Hero MotoCorp Limited (500182) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the conference call for Harley-Davidson X440 launch by Hero MotoCorp. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umang Khurana, Head, Investor Relations. Thank you. And over to you, Umang.

Thank you, Ryan. Thank you, everyone. Good morning, and it is a beautiful morning. We just launched the Harley-Davidson, HD, X440 yesterday. And this is a short call today to talk to you about and respond to all the questions you may have on the product and our strategy around it. Today, on the call, we have with us our CEO, Niranjan Gupta; our Head of R&D, Dr. Arun Jaura; and the head of Harley-Davidson business unit, Ravi Avalur. We'll start with some questions from the group that we have in person here and then take questions from the online participants as well. Ryan, I'll keep pinging you as we go by. I'm requesting the [ BA ] groups here to please speak up on the mics. And we'll respond to the questions as we go by. Thank you for coming in. And we'll open it up for questions, first, from the group here.

Sir, this is Vivek from JM Financial. Could you please walk us through the royalty or the technical arrangement that we have with Harley-Davidson on this product, licensing fee, all those software details, please.

I think what's important is you've seen the launch, the model that we launched yesterday with 440cc. It's got features that you saw yesterday, which are best in class, I will say, our next-in-class features. We have landed this at a very attractive introductory price. The bookings will open today, which will be pan-India. The booking amount will be INR 5,000 only. And you can always -- already see the excitement that it has created yesterday. I think that's enough for this, not what the royalty and commercial arrangements are. We are here to win in premium, whatever it takes; and I talked about it in the Investor Day as well. And clearly you can see that we are taking actions which are in line with the strategy that [ we have ].

My second question is pertaining to exports. So yesterday, we heard that it is an India-only product, but as we can see in the industry, that -- exports in the premium segment has also been doing very well. Certain other companies are also doing well in this segment. What is your view on exports of this particular product? And by when?

Well, as of [indiscernible] is based on India. And we are focused because India is a huge market for this segment, and all of us know that. So the focus is to get the India market right. And as it progresses, both companies will continue to explore opportunities for future collaborations, whether it is geographies or portfolios.

This is Jinesh from Motilal Oswal. So continuing on that question [ with respect to the product item for ] Harley collaboration. So do we start with one product only? Or there are more products which are under development which will be launched at a later date.

So right now it is one product, I think, with 3 variants that was launched yesterday. And this itself has big opportunity. And as I mentioned, that -- both parties will continue to explore, whether it's geographies or portfolios. As far as our lineup is concerned, it's important to again reiterate that we will be launching a model which is based on a similar platform but of a different [ size ] and a little different customer profile, which will come before the end of this fiscal. So you will have that another product that's coming out. Beyond that, also you will see more premium products this year itself. So I'm not going to reveal the names or others, but [ you will see them ]. If you look at -- Jinesh, we talked about, if I remember, Umang, 3 years back, on the portfolio strategy, if you go back to my investor call. And we talked about that we will [ straddle across ] all the engine capacities right up to 440, 450, if you just go back to those calls, and different segments. And this is what you're seeing. We've had 160 -- Xtreme 160R 4V. We have Xpulse. We have [indiscernible]. And you will see us launching which are actually [ straddling ] in between as well on the [ engine capacities ], so you will see more and more action. So it's not just about variant on these platforms, but you will see the entire lineup and range coming from [indiscernible].

Got it. And secondly, given that we'll also be having our own product on same platform, how do we initiate [indiscernible]? And how do we not [ co-compete ] with Harley given that we sell through the same network? So what are your thoughts on that?

They are not dissimilar-looking models [indiscernible], which would [indiscernible]. Like any [ motor ] is not very [ uncommon ] to actually have a platform approach where you have a platform and on that platform you can spin different model types, yes, so this is what's going to be. We're not going to cannibalize each other. The look of the bikes will be very different when you look at it. Where you capitalize, it will leverage on the same platform that we have, so it will remain. So it's like in every segment you have different types of customers and the idea is to address those [ and then put it ]. So it's not going to be cannibalizing both off each other.

Sir, this is [indiscernible]. I have 2 questions. First is I could not make up the differences between the first entry-level model and the second level because, the features that we got, there were only difference in level. Any other features which are -- you can talk to us about between these 2 models, the entry level and the second variant?

I think -- let me ask Ravi to talk about that. What they're asking is the difference between the first, which is the 2 lakh 29,000 [ ex showroom ]; and 2 lakh 29,000 [ in showroom ], if we can just talk. And maybe, Arun, you can supplement just in brief.

Well, one was the machined -- yes, yes. Thanks for this. Yes, the machined alloy wheels and [ about this fork wheel ] that we have. We have different paint finishing. We also have a different badge. We put a very intricately designed 3D badge on the tank, [ as opposed to printed ]. So it's what's in the decal. And the other aesthetic differences, [ inserting ] on the tank, to the treatment of the side cover and battery box.

So just to follow up on that. Could we have gone with [ alloys here with ] the starting model itself? [ Although, we're ] thinking that's a premium product, right? So I mean [ a lot of reasons it till come to ] expenses. So we're understanding the purpose is there because we are going with a bit aggressive price point. So we have started with [ alloy wheel and ] [indiscernible] on this, while we would...

Let me answer that question. There is a strategy behind pricing. When we launched yesterday, people were expecting the price to be 3 lakh 29,000, right? So now at 2 lakh 29,000, you can't package everything. So I think there is a strategy behind pricing [ of the way you have to work. You go at what ] price, and that's exactly what we have followed, yes.

Okay. My second question is on distribution, so can you talk about how many -- because we are going with a premium distribution. So how many dealers will we have, say, in 1 year, 2 years time, plus? Also all the premium products that you're talking about will be available on the premium outlets. Or it will be in normal Hero outlets, let's say...

Firstly, let's go to the bookings, the bookings which opened today at 4:40 p.m., 4th of July, right; the data we've chosen, the [indiscernible] we've chosen, with a purpose in mind. And you can understand the significance of that. The bookings will be running here, so the customers from anywhere can book our products. The second then comes to delivery. We will be delivering through different modes. The delivery will happen through Harley outlets. The delivery happens through select Hero outlets, a number of outlets that we're not going to talk at this point in time. That's not important. Delivery would also happen from wherever they book through other means. It could be home deliveries. Test ride would be availed at multiple cases. So these are models now which are very -- I will say it's a combined model of delivery. And one needs to segregate between creating customer interest, which is what we have done yesterday and more and more media that we'll do; to the bookings, where a customer expects the actual demand on that; to the delivery, test ride and the delivery. So all of these, we have plans in place, but we are going to ensure that majority of the customers who want this are going to be catered to; and also the advantage being that we [ have a proven method ] which is deep rooted. Most of the brands -- if you see and one of the questions yesterday, well, from the media houses. Most of the brands, American brands, they have exited India. If you ask my view, they exited because of the service -- lack of service network. That's one single reason. Will be -- there could be many other reasons. We have that advantage of servicing through so many points. So therefore, those are the advantages that we will leverage; and which is what we talk about in premium strategy, which is that we will leverage our [indiscernible], but we will move [indiscernible]. And that's what we are going to do, which I talked about yesterday in my speech.

This is [indiscernible] from [indiscernible]. So in terms of production capacities, what trends that we are looking at [ for the group ] and how it will be ramped up moving forward.

We will ramp up as per the demand that comes from the customers.

So any -- sir, is there any number in mind in terms of production capacity...

We have number in mind, but we are not going to speak about that. All I can say is that we do see huge interest after yesterday's launch. And all I can say is that I have assurance from our supply chain teams that we will be catering to every single customer who expresses their desire to own this exciting bike. Umang, if there are any questions on the audio line...

This is Amyn from JPMorgan. So some clarifications on the distribution strategy. So we -- right now we have a few Harley outlets. You'll have a premium outlet separately which will have [ your ] premium products as well as the 440 X. Is that a correct understanding?

[indiscernible] answer.

Yes. And also, the servicing you mentioned, obviously your strength on the distribution and the service network itself, but then if you are planning to do the servicing of the Harleys [ also on this, sir, so ] I'm guessing there will be a requirement for upgradation of the service [ network ]. So any thought process there and any understanding there...

So as we go in right now, it will be obviously the Harley stores, which are limited in number, but the numbers will come from select Hero stores. We've already launched program for Hero 2.0. I spoke about that in my interview some time now. That is progressing very rapidly, so these products will be housed in the Hero 2.0, so which is what we are talking about select Hero outlets. That provides you the physical availability. That still does not constrain the product being available. As we said, we will make the product available wherever the customer wants, yes; and there are those mini models that one can create. So this is a strategy, yes. Now what is role of the premium outlets that I spoke about, the 100 premium outlets which I spoke about in March that will come? [ There is multiple products ] because -- remember we talked about that Hero coming from its strengths in the segment that it is which is entry deluxe, [ which is it has ] protected and defended and increased the market share so well in. Now to have the premium [ in major league ] -- we didn't have the portfolio. Now we are seeing that, right? Clearly [ that's it ]. We also needed to ensure we have brand association, and you see that. And yesterday, you have seen that. We also need to ensure that we have a high street visibility, yes, because -- so the premium stores are going to act not as outlet stores. They will, of course, sell, but more often than not, these high street outlets, they actually serve as more visibility and creating the premium imagery, enhancing the premium imagery further. So that's what the role of these 100 premium outlets are going to be, much like some of the 4-wheeler players who [ turned out ]. And you will see that, so it's not a disconnect. It's like you have stores for delivery which need to have a certain environment, retail experience. By the way, each of these stores which house this Harley-Davidson X440 will have dedicated salesperson and dedicated store-in-store content, yes.

Which will be there.

So it will ensure that the retail experience is there, right, but the visibility of the high street comes for all our premium brands. We can say that that's more for enhancing Hero's premium imagery, just like the brand association, that these premium outlets will serve. The service experience, you are absolutely right. When we service these products, the relevant service network will be also upgraded in terms of either providing a separate lane or separate [ bike lanes ]. By the way, for 15 days, I have traveled to 6 or 7 states, [ yes ], from -- in June, covering a lot of dealer networks, service centers. It was like a [ company marathon ] that I did. And I was excited to see that there are many such dealers and service networks which are actually very good, where it's not like you need to upgrade all of them. We already have many which are fantastic. I mean you guys are in Jaipur, right? If you want to visit one of the Hero 2.0 stores, right, you can just go to Jaipur City. And Umang will tell you where it is; and you can see a 2.0 store, what it is, yes. I am talking about the [indiscernible] with it.

[indiscernible].

And they can see that. So there are many stores which are [ relevant ]. In principle, you are right, but we'll be looking at -- because the experience to the customer doesn't stop at sales points, yes. The sales point, the customer will come once, but a service point, the customer will come multiple times, so more experience has to be there at the service point. And we are completely mindful of that and which is where you guys also talked about in what way this collaboration works. So this collaboration works in this way because, Harley being Harley, they would have a certain sense of how to cater in service centers. And then we know how to reach markets. And therefore, you combine that know-how as well, which is not tangible but all intangible know-how. They have created that know-how within 120 years. They are celebrating 120th anniversary. We've created know-how of the Indian customer and the market and the scale over the last 40 years, so it's the combination of that [ which is an extremely powerful way ] rather than, I will say, with some tangible assets.

Actually good to know that it's not just like a product licensing thing. So basically it's a -- almost like a partnership without equity...

Absolutely. And the interests are aligned. The interests are aligned. Of course, I am not giving out a royalty number, but we've talked about that, yes. Not only [ the income accrues ], but definitely one portion [indiscernible]. If you [ look at, lock in ] yesterday's message, finally -- okay, our finance people will be more look at royalty and what comes with P&L, but that's not the business objective. That's only a mean. The objective is to create value: create value for both shareholders.

Yes.

For shareholders who are Hero shareholders or shareholders -- or Harley shareholders. And the value gets created when you actually serve the customer need in a way that others have not been able to. And therefore, you expand the market and get the market share; and then the value follows. So that's the end goal. That's the objective. Royalty is only a means to that, so...

We'll take a question online, Raghu's. Ryan, could you put Raghu on queue?

The question is from Raghunandhan with Nuvama Research.