Hero MotoCorp Limited (500182) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Hero MotoCorp Limited Q2 FY '24 Earnings Conference Call, hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand over -- the conference over to Mr. Varun Baxi from Antique Stock Broking. Thank you. And over to you, Mr. Baxi.

Varun, we can't hear you. Varun, are you there? Let me take it up. Never mind. Thanks so much, Varun, for hosting us, Antique, for hosting us. Hello and welcome, everyone, to the Hero MotoCorp Investor Call. It's a lovely season, the festive and those of us who also follow cricket. It's just the right time to be. To talk about the quarter and the festive, we have with us in the management today Niranjan Gupta, Chief Executive Officer; Ranjivjit Singh, Chief Business Officer, India business; and Swadesh, Chief Business Officer, EMBU. As usual, we'll begin with opening comments from Niranjan. Niranjan, over to you.

Thanks, Umang. Welcome, everyone, to Hero MotoCorp's Quarter 2 Earning Conference Call. Good afternoon, good evening, depending on which part of the world you're joining from. And greeting for the festive, as it's a festive season across India. You will have seen our results announced yesterday. Happy to report we delivered a revenue of INR 9,445 crores, with our margins of 14.1% which was up 260 basis point year-on-year basis. We delivered net profit of INR 1,054 crores with a growth of 47%. The results, they reflect continued financial discipline which we have been known for and, of course, the judicious capital allocation along with continued investment behind growth priorities. Of course, the current margin shape provides even more headroom to deploy behind our strategic priorities that we have outlined earlier as well. Our Win in Premium Journey’ has started off very well. We've been talking about this. We've been -- our strategy is to address this on all fronts, product, portfolio, place, price and promotion. As you will have seen, on 15th October, we started the Harley-Davidson X440 deliveries across 100 stores all over India. We have delivered more than 2,000, so far. We are seeing good trends in the bookings on the second window. We've already seen more than 2,000 bookings, so it still leaves our order book at 25,000-plus as earlier. The supplies are getting augmented as we speak. We expect to service the current orders over the next around 4 months or so, and of course, as the supplies get augmented, we'll be able to fulfill these orders even faster as we move forward. Karizma. Again we're delighted to note the bookings at 14,000. We did close the booking window, and as the supplies augment, we will open the booking second window again soon. That's about the product. We are addressing the place, the stores part of it very rapidly as well. We launched our first-ever Premia store, premium store, for Hero just a few days back; and we are going to scale up rapidly. Over the next 6 months, we will get to 100-plus stores. Similarly, the facelift of our current stores is on a very rapid path. From 20 in March, we are now at 200-plus Hero 2.0 stores just in 7 months, almost upgrading at the rate of 1 store per day. And we plan to get to 500 in the next 6 months. It's a huge upgrade and a rapid scale-up. Not just physically brick-and-mortar structures, but we are addressing the digital journey as well because, the premium customer, the experience you provide is more a complete all-around physical journey and not just a physical part. So we have done a complete revamp of our product website, our customer journey, one app, et cetera, so a lot of work happening on the digital front as well. And of course, last but not the least, a full revamp of service also is on the cards on the premium part of it. There will be more models along the way, as we said, part of our portfolio strategy. Already, we have got 4 to 5 models in market. There'll be more over the next 4 to 6 quarters as part of our strategy to have a full portfolio. Very, very confident -- we are very confident on our premium journey. On the EV front, we continue to expand the number of cities and dealers, along with the charging infrastructure, gearing towards a volume scale-up over the next 4 to 6 quarters. That's on the business front, broadly picking up a couple of highlights on that where we are focusing on. As far as economy is concerned, we know about the global geopolitical issues that are going on. However, Indian economy continues to be resilient and is one of the fastest-growing major economies in the world. All the indicators are in the positive direction and, in fact, very strong consumer confidence index. And of course, the -- while the monsoon has been patchy in parts, but -- if you see, the rabi crops have been pretty good, as compared to last year. The festive season has started off very well, and overall, we do see momentum building on demand side as we move forward. On that festive cheer note, let's open the floor for Q&A. Over to you, Aman.

[Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.

My first question is on the electric two-wheeler business. And it looks like, in the month of October, we've now sort of breached into close to 2,000 units a month sort of run rate there, so just trying to understand. Going forward, where do you see the further inflection points in terms of your electric two-wheeler business build-out? And any color there in terms of number of cities for the current product? As well as just any color on supply chain commentary as well, as you sort of try to scale that up, would be very helpful.

[ So maybe I'll ] start off. And then I'll hand it over to Swadesh, who's our Chief Business Officer for EMBU. So we had outlined a plan to cover 100-plus cities, and we are on track to move towards that. You're right in registering that we have breached the mark of 2,000, but that's just a start. From a production side, we are now clocking more than 1,000 per week in the last 3, 4 weeks. And we are going to scale it up continuously as we move forward. More importantly, the infrastructure building is happening at a rapid pace, whether it is dealers, whether it is cities, whether it's charging. And therefore, all of that are getting ready for the takeoff and the scale build-up in future. For more color on that, Swadesh, over to you.

Thank you, Niranjan. Thanks for the question, Mr. Chandramouli. So as Niranjan said, we have been expanding quite fast to increase our footprint, and we will be reaching that 100 cities very soon. We're also expanding in terms of the way we serve the customers, so starting with our experience centers and now [ being in VI 2.0 as Vida corner ]; and also bringing our EV-exclusive Vida dealership, starting from Pune, you'll see us being present in various formats. In terms of getting our products in the hands of the customers, you saw that, in October, the numbers are going up. And we just see that this is going to go up and up from here onwards, as we are present in all these cities. Everything else, in terms of our ecosystem, in terms of our production and the product acceptance, it is on the right track for us to get to leadership in coming quarters.

Got it. That's helpful. My second question is just on how we are managing the margin in the business. So it appears that the industry is in a slightly more favorable raw material environment, but Hero has been able to take more price hikes than maybe competition has been able to take. And it appears that some of those benefits are being reinvested into the business, which is potentially why the margin is slightly more flattish versus maybe some of the peers over the past few quarters, so I'm just trying to understand the thought process around the various gives and takes and also your thought process on sort of further price hikes potentially going forward.

Yes. So as far as our margins are concerned, see, while we say the industry has been on a favorable mode, actually, if you take it back to 3 years or 4 years back, the industry has been hit by the commodity cost rise. And sensibly enough, in order to ensure that the customers are not getting adversely impacted hugely, what happened was the industry actually absorbed part of that in the margins; and we've been talking about that. And that recovery has happened, so that's where the margins have come back to the platform which it was, as our guidance has always been to be in the [ tramline ] of 14% to 16%. Price hikes, no. Actually, we haven't been taking price hikes higher than industry. All our product positioning, all our price positioning have been broadly in line with where it was. And therefore, that's been again a very sensible pricing plan that we have had. What this now allows -- of course, the margin shape and, of course as we move forward, the operating leverage will further kick in, but this will allow this to be deployed even more towards the big launches that we have been doing and are going to scale up, whether it's a premium or the EV business or digital, any other growth priorities that we have. We're going to deploy -- double down on those and deploy money behind those. So this is how we're going to leverage this to actually fuel our growth.

The next question is from the line of Jinesh Gandhi from MOFSL.

Congrats on good numbers. Quickly on the festive season, how it has started. What has been the industry growth? How Hero has grown during this initial part of the festive season, if you can throw some light on that.

Yes. Jinesh, this is Ranjiv here, Ranjivjit. Quarter 2 is all about preparing for the festival seasons, and we have prepared well. We anticipated a good bounce back of demand and we have actually worked on our strategies across the portfolio. So Niranjan already spoke to you in the last quarter about grow the core, and grow the core for us really means growing the market. And we've put our best foot forward to inspire and invite the entry-level consumers to come into the market. And that's working very well for us, so at the entry level, HF Deluxe is doing well. That's itself in double-digit growth. We are also seeing that the rural demand has picked up quite well. And that's always a good news for this industry, when rural also kicks in. So we've seen that in the first 17 days of the festival. Then you move into some of the new product introductions that we have done like Passion, which is a very loved "million units a year" kind of a brand. That form factor, that styling has definitely hit a home run, so it's doing very, very well in terms of the growth. It's at 2.5x in terms of the retail from a Passion family compared to what it was last year. So that's also expanding the market and inviting more and more people to participate. In addition to that, we've also brought in, in the 125cc and strengthened our portfolio with Glamour classic. That's also taken on very well. And this is significant because it's markets like AP and Telangana and East where Glamour has been very, very popular in the past. And that form factor, that's coming back and coming back very well again, so we are seeing the growth to be very sort of spread out. For example, Rajasthan is leading the growth. Central zone is doing really well. We've also got North kicking in very well and South doing extremely well, East back on the growth path. Portfolio is what's -- one part of it. Then all the other enablers that we've put into the market really, the consumer demand, fulfilling that, the sales training, the -- even the retail finance that we've put in. All of that is helping us to get to a double-digit growth that we are seeing in the first 17 days of the festival, so we're quite -- we are looking forward to a good festival season.

Okay. And when we say double-digit growth, that's for Hero's portfolio, not the industry.

Well, I'm speaking for the Hero portfolio definitely.

Okay. And industry also would be similar growth. Or would it be fair to say?

I believe the industry is also doing quite well, although I would say that there's a lot more that we are doing in expanding the market. And therefore, I think we are on a strong wicket here.

I think, Ranjivjit, overall so far, we have grown by 15% on the retail, yes, okay?

[indiscernible]...

All right, just in case. You don't take double-digit as 99% growth [indiscernible]. All right.

Yes, sure. And in that context, even the 100cc portfolio, which was the worst impacted for last 3, 4 years, that is also showing signs of recovery that's quite encouraging, great, yes. And second question pertains to the margin expansion which we have seen in this quarter. Would it be fair to say there was some residual benefit of commodity price correction which got reflected in 2Q? And from here on, there should be stability on the commodity price side.

Yes, we would expect. I mean, Jinesh, as you know and I just mentioned earlier as well, that -- I wouldn't call it a windfall gain or something for the industry. It's just a recovery of margins because industry had not passed on the cost escalation and inflation that had happened. Now we are back to a regime where the recovery of the price versus the cost have done a catch-up game. And therefore, they are matching, so you're back to even keel which you were earlier. Moving forward, nobody can forecast the commodities. I've been saying this earlier as well. We've got to navigate the path. And of course, world continues to surprise us, but right now, as you said, the catch-up game has happened. We're in a good space, from a P&L shape point of view, to deploy behind our growth priorities.

Got it, got it. And the last question, on EV. So what kind of order book do we have for EV given that we are already producing 1,000 units a month? Do we have order book number for that?

See. EV, we will be -- see. We are more focusing on -- as I said, I would not give a volume guidance right now, but the point is that we are steadily on the path to create the right infrastructure, whether the number of cities -- if you remember, we were in 3 cities by March, and we are aiming to complete 100 cities by end of this calendar year. We are well on our track. The number of dealers that we are opening may be 100-plus. Soon, all of them will have stocks as well. And the production is getting ramped up. Charging infrastructure is getting built, so I think on all fronts there's a lot of work happening in actually making sure that the build-up happens. And of course, numbers will follow.

[Operator Instructions] The next question is from the line of Kapil Singh from Nomura.

I just wanted your thoughts on the evolution of industry in the 100cc and 125cc segments. So are you thinking structurally the growth for 125cc will continue to remain higher? And how are you planning for your product cycle? Or do you think 100cc segment, which has shrunk quite a bit, could make a strong comeback? And we can talk about next 2- to 3-year kind of outlook here.

Kapil, see. Again I go back to what we have said. I think it was 3, 4 years back, Umang, when we were talking about this, that India is always a story of many Indias. So therefore, it's not like one segment is eating into another segment. There's a class of customers which want affordable product at a certain price at the entry segment. There is a class of [ product ] which want more upgraded products. And then there are customers who are more aspirational and wanting premium products in terms of this, so it's not one segment eating into another. It's just that the different customer segments have taken different period of time, post COVID, to come back to growth. And if you look at this across the categories: The premium segment has come back to growth much faster, which has been followed now by the middle segment. And of course, the affordable, which is the bottom of pyramid, will follow soon given a lot of CapEx, infrastructure program, the development, all that is happening. So therefore, the income level, employment level, as they rise, that class of customers will also start participating more and more, so it's not about one segment at the cost of the other. It's just the recovery in different segments has been happening at different periods of time. It's heartening to see that middle and the upper segment recovering, already recovered; and at the entry segment, which will recover soon. Over to you, Ranjivjit, for any more colors on this.

Sure. The 100cc segment, the entry segment, when you look at it, it's really about inviting first-time buyer. And the two-wheeler penetration in the country still has huge headroom for growth. It's under 50%. And personal mobility continues to be a very basic need, a big requirement. And that's something that, as leaders and as a brand like Hero, we take it upon ourselves to see how do we help the consumer with the kind of value propositions that we put into the market, with the kind of value that they find in our products; and be able to build that segment. So that's seen a bounce back. And I believe that consumers will, at times like this, trust brands which have been around, that have a service orientation, that have the facility, widespread across the country. All of those things will work towards our favor. And we'll continue to work to strengthen that. As far as the 125cc is concerned, it draws from both sides, from the 100cc as well as from the 150, 160. It's source of business. And we are seeing that there is a power there that is coming in. And we are very well geared towards even the launches that we have done, which I talked about. And the future launches that we're going to be doing will further strengthen our position in the 125cc and premium we have already looked at in terms of our portfolio and the launches you've already been witness to. So across the board, we are seeing strengthening our portfolio and also taking on the role to expand the market.

Sure, sir. Second, I just wanted to check on margins. Now last quarter, we mentioned that there was kind of 70 bps drag. And ICE margins were higher at about 14.5%. I just wanted color, if you could give us an update. Where are the ICE margins right now? And what I'm trying to understand is, as we move forward and we ramp up EVs, how would the margin evolution look like. Do you think that would -- that can cause some drag on the margins? Or do you have enough levers in terms of operating leverage and cost reduction for EVs where this drag will not be there? So just some direction over there would be helpful.

Right now, as far as quarter 2 is concerned, the ICE margins are close to around 15%. And around 90 basis points is what is deployed behind EV. As we move forward, what will happen, Kapil, is that -- and you are right. So a, the commodity costs -- or the BOM costs -- [ no, it's not only commodity ]. The BOM cost reduction journey is well on the way, as far as EV is concerned, so that's going to help, as we scale up and as we reduce the BOM costs, in terms of intrinsically improving that and while deploying that back in building up the scale. So I will say broadly around 100 basis point is something that one can factor in, in terms of moving. And quarter 2 was 90 basis points, anyway, which was deployed.

Sure, sir. And just to clarify: EVs are still -- on gross profit basis, are we profitable at this point?

No, not really, but I think as -- all of the entire industry is working on the BOM cost reductions on products which are engineered differently, so we'll move forward to that. It's a nascent -- right now it's a nascent phase. I think the more focus is, honestly, on building the category, building the right product portfolio across in terms of putting the right cost structure. So the margins will follow, but right now we won't be too worried about the margin structure [ on the industry build ].

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

My first question is on this Ather investment that we made during the quarter. Anything that you can share with respect to where we are on the stake now? And also, incrementally, how should we sort of think about this investment? Any strategic synergies to be drawn with the way now we are starting to scale up our EV business? So some color around Ather investments.

Gunjan, the Ather stake right now which we have is 37.5%. And of course, as you already have seen, there are synergies that we are working on. Maybe I'll ask Swadesh to talk about what we have done on the charging plans, also on the standardization of the chargers, a couple of points that you can...

Yes, yes. Gunjan, yes, we are definitely leveraging the partnership we have with Ather. For example, this two-wheeler fast-charger connector which we jointly have between Ather and Vida, that has become the standard in the industry. And we expect that more and more OEMs will adopt that, so that will not only help build the category. It also bring customer ease across the board. We definitely continue to look for other opportunities, whether it's supply chain or other areas, so that we can help together build the EV category in India.

Is there a thought process to have a similar front end as well; on maybe there are experience centers that Ather has and your distribution is, of course, very sizable in that respect? So is that something which is also part of the strategic decision-making when you look at leveraging the portfolio?

I think, Gunjan, I will say "one step at a time." I think Ather continues to build excellent products. They're building excellent experience centers. The company is doing well. The product portfolio is well known for its premium aspirational image, so I think where ever we see that is common synergies that both companies can leverage and therefore benefit the shareholders. Both the companies continue to discuss on those [ fronts ].

Sure. My second question is on the product lineup. I mean, of course, you all have been speaking a lot about so many launches coming through. If you can give us a little bit more color on incremental next 6 to 12 months. Where should we expect launches? And I'm more keenly focused on this 125cc segment. I mean, clearly, Glamour and Passion have seen some uptick over the last 3 months, so how should this segment sort of scale up for Hero? Because it has been historically pretty sizable, right? I mean you mentioned about [ 1 million ] each of these models used to have, so a little bit more color in terms of model intervention. And how do we see these 2 models sort of scaling up over the next 12, 18 months?

So Gunjan, as far as 125cc is concerned, already there are some actions that have been taken; as you know, Super Splendor Xtec, which was launched at the beginning of this calendar year; and then Glamour, which has got revamped. So all of these will translate into higher volumes as we move forward over the next few quarters. Of course, we are looking at further augmenting this segment with another model. Time lines, we can't talk about right now, but that's something that will come up by -- probably in quarter 4. And the other launches which we have been talking about, more and more on the premium side. You will see the launches over next 4 to 6 quarters. I think the focus there is on the 125cc, on the premium -- in term of new launches. And of course, some action on scooters also, you will see. So you will see the lineup coming up. We will keep everyone excited every quarter. That much, we can promise.

Okay. Lastly, if you can share the channel stock number. And I'll join back the queue.

Ranjivjit?

Yes. This is -- like I said, we prepared really well for the festival to make sure that, in our wider distribution of 6,000 touch points, they have the adequate demand fulfillment possibilities. And so when we come to the end of the festival, we'll be back to 4 to 6 weeks of inventory.

The next question is from the line of Raghunandhan from Nuvana (sic) [ Nuvama ] Institutional Equities.

Congratulations on good set of numbers. Sir, firstly, given the strong response for Harley and Karizma brands, how are you looking at the production ramp-up for these models in coming quarters? Secondly, in terms of 125cc, just following up again there, within 125cc, the premium category has been doing very well. That is price point of above 90,000 ex showroom. And we have Xtec which is benefiting in that category, but should we expect more launches like Xtreme 125cc in coming quarters? And there have been a lot of spy shots also in the media.

Okay, Raghu. So as far as Harley is concerned, yes, glad to note that we are very happy to see the response to H-D X440 as well as Karizma. As I mentioned in my opening note, the current bookings, probably we will be able to serve over the next 4 months. Our supply chain is already -- in fact, 3 months, 4 months back, [ it's ] they started ramping up their capacity, so we'll be ramping up capacity. At this stage, I won't be giving out any number, but we'll be ramping up capacity because we see a very high level of bookings. And then we resort to closing the bookings at different points in time. On the 125cc, I'll ask Ranjivjit to talk about the Xtec and how these have been doing. And of course, we have had more excitement in this segment as well.

So Super Splendor Xtec was introduced in the beginning of the calendar and really helped. I mean when you look at the uptake that it had not only in its core markets of UP and West Bengal, et cetera but also across the country. So it really got a national footprint, thanks to the tech upgrade which that segment of consumers was really looking for. So the LED headlamps, the USB, the -- all the other functionalities in terms of connect, all of that has helped. Then when we look at [ Glamour Xtec ]: That continues to be there, but as we are going forward, we are also working on something which Niranjan talked about. And so as we're coming into the quarter 4, we should see some excitement here coming from Hero to address the segment needs of that power-packed and tech-advanced kind of portfolio, so we're very excited about what we are going to be introducing.

Just a clarification. How would be the Xtec share within Super Splendor and Glamour?

So Xtec is 22% -- around 20% in terms of -- overall, it's -- for the Xtec family is 1/3, around that much. And it goes across Glamour, Splendor, Super Splendor, Passion, Destini, Pleasure, Xoom. All of them have the Xtecs, so these are the ones that are a little bit more tech advanced. They are what -- have a clear competitive differentiation. And just for a little bit more, which the consumer is happy to pay, the premium, then they get all these extra functionalities, like I said, about Bluetooth connectivity, the USB charger, low fuel indicator, et cetera. So all of these things are very much, for the younger generation, very preferred.

In fact, like you picked up rightly, what this is doing, Xtec, is actually -- just along with premium, our journey on premiumization also have been equal focus, as far as the rest of the categories are concerned.

Lastly, can you share the spares number, if you have it handy?

Yes. So we had a really good quarter in terms of parts, accessories and merchandise business; over 1,300 crores, 1,354 crores to be exact, which is a double-digit growth over last year. The growth is coming across all parts. It's coming from the parts business, from oil, some of the new additions in terms of tires. All of that is working well. We are working on our strategy to continue to expand our distribution, so that continues well in terms of number of retailers that we cater to, the number of parts distributors and through our super stockist channel. We also are getting more and more extraction from each of these retailers, so that continues to be a key growth driver for us. And overall, it's a business that's coming in a really strong and good growth. It continues to do well.

[ In fact ], just to add, Ranjivjit, on that, it'll be good to let people also know that, October month which we've just finished, we have clocked 500 crores revenue from PAM business for the month...

Yes, highest ever. [ That's true ].

The next question is from the line of Praveen Motwani from BOI Mutual Funds.

We lost Praveen. Is Praveen still there?

Mr. Praveen, are you there? I think he's got disconnected.

Why don't we take up Binay next? And the moment Praveen comes in, let's take him in, yes.

Sure. Mr. Binay Singh? I think even Binay has dropped, so I'll take the next question.

Sure.

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

So the first question is with regard to the Passion. The way it has bounced back looks impressive. Would you give us some color in terms of, within that subsegment, what market share it has been able to achieve? And what has been the cannibalization for some other brands of your own?

It's an overall growth story that we've got on Passion. I think the market was really looking forward to this form factor, this brand to come in. There's a lot of belief and love for this brand, and so it bounced back extremely well. And the growth is over 2x in terms of that. And that really helps the overall 100cc segment to grow. And no, it's not come at the cost of any other brand, at least within our portfolio. And that's because a lot of the extra coverage that we've got in markets where -- for example, I was talking about South or East. Passion was at one time a big contributor to the overall volumes and revenues of our dealers. And coming back, it has only augmented and increased the amount of business that it has generated for it. Splendor continues to do extremely well. Always, we're delighted with this power brand that we have. And of course, HF, like I mentioned to you, has also grown in double digits, thanks to the very strong rural uptick that we are seeing during this festival season. And I must say this, that our focus is on expanding the market here. And so in a way, we are really bucking the trend. We are doing very interesting rural activations that are inviting our consumers to participate during this time. And I think that's something that probably no other industry player is doing, so we're quite happy with the way the teams are executing on the strategy.

Sure. And is it also your -- the existing customers of Hero long back? They are upgrading towards Passion. Or these are the new customers who are...

You're absolutely right. There are a lot of customers who are holding on -- last many years, they were holding onto their Passion because they were just so -- I mean it's a question of love. That's why our campaign was also about first love. And they have come back, but not only that. I think there are many first-time buyers as we see as well, so it's coming back, exchanging. And we have a very robust and good exchange business that's also showing tremendous growth, so we are also stimulating that. And we've done that with Passion. We've done that with Glamour. There's a pretty good installed base that we have that our customers come back to us. They get the exchange bonus. They're able to do all that. We've got Hero Sure outlets. We've got the Wheels of Trust do-it-yourself app that, from wherever you are, you can get an evaluation of your current two-wheeler. And in seconds, you get that. You literally walk into a Hero showroom, a dealership. And you also get brokers to participate and give you the best possible deal for your previous, older vehicle; and exchange for a new one. So it's a very comprehensive strategy that we've got to expand the market, and that's what we are working on.

Sure. And the second question is with regard to the scooter exports, which also seems to be, again, coming back in a big way. So which markets are these which are driving this? And also what's the runway? Any thoughts? Is it more driven by the new products you introduced in those markets? Or can you give some color and some medium-term targets there for specifically scooters...

So I guess I'll, we'll address this in overall global business volume, not in terms of scooter or the other parts of it. Quarter 2, we had 52,500 volumes, which sequentially is a very good growth because quarter 1 was only 35,000. So yes, the markets are coming back [ in parts ]. And we are looking at further scaling up of these volume in second half.

The next question is from the line of Praveen Motwani from BOI Mutual Funds.

Am I audible now?

Yes...

Yes, you are.

Sir, my first question is what is our production capacity for Harley-Davidson X440. And how do we see the ramp-up over the next couple of quarters?

So as I've mentioned earlier, that our current number of bookings that we have, we aim to serve them over the next 4 months. And the supply capacities are getting augmented for both Harley and Karizma. And we will see that coming off higher capacities in quarter 4 of this year.

Any -- sir, any indication that -- what would be the production capacity number to understand our stand to address the demand that we will get for this product?

Partway between Harley and Karizma, we are looking at to ramp up stage 1 to around 10,000 per month. And probably, we could look at augmenting that even further as we move forward.

10,000 per month, okay. And sir, any -- if you can just also elaborate on the profitability front specific to the Harley-Davidson, that would be really helpful.

The profitability in this segment is quite good and it's -- builds us with the scale, so right now our focus is on ensuring that we win in this premium journey and scale up and get to meaningful market share in every segment of the premium category.

Okay, okay, okay. So sir...

And in fact, as we build premium portfolio, it allows us to further expand our PAM business, more specifically on the merchandise part of it. And therefore, that's something that in future we will see as an additional revenue stream coming through.

Okay. Sir, when you talk about the better profitability in this specific thing -- so can I assume that the -- our -- like it would be a -- better than the blended margins that we are doing right now?

I won't get to more specifics here, but I think the portfolio shape will improve from a margin perspective as we move forward. Right now our singular focus is building the shares in the premium segment, across each of the segments within [ premium itself ].

The next question is from the line of Shree Kirloskar from BOB Capital Markets Limited.

My first question is, sir, in our balance sheet, the receivables have gone up sharply to around 4,300 crores, so any color on that, on what is driving the growth?

[indiscernible].

Yes. We couldn't hear you well. Could you repeat yourself, please?

Am I audible now?

Yes. You're better.

Sir, my first question is on the balance sheet part. Our receivables have gone up sharply, so any color on that, on what is driving the growth there?

Well, that's the usual bit that happens during festive season because, as the stock builds up, and that happens across the industry, we do provide extended credit to our dealers, which gets then wind down by the end of the festive. Nothing unusual on the [ trade receivables part ].

Okay, understood. Sir, my second question is on the volumes. You have been doing pretty well on the volume parts for -- especially on the motorcycle segment, so is this something we are seeing as part of pent-up demand which is going on or the normal streamline ones?

Ranjivjit?

Yes. I think there's a little bit of seasonality here as well. So when you look at the way we are shaping our portfolio, bringing in, of course, the volumes are going up. And the trend that we are seeing is pretty positive for the festival season as we get into Q4. Then also -- and pretty much from November onwards, we will see the marriage season kicking in, so there also the demand is going to be positive, so we see that the trend for at least our portfolio is continuing to be robust and strong.

The next question is from the line of Hitesh Goel from CLSA.

Sir, my question is on the gross margin. If I look at it on a Q-on-Q basis, you've taken a 1.5% price increase, but the gross margin expanded by 80 basis point. There is also precious metals have gone down quite a lot, right? I don't know what is the proportion in your portfolio, if you can specify that. Because most of the companies are -- have got some RM benefits as well. So if you can just break it down on the gross margin side for us.

So Hitesh, we look at overall shape of the margins rather than the by elements. And I would broadly cover, without getting into each components, that the benefits have accrued from obviously the catch-up between price and the commodities. There is part of the LEAP savings that we continue to drive. There's also the mix impacts because, as we have seen -- the 125cc, the dealers whose growth have been higher than the entry segment overall as a composition. And therefore, there's a mix benefit as well. There's a combination of all of that, that has actually helped in terms of getting the margin and, of course, when you look at some bit of operating leverage as well. So there's a combination of all that which has resulted into the EBITDA margins. I won't get into each, components-wise, honestly, which contributes [ to that ].

Okay. And sir, just a follow-up. On the other expenses, we have seen a strong increase. So is it because of the launches, Harley launch or something, that the expenses have been higher? Or this is a recurring kind of rate we should assume.

So I think, as I've been saying, other expenses, we should always look at a rolling 4-quarter basis. And that's the best way to look at because, quarter-wise, based on the launches, we will always have an uptick; and of course, the margin shape that we have, which is why I keep going back to the overall margin shape. It allows then us to deploy more and more behind the launches, whether it's a Harley launch or whether it's Karizma launch, then with more launches to follow, so we'll have that trajectory behind those, which is the right investment for growth.

The next question is from the line of Mr. Pramod Kumar from UBS.

Sir, 2 questions. One is a clarification on the receivables. Normally, these kind of receivables also generate interest income, right? It's not like you're going to be funding or extending credit for a limited period without any interest cost, right, interest for the dealer. Is that understanding right?

No, no, that's not. I mean it's part of the entire extension of credit that we do, and the interest is only if it becomes overdue. So that's the usual bit that happens. It's just that we allow extended credits during this period of time.

Which is -- and sir, where do you recognize if there is overdue and there's interest [ which you achieve ] which is kind of you receive from the dealer? Where exactly in the P&L? Does it come in other income?

Yes, yes. Beyond the due period, which again is -- gets into the other income, Pramod. You're right. That's not a big portion of the other income which you see, yes.

Yes, yes, yes. No, that's good to hear. On the EV side, sir, because what we are seeing is that demand continues to be pretty resilient. Even in the festive season, EVs are holding a 5% volume share, which is pretty encouraging, which probably points to increasing adoption of EVs even in the rural and the festive markets and given the fact that you have a really differentiated product. Because if we look at all the other major players, they have a handicap where the battery is a fixed one, right? And you are the only one, amongst all leading players, who have a differentiated product approach and, honestly, which should give you a very good right to win, but I'm just trying to understand. What is kind of -- is it supply chain which is constraining you? Because otherwise, with this kind of a product proposition where you're really taking charging out of the equation altogether, practically -- the constraints around charging. So why are we not seeing a much sharper surge in volumes? Or what am I missing here? Because this is something really differentiated versus everyone else in the market.

So Pramod, you're absolutely right. I'm glad that you picked this up, that the product is differentiated. It's being marketed, the brand is being marketed, as a very differentiated marketing proposition, as you will have seen, the creatives. On the place part of it also, we have advantage given that we can leverage the Hero distribution network, which we have started leveraging; plus, of course, exclusive stores, which actually are now coming more and more on ground, which is the Vida Hub that we talk about, which will bring the imagery part of it. So I think all of these are right ingredients in place, Pramod, so it's only a question of time when we actually put out the scale. As we said, that -- as of the last 2 weeks, we already started producing 1,000 per week. And of course, as we move forward, we'll continue to ramp it up. It's important to get the ingredients right, which you are rightly saying. And then thereafter, the scale-up is only just a function of time. Swadesh, do you want to add just a couple of points to that?

No. I -- Pramod has picked up the right -- Pramod, you have picked up the right USPs. And in fact, that's where the answer lies as well, that we are very confident about this product. And the customer feedback is very, very positive. It is our responsibility to make sure that we set up the right ecosystem, the foundation for growth and all the support structure which the customer needs once they own the product, so we are building all of that. We know that we have a well-differentiated product. We have the best range, removable battery, charging infrastructure, differentiated connected features, so we know that we're going to be ramping up volumes very fast.

Also, Pramod, I mean, it's very important that, at the initial stage, one doesn't get too perturbed about how much volume you're selling, 1,000, 2,000. It's important to build the right infrastructure in place. Plus, in fiscal year '25, we're going to expand the portfolio in terms of price points, so we have made -- and then more affordable price point, affordable but not cheap product. The product will still be a class in itself. So that's where the focus will be. And I think, with all this, we will obviously see scale-up happening. I'm not worried about that, Pramod.

The next question is from the line of Mumuksh Mandlesha from Anand Rathi.

Sir, can you provide update on export volumes expectations ahead as the demand is gradually improving? And can you indicate, what are the sort of major countries contributing to export volumes? And how are you seeing the currency availability in those market?

So for us, obviously, the top few markets, whether it is Bangladesh, whether it is Colombia -- and then of course, our prospective markets. We have Nigeria. We have Mexico. We have got Turkey. Of course, in Nepal, we've had some disturbances on volume. So these are the markets where we will see volumes in terms of moving forward. Our quarter 2 sequentially has been good. Second half, we expect the volumes to also pick up. Having said that, we know that world is also going through geopolitical issues, so we'll need to watch this space, but we will be building up the global business gradually. So we're more looking at medium- to long-term point of view.

Got it, sir. And as you mentioned earlier, that the entry buyers are coming back to the market: And I think the -- earlier, it used to be like a 75% of the Hero demand is with -- from entry buyers. That has fallen to 60%, so how was that changed, sir, if you can indicate, sir?

Yes. So entry is -- definitely has a good uptake. I'm not sure about the 75%, 60% that you're referring to, but typically, the urban-rural split has been a little bit more in favor of urban in the last couple of years. Now during this time, when we look at the source of business for our -- of the festival season, it's become -- it's evened out. And that's really a very good trend for us to see that rural is also participating. And I believe that they have confidence in HF Deluxe and the proposition that we have there with the financing schemes, with the activations that we have done in the rural markets. So I think it's seeing a good uptick. And it augurs well for the overall festival demand and the results that we are seeing, so far.

The next question is from the line of Jyoti Singh from Arihant Capital Markets Limited.

Sir, my question is on the CapEx side. So like are we still adhering to the previously guided CapEx that is 1,000 crore? Or have there been any changes in that regard?

Yes, Jyoti, we are sticking to the same guidance. And as we have mentioned earlier, while we continue to -- the point is that the shaping of the capital allocation is moving more towards premium, EV, premiumization, but the overall capital guidance remains the same.

Okay, great, sir. And sir, my second question, on that voluntary retirement side. Like we incurred approximately INR 160 crore last quarter, so can you please provide an update for this quarter?

So that is closed. So that was closed and done with, and the numbers were factored in, in quarter 1.

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

Yes, sir, just one follow-up on the battery technology that we are going to use going ahead. Do you think that this swappable battery is the way forward given the conviction you have, all the feedback you have? Or going ahead, we will be investing in fixed-battery kind of solutions also. Just if you could just compare and contrast the advantages and disadvantages and where you would invest more energy going ahead.

What you mean is removable battery versus fixed battery, right?

That's right. That's right.

Okay. Swadesh?

Yes. I think we heard from earlier on the call itself that our removable battery is a major USP and highly differentiated from other players and products in the market. We continue to see that our customers are heavily using that feature, so we see that we will continue to rely on this aspect of our battery, but having said that, I don't think one can tie up to one type of fulfilling the need of range anxiety just by saying it will always be removable. We have to see for each segment what the customer needs are, what the use cases are; and we'll have to have the right battery for that. If a certain segment requires and -- doesn't require a removable battery and I can give a much simpler product -- I think it depends, so I don't think I will say that one would assume removable battery for all products, but wherever we are present, we'll see the benefit of it in terms of the customer experience.

Yes. So if you could just explain us like in which use cases do you think the fixed battery works better. And is there a higher cost in case of removable? Just to help us understand the variable base on which you've [ taken the decision ].

Yes. So see. There are use cases where the customers have the opportunity to charge very easily the scooter itself, right? Or once the fast-charging network is available and the speed of charging is to an extent that you don't really need -- you can quickly top up 50%, 60% of the range required, in those use cases, you don't really need to be available with a removable battery; also when there is a very captive use between point A to point B, very reliable and sort of predictable use. So we can sort of take this up -- it's a longer debate, but as I said, there are use cases where you probably don't need the removable battery. But for the -- as we continue to bring down the costs of the vehicle and the battery; and continue to provide these 3 ways of charging, which is the scooter, the battery and the fast charging, we see that it will cover majority of the segments as we go forward, but I don't want to say that this is needed to be for 100% of the products.

We will take the last question from the line of Abhishek from Dolat Capital.

Sir, what was the retail number in last festive season for Hero? And what is your target for this festive season? And how much peak festive season volume for Hero. Do you expect this -- you would be able to surpass in this season that number?

So our last year, festive season, we were around close to 1.2 million [indiscernible]. And recall [ there is the -- finally the end customer ] retail. I won't give a target right now. We have said that we expect industry to grow double digit. And we already talked about the festive, so far. We've grown 15%.

Okay, sir. And my last question, on the scooter segment. We are much behind versus our peers, so what is your plan to regain the market share in scooter segment?

Yes. Thank you for the question. In the 2 segments: The 110cc segment, we're, in fact, gaining market share, thanks to Xoom. Xoom is doing very well. In a number of markets, it's become the #2 brand. And that's really incredible, for such a short period of time, for the brand to become so accepted in the market [indiscernible] many industry firsts like the corner-bending light which have given wider tires. It's really got a zippy acceleration, so all of that is good. As far as the 125cc segment is concerned, we're in a period of transition as we phase out a couple of products from our -- like Maestro Edge, et cetera; and we bring in some new. We've already brought in Destini Prime in the 125cc. And this is again transitioning into a really good path as we go forward, so 125cc, we will continue to strengthen as we go forward. 110, we've already done some interventions there. And overall, we'll see us growing in the overall scooter market.

Thank you. And happy festive season to everyone. Umang?

Yes, sure. Thank you, everyone. Thank you for -- well, thank you for listening to us. We look forward to keeping in touch. And enjoy the rest of the year. See you soon.

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