Hero MotoCorp Limited (500182) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q4 FY '20 Results Call of Hero MotoCorp hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Raghunandhan N.L. from Emkay Global. Thank you, and over to you, sir.

Thank you, Ayesha. Good morning, everyone. I would like to welcome management of Hero MotoCorp and thank them for giving us this opportunity. We have with us today Mr. Niranjan Gupta, Chief Financial Officer; Mr. Naveen Chauhan, Head Sales and After Sales; and Mr. Umang Khurana, Head, Investor Relations. I would now hand over the call to Umang for -- and request him to take it forward. Over to you, Umang.

Thank you, Raghu. Thank you for hosting us. Hello, everyone, and welcome to the Q4 and full year FY '20 investor call for Hero MotoCorp. Trust everyone is feeling and keeping safe and healthy. Here is wishing, by the time we do our call next quarter, the pandemic and its impacts are behind us. Raghu has already spoken about the participants on the call. We will begin with opening comments from our CFO Niranjan and then open the house for Q&A. Niranjan, over to you.

Thanks, Umang. Welcome, everyone, to this call. These are unprecedented times, and I'll talk a bit about that. Before that, let's just have a recap of the quarter results that we declared yesterday evening. Our revenues, as you would have seen, INR 6,238 crores. However, if we adjust for the lockdown loss of sales impact, where we lost 2.3 lakhs of sales in the last 9 days, then the adjusted revenue would stand at INR 7,400 crores. That's important to understand the underlying revenue. Similarly, EBITDA margins, which you would have seen at 10.6%, if you exclude the one-off items that we have factored in quarter 4, the underlying EBITDA margin would actually be 13.5%. Of this, one-off items comprise the support that we gave to the dealers towards the end for liquidation of BS IV, equally a provision that was created on the Neemrana fiscal benefit and some provision on account of the raw material and finished goods obsolescence on BS IV and BS VI transition. If you apply the 13.5% of the adjusted revenue, actually our underlying EBITDA would have been INR 1,000 crores. We declared a dividend of INR 25 per share. Including interim, this is INR 90 per share, higher than last year, and our declaration of dividend, maintaining a very progressive policy of payout, is evidence of our confidence in our liquidity position. Coming to the volumes. You would have seen the volumes. We gained market share in motorcycle. We have retained very strong leadership in entry and deluxe. We are making -- we made foray into premium, which will further be boosted by launch of Xtreme 160R, which will start getting dispatched in a couple of weeks' time. Scooters were impacted in the quarter by a conscious call to stop production before December end as we migrated from BS IV to BS VI. Our 125cc scooters have been doing pretty well. Overall, for the year, again, what will be important for you to note is this year, we brought down the dealer inventory by almost 5.5 lakh. The dealer network is sitting at one of the lowest inventory, which is also very important for the dealer financial health, as much less working capital is locked into the system, which helps in revival and sprinting ahead. Overall, if you look at it, therefore, from the result perspective, while the dispatches may indicate a decline, on an underlying retail basis, actually we grew and which was a good sign until the lockdown struck. That's about the results. Now let's talk a bit about the current situation, about the pandemic, about the way forward and how do we see things panning out. We are all aware that India enforced one of the strictest lockdown in the world and virtually 2 months of business got washed out. It is, of course, important at Hero as well, safety and well-being of all our stakeholders is a key priority. And in line with that, we actually shut our factories ahead of the national lockdown announcement. Equally, as we all have heard, lives and livelihood, both are important. So when we talk about well-being, the well-being is not just about physical health, it's about economic and financial health as well because the 2 are really symbiotic at some point of inflection curve. So this year is going to be about balancing all aspects of life and business, and you will see more and more in our decisions, in our numbers and in our communication moving forward. These seem to be seemingly conflicting objectives, but business and life is about finding an optimum ground as solution and the optimal point may keep moving in different ways as we navigate the year. As far as demand is concerned, in FY '21, very difficult to give a forecast about the demand. However, one can cue with what are the positive factors and what are tailwinds. Tailwind, of course, is about lesser income in the hands of customers. Customers will have to make a priority, a choice. And we as a business will have to play a role in ensuring that they also prioritize money towards buying goods like 2-wheelers, which are essential as mass mobility and also income enablers. Equally, there are going to be factors like pent-up demand. India's 2-wheeler story because 2-wheeler is not a luxury in India, it is about mass mobility, and also as social distancing norms are observed, it could give rise to personal mobility. So therefore, there's going to be a mix of factors, both positives and downside, and we'll have to navigate these times, to be prepared to navigate through the downturns and prepared to capitalize on any opportunity that comes our way. As far as the reopening and restart is concerned, as we all know, the lockdown has been relaxed. And almost now, most of the restrictions have been taken off. All our plants have opened up. They have become operational. The volumes are getting ramped up gradually. In terms of our vendors, all our vendors have opened up from the raw material side. Outlets, more than 90% of outlets have opened up. So the physicality of restart, one would say, is close to complete in terms of restarting the operation. The ramp-up will be gradual, in line with the customer demand. Initially, we are seeing a good pickup in the retail in the first few days. And this year is going to be about navigating the situation and monitoring it dynamically. Getting volumes back will be key priority given that the top line is the one that is going to drive the bottom line. Among these headwinds, it's, of course, essential to keep an eye on cost and cash management as well. Liquidity and balance sheet strength is essential for survival of the fittest. And in these aspects, Hero is very well positioned in these uncertain times. So these are unprecedented times, and we are focused on unlocking, restarting and revising operations, while ensuring, as we said, the health and well-being, both the physical health and the financial health of all Hero's, all stakeholders across the ecosystem. With that, we open the floor for your questions.

[Operator Instructions] The first question is from the line of Ronak Sarda from Systematix.

Sir, first question is on the demand side. When you say 90% of the dealers are open, if you can just help us understand how the footfalls are? And we're hearing a lot of online inquiries have increased, but how are the conversion rates there? And what do you think Hero will have to do to bring back customers and convert those orders -- those into orders? That's the first question.

Ronak, thanks for the question. As we mentioned, the pickup in the retail has been good. There were a lot of pent-up inquiries as well. The conversion is also good. I'll just ask Naveen to add some qualitative flesh onto this as well. Naveen?

Yes. Thank you for the question. As Niranjan has mentioned, the pent-up is picking the demand. In [ mass markets ], there is an uptick. Customer is coming and asking for our products. Overall, we see this a very, very positive cue. And in terms of inquiries, we are right up there, as Niranjan has mentioned. Week-on-week, these numbers are improving and this positive -- we are very, very positive on the trends that we see.

Okay. Sure. Sir, second question on Hero FinCorp. If you can just help us understand on the financing situation, how are things at Hero FinCorp? What's the kind of moratorium customers have taken in the Phase 1, which was announced by RBI? And how is the liquidity situation? And do you see any financing challenges?

Right. So as far as FinCorp is concerned, in fact, the financing percentage have been increasing. In the FY '20, they financed 46% versus 41% in FY '19. They continue to be at 40% plus even in quarter 4, and that's what their plan going forward. They have sufficient liquidity as they had raised capital. Yes, some customers have taken moratorium. Equally, these are month-to-month moratoriums, and the customers are paying up and then subsequently taking the next month moratorium because a lot of customers do not want to create or accumulate a lot of payments towards post-moratorium expires. And equally, Hero FinCorp, as always, and like most organizations, have been running incentives for people who are making payments early. I think they're running their operations pretty well. They are well managed on liquidity and have got a good runway.

Sure. But any number, sir, on the morat number of customers, if you can just help with...

No, Ronak, we'll not be able to give out any numbers at this stage.

The next question is from the line of Nishit Jalan from Axis Capital.

Sir, my first question is, like you highlighted in your initial remarks that you had to give certain discounts and compensation to dealers to get rid of BS IV inventory. So just wanted to understand, if you can highlight the impact of that because that will be a purely one-off and it will help us in forecasting numbers going ahead.

Right. So as I said, the one-off impact, and for everyone to understand the financial statements, is that the EBITDA margin would have been 13.5% instead of 10.6%. Out of that, one of the big ones is the one-off support that we provided to the dealers, and that is around INR 110 crores. And this was -- as you know, we had announced INR 10,000 to INR 15,000 per vehicle towards the end of March. So that is one of those impacts there. Other than that, we also provided -- made a provision for Neemrana fiscal benefit to the extent of around INR 57 crores and there is some raw material obsolescence and BS VI on the inventory level that we provided. So all that put together, the underlying EBITDA margin is 13.5%, excluding this one-off, which should help you in terms of looking at how the future may pan out.

Sir, you highlighted that retails have kind of picked up. Any granularity you are getting as to which regions or markets are picking up? Are you actually seeing any down-trading happening, say, for example, from 150cc to 125cc or 125cc to 100cc? Any color on that would be very helpful.

Naveen?

Yes. Sure. So by and large, pan-India, there is a positive response, except for the markets which are badly affected by COVID, primarily being Maharashtra and Gujarat. Rest everywhere, we see positive uptick. The second question was about down-trading. Yes, we see that, and we are well positioned to capture that. With our new products, which are getting very, very positive response across, we are well positioned to capture that.

Okay. So just 1 last thing. You have taken a price increase, if we believe the media reports, in April and May. I just wanted to understand what was the reason for that because you had already passed on the BS VI-related costs in price increases that you had done in Feb and March?

What we have done was to improve dealer margins and in the -- for the BS VI in the month of May. And also, while we did a price positioning and passed on in BS VI, the relative price positioning, minor fine-tuning has to be done to adjust that. So those are 2 factors why we took the price increase at that point in time.

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

My first question is on production and retail sales trend. Some of the companies are mentioning that while retail sales are improving, production is turning out to be a constraint as well. So could you give some color as to will the production lag the retail sales in the near term? Or you are well positioned to bring production up to, say, 60%, 70% levels, if retail does get there?

Kapil, good questions. And it's a good problem to have, right? All this while over the last 2, 3 years, we have been chasing retail. And now if retails are chasing production, I think it's a good problem to have, especially coming on the back of low inventory that we opened up the year with. Having said that, we, in Hero, have got multiple plants. Andhra also opened up. We have Halol also. We have Neemrana. We have NCR. So I think this positions us much better as compared to an earlier concentrated plant, which was more in NCR a few years back. And therefore, we have flexibility, as you know, because manpower coming back, migrants going -- coming back, all this sort of stuff, does impact. So our multiplicity of plants and especially the Halol and Andhra, which has opened up, that provides us with a lot of flexibility. We see manpower for our plant is coming back, of course not to the full level now. But given that our general pay scale, also for contractors, casuals or workers, is quite remunerative compared to their alternative options. We do expect a lot of them to come back, which they have started already. So for a short period of time, there may be retails chasing production, but we are very confident of making that up. I'm sorry, just to add. All our vendors are open. So therefore, it's not that some of the vendors are still closed. As I said, capacity ramp-up will be gradual. But the first thing, which was restarting, opening up all factories, all vendors, that has been achieved.

Yes, sir. Okay. Okay. Secondly, you mentioned some one-off related to Neemrana, where is that taken? And what is it related to? Could you help us understand?

So this is more about as we transition to the GST regime. Then the fiscal policy stated that 5%, which is a raw material refund that we were getting earlier, that in the new GST that they started giving wasn't incorporated. So in principle, that is recoverable, and we are doing all advocacy in all angles moving forward. But given that for the last 2 years that money didn't come, and therefore, on a conservative basis, we decided to take a provision for this.

So this is taken in other expenses or sales?

Other operating income.

Other operating income, okay, okay. And then lastly, if you have any quantitative or qualitative info. If I look at the industry in basically 3 segments, mass market motorcycles, premium motorcycles and scooters, then what is the rural and urban mix in these categories? And is there any divide in terms of rural or urban doing better?

I think it's too early to actually put a rural and urban mix to the numbers. Right now, we are just focused on ensuring that all physicality of operations are opened up and they get ramped up, ensuring social distancing, ensuring all safety measures, ensuring comfort of the customers and ensuring a mix of digital and physical. So this is where our focus is. If you're asking about the economy in general, one can cue that probably, given the agricultural activities like the crops increase, the sowing increase, the -- probably the normal monsoon that is being forecasted and also fiscal stimulus more directed towards rural and semi-urban, probably those economies are likely to do better than the urban economies. So we'll have to watch out the trend as we move forward.

The next question is from the line of Gunjan Prithyani from JPMorgan.

I just had -- firstly, I've a follow-up on this demand pickup that you're talking about. It's good to hear that the way you put that 90% of your retail stores are now open, will it be possible to share some sense on where these stores are in relation to the normative levels? Any sense of where we are in perspective of, let's say, pre-COVID or normative levels that typically these stores operate at? And on the inventory as well, if you can give more sense, really, I mean, where are we now in terms of either months of inventory or the absolute inventory? If any sense you can provide on that?

Gunjan, thanks for this. As we said, it's early days to pick up a trend on what percentage [indiscernible] to pre-COVID levels because we also have to see how sustainable these numbers are. And therefore, it won't be right or fair to comment on that. All we can say is that, as we said, 90% of retails have opened up; all the outlets, which have opened up and which are operating for more than a couple of weeks, are doing good pickup as far as retail is concerned. So I think we'll stay with that. And what was your second question?

On inventory levels, yes.

Yes. So the inventory, we did open up with 5.5 lakh of BS VI inventory in the market as on 1st of April.

Okay. And second question I have is on the financing side. Now this has been a general concern that given where we are in terms of morat increasing and general state of the economy, financing is bound to be tight. Is that something you're sensing at your dealerships? And around that from Hero FinCorp perspective, I see that you've invested about INR 260-odd crores in Q4. Is this -- the other investors have also come along, the stake remains the same? And what kind of capital call do you anticipate can come from this subsidiary or investment can come from this subsidiary going into F'21? If you can talk about the financing side?

Gunjan, so since Umang has limited questions to 2, you blended 3 questions into your question #2. I'll attempt to answer those. One is your financing. On the contrary, actually, people are coming forward, the financial institutions are coming forward to finance the 2-wheelers. Simply because if you look at the corporate financing and SME or medium enterprise or business financing, that is where the risk premiums and risks have gone up. As far as the 2-wheeler financing is concerned, because the tenure is low, typically 24 months, so people with liquidity, obviously, institutions have liquidity, but they're looking for safer -- relatively safer asset on lower-duration lending. So in that aspect, I would say 2-wheeler financing is well placed. And we are seeing not only from FinCorp but, in fact, from other institutions as well. As far as the raise of capital from FinCorp is concerned, other investors also subscribe proportionately, so our stake broadly remains the same.

The next question is from the line of Priya Ranjan from Antique Stockbroking.

One is on the -- if you can categorize in various states or various geographies, I mean, the demand -- in terms of demand, where do you see the bucket, I mean in terms of buckets, which are the areas where, I mean, particularly regions, et cetera, is actually coming back faster than overall?

Priya Ranjan, again, I would urge that these are very early days. Lockdown has opened just 4 weeks back, also that in gradual fashion into red, green and amber zones. And as outlets have started opening, social distancing, safety measures, all SOPs have been rolled out and now customers have started coming. And as we said, the retail pickup is better than what we expected. These are early days. So I think to then cut it by rural, urban or west, south or geography-wise, not enough data to comment on that. Naveen, do you want to add anything?

As you said, Niranjan, as we look at the time of opening, all dealerships, which are opened for more 2 or 3 weeks, they see positives, quite positive. And as I said, markets, which are affected by COVID, there is a lag there.

Okay. And in terms of, I mean, just on the margin front and the commodity costs going forward, how do you see Niranjan? I mean, do you expect some benefit in coming, I mean although this will not reflect because of lower volume, but I mean in terms of pure commodity benefit in components, et cetera, do you see some kind of benefit going forward?

Yes. As far as commodity is concerned, you can see if the global economic growth is into slowdown phase, then commodities are likely to remain soft. So whether it's aluminum, whether it's crude oil, so some of those benefits should flow in. Having said that, we also have currency depreciation. We also have precious metals, which are the 2 counterforces on the cost. So as I said, again, balancing will be key even in this aspect moving forward in this year. As a basket if you see, it should be a positive tailwind.

The next question is from the line of Ashutosh Tiwari from Equirus Capital.

Sir, how you've seen trend in terms of servicing at dealer level as compared to pre-COVID? Some comment on there.

Servicing response has been good. We are seeing the customers are showing up because the vehicles were held up for quite some time, though we connected with our customers in terms of giving them do-it-yourself kind of advices. But we see a positive response in the service front as well.

But compared to pre-COVID, will it -- at what level it would be roughly?

So we are almost there in the service.

Okay. And secondly, over last, I mean, 3, 4 years, we have seen HF Deluxe proportion in overall sales going up. So are we again seeing a trend that because of BS VI transition, it will further go up in our mix? And also in HF Deluxe, I think kickstart was doing more better. So is there a trend post opening of that kickstart variant, sales are going up more than self?

So if you look at it again, right now, for a trend of 1 month or 4 weeks, difficult to call. But as far as our plans are concerned, we are launching Xtreme 160, which is right in the belly of the premium market. Dispatches will commence in a couple of weeks' time itself. So we do see actually our share in the premium going up on the contrary rather than share of the HF Deluxe going up.

Just to add to what Niranjan said, XPulse, which we launched last year, gave us entry into new markets. For example, down south, it's doing very well.

[Operator Instructions] The next question is from the line of Raghunandhan N.L. from Emkay Global.

So continuing the thoughts on Xtreme 160 cc motorcycle, you indicated launch in the next couple of weeks, what are your expectations for the model in terms of market positioning and potential volume targets?

It's right in the belly of the market. So you know that the market of premium between 150 to 200cc is the biggest part of the market. Naveen, do you want to comment a bit more on our Xtreme 160R?

So we showcased this in our Hero World, and the response has been very, very positive. Our dealers have -- are very, very inquisitive and asking for it. 2 weeks, we are going to start the dispatches. We are looking at higher single-digit market share to start with on this, and we will see as we move forward. Also, there's a lot of [ inquisitiveness ] first, in fact, and it's a very, very exciting product.

So all the best for the product. My second question was the press release highlighted on the cost reduction efforts. If you can talk a bit on the LEAP program, expectations forward and the focus of management, both on reduction of cost and reduction on CapEx, that will be helpful.

Yes. So as we said, obviously, the first priority is to get the volumes back. And I think some of you repeatedly asked this question. And generally, if I were to give -- we were to give a number, as we said, more than 90% of outlets opened, all our vendors opened, all our plants opened, and many of our dealers are actually reaching more than 70%, 80% of the pre-COVID retails as of now. We will have to watch the trend very closely and then move forward. Why prioritizing this and focusing on the volume growth, moving into premium, the market share? Cost and cash, obviously, is alongside a key part. And again, as I said, balancing is a key aspect. We have doubled our LEAP savings program target. We've been delivering -- last year, we delivered around 50 basis points. We are targeting to deliver 100 basis points this year. There are programs going on, which we're calling it LEAP 2 now. There's also a program launched to improve productivity of spends on our overheads, where again, we are targeting substantial savings on account of overheads this year. And finally, on the CapEx, earlier, our projection was around INR 1,000 crores. We have again rationalized and deferred parts of it to contain it to close to around INR 600 crores CapEx for the year. So all on costs, on the underlying cost, on the overheads and on the CapEx, on all 3 streams, the teams are working on it. Plus, of course, as far as R&D is concerned, this is where we have not cut our investments. The product development is ongoing, and all the programs that are there in the R&D, they are not getting starved of the funds. So while cutting costs, while optimizing, while improving productivity of spend, we are very conscious of ensuring that the medium- and long-term business priorities are not harmed.

Got it, sir. Any specific areas where the CapEx reduction of INR 400 crores pertains to?

It's generally across everything, as I said, other than the R&D. Parts of it are the capacity expansions that were planned or some renovations that were planned, have been deferred. But R&D has been prioritized in terms of the investments.

The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.

My first question is basically on our scooter market share, which has been under pressure, at least in the last couple of years. So can you talk about specific initiatives you have in that segment to gain back the lost market share?

So as far as scooter is concerned, I'll talk a bit and then hand it over to Naveen. This year was also about inventory adjustment in scooter. Our 125cc did fare very well. And moving forward, we do see our exciting products in the shape of the 110cc new Pleasure, BS VI model or our 125cc Destini and Maestro Edge picking up shares in FY '21. Let me hand it over to Naveen to add on to that.

You've given the flavor, Niranjan. Pleasure Plus is being received very, very positively. And while earlier version was limited to some markets, on the new Pleasure Plus, we are getting positive cues from across. So that's one strong positive for us. 125cc, which has grown close to 2.5x in the last 4 years, our presence in that segment is positive news for us. Destini and 125 Maestro Edge are well positioned. Our strong market, we are getting very, very positive numbers and market share. And Duet, we will -- the Destini offers the right value to the customer, and hence, we'll do good there as well. So let's wait.

Got it. Sir, my second question is on the share of financing per se. You had mentioned in one of your earlier comments that it has reached 46% in FY '20. Do you expect the share to rise? And as dealer outlets open, have you noticed things change in the number of financing partners at the outlet level?

Naveen?

So the finance share has gone up, that's for sure. And in the recent times, post COVID, whatever outlets that we have seen, there is demand, which is picking up for financing. As far as the finance partner is concerned, we are looking at finance as a product, and our discussion with our financial partners is to continue to innovate on the financial products. So that's the direction in which we are working.

So rather than addition of partners, with the existing partners, you're trying to come up with kind of themes, which can be more adding value to the customers? That's how we should take it?

Absolutely.

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

My first question was just a clarification on the financing. So 46% is the overall number for you. How much of this would be done by FinCorp?

So let me just clarify. With 2-wheeler, total financing in FY '20 was 43%. So 43% of our sales went through financing. And out of that, if you see, FinCorp share is 46%.

Understood, understood, understood. My second question is that you have also started this new digital selling process, which is, I guess, every OEM is now thinking about it. So my question was that out of the overall sales processes, what percentage of the processes have you been able to move completely digital? And how do you think this will play out in a market like India, where it is not always possible to do everything digitally? So just your thoughts on that will be helpful.

Naveen?

So from the time the inquiry gets logged in to the final delivery, the entire process has been digitized. In fact, we've done some fewer contactless deliveries to the customer in the recent past. So the entire documentation is digital. There is no physical connect which is required in the process.

Even financing happens without the -- like hard copy and all? Or that is still...

Those things are same. This financing piece is getting integrated into our process. So that's the direction in which we're working with our finance partners.

The next question is from the line of Sonal Gupta from UBS Securities.

Just a few housekeeping questions. So sir, could you tell us what is the spare part revenues for Q4 and for the year?

Yes. For the Q4, the spare part revenue was INR 751 crores, and for the year, it was INR 2,896 crores, which reflected 2% growth year-on-year.

Okay. And what is the other operating income for the quarter?

So I think that would be there in the financial statements, which you can pick up. But for the quarter, if you want to know, the other operating revenue was INR 137 crores.

This is after the impact of Neemrana like you said?

Yes, yes, yes.

And sir, like, could you give us a sense of like now post BS VI, what sort of, I mean, like cost comes from precious group metals? I mean, any sense you can give us on that?

So I mean, if you see precious metals would be roughly, not a big number as such in terms of percentage of the revenue, probably close to 4%, 5% as overall basket. So it all depends on the movement within the precious metals because there are 3 types of precious metals within that. And therefore, the price movement is important.

Right. But within that, you'll be more linked with palladium? Or is it others?

There are different proportions to that, we will not be able to give out to you, but whether it's rhodium, palladium and platinum, all 3 are there. As part of our LEAP 2 programs, as we highlighted, we are doubling our savings program. One of the things is to look at flexibility in composition as well.

The next question is from the line of Mihir Jhaveri from Avendus Capital.

Just, sir, what is the inventory levels right now? Because you said inventory is pretty low. So can we get a ballpark number of what is this at currently vis-à-vis what it was earlier?

So current inventory, we won't be able to give. We started with a very low inventory, as we said. So the FY '20, we closed inventory which is almost 5 lakhs lower, 5 lakh, 5.5 lakhs lower than the FY '19 ending. So in a sense, right now, retails are chasing production as some of -- one of you asked, and we are ramping up production pretty fast in that manner as the retails have shown a very good pickup in the early days.

And any idea on how -- obviously, it's too early. You said that week-on-week things are improving, but how does the quarter stands because April will be pretty muted anyways, May would also be. So I think there will be some pickup in June. So do we think that the quarter is going to be pretty muted as a whole, though there has been recovery, but how should we look at it?

We do not give out a quarter guidance. I think it's important to recognize that April was a full lockdown and then May lockdown started opening. And therefore, again, as I repeat, the focus has been to ensure, first of all, that all our operations open. To that extent, opening 90% of outlets, 100% of our facilities and 100% of our vendors in just 4 weeks signals a very rapid ramp-up towards normalcy. Plus the pickup in the retail, as we said, has been better than expected. So it all augurs well, and we'll move forward with that and then monitor month-on-month basis.

The next question is from the line of Hitesh Goel from Kotak Securities.

So basically, what we we're trying to get a sense on the numbers on retail side to project our numbers is what I get a sense from is that June would likely be around 3.5 lakh retails or something like that? Is that a right number to look at? How should we look at retail numbers in a couple of months to just give us a trajectory? How should we forecast? I know it's difficult, but just to get the current trend.

We -- again, I repeat, and I'm sorry to repeat again, we do not give any monthly guidance or forecast on the numbers. Again, what is important is, and I repeat, what is important is, 90% of our outlets have opened. Within 2 weeks of opening, a lot of our outlets, majority of our outlets are reaching pretty close to pre-COVID levels. So that's the early sign as far as retails are concerned, which is a very good sign and positive aspect that we see. And right now...

Niranjan, I was referring to that only because if we look at pre-COVID, in January and February, you were doing around 5 lakh kind of numbers on a monthly basis. So if it is 70%, 80% of that number, then I think 3.5 lakh is kind of a run rate we are looking at. That is what the kind of [ uncertainty about them. ]

I leave it to you and your team to do the fine-tuning and the calculation. Let's rest it there.

Okay. And my second question is on the other expenses. Given that there is a shortfall on a Q-on-Q basis on the -- even on Y-o-Y basis on the volumes, we have not seen much reduction on the other expenses. So can you just guide us that there is some one-offs or onetime provisions you've taken there as well? And how do you plan to reduce this cost?

So I think if you look at our other expenses trajectory, it's already reduced significantly. If you look at, quarter 4 of last year was INR 930 crores, and you see this quarter is INR 820 crores, INR 825-odd crores. And even on a year-on-year basis, it has reduced. And as I said, moving forward, we have launched programs on optimizing our overheads and improving productivity of spend. And you will see that coming through in the future quarters as we move forward.

The next question is from the line of Ashwani Kumar from Nippon India Mutual Fund.

I just wanted to know in terms of financing schemes, what are you doing to really make the things affordable till the consumer comes back into the normal shape in terms of his earnings or income? That's the question.

Yes. So there are multiple things. Like, for instance, by geographies, by markets, we see where a lower down payment is important. So to those customers, you provide that option. For some of the customers of flexi cash or flexi EMI, that is important. For some customers, it is the ROI, or the rate of interest, that is important. So we are actually, as Naveen also said, working with all our financing partners to ensure that the products are customized to the local geographies and to the customer group. So that the customer is offered with multiple options, and therefore, he can then buy the 2-wheeler that he requires.

Sure. And sir, do you fear that replacement demand is a significant part of the total demand? So in a situation like this, people would -- essentially, those who need it might come and buy certainly at some point in time, they will do the needful. But people who want to replace, they might actually postpone the vehicle purchase for some time. Is that -- how do you address this situation?

See, there are multiple things that will happen. So on one side, you have people who are thinking of buying a little later may buy earlier because of social distancing and moving from shared transportation to actually personal transportation. In fact, we see a lot of institutions and a lot of companies for their own sales forces are allowing them or providing them facilities to buy 2-wheelers instead of opting for a shared transportation or a cab or a taxi or Ola or Uber. So I think there are those trends which can be positive, which can bring forward the demand. Equally, there would be people who may defer it for a few weeks or quarters. And then other side positive is a lot of pent-up as well. Remember, for the last 2 months, virtually, there was no business. And these are all planned buying where people allocate money and then keep it aside. So there are multiple combinations and forces that will act. The rural and semi-urban economy is showing a good positive pickup, both in terms of agricultural crop and monsoon and the stimulus that has gone in [ are some other ] positive factors that can play out. So which is why it's very important to capitalize on the opportunities that present and give customers various multiple options, which suit the requirement of the customers and then get the volumes back. And towards that, as we said, the initial 3, 4 weeks has been pretty good on the retails. And we'll continue to navigate that and move forward. Naveen, do you want to add anything?

I think you've summed it up well. There are forces which are working for the demand, which is coming up. And yes, there may be a few customers who might think of replacing it to later. But as of now, things are moving rightfully.

Is there any specific income group, which can -- which gets more impacted who are buyers for your products? Any specific income group you would like to highlight?

I mean, yes -- I mean, logically, it will be the lowest income group, which will be impacted. Having said that, some of those thing -- issues can be sorted out by innovative financing products. Because remember that this 2-wheeler purchase for a lower income group is not something which is buying for luxury. He's trying to step up his income. And one of the examples that is my favorite is a milkman selling by just walking versus on a cycle versus on a motorcycle. You can just imagine the multiplier effect that it has. So I think people will look for multiplying the income and income sources. And 2-wheeler has become a necessity in that aspect. So I think the key way will be unlocking financing products, yes, so that they can pay as you go kind of stuff. And towards that is what we are working towards with our financing partners.

So I think a large chunk of the commuter is into self-employed. And that's something which is going to be there. So I don't see too much impact as we move forward.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

A couple of questions. First is on the depreciation side, in this quarter, we have seen a sharp decline on Q-o-Q basis. Is there any one-off in that or previous quarters had the base prorated write-offs?

So not really because at the end of the year, we did take overall calculation of depreciation, including the accelerated depreciation that we did for BS IV, BS VI -- BS VI transition. Overall, for the full year if you see, the accelerated depreciation on account of -- with the BS IV, BS VI would have amounted to close to around INR 30 crores per quarter.

Okay. Okay. Got it. And second question pertains to -- you indicated about the inventory at dealership being very low. Are we using this opportunity to bring down our normal run rate of inventory which we have in the system in this kind of environment? I mean, usually, we used to have anywhere between 35 to 45 days of inventory in the channel. Are we looking to step down and use this opportunity to make it a lower inventory?

So there is space to increase as the retails surge forward. So as we move forward, there is space to increase that. And as we said, it's a good problem to have. The positive retails have surprised us and all in terms of just the rapid ramp-up that it has happened. Production is ramping up pretty fast in terms of meeting the requirements. And as retails move up, there will be space for inventory to move up as well.

Okay. Understood. And lastly, if you can share some flavor of numbers at Hero FinCorp, book size and other details, including profit?

Sorry, which numbers are you looking for?

Book size, in terms of profits and other details, if you can?

I'll probably give in short, the overall book size, Q4-over-Q4 has grown up by 20%. FinCorp continues to be profitable. They have declared profit for the quarter and for the year, and year-on-year profit also has grown, and they have sufficient liquidity as they called up equity capital in quarter 4 of this year.

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

In terms of the raw material cost as a percentage of sales, we have seen a sharp increase on a sequential basis. While some of this can be understood from -- because of the BS VI dispatches, from -- even from a per vehicle, raw material cost also has increased more than the increase in realization. If you can help us understand that? And secondly, with the price increases we have taken, will the gross profit per vehicle basis be similar to what it was prior -- in the BS IV era? If you can comment on that?

So I'll give a broad answer to that. Primarily the increase in material costs, as you rightly said, is on account of BS IV, BS VI mix. Equally, there were some one-offs, which I've highlighted already in terms of material costs. Going forward, as far as margin is concerned, we will not give a guidance for the margins. However, if you look at the factors, there is this BS VI, where the absolute costs has been passed on into the pricing, that the numerator-denominator impact, whatever it will be, will pan out. On the commodity side, that basket is expected to remain soft. So that should help. On the -- our own initiatives, we have launched these 3 initiatives, a LEAP 2, which is doubling the target of LEAP; CapEx, cutting to INR 600 crores; and launched program on the overhead savings. So that should help us moving forward. Beyond all this, we will need to pick up volumes because you need a certain volume and a top line to be able to absorb the fixed overhead. And that's why our focus has been on volume, and it's been pretty successful so far in the last 4 weeks.

Understood, sir. No, I was just asking on the gross profit per vehicle, but you did mention that all the cost has been passed on, and that was helpful, sir. And from a balance sheet perspective, the receivable days has come off quite sharply, whether we compare Y-o-Y or from a September balance sheet perspective. What has changed there? Any change in terms of the trade per se? If you can highlight anything there, sir?

So we -- as far as receivable was concerned earlier, they were on elevated levels, which is what we had explained. And thereafter, because our inventory was also on elevated levels. So as the inventories have come down, so as our inventory in the market has come down, so as receivables on our book also has come down.

Okay. Okay. So there's no change in terms of trade with the dealers or external -- nothing of that sort?

No change in terms of trade.

Okay. Understood, sir. Understood. Sir, 1 last question, if I may squeeze. From a BS IV, BS VI sales during the quarter, can you give some color on that based on the dispatches we have done? And any unregistered BS IV stock left [indiscernible] remaining?

For the quarter, roughly, you could say half was BS VI and half was BS IV. So that's a rough breakup of the quarter 4 dispatches. As we said, all the BS IV stocks with the dealers have been sold. There could be some, which is not registered at the network, would be smaller quantity, but that's more a registration part and a smaller quantity. In terms of selling, all the BS IV stocks have been sold by the dealers.

[Operator Instructions] The next question is from the line of Chirag Shah from Edelweiss Securities Limited. [Operator Instructions] As there is no response from the current participant, I have muted the line. The next question is from the line of [ Prashant Raj ] from ICICI Securities.

So just first housekeeping question for FY '20. Your thoughts on what is the rural versus urban mix? And how did that -- those segments grow in FY '20?

Naveen?

So close to 50% of our business comes from rural and it's maintained at that level right now.

And the growth trend between both of them for last year?

As far as rural-urban is concerned last year, as you know, the industry declined overall. So -- but within that, one would say that rural would have fared slightly better than urban. I think at this stage, that is what is relevant. As we move forward this year, rural and semi-urban as of current indicators are likely to do much better than urban.

Just to add, I think if we look at historical data, rural has always been slightly higher in terms of the growth rate.

Great. Sir, my second question is on the distribution and channel side. Could you just update us in terms of where you closed in FY '20 in terms of the channel and touch points? And second, in terms of further expansion strategies and considering that you are saying that the adoption of digitization has gone to such an extent that you are doing contactless delivery, how are you thinking about that expansion now in this new era?

So we -- our focus has been more on getting more throughput out of our network. As you know, we have the biggest network amongst all the players, including our dealers and ARD network, et cetera. And therefore, focus is not so much on the expansion, the focus has been on the throughput. And obviously, now the throughput should see further improvement as you go with a combination of digital and physical. Naveen?

So in terms of physical representation of our network, I think we are there pan-India. The focus, a, as we said, is more on throughput; and b, in terms of strengthening our dealerships. So that's the direction in which we are moving at this time.

So can we assume that digital being the additional lever, incremental network expansion physical basis will be lower than, say, in the previous years?

So this is a constant phenomena wherein we look at, we review people and there are replacements. And so it's not a major, major thing. The normal course of time that where we do, we will move forward in that same direction.

I now hand the conference over to the management for closing comments.

So thank you very much for being on the call. Again, just to sum up, our restart of the operations have been very rapid. More than 90% of our dealers have opened. A lot of them, majority of them have reached substantial percentage of the pre-COVID retail sales already. Our production is ramping up. All our factories are open. All our vendors have opened, and we are scaling up very rapidly. We'll continue to do dynamic management as we move forward. We are geared up fully to capitalize on any opportunity that present. There are headwinds and tailwinds. Rural and semi-urban likely to do better than urban. There are positive factors, which we are geared to capitalize. At Hero, as such, we have a strong balance sheet and liquidity position and a team, leadership team and management team to navigate through these times. We appreciate a lot on the interest shown on this call and the questions, and thanks for that. If there are any questions which are unanswered, we'll be happy to take it off-line through Umang. And yes, let's move forward with positivity and with optimism. Thank you. And thank you, all.

Thank you very much.

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