3-wheeler. For both B2B and B2C application, it addresses a very wide market that's growing.

So will you use the same ELE network for this as well? Teja vehicles.

In no -- simple answer is no. We have their exclusive E-Rickshaw network, which is very, very strong in the North and the East. Some of the Greaves Care stores due to synergies are selling that. But clearly, Greaves Retail and MLR will have their own network that we are leveraging the Greaves Retail for. So that's where some of the other synergies will come. So -- but E-Rickshaw and E-Auto will probably be in 2 different channels. So in summary, Greaves Electric Mobility will have the Ampere, which is the 2-wheeler brand; E-Rickshaw, which is the ELE brand; and then the E-Auto will obviously be that MLR brand.

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

My question was actually on the E3-wheeler side, and part of my inquiries have been asked before. On the EV 2-wheeler side, we have seen this evolution from lead acid to mainly lithium ion and also now from mainly low speed to an increasing share of high-speed. But within 3-wheelers, again, I think it started mainly as a lead acid thing and the E-Rickshaw is not really, I think, a comparable product to the auto rickshaw we have, it is the E-Auto, if I'm not mistaken. So can you give us a sense of within the electric 3-wheeler industry? What is the broad share between lead acid and lithium? And also what is the share between the really small, slow speed E-Rickshaw and E-Auto? And how is it trending?

So Amyn, you are right in terms of the evolution. In 3-wheelers also, the segment has started with the lead acid technology. And today, in E-Rickshaw, we have 95% share of lead acid vehicle. And that trend is changing. More and more, we are getting customers coming for lithium ion batteries as we go forward. So with the change, obviously, there is a higher price difference between both, and that price difference is almost 20% to 25%. But we have seen increasingly consumers are coming for the lithium ion batteries, and that share will go up as we move forward. Today in the 2-wheelers, as you know, it's almost 50-50 and even in some cases, 60-40, 60% in favor of lithium ion. So that journey will be taken in E-Rickshaw also. Also the auto is the right comparable -- or E-Auto is the right comparable product, and that is where our entry into MLR. So with MLR, these are going to have presence in the through auto segment also. Today, it's a niche segment in terms of penetration of electric vehicles is very small. I would say less than 5%, Nagesh? In terms of E-Auto. So that penetration will increase with the products coming in from various OEMs. And MLR has the early entry over there with the ARI certified products. So hopefully, we will be able to make -- increase the penetration out there with the lithium ion as well as lead acid battery products.

Understood. And on the lithium and on the E-Auto side, it is mostly the organized players who will be fighting it out, right? I mean you are there. And I'm guessing we'll see entry from, say, the Bajaj's and TVS's where an E-Rickshaw will remain more of an unorganized segment I mean with you there, but mostly unorganized.

Amyn, there are few players in the organized sector right now. We are the second largest and moving towards the largest in the E-Rickshaw organized segment. The e-segment was 90% dominated by unorganized 3 years back. Today, unorganized share has come down to 62% and 32% or 38% is with the organized. As we move forward, we are expecting the share of organized increases. And within that, with ELE, we are bringing in new products with the better technologies to increase our share, which is in single digit today.

And if I can just add. In summary, if you look at what we have done, right, we started with the electric 2-wheeler about 3-plus years ago, right, before all the hype on electric 2-wheeler started because we were convinced that the shift was happening, disruption was happening, unit economics was going to get improved. Similarly, the E-Rickshaw trend, we caught it early. So the 2-wheeler trend, we were there early. E-Rickshaw trend, we were there early. And we also hope, on the E-Auto, we are going to [indiscernible], right? So the idea is, whether it's lead acid or lithium, whether it is the sub segments, the high-speed, low-speed or the 2-wheeler or the lead acid versus lithium, our teams have caught the trends early. And I think that is helping us grow from almost a non-existing base or a very, very, very low base, right? And that's kind of how we see. And we're gaining valuable information in terms of customers, duty cycle, what works, what doesn't work. And I'm glad to report that our products are getting very good traction from the customers, both, B2C and B2B. So I think that probably gives you a little more bigger picture.

The next question is from the line of Ashvath Rajan from ULJK Financial Services. Sorry to interrupt sir, may I please request you to speak a bit louder. Your audio not clearly audible.

Am I audible now?

This is better.

Yes, I wanted to get some clarity on the current tax of INR 4.1 Crs. which is a loss of INR 1.98 Crs. Can you shed some light on that?

Sorry, I could not hear the question clearly.

Sir, I wanted to get some clarity on the current tax of INR 4.12 Crs which is huge [indiscernible] a loss of INR 1.98 Crs on the balance sheet. So could you shed some light on the current tax asset?

That's the advanced tax because, as you know, the advanced tax is paid basically projected profit for the full year. So we have made the proportionate advanced tax payment in June and September on the projected profit of the year, whereas the profit is going to be in the second half.

The next question is from the line of Abhishek from SkyRidge Wealth.

Yes. Yes. Am I audible?

Yes.

So sir, my first question is regarding your higher other expenses. I know you spoke about this but now line was not clear at the moment. So can you talk about it again about higher other expenses?

I'm sorry, there was echo on your line at the last. We could not hear the question clearly.

If you could talk a little about your higher other expenses. I know you spoke about it earlier, but I had some trouble with my line.

So in the other expenses, there are 2 factors at consolidated level. One, there is INR 18.5 crores of onetime expense due to fair value adjustment of 26% call option that we exercised for Bestway. Our wholly-owned subsidiary, drills electric mobility exercised the option. So the difference between the originally considered value versus what is paid now, that has been routed to P&L. So that INR 8.5 crores onetime impact. The balance increase is due to the expansion of the people, marketing expense and the infrastructure in E-Mobility, which is geared for far higher revenue. And we are seeing quarter-on-quarter revenue growth as is reported in quarter 4 to quarter 2. So the people and the infrastructure, we have so much higher revenue, where cost is getting incurred earlier [indiscernible].

Sir, my second question is regarding your stand-alone EBITDA margin. Sir, can we expect some improvement going forward? And are you able to pass on our cost increases to the customers?

Yes. So there are 2 factors which will lead, one overall revenue. As we know, if you look at the last year's trend also, the third and fourth quarters have a better revenue because of season part as well as we are seeing the post-COVID normalcy coming in. And that will have a natural expansion. The second part, some of the initiatives which are taken up by the company to restructure businesses, consolidate Auto and Non-Auto is going to lead to almost 7% to 8% reduction in the fixed overhead, and that deficiency will kick in from the month of December onwards. So that's the second part, which will help in expansion of margin. And third is raw material cost, where the commodity price increases have impacted the R&C. Now with the vendors, the price settlement happens on a quarterly basis, whereas with the customers, particularly in the OEM, we have yearly-price settlement contracts. Some of those price settlement contracts are 1of October and first of December as the restatement date. So these factors will help in margin improvement as we go in quarter 3 and quarter 4.

That was very helpful. And sir, my last question is regarding your Auto segment. Are we seeing Auto coming back? Because I know we had struggled with Auto volumes in Q1 and Q2.

Auto, definitely, we are seeing the traction there are 2 factors. One, before the second wave of COVID in the March and April, we have seen the business getting normalized. So most of the OEMs had purchased and build their inventory. With the sudden lockdown, that inventory remained in the dealer channel and at the OEM front. Post the lockdown opened, the first batch inventory which was there in the channel that got regulated. And now, OEMs have started demanding the -- from the suppliers like us on the engine front. So to that extent, there is going to be recovery as we go forward. And though the demand will not come back to what it was at the pre-COVID level with the overall impact on the diesel but we expect volumes to come back at least to the last year's lower as we go forward. And one more part, to company actually [indiscernible] in 2017, and that is where we strategize to move towards E-Mobility. Also the plant consolidation and business restructuring has started. So though I spoke about quarter 4 additional reduction from the current level, but as you would have noticed in the quarter 2 and quarter -- first half, already almost 12% cost has got reduced compared to what it was in 2020. So that plant consolidation and business restructuring at aggregate level, we will have a 16% to 17% reduction compared to FY '20's cost level, and that will completely come in the next financial year versus FY '20.

Yes. Just to add to that, in addition to the efficiency on restructuring, what the CFO covered, keep in mind, as part of this also is the diversification strategy. So one is the defense another one is offense. Dalpat talked about the defense which consolidation gave us a 16-plus percent, right? On the offense, obviously, Auto Engines, we expect the diesel engine to go down. We invested in CNG and in electric. Then Non-Auto engines was a diversification, now with the Greaves Electric Mobility and the Greaves Retail. So I think that's kind of where 3 out of the 4 businesses right now are continuing to show growth. And we hope, on the Auto Engine side, things will pick up post-pandemic.

The next question is from the line of Pramod Amthe from InCred Capital.

First is, just wanted to know what is your current local sourcing and what type of imports and what you import, I wanted to know about that. Second is considering the fact that there are some challenges in sourcing from China with the recent shutdown, so are you going to face any challenges in the short-term for ramping up to meet the demand on the production front?

Yes. So first part of your question, in terms of localization, the initiatives that company took, we are in compliance with the same guidelines for the high-speed vehicles. So almost all the products, the supply chain is localized. Lithium cells, which are not there in India as of now, that continues to be imported and the battery pack management -- sorry battery packs are done by the Indian suppliers. So that's to answer on your localization part, where high-speed vehicles are more or less now localized. Low speed, some component will continue to import. The second part, in terms of supply chain issues yes, that's something which is continuing. We saw that in quarter 2. The demand was far higher than the volumes that we have reported. It is the supply chain issues which impacted some of the production and the demand could not be completely fulfilled. We are working with various supply partners, and we are confident that volumes, will be able to increase from here on. And quarter 3 and quarter 4, we are going to see a much higher volume compared to what we have seen in quarter 2. But at the same time, supply chain-related issues is one of the key monitorable in the E-Mobility businesses for us.

But when you say the localization, you are the same on sales at about Tier 1 or Tier 2, right? There are a lot of components which come at Tier 3 levels still have imports. So when you look at overall in system, does it will still have a large proportion bearing on the including sale, the import component. Is that a clear understanding?

For high-speed, I would say that other than lithium cells, there is no significant part, which is a part of the imported component. Most of it is already localized.

And the other question is, you guys have been playing the active role in doing the domestic M&A and also consolidating the industry. I wanted to know, looking at the -- your product strategy for the next 5 years, do you see a need to do any international acquisitions which can help you to strengthen your product portfolio or the sourcing strategies globally to take it to a next level?

It's difficult to answer, though, as you know, these are part and parcel of the expansion strategy that company continues to pursue. And with the management and Board's consideration, we continue to look at all the options which are available. The company will do everything that is required in terms of its technology superiority, acquiring the right know-how, but difficult to comment. Right now, there is nothing which is at the -- where I can talk about the specific target.

The next question is from the line of Karthikeyan from Suyash Advisers.

I had a couple of questions for Dalpat. One is can you talk about your experience in terms of same subsidies collection? And what time lines are you looking at currently? Another question would be, can you also profile your current set of customers for the high-speed vehicles? You said higher percentage is coming from Tier 2 and 3. Can you profile these customers?

Let me take the first question about the subsidy. So it's a cycle which is now well settled, whereas a process, once the secondary fill happen, we'll have submit the document and within -- so it's the entire cycle of 60 to 90 days, within which the money comes to the manufacturer's account. So that's on the first part in terms of subsidy, Second part, in terms of the customer profile, as I mentioned, 70% is in the Tier 2, Tier 3 towns. But at the same time, it is the millennial, and I would request Nagesh to add on to the consumer profile part.

Yes. So I think we've been quite fortunate that we have 2 types of customers at outset, B2B and B2C. B2B is our application-specific engineered products, where we are providing vehicles to either rideshare carriers or cargo movers and stuff like that, right? On the B2C, we are seeing actually, we had a very good day. Last week, we have 500-plus retails in a 1 single day, right? Our Magnus EX has been very well received, which is extended range 100-plus that was launched 1.5 weeks ago, right? Our Magnus has had a wait list at our dealers right now, right? And the typical customer is anywhere between the young millennials, the Gen Z on one hand, right? On the other hand, we're also seeing office goers and people with family because our seats are wider. Range is good. Reliability is good, and we are seeing a lot of traction in that sector as well. So all in all, I think our looks -- design is good. So we are seeing a lot of traction on both the B2C and B2B as we speak. That's kind of at a high level. And then when you look at website analytics, 1 and 2 user is below 34 years old. Top 5 states contribute to almost 73% of our traffic. And we are seeing some very, very interesting dynamics because a lot of first-time buyers are coming in and buying this product. First time, I'm talking about first time to a 2-wheeler. So we are bringing in a new set of audience to this, and that's what excites us, and the demand is far higher.

And what is the price sensitivity of the customer in your assessment?

Price sensitivity, keep in mind, over the years, and we have -- I think this is very well demonstrated. Our average ASP has gone up, right? From almost INR 40,000, INR 35,000, INR 40,000 to now about all almost INR 66000-plus, right? So -- and we also have a good range of products from the lower end, slow speed to the higher end, right? And depending on that, of course, the customer...

Sorry to interrupt. I was asking a specifically on the high-speed vehicles.

On the high-speed, specifically with the subsidiary and with the value addition, I think the -- actually, our vehicles are slightly higher priced compared to the immediate -- so it is -- we believe we have the right value proposition. And the demand far exceeding the supply is probably also an indication of where the pricing is there.

And prices are expected to come down with time with the battery technologies changing, and it's coming in India. So Indian consumer, as you know, is a value-conscious consumer. So our focus is always to provide the product at the right price point, and that's the USP on which Ampere continues to work. The other thing is, keep in mind, Ampere real electric mobility plays in the heart of the market, the belly of the market, right? And so while opposed into, in general, the industry may have seen prices going down, our sales have gone up our ASP has gone up. right? Our value proposition has only improved. And I think you'll see more of this as we go forward.

Okay. One last question. I will need your perspective on this, which is I have heard a start-up -- I would say start-up being somewhat the company's mid-term progress. Retrofitting E-Rickshaw with lithium ion battery, these are -- do you see that as a threat to the organized players? Because in a certain sense, the large population becomes a real target to convert, your current impression about this particular thing.

I look at it slightly differently. Every -- this is an opportunity. The market size, when you look at 2-wheelers, about 20-something million pre-COVID. The market size for the 3-wheeler is obviously another couple of million when you also had E-Rickshaw, right? When I look at it at any point of time now, this is where our fundamental business model has. While Ampere is interested or Greaves E-Mobility is interested in growing the new vehicle sales, Greaves Retail which does servicing multi-brand service, multi-brand spares, multi-brand retail is also, from time to time, looking at retrofit also as an option because we are already talking. Are we doing that today? To a big extent, we are not because it's also a commercially viable proposition. But that's something that we have been exploring for a while. And if the right opportunity and the right technology comes in, we see ourselves through our Greaves Retail outlets, right? Going after that. It, again, gets back to the right value proposition, right? It is the right value proposition there for the customer to pay that extra INR 1,000 or whatever it is. And will that -- is there an ROI for that. That's why today, the market is still struggling on that. In fact, we have been watching the segment very closely. And if it takes off from a commercialization, you will see a participation on retail, Greaves Retail. But I don't see no plans, to your question. I don't see the market size [indiscernible] the Greaves Electric Mobility. Demand should not be impacted business.

The next question is from the line of Vimal Gohil of Union Mutual Fund.

Yes. So sir, in the last conference call, you indicated that currently Coimbatore has the capacity for about 5,000 units per month. And if I want to put of annualized -- I mean if I want to look at the quarterly numbers, we have -- and this is only for 2-wheelers, yes? So for the quarter, we have done about 10,000. So if I were to assume that you had the capacity -- available capacity of 15,000 and you've operated at 10,000, so would this purely be because of shortage? Or what would be the reason for sort of operating at slightly lower capacity utilization?

Yes, Vimal you're right, it was primarily because of the supply chain issues, where a shortage of one part of the other impacted the overall production.

Yes. Dalpat, just following up on the previous question that I asked on the breakup of your revenue, I think that in the earlier quarter, you used to also give out a segment, which is others, which included the revenue from [indiscernible] , et cetera. So if can you just give me the breakup in the first half from engines and others, is that possible?

I will maybe talk to you on that because right now, our 3 main pillars of the business, how we have restructured is these engines, which includes all the engines as well as the other equipment associated with engines. And Greaves Retail is mainly from aftermarket and Greaves Care use retail.

The next question is from the line of Jagannathan, Individual Investor.

Yes, am I audible?

Yes.

Yes sir, you are.

Mr. Nagesh comments on launching the Magnus EX happens also to be the best price to feature scooter -- EV-scooter. I just wanted to get a sense on the production capacity for the EX in particular and for other EV bikes and both side speed as well as the ones that you cater to on lead acid. And when do you think you're going to still be pending demand for EX as well as the Magnus Pro? As you mentioned, there's a huge pending demand. So I would like to know when you through the pending demand? And what is the backlog? Like what is the number that is likely that is required to be filled. The second part of the question is what is the total production capacities for the E-Rickshaws that you have. And I just need to get a sense on the total number of E-Rickshaw that you produce. And the last question would be with regard to what is the outlook for the engine business going forward and the margins for the next quarter. And with regard to the financial partner you were talking about in an interview, is there any thought process in Greaves to get a financial partner or a technical partner for the EV business?

Thank you very much, first of all, for recognizing the Magnus EX. Yes, we are very excited with the response we're getting, right? In terms of -- I'll take a couple of questions and then Dalpat will jump in as well. In terms of technology -- sorry, in terms of the partner, I'm assuming -- are you talking about the fund raise for the EV business? Is that what you're talking about?

Yes, the fund raise or if you need a technical partner to put a brand for your site to sell even more. But I'm assuming that since you're selling whatever you produce, you don't need a partner right away. But yes. It could be a financial partner or a technology partner?

Yes. So I think like I've said publicly, I think we are open, and if the right -- we believe we have an exciting business phase and exciting model, if the right partner comes along and we -- it makes sense, yes, I think will be open is what I've said. Now coming to this, capacity is not an issue, going back to what we were saying earlier, right, between Coimbatore and now Ranipet beginning to ramp up very quickly and will be ready by -- we are slightly ahead of schedule. We'll be ready by the end of the year, right? And in addition to that, E-Rickshaw, to answer your question, I think, also has the capacity. Our biggest challenge, like Dalpat was alluding earlier, is the supply chain, right? We have actively pursued localization. We have local suppliers. We are working with them. We're working with Tier 2, Tier 3, Tier 4 vendors to secure our quantities for not just for 1 quarter but over the next 4 quarters. We are doing everything we can. So it's supply chain is not a constraint, I think we'll -- the numbers should, case in point being -- last quarter was the best ever quarter for Greaves Electric Mobility. October seems to be the best ever month until 25. We have not even finished the month. right? So capacity is not an issue. The commitment from the group is not an issue. Are we in the right place between 2-wheeler, E-Rickshaw, 3-wheeler? I think the answer is yes. Supply chain is the only thing I don't control, and we are working very, very hard on that. We have moved some of our best people from Greaves side also into Ampere to help us with supply chain. And you will see the numbers hopefully improve as the supply chain improves. I think I've covered everything. Dalpat?

Absolutely Nagesh, you have covered all the questions.

Yes. But what is the total spending demand? What is the outstanding demand for Magnus? Because see, when we go to the dealers and check with the dealers, the normal statement is -- I mean, we have yet to deliver what we booked 3 months back or I mean, there are different kinds of impact. So -- is there -- or some people converting from Magnus to Magnus EX Pro to Magnus EX because they say, okay, anyway, Magnus EX is getting delivered. So we would probably do Magnus EX rather than Magnus Pro So but the point I'm trying -- the question I'm trying to ask is what is the...

I got the question sorry, I got the question. So it's about roughly about 8-weeks-plus of demand. And we are obviously working as fast and as furious as we can to fulfill the demand. But the good thing is we are delivering. We are working very hard every day. You can see the products on the ground. Our products have been around. It's proven, tested. Our products delivering and exceeding people's expectations. Some of the product reviews have seen, right? So -- and I think we will overcome the shortage as well. But it's a good problem to have. We are working very hard to meet the customer demand.

Correct. Because, I have booked one for myself. So I thought, okay, maybe I went to the dealer and I was talking to him. So this is also a dealer feedback, so yes. But otherwise, everybody seems to be happy.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Nagesh Basavanhalli for closing comments. Over to you, sir?

Thank you all for a very energetic and a very passionate discussion. In summary, as we announced, I think our diversification efforts, our consolidation, our restructuring efforts are paving way both in terms of the offense and the defense that I touched upon, right? With 4 acquisitions done in the last 4 years, I think it puts us in a 85% of the 2-wheeler, 3-wheeler category in the Greaves Electric Mobility. Greaves engines, especially on the Non-Auto side, is showing definite increased traction. Greaves Retail on the spares is showing traction. In fact, when you look at the numbers, you can see Greaves Retail as well as Greaves Non-Auto engines and Greaves Electric Mobility all tracking, too, ahead of Q3 of last year or in that range. Obviously, we are watching the auto engines' demand very carefully, and we will see how that evolves from a market standpoint. But all the things within our control, whether it is offense or defense, I think we remain committed to executing that. Thank you for your attention. Thank you for your time.

Thank you.

Happy Diwali, everybody.

I wish you all a very happy Diwali. Thanks a lot. Thank you.

Thanks. On behalf of it Greaves Cotton Limited, we conclude -- we thank you all once again. Please see [indiscernible] investor call. Thank you for joining us.