TVS Motor Company Limited (532343) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TVS Motor Limited Q4 FY '20 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities. Thank you, and over to you, sir.

Thank you, Stephen. We welcome all participants to 4Q FY '20 and FY '20 post results conference call of TVS Motor Limited. We have with us today Mr. K. N. Radhakrishnan, Director and Chief Executive Officer; and Mr. K. Gopala Desikan, Chief Financial Officer. I will now hand over the call to Mr. K. N. Radhakrishnan for the opening remarks, to be followed by question-and-answer session. Over to you, sir.

Good evening, everyone. Thank you for this call. I would very quickly give you an update of COVID-19. As a responsible corporate, TVS Motor Company is committed to stand united with the government in their sustained efforts to overcome the COVID-19 pandemic. Company took many proactive steps even during the first fortnight of March towards the safety of all employees and very systematic process was laid out. Subsequently, on March 22, based on the lockdown announcement, company stopped its production. On May 5, company recommenced its operation in a phased manner. The safety of employees and community is of paramount importance to TVS Motor Company. Comprehensive preparedness manual has been designed for employees to ensure complete adherence to the necessary safety guidelines to avoid the spread of the virus. At all its manufacturing facilities, the company has undertaken exhaustive measures to ensure safe working place for employees with appropriate social distancing and highest standards of hygiene. Work from home option also continues for certain category of people, in adherence to respective state government guideline. TVS Group in association with Srinivasan Services Trust has been working to support the community in and around the manufacturing location and in 4,000 villages in 5 states of Tamil Nadu, Karnataka, Maharashtra, Andhra and Himachal Pradesh. We primarily supported in 3 major areas; disinfecting the residential localities and villages, 4,200 villages disinfected, 1,200 disinfectant spray machines distributed, cannon mist spray unit with truck procured and handed over to Chennai Municipal Corporation for disinfecting Chennai and suburbs. Manufacturing and providing masks, face shields, gloves and PPEs to police officers, municipal corporation and town panchayat officials who are on COVID duty. 1.03 million face masks manufactured and distributed so far. In addition, 10,000 N95 masks and also 3,000 PPE kits and 1.5 lakh gloves. Food delivery and providing dry ration for migrant workers, daily wage earners, police and health workers. 1.35 million food packets from our canteens in Hosur, Mysore, HP and Chennai has been distributed, and also Chennai, Mysore and Bangalore, in major villages of Tamil Nadu also. Support to customers, our service team has been in the forefront supporting through the Road Side Assistance program toll -- through the toll-free number supporting all the customers who have been wanting for any service. They also extended support to essential workers, especially the COVID personnel. 84 dealers participated in close to 100 service camps that ensured service to over 2,000 2-wheelers of police. Large scale social media campaigns were run for each of national and international customers on the tips to maintain their 2-wheelers during the lockdown time. In addition to this -- and special support has been given to the dealers, both training on the Indian and international dealers, their staff on best practices, SOPs to prepare for the opening of the dealerships post lockdown. We ensured the dealer claims were settled quickly and also introduced interest waiver schemes. The lockdown period was converted as an opportunity to train all our dealer owners' staff on sales excellence and service excellence. Now coming to the performance of the company. We proactively planned and changed over to BS VI from December '19. During Q4, the BS VI stocks were brought down -- BS IV were brought down and BS VI production ramping up was done. BS VI vehicles of TVS Motors comes with customer delighting features, very attractive features. We have developed 2 versions of BS VI Fi platforms, Ecothrust Fuel injection and Race Tuned Fuel injection. Ecothrust Fuel injection technology products enhance the overall performance across drivability, smoothness and 15% improvement in fuel efficiency. The RT-Fi technology, on the other hand, is especially designed to ensure enjoyable racing experience in all driving condition. 85% of the domestic sales in Q4 is from BS VI vehicles. January, February, March, our total billing, 84% is BS VI. Dealers also retailed so far, in January, February, March, more than 1 lakh BS VI vehicles to the customers, and the response from the customers are extremely encouraging. We have consistently maintained, restocked the trade, and this has helped us to retail the BS VI stocks. Going forward, it will definitely help us, going forward. In international market, we have grown ahead of the industry, both in 2-wheelers and 3-wheelers. Our products are rated #1, as all of you know, JD Power Customer Satisfaction Survey in the last 5 years. In service, we are rated #1 consecutively for the last 4 years. Company has been continuously and consistently improving EBITDA margins over the last 2 years with sustainable cost reduction initiatives, which we'll continue. Company generated free cash flow of INR 552 crores during FY 2019-'20. Cost reduction initiatives will be further strengthened going forward to sustainably grow our EBITDA. We have -- the revenue for the year is INR 16,455 crores as against INR 18,217 crores reported last year, March 2019. The company has successfully transitioned to the BS VI through sustainable cost reduction and improved operating margin -- improved operating EBITDA. Margins improved from 7.9 to 8.3 before accounting for onetime cost. The onetime cost includes INR 22 crores for dealer discounts to transition to BS VI, okay? This happened because of the lockdown from March 22. We had a very, very limited stock, that we have to support during the last 10 days to liquidate that. That is INR 22 crores. INR 32 crores is also provided for COVID-19 relief work. With this, operating margin, EBITDA margin has moved from -- for the year from 7.9 to 8.3. For Q4, we have seen 2-wheeler industry continued to decline. However, lower -- due to lower economic growth and lack of visibility on pandemic created by the COVID-19. The sales of 2-wheelers during this quarter for the industry also declined. Our 2-wheelers declined by 13.8% due to consequent planned rationalization of BS IV stocks. Initial BS VI ramp up, we had some challenges because of COVID in the January and February. During the quarter, company completely stopped BS IV production from -- in the domestic market. Exports, 2-wheeler, during the quarter grew by 3.6%. 3-wheeler, in the international market, grew by 2.6%. In Q4, total revenue for the quarter is INR 3,507 crores compared to INR 4,388 crores. Company incurred, as I said, INR 32 crores towards COVID-19. This is for donation to PM CARES Fund, and this is shown as an exceptional item. During the last 10 days of March, the retail sales suffered due to COVID shutdown. Though the company took proactive steps in changing over to BS VI, there was a small volume of BS IV stock, which needed some special support to retail out. An amount of INR 22 crores was given as an additional incentive and this has been reduced from the revenue. Strong focus on profit improvement initiative helped the company to improve EBITDA before the exceptional item for the quarter, improved from 7 to 7.6 despite a reduction in the revenue over 20%. PBT before the exceptional items and additional one-off dealer discount mentioned above for the current quarter is INR 144 crores compared to INR 184 crores last year. Profit after tax is INR 73.9 crores compared to INR 133.8 crores of last year. For the year, total revenue declined by 9.7%, INR 18,217 crores last year to this year INR 15,455 crores. Export sales in 2-wheelers grew by 9.1%, 3-wheelers grew by 11.2%. Domestic 2-wheeler sales numbers declined by 23.1%. Apart from launching BS VI vehicles, we also launched the TVS iQube electric scooter with several attractive features. PT TVS sold 53,641 2-wheelers compared to 40,759 2-wheelers last year. 3-wheelers, the sales was 8,132 this year compared to 2,699. During the last 2 quarters, PT TVS achieved positive operating PBT. Year as a whole, positive USD 0.5 million EBITDA compared to last year EBITDA loss of $3 million. For Q4, company had to support the dealers, which I highlighted, INR 22 crores and spent INR 32 crores towards COVID. So operating EBITDA for the year before the above one-off items is 8.3 compared to 7.9 last year, despite reduction of the revenue by 10%. PBT for the year after the above one-off items is INR 754 crores, and tax for the year is INR 592 crores. The Board at its meeting during -- held in October 2019 declared the first interim dividend of INR 2.1 per share. The Board during the March 2020 declared the second interim dividend of INR 1.4 per share. Total 350%. The dividend payout ratio increased from 29.8 to 33.9. We also -- company also acquired Norton Motors. Norton is a great brand and this is definitely going to help the company improve its global portfolio. When we look at 2021 outlook, due to lockdown, sharp decline in the first quarter is seen. It is expected and also, we feel that it will partially alleviate in Q2 with the normal monsoon and we are seeing some improvement in the rural economy. International market, COVID-affected. However, many markets are slowly opening up. Currently oil prices are around $32, which is slowly going up. Once it comes around $40, Nigeria kind of markets, we don't see any adverse impact. Markets in domestic is opening up. We expect [ trend for our shares ] to gain momentum given the social distancing norms. 2-wheelers and 3-wheelers are likely to witness growth. Higher penetration of retail financing is likely to help. The series of relief measures taken by union government will also help the liquidity, and it will have definitely an effect in the medium and long term. We are hoping that the government will also consider GST reduction. BS VI products of TVS Motor will deliver definitely superior fuel efficiency and better ride comfort. The initial feedback has been very, very positive. We have a very strong portfolio with mega brands like Apache, Jupiter, Ntorq, Star range, HLX, Radeon, TVS King. And we expect to grow ahead of the industry, both in domestic and international markets. Premium products like Apache and Ntorq will definitely do well. Rural, we are hoping that it will do well with a normal monsoon. High penetration of retail financing will be a key factor. Overall, we feel September quarter, we'll see consolidation, and we are cautiously optimistic about the second half.

[Operator Instructions] The first question is from the line of Ranjeet Jaiswal from Sanford Bernstein.

My first question is on the plans for Norton, which we have acquired recently. Are we planning to launch a product in the Indian market? And the second question is related to financeability. Has there been any change in the mix in terms of how much people are opting for finance post lockdown has been opened up in few regions?

Norton is a great acquisition and is a great brand. I think it is definitely going to strengthen the portfolio of the company. I think we are working out the strategy. We will come back, okay, how we are going to pan out with the strategy. But this is a great acquisition, and it is going to strengthen the overall portfolio. Coming -- I think the second question, I think, you were talking about financing, right, retail financing?

Yes.

I think retail financing definitely is the strength of our company. Now with [indiscernible] definitely, we will see the share going up. Overall industry, as a whole also, we are seeing the share coming to almost 56%, the retail finance penetration. And we are very confident that this is going to definitely help in the future, the share will go up and TVS CS also is a strong player. So we are pretty confident that this is going to be a key enabler for significant growth for TVS Motor.

Okay. Just to clarify, TVS Credit was 45,000 last quarter. So has that changed any? Or are we around the same number?

Around the same number, same number.

Next question is from the line of Pramod Kumar from Goldman Sachs.

Hope all your employees are keeping safe in this environment. And also congratulations on a decent set of number. My first question is pertaining to the financial performance of the TVS Credit business. Sir, if you can just broadly share how the business fared during this quarter? And given the focus around NBFCs and the extension of moratorium, if you can just throw some more color on the -- where the -- how's the number looking in April and May in terms of either bounce rates or GNPAs or provisioning. How is the business shaping up, sir? And whether -- related to that, whether do you see any requirement for meaningful capital infusion with the credit -- TVS Credit business would need in FY '21?

Okay. The TVS Credit Services where TVS Motor holds around 84%, last year, the book size was INR 9,215 crores, we ended at 31st March 2020. The COVID has definitely impacted the growth last year; otherwise, we would have crossed INR 10,000 crores. The net worth as of 31st March 2020 was INR 1,380 crores. The PBT before exceptional item, even we had an exceptional expenses in TVS Credit Services towards COVID-related expenses. Before that, it was INR 219 crores against last year's INR 210 crores. And the PAT was at INR 151 crores for last year. Coming back to the other parameters with regard to the capital adequacy. We are higher than the RBI requirement. And absolutely, there is no mismatch to the bottom asset/liability. Liquidity is not an issue. Funds are tied up for meeting the obligations as well as for the business growth. The focus is now on collections, and the collections for April and May is very encouraging. And more than that, the rural, we feel that it is coming back. The rural-related inquiries and conversions are very good. The focus is also on the cost reduction -- fixed cost reduction initiatives. The moratorium, there are 2 moratoriums now. The first set of moratorium, and the second one is going to come from June onwards, second one announced by the RBI. 27% of our customers have opted for moratorium. And the -- coming back on the question on NPA. The NPA is in line with last year's of around 2.4%. We are -- there are no serious bounces or something like that witnessed. We are cautiously optimistic. And one encouraging factor is, despite the lockdown not fully lifted, still we have red zones. Despite all that, the rural is very, very encouraging and promising. People are -- inquiries are going up. The collections are very good in rural areas. And therefore, we feel that normalcy will return, and we are cautiously optimistic on that. The retail finance penetration is what explained by KNR. TVS CS scales around 46%. The other major players are Shriram Finance, L&T Finance, HDFC. We -- what else -- I mean, that's all as far as TVS Credit Services is concerned.

Yes. Sir, second question is to, KNR, sir, on the business performance. If you can just broadly help us understand that -- how -- what is your read of the market, sir? Because there has been a strong expectation of a down-trading by the consumers from premium motorcycles to mid-commuter, and mid-commuter to lower-end commuter. So given your experience and given your read of the market, do you actually see that kind of down-trading as a big factor within 2-wheelers from higher price categories to cheaper categories, do you see that playing out?

I think premium will continue to do well. My personal feel is both Apache, Ntorq kind of brands will do extremely well with the retail finance penetration and steady opening. Currently, we are seeing about 70% of the dealers and consumers have opened up. While they are not fully operational, definitely, you will see going forward in June. And I think slowly and steadily with very care and with social distancing, I think 2-wheelers are definitely going to get benefited. We may not be able to quantify, it is a little early at this point of time. Second, if you look at it, definitely, rural, the growth is slowly healing. Normal monsoon is predicted. So I think second half of this year will be -- that's why I used the word cautiously optimistic. I think slowly and steadily, I think government is putting lot of initiatives on control of the pandemic. I think if all of us adhere to the guidelines of social distancing and wearing mask, and hygiene, I think this will help us to definitely come back in the second half. So premium will definitely do well. Rural gives an encouraging feedback. Retail finance definitely going to help. And more than anything else, I'm pretty confident about TVS because our BS VI platform is excellent. We have sold more than -- like I said in Jan, Feb, March, 85% of the company's volume, whatever we have dispatched to the dealership, BS VI, and of that we were able to almost retail more than 1.20 lakhs. And the initial feedbacks are very positive, both on drivability, smooth run, and fuel efficiency more than 15%. So I think overall, I feel very confident that while there are -- on one side challenges are there, economic challenges are there, I think things should slowly and steadily pick up. Same way, international market, maybe you will see some challenges now, but it will open up.

The next question is from the line of Aman Rathi from Morgan Stanley.

Sir, you briefly answered my question. I was actually looking for the outlook for FY '21. But given the performance of this year, what is your take. Whether -- when you say you're going to perform better than the industry, will it be a growth as compared to FY '21? Or will -- there will be a degrowth, but we will perform better with respect to the industry?

Absolutely. Absolutely. What I can say is industry today, I don't think anybody can put a number. Because actually, Q1, all of us know because of the lockdown, it is going to be very negative. But Q2, as we start seeing opening up this will start the industry. The most important thing, if you look at it, the productivity changed to BS VI. We also kept all our dealerships very lean on the stock. That is going to definitely help us with our superior products in BS VI with features. That is the reason and the TVS CS credit -- our retail finance capability. That is giving us confidence. Because this is the time we need to have complete focus on the cash, help everyone, whether it is supplier, dealer, company, we have to focus completely lean inventory, that will help everyone.

But -- sir, just to put it in crude numbers, if we say, with respect to the volume sales in FY '20, do you see an increase or a decrease in FY '21? Because 2 months are already lost in this financial year.

That is relative, okay? With the kind of the product and the range what we have, we will do better than the industry.

Okay, better than this year?

Yes. Better than the industry for 2021.

And my second question is with respect to this logistics front. Are you facing any issues with respect to, let's say, getting products from the suppliers or supplying your products to the dealers as a result of this lockdown?

We are not seeing any difficulty. I think we have to give time for everyone because the lockdowns were released from May 5, and there also, there are red zone, orange zone, green zone. So each company, tier 1, tier 2, they require certain minimum time to bring their people to their place. So far, we have not seen any difficulty. I think slowly and steadily this will sync. And we don't want to add to stock. We want to only retail and fill to retail. This is the time. That's why I said lean inventory will only help during the time where we have to focus on [Technical Difficulty]

Ladies and gentlemen, the line for the management is disconnecting. Requesting all the participants to please stay connected. [Operator Instructions]

So I think I was answering the lean inventory, that is what will help. We have been practicing it for long time, that is definitely helping. And we don't see any challenges in supply chain because we have to produce to sell to the customer, not produce to stock. And as the opening happens slowly and steadily it moves.

Okay, sir. Just one last thing. What is the current capacity utilization, if you could give me some details about that?

I think capacity utilization, as of now, is low. But last year, if you look at it, we were around 60%, 62%. This is in 2-wheeler. And 3-wheeler, more than 90%.

For the 2-wheelers, you mentioned 60%, 62%?

Last year, last year. Because of the lockdown, last 3 months, we had -- January, February, we had some challenges in ramping up of BS VI primary because of COVID. Second, March 22 onwards, we had a lockdown. Both affected the capacity utilization last time. But 3-wheeler was more than 90%.

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

Sir, could you talk about the export outlook. What are you expecting? And what are you seeing currently?

Export markets are slowly opening up. I think exports also, we find that the COVID has affected. Slowly and steadily, we are able to see the export markets are opening up every day, practically, we are reviewing. And I'm confident that maybe 1 or 2 months you will see slow and steady increase in export. Here also the point what I wanted to say is we have an excellent portfolio. And many of our distributors have very good network in the market. These are excellent portfolio. And the network, we are very confident like last (sic) [ next ] 3, 4 years, we will continue to grow ahead of the industry.

Currently, where are we in terms of volumes? Like currently, at what percentage of normal rate are you operating in exports?

Currently, it's low. Currently, maybe we are around -- now only the things are opening up. So current comparisons according to me are not okay. I think April definitely it was practically closed. I think we did about 8,000 or 9,000, okay? But retails are happening in many countries, okay, at a much reduced level. May is little better, most of the countries, okay? And many countries are opening up. We expect June, many countries to slowly and steadily open up. So you'll say, the way we are seeing in domestic market, exports also would slowly and steadily improve, okay? And here also, second half, we are cautiously optimistic, even in international.

Okay. And sir, second question was related to our margins, especially the gross margins. We have seen a bit of a dip this quarter, I guess, partly linked to BS VI as well. How much of this have we been able to pass on in 1Q? And have we passed -- can you just quantify what was the price increase we took recently? And whether there is any change in dealer margins?

No change in the dealer margin. I think the cost reduction, whatever we have done last year, all the initiatives have definitely helped. And BS VI price increase has been between -- in the range of about -- just give me a minute, I'll tell you the exact number. I think it was around 10% to 11%, if my number is right -- about 10% gross, 12%.

And in April also, I guess, we have done some price increase, right, April or May?

We have done. We have done a small price increase in the month of -- once we have done, 1% -- about 1% price increase this year.

[Operator Instructions] The next question is from the line of Rajat Chandak from ICICI Prudential Mutual Fund.

Sir, can you outline what kind of CapEx we are looking at this year, fiscal '21?

Would you repeat your question, please?

What kind of CapEx we are looking in this year, fiscal year '21?

We will continue to focus on cash. Last year, we lifted the operating cash. This year also we will continue to focus on cash. Our CapEx, including all new product development has been -- as of now will be around INR 300 crores.

For fiscal year '21.

Sir, just one clarification. In the cash flow, there is a share application money paid of INR 249-odd crores. This is relating to what, sir? This is TVS Credit, is it? TVS Credit Services?

No, this is for -- no, no, no, this is for that Norton acquisition capital infusion was made, allotment was subsequently done.

Okay. So that's already done in fiscal year '20 now, and already accounted for?

Yes, it is accounted for.

Okay. One last question, sir. Just if you can share any thoughts behind going for Norton. I mean, it may be a great brand and asset maybe. But just our thought process because it's a completely different segment.

Yes, it enlarges our portfolio. It's a great brand. It's a great brand. It enlarges our portfolio. It's actually a -- it is a very innovative -- I think it's a British -- it's a more than 100-year-old brand, and it stands for something unique and it adds on to our overall portfolio. And it allows us to build a long-term super premium product range for TVS.

The next question is from the line of [ Hitesh Jain ] from Birla Mutual Fund.

So basically, my question is on the mopeds, I mean, business. So, last year, fiscal '20, as a whole, I mean, was very challenging for the mopeds, for TVS. Now the question is, was it because of the overall market, I mean, was not doing great? Or you think that some of the rural, I mean, customers they shifted to the cheaper motorcycle? And so therefore, what is your outlook for the moped segment for the coming fiscal year?

I think last year, the main reason for moped is the sentiments in the rural market was very weak, and also the delayed monsoon. Even though the monsoon came, it was very much delayed. And if you recollect, year before that, there was a much higher increase in the insurance business, okay? So definitely, that has impacted. And also, if you remember last year, first half, there was a huge discounting in the entry level motorcycles as such. So when you have huge discounting there sometimes there is a challenge. Now that that's all over and this time rural is trying to do better, and our ET-Fi technology in the moped is going to definitely be a very, very superior product, the i-Touch Start, and also we have launched TVS XL Comfort for commuting customers. So all put together, I think with the retail finance, I think it will definitely help us to improve the moped space.

Okay. And sir, for moped segment, also, like whatever extra costs that you are incurring under the new norms, and also because of the some -- I mean, features which you are providing. Have you taken the price hike in the mopeds as well? Say over last 6 months or so?

Everywhere, everywhere. The price hike has been almost uniform. Even in April, we have increased prices in moped also.

Okay. Fantastic. And secondly, just one small clarification on this INR 32 crores of, I mean, COVID expenses, which you have shown. Is it totally the -- I mean, some sort of donation to the relief funds? Or is it related to the expenditures that you would have done at your plants also? I mean, what is the nature of this INR 32 crores?

Both, both, both. It is also PM CARES Fund plus all the social work whatever we have done near the -- near our villages, all the actions that we have taken, whatever I said at the beginning.

And of course, whatever we have done for the society -- and for whatever we have done for the society and the PM CARES both are included in it.

And you've heard what Desikan said. I think, INR 8 crores -- in addition to this INR 32 crores, INR 8 crores also comes from previous year. Correct Desikan?

Correct.

The next question is from the line of Gaurav Khandelwal from Mirae Asset.

And I hope everyone in your TVS family is doing well. Sir, just 2 questions from my side. I see -- in the opening remarks, you alluded that you have given INR 22 crores to dealers. Can you explain a bit, is it onetime or is it recurring? And the second question is, what is the further capital infusion you see in Norton Motorcycle, apart from onetime that you have done already?

See, March 22 is where we had the COVID shutdown, if you recollect, right? We had very, very few number of BS IV vehicles, which were unsold at that time. Very few. Really very few. But because of the lockdown -- if the lockdown was not there, we could have easily sold it in about 4, 5 days' time. This lockdown made us to help our dealers to liquidate the last remaining stock of BS VI -- BS IV. This amount is one-time, whatever we have supported that INR 22 crores. If the lockdown was not there, this INR 22 crores would not have been there, okay? Because we started transitioning into BS VI sometime in December. And steadily, we were shutting down our BS IV production and stocks to the market, okay? If you look at January, February, March, our out of the total dispatch, 85% was BS VI. I hope I have clarified your query, okay? This is of the INR 22 crores.

Sir, just on write-off, I think there is some confusion on my end. So one is INR 22 crore of BS IV write-off that has -- that you have taken. And then there is another INR 22 crore of onetime dealer transfer that...

No, no, no. Only one. Only one. Only one. There is only one INR 22 crore, okay, which is the additional incentive given to the dealers to liquidate the BS IV stocks in the last 10 days post lockdown, okay? And INR 32 crores, one is INR 22 crores, another one is INR 32 crores towards the COVID-19 expense.

Understood. And sir, the INR 32 crore is over and above your CSR spend? Or this is a part of CSR spend, that's generally 3% [indiscernible] that is required?

This is over and above the normal CSR spend.

Okay. Okay. And sir, my last question on Norton.

Norton, we will get back to you. I think we are preparing the strategy. I think it is a great brand, and we are very proud of that brand. It is going to strengthen the portfolio of TVS. It is going to give us huge opportunity for future, especially in the super premium category.

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

Just 2 questions. A couple of times you alluded that rural is clearly showing some signs of improvement. Have you seen anything in terms of inquiries for mopeds or the entry level bikes that are seeing some better uptick since the dealerships are now open? And secondly, there's also been lot of discussion around private ownership of vehicles gaining traction over shared or public. Is that an early feedback that you're getting from the dealerships, if you can share some thoughts around that?

I think it is a feel. For example, TVS CS, we're able to see collections from rural because we always believe that there will be some challenges, but slowly and steadily, we are able to be see good collections. Second, I think if you look at the agri produce this year, it's a good output, okay? And the third, I think we are all expecting a normal monsoon. So the sentiments are positive, okay? And we have to constantly renew this as we look forward, okay? Same way, in the premium category, Apache and Ntorq has done well, and we get that good market feedback. So at this point of time, it is a market feedback, positive sentiment. I will not be able to quantify a number. Same way, if you look at the social distancing, I think -- we feel that more and more 2-wheelers will have an opportunity because self-ownership is likely to gain momentum at this point of time. We have to again very closely -- I cannot be able to say a data or quantify data at this point of time. We have to constantly monitor this, and we feel that this is likely to happen.

Okay. And second question on CapEx, which you shared, this INR 300 crores. In addition to this, what is going to be the subsidiary investment that you foresee, including, of course, the TVS Credit and some of the other stuff, what kind of outflow can be around those?

We are working on the numbers for the subsidiaries also. There will be a requirement to maintain the capital adequacy norms, we will come back to you on that.

Okay. One more question, if I can add on the margin front. I mean, if I look at this quarter, despite the low operating leverage, and I clearly understand that the impact of BS VI is largely reflected in terms of margins in this quarter. Is it fair to assume that given the cost initiatives that you're taking right now, the margin trajectory should improve in F '21 versus F '20?

We are putting our -- definitely, our production initiative in the last 2 years. If you look at it, that is the reason our EBITDA margin has been improving last year as well as this year. If you look at year as a whole and even in the last quarter, that's for that provisioning of that last 10 days, our EBITDA for Q4 has been 7.6%. And year as a whole, 7.9% has come to 8.3%. So with a better product mix and various material cost reduction initiatives, scale benefits and very systematic internal efficiency improvement program, fixed cost reduction, our EBITDA will grow consistently, and we are definitely focusing on that.

The next question is from the line of Binay Singh from Morgan Stanley.

Just firstly, a follow-up. Like you earlier mentioned the net worth of TVS Credit Services. I missed that number. Could you share that again?

Just give a minute. I think we got that question.

INR 1,372 crores. INR 1,372 crores.

Okay. Okay. And secondly, like, I know this question has been asked around in multiple formats. But when you look at 3 segments, in the domestic market, motorcycles, scooters and 3-wheelers. In your view, which is the segment which should do the best this year?

We feel, definitely, the premium will do well. That is Apache, Ntorq, that segment will do well, okay? And we are also feeling confident about the rural, so -- urban market will open up. Definitely, that's why I said second half, I am very cautiously optimistic of results. Things are improving. Once the dealerships and subdealerships start opening up with the support of retail finance and our very good product portfolio, I think premium will do well and rural opening up, we feel. So second half, definitely, Q2, you will see consolidation. Second half, I see for optimism. We have to be cautious, I agree.

Scooters and 3-wheelers, like within those segments, how do you see that playing out?

3-wheelers, international market is doing well. The scooters, urban -- in fact rural also now the penetration of 3-wheeler industries are going up. So we will have to see. Because this is too early to assess at this point of time. These are all early feelings. But definitely, the first 3 weeks are giving some kind of confidence. And thanks to the government, lot of initiatives have been taken. If the GST also reviewed, I think this will fill up.

And sir, lastly, just on the salary news flow, which has been there in the media. What is the sort of savings that you are getting from that?

See, we have -- this is -- given the kind of uncertain times and the unprecedented crisis, we rolled out temporary salary deductions for a period of 6 months. And it was very heartening to see employees coming forward to offer voluntary salary cut. I think this is for the first 6 months, and we will review.

Any number you would like to put on that?

I don't want to put a number on that. This is -- I would say that given the kind of current situation, I think this is -- we felt it is the right thing to do. And there is no salary deduction at the workman level. It is [Technical Difficulty] 15% to 20% at the senior management level.

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

Sir, first question is a clarification. The CapEx you mentioned is INR 300 crores for FY '21. Is that right?

Yes, yes, yes.

Okay. Okay. Okay. And sir, the other income line has a INR 25 crore number, which is quite high for this quarter. Can you help us understand what's that related to?

Are you there?

It's not a very high number, but of course, it includes interest on income taxation of around INR 1.5 crores. Other than that, it's all normal.

Okay. Okay. Because -- so compared to first 3 quarters, I think this was a much higher number, so I was just wondering as to if there's a one-off here or...

So it includes dividend from the subsidiary of around INR 3 crores.

Okay. Okay. Okay. And sir, just one question -- again, one question on Norton. I know you're going to get back with more details. Just one clarification. So the Norton, as we understand, had a lot of outstanding liabilities in terms of pension and debt. So when you have acquired, have you just acquired the brand and the assets? Or have you acquired the business along with those outstanding commitments on liabilities and pensions? Just want a clarification on that.

No, we have very clearly said that we have only acquired the assets. We have not acquired the company. We have not taken over any of their liabilities, including pension. It's only the assets.

The next question is from the line of Hitesh Bhargava from B&K Securities.

I have one -- few bookkeeping questions. Can you help us with the export revenues for FY '20?

This is for the financial year you're asking?

Yes, sir. For the financial year FY '20, what is the export revenue and the spare part revenue?

I think it is about INR 4,578 crores.

And spare part revenue?

Spare parts, total?

Yes, sir.

Spare parts is about INR 1,720 crores.

Okay. And what is the USD realization for FY '20, sir? What is the review of the realization rate? And what do you -- on how much of -- for future has been hedged currently because now the rupee is at 75. So what are the hedging policies we are working on?

Ladies and gentlemen, the line for the management is disconnected. [Operator Instructions]

Yes. I was just checking what is our USD realization for FY '20? And what is our hedging policies for going forward?

Could I please repeat? I think you asked for the revenue for export, you asked, right?

Yes, sir. You have given INR 4,570 crores.

Correct. Correct. Correct. And then you have asked about exchange rate for last year, right?

Yes, sir.

I think it's around 71.

Okay. And for the next year, what -- I mean, how much has been hedged already, sir?

I think there is a policy. I think we go by the policy and [ for the next exporter, so -- ] we go with that policy.

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

Sir, could you repeat what was the percentage of moratorium taken for TVS Credit customers?

I think, it is about 37% [indiscernible] moratorium.

37%. And could you...

3-7, 3-7.

Yes, 3-7 percent. And sir, could you tell us in terms of the CapEx for FY '20, what was the CapEx? And...

I think this year, that is '19-'20, was about INR 719 crores. And fourth -- the current financial year, '20-'21, will be about INR 300 crores.

Sir, out of this INR 719 crores, I mean, would you be able to quantify how much was related to product developments then?

It's a combination of product development. Product development, some investments related to certain new products, new technology. We had the electric investments. So all are included in this.

Right. And just lastly, I mean, like what was your inventory level as of March 31 or whichever -- or currently, I mean, how do you see that...

See always in a steady state we keep about 30 to 35 days of stock vis-à-vis the network, okay? And we continue. Maybe April and May are not the right comparison, but we always keep the lean inventory with our dealers. And that has been our strength, and that is going to continue.

But do you think there is need for any dealer support? I mean, are you giving any credit period to dealers?

We support them. We support them adequately, and dealers, as you know, they have rated us #1 in JD Power last year. There was a dealer satisfaction on the OEMs, and we are rated #1. So comprehensively we support them with service, product, technology, and support them in the right stock. Proactively, we changed over to BS IV in the month of December itself. So I think it's a combination of many things, not one thing, which delights the dealers.

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

Sorry. I think on the other income details there was a specific question in Q4, what are the constituents of around INR 24 crores. By mistake, I talked about Q3 number, the INR 24.8 crore includes INR 20 crores of income tax-related refund. I'm sorry about it. I just read the previous quarter's number. The actual number -- the other income -- last quarter of INR 21 crores includes close to INR 20 crores of IT-related refunding, interest income.

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

Yes. Over the last 2 years, basically from the motorcycle industry, the entry in the commuter segments of the motorcycles have done better than the premium segment. And going into FY '21, you seem to indicate that the premium motorcycle, Apache, might do better. What are the -- I mean, relative to the entry segment. So what are some undercurrents that you are seeing at least initially that gives you this kind of impression that the premium segment might do better than the entry into commuter segment in the motorcycle?

If you look at last 2 years, I think the commuter motorcycle definitely the discounting was very high, okay? So I am assuming that going forward, the tactical things will come down, okay? And for us, TVS Motor Company, our brands Apache and Ntorq have always done well, okay? So there are 2 points. I think that with retail finance support, with the social distancing, I think there is a good opportunity for the premium industry to do better. Plus, with the kind of portfolio what we have with Apache and Ntorq, we will do better than the industry is the point I highlighted. And this year, rural, is likely the sentiments are becoming positive, okay? If the commuter motorcycles, the tactical responding is not going to be there, I think, overall, you will see a different type of an industry this year.

Sir, when you mean different type of industries, I mean, relatively to the -- between the different segments, are you saying the premium segment will do better than the commuter segment given the lack of discounts post BS VI. Is that what you're trying to imply, sir?

I think this is, at this point of time, please understand the buying power at that lower level it needs lot of support, okay? As the lockdown opens up, better and better. It may take little longer time, premium opportunities may be little better, okay, but post H2. That's why I said, I'm cautiously optimistic for the industry in the H2.

Understood, sir. So generally the premium segment customer is more affluent and therefore his ability to purchase will be better. Okay. Understood. Understood. Understood. Sir, and generally, from the gross margin perspective, we did see a sharp increase post the BS VI launches. Going forward -- I mean, sharp -- sorry, a deterioration in gross margin and increase in the RM cost to sales with the BS VI launches, going forward, with commodity price softening, are you seeing any benefits that will flow through in the next 2 quarters, maybe Q1 or Q2, probably of FY '21. Are you seeing any significant commodity benefits that might come through for us?

First of all, if you look at last 2 years' performance in the EBITDA, I think our focus on material cost reduction and fixed cost reduction has definitely helped us. We have done better than -- if you look at whether it is 2018-'19 and '19-'20, I think we have done much better vis-à-vis everyone in the industry on EBITDA margins. The focus -- with the focus on the continued and sustainable focus on the material cost reduction initiatives, and our product mix, and the range, and the kind of the BS VI products, whatever we have given with the customer benefit, I think we are confident that our EBITDA will consistently grow to much better levels, okay? That's what I said.

Right sir. Understood. Sir, one last question, if I may, please. In terms of price increases in the 2-wheeler category, you have also taken, and many of your peers, both Hero and Bajaj have announced price increases. So what gives us the confidence of taking price increases in a time when the underlying demand itself seems to be weak. Are seeing very strong pent-up demand coming through for 2-wheelers. Does that what gives you the confidence to take up these price increases?

I think we have come to BS VI, which is best-in-class. If you look at in terms of the kind of products what India is making, I think all of us can be really proud that our products are really, really superior, number one. Number two, we have to look at not short term, we have to look at the penetration level in the 2-wheeler category, which is still low, okay? And there is mobility requirements in India, okay? This COVID gives a new opportunity because of the social distancing, I think, people want private ownership, okay? So all these are positives, and if the rural sentiments are positive, monsoon is positive, and if there are -- there are lot of initiatives taken by the government in terms of support to the industry and if GST also comes forward, I think slowly and steadily you will see things coming back [indiscernible]

Understood, sir. Understood. Understood. And just from a retail financing, just from the previous question, we hear from some of these large financiers there could be some pullback in terms of retail financing for the customers. From the initial feedback, are you seeing any challenges in terms of availability of retail financing across -- for at least -- for your set of customers. Any comment on that, sir?

We are not seeing any such challenges. And Desikan said, we are not seeing any issues related to liquidity. We have also tied up for all the -- meeting all the obligations and for business growth. And retail finance is a very good enabler. And TVS CS has done an excellent job. So I think I'm pretty confident that strategy is going to help TVS Motor Company going forward. We can have the last question. I'll appreciate if we can have the last question, please.

We take the last question from the line of Venugopal Garre from Bernstein.

Just on the financing side, I also wanted to check, have financing rates changed? In the sense that in the last couple of weeks have you seen a reduction in rates compared to what it was earlier?

Can you repeat the question? Rate?

Yes, repeat the question.

On the financing side, have you seen any reduction in interest rates that are being offered on the loans in the last couple of weeks compared to what was the loan rate being offered, let's say, in the previous year?

It is to the customer you're asking for?

Yes, your question is to the customer. We need to check on this, but the normal policy is whenever there is a reduction that is offered by the banks, they are passed on to the customers. So -- but exact reduction when compared to the previous month and what's happened in the last 2 months -- 2 weeks, we need to check on that.

Okay. My second question is, can you give us a broad mix of rural for you for the year FY '20, rural versus urban mix for the company as a whole?

You are not very clearly audible, please. I think we looked at both urban and rural because I think we have been doing well in all the markets with our product range. I'm talking about last year. And this year also, we are anticipating that the kind of product range what we have, we have products for all customers in rural as well as for urban markets. So strong product portfolio is what...

So there's no particular mix number that you normally share as to what percentage of your volumes actually come from rural?

We don't normally share such a number, okay? Any other question? Otherwise, I would like to conclude. Thank you. Thank you, everyone. Like I said, let us stay safe. I think I'm hoping that the lockdown will slowly and steadily come down. And slowly, the market will pick up in Q2 and September quarter will be a quarter where we will consolidate TVS Motor. And we expect the second half, like I said, cautiously optimistic with good normal monsoon and rural coming up. Our products, Apache and Ntorq with the premium category, we will do well. And we will -- with the portfolio what we have and the retail finance we want to grow better than the industry, both in domestic and international. Our continuous focus and sustained focus in cost reduction will definitely help us to do better and better in our EBITDA going forward. Thank you. Stay safe. Thank you for all of you to joining this call.

Thank you very much.

Mr. Jayaraj, any comments from your side?

No, no. Thanks, Stephen. We thank all the participants. We thank Mr. Radhakrishnan, Mr. Gopala Desikan for taking time out for the call. We thank TVS Motors management for providing us the opportunity to host the call. Have a good day.

Thank you.

Thank you.