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

Ladies and gentlemen, good day, and welcome to the TVS Motors Limited Q1 FY '21 Earnings Conference Call hosted by B&K Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from B&K Securities. Thank you, and over to you, sir.

Thanks. Apologies for the delay. Welcome to 1Q FY '21 TVS Motor's post result conference call. 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 answers. Over to you, sir.

Good evening, everyone, and sorry for the delay. I hope all of you are safe and all your family members are also safe. TVS Motor Company, we resumed our operations from second week of May in a graded manner across all its factories in Hosur, Mysore, Nalagarh. As you know, this quarter is not a representative quarter due to COVID-19-related shutdown for major part of the quarter. Both production and sales were severely impacted during the quarter and therefore, reflects what was an unprecedented situation. And definitely, the quarterly result is not a reflection of underlying company's strength, products, brands. The market is now open, barring selective lockdowns, and we are witnessing a positive uptake in both domestic retails as well as international market retails. Several measures taken by the company helped in to overcome supply chain disruption, stabilize operations in June. Though the supply chain was severely impacted during shutdown, it took some time to normalize, but we have taken a lot of actions and that has started helping us from end June. Market is opening up and we are witnessing a positive uptake. The business has recovered in June, and we have posted EBITDA and PBT positive in June. The improved collections also has helped us to repay additional borrowing availed in the first quarter to support the supply chain. And now, the net borrowings are at the pre-COVID-19 level. Now coming back to Q1, two-wheeler declined sharply, 72%, and other sales declined 71%. Domestic two-wheeler declined by almost 74% and others were slightly better than that. Retails are much higher than these numbers in terms of the growth. Jupiter exports declined by almost 60% as against last year's numbers. And we did better than the industry. Three-wheeler sales declined by almost 71%, and we are also similar to that decline. We initiated several cost reduction measures in the last 2 years. In addition, we have overtaken many more initiatives and total salary costs, other expenses, which does not include raw material and interest and depreciation, declined from INR 755 crores this quarter to INR 394 crores. Despite some cost increases in material costs due to BS-VI and sustained -- the sustained cost reduction initiatives and price increases, whatever we have taken, has helped us to contain the raw material cost. Revenue from operations for this quarter is at INR 1,432 crores compared to INR 4,459 crores last year same quarter. Profit after tax loss is at INR 139 crores regarded last year's profit after tax of INR 142 crores. When we look at outlook, I'm positive about the rural market. We are seeing the rural demand picking up. Reservoir water levels are much better than last year levels. And various schemes announced by the government in the rural sectors and the increase in MSE is definitely a boost. Monsoon has been normal. Urban market, once they are completely operational, we expect this ownership will gain momentum. And very surely, I think it will support two-wheelers. This month, the retail started off well, which is July. Wherever dealerships are fully operational, our retails are close to last year level. The challenge is the partial lockdowns. We had almost 85% at the beginning of the month open dealerships. Now it is around 75%, especially some markets like Bihar, West Bengal, Odisha. Chennai and Bangalore affected, now it is open. Pune was closed. Now it is open. We continue to practice and guide all of our employees and also external enterprise and also dealers to adhere to the personal hygiene, social distancing. I think this is regularly happening. At this point of time, the stock levels with our dealers are at the lowest level. Normally, we keep 30 to 35 days. It is much, much lower now. Definitely, that is going to help us when we enter into the season. International market, I think the proportion of dealers opening up is increasing and the pull from the market is also good. With more and more outlets opening, with stable oil prices, we expect two-wheelers to do well. We have a very strong portfolio. Mega brands like Apache, Jupiter, NTORQ, StaR range, HLX, Radeon, and TVS King. I think we have got 2 technologies in BS-VI, which are -- along with customer delighting attractive features, ET-Fi, RT-Fi. ET-Fi again gives the overall performance across rideability, smoothness, 15% improvement in fuel efficiency. RT-Fi, Race Tuned Fuel injection gives -- it is especially designed to ensure enjoyable racing experience in all driving conditions. And we are consistently #1 in J.D. Power. All these are going to definitely help us. So as I mentioned in the last quarter call, we feel September quarter, we will see consolidation, and we are cautiously optimistic about second half because the COVID openings, closing, I think we're able to manage that. And I'm very sure that with the kind of portfolio what we have, we will grow ahead of the industry, both in domestic and international. Barring this quarter because this was really not a representative quarter, I think our cost reduction initiatives and other initiatives on focused countries going ahead of the industry will help us to grow our EBITDA going forward. Already, we have seen that in June, and I'm pretty confident about Q2, Q3 going forward. Thank you.

Operator, can we go for questions?

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

Sir, you mentioned that demand is same for the dealerships where dealerships are open. I missed that number. You mentioned 75% of the dealerships are open. Is that what you said?

No, no. 70 -- July month, we saw almost 85% of the dealerships were open. In the last Q, it has come down. Now it is around 75%, okay. I was saying that those dealerships where it is fully opened, those areas they are seeing the demand is almost similar to last year numbers. The challenge is how do we make sure that more and more dealerships are open. And this is primarily because of the lockdown. So we have to manage them.

So for these 75% dealers, the demand is at the same level at which it was last year?

No. Out of 75%, most of the dealerships are open fully. Those dealership we are seeing almost similar level from last year's demand, especially the customer retail.

Okay, okay, okay. And secondly, in terms of mix, are you seeing any changes? Or it is broadly same as pre-COVID?

I think most of them, we are seeing pre-COVID. I think one good thing is we have very strong brands in the premium category, Apache and NTORQ, both are in very good demand. We are also seeing demand coming from the rural. Jupiter is also doing very well. So if I look at it, I think, overall, we are in a good situation because this quarter, we opened with very low levels of stock. Normally, we give 30 to 35 days of stock. It is much, much lower. So the retail -- customer retails have been much higher than whatever we were able to produce and give it into the market. So this is definitely going to help us going forward. What support we need is, this lockdown, we are not able to predict. So that's why I bring in the caution. And the positive thing is, also, monsoon is normal. Reservoir levels are very good. MSE support whatever government has given, the sentiments in the rural are also positive. So we are going to support.

And sir, inventory levels would be where currently?

I don't want to give you a number, but it is significantly lower than normally what I would have liked.

And sir, on the pricing front, have you been able to pass on all the BS-VI-related costs?

We have taken price increases in Q1. We have also taken some pricing -- price increases in Q2, okay. I think -- just give me a minute, I think, Q1, we were able to increase prices by about 0.7% and in Q2, so far, early part of July, we have taken about 0.4%.

[Operator Instructions] Next question is from the line of Amyn from CLSA.

I'll just finish Kapil's question. So after these price hikes, would all the BS-VI-related costs push be passed on? Or will there anything be left?

I think, overall, we have to look at how we are managing the portfolio. BS-VI are the products with ET-Fi and RT-Fi gives huge customer benefits. There is a systematic cost reduction initiative inside the company. Cost and pricing we have decided and we looked at the opportunity, and we looked at constantly what is right in the market. So it's an overall strategy to look at how do we grow faster than the industry, and sustainably grow in our EBITDA. If you look at last 8 quarters, we have grown our EBITDA. I am leaving Q1 because in April and May, absolutely there was no activity. June, we are back on track. I am pretty confident that in Q2, you will see the same momentum continuing, both in growing ahead of the industry and in EBITDA.

Sir, in this quarter, on the other expenses line, we saw a significant cost reduction. So can you shed some light on which areas were you able to control cost? Were these fixed cost in nature? Or what kind of costs were these?

I think it's a combination of I highlighted the areas like marketing and other salaries and other expenses, okay. Many of the areas, we have taken a lot of initiatives and that is helping us. Raw materials is a -- raw materials is separate where the traction has been taken in the last 2 years and it is continuing this year.

Is this cost was significantly higher in this quarter compared to the last few quarters? Anything you can highlight there?

See, we have taken additional borrowings during this first quarter, mainly to ensure the suppliers are paid on time. And however, going -- during the quarter itself towards the end because of our focused collections, we were able to completely repay the additional loans avail. And the net borrowing situation today is equivalent to the pre-COVID situation. Yes, it has gone up mainly because we had certain additional borrowings to ensure all the suppliers are paid on time. But fortunately, because of the collections, we have come back to the old situation of pre-COVID.

Next question is from the line of Raghunandhan from Emkay Global.

A couple of questions. Firstly, on TVS Credit, can you share some details on the Q1 performance and current moratorium?

See, TVS Credit Services retail finance penetration, basically for TVSM for Q1 is 52% compared to 46% during Q1 of '19-'20. And as far as TVS Credit Services is concerned, we cater to 54% of the retail finance of TVSM two-wheelers. The book size of TVSCS as it stands today is around INR 9,126 crores. And the moratorium, it stands today at 14% after the introduction of the second moratorium as of June 1, 2020. This is better than the earlier one, mainly because of the collections. And the collection has been extremely encouraging, particularly in the month of June and July. They are comparable to the pre-COVID levels. And the company continues to maintain their ratings and the liquidity position, all the liquidity requirements are fully tied up for the year. The loss for the first Q -- first quarter is INR 20 crores as against the profit of INR 30 crores of last year. The TVSM percentage and the net worth as it stands is INR 1,345 crores. And TVS Motor holds 84.54% of TVS Credit Services. What is -- again, the most important thing is on the collection side, the collections is now comparable to the pre-COVID situation. And the interest cost is also lower almost by 1% when compared to the last year.

Thank you, sir, for that detailed explanation, and that is good to hear. Sir, my second question was on the shift from MEIS to new scheme from December 2020. Is there any update on whether export incentives will remain same or reduced? Media reports also indicate that government is capping MIES (sic) [MEIS] allocation in the current year?

No. We have the same information what you have. We are closely following up on that.

Next question is from the line of Gunjan Prithyani from JPMorgan.

Could you also speak about -- I mean you spoke about demand recovery in rural. Has moped also seen a reasonable pickup given the exposure is largely rural, if you can talk on that? And also secondly, this whole argument of personal mobility, how strong is that in your view? I mean is there any internal analysis that you guys would have done? And is this a very significant demand driver?

I think last time also I told you, moped is also seeing a good response, thanks to the ET-Fi technology, whatever we have implemented because it gives huge customer benefits and also 15% fuel efficiency. And as you know, that has got ISG, that has got so many attractive features. So moped, definitely, this rural recovery will help our commuter motorcycles and moped. With respect to the second question in terms of urban, I'm very sure urban also will come back. The COVID severity is more in the urban. So more lockdowns are happening. If you look at the closure of outlets are much more in urban areas, okay, whether it is Bangalore, Chennai, Pune. We have seen bigger challenges. This is second. Third, in terms of public transport versus the social distancing, I think we are seeing customers are preferring two-wheelers. And I think going forward, the proportion will grow, okay. At this point of time, it's a very, very early indicator, okay. What we are seeing is a good proportion. I may not be able to say numbers to it, but a good proportion of people are definitely looking at two-wheeler as an option to adhere to social distancing.

Okay. Got it. Just if you can also share the CapEx and any number around the subsidiary investment that we are anticipating for this year, particularly in context of TVS Credit, both at the stand-alone level CapEx and the sub-investment?

I think, overall, we are looking at about INR 300 crores CapEx this year, which we will review in the second half, depending upon how the markets reopen. On TVSCS, I think, overall, Desikan, we will be looking at about INR 50 crores now? And...

Yes. INR 50 crores to INR 75 crores, yes, will be the number. It depends on the capital adequacy-related ratios and the business-related requirements. It's too early to say, but definitely, it will be -- it will not exceed last year's number.

Next participant is Shyam Sundar Sriram from Sundaram Mutual Fund.

On the export front, you did talk about a good level of momentum coming back as the geographies are opening and crude prices are stabilizing. So if you can give some additional color in terms of two-wheelers vis-à-vis three-wheelers? And are we -- is it reasonable to assume that by September may reach the prior export run rate that we were doing last year of 70,000 levels kind of run rate can be reached by September?

See Q1, if you look at it, we have done better than the industry, but I know Q1 is not the right number because the challenges were huge. But what we are seeing in July is many markets are opening, opening up much faster. And the demand, like India, I think everywhere, thanks to the crude oil prices and the stability, parts availability, I think the demand will grow. And I believe that by September quarter, we should be able to see something similar to last year level. Again, here also we have to look at the cautious optimism because COVID, we have to be very, very clear how the lockdowns and how they are going to manage. Every country's challenge today is COVID, but there are markets where the basic income itself is coming from the factory segment. So they have to run and some innovative solutions are there so that the social distancing is done. So I'm confident that international market, the kind of product range what we have, HLX series, Apache, NTORQ, I think it will very quickly come back.

Sir, on the domestic side, you did mention that the premium portfolio both Apache and NTORQ are seeing good response. So are we seeing the portfolio's mix tilting towards the premium motorcycles. In the last call also you did mention that the premium portfolio may do better. Does the -- is the trend continuing? And are you -- so the reason I'm asking this question, sir, premium segment, typically to the customers are the upgrade customers. So are we seeing what -- we thought that the upgrade customers could get delayed. So from that hypothesis perspective, are the upgrade -- upgradation happening as per the plan as in the customers delaying their upgradation or is it happening as per the normal replacement cycle, if you can talk about that?

I think like I told you, the COVID is very unfortunate. And we are all going through a period where I don't think it is any way going to affect the aspirations of India. And India is a young country. And we want to really look at, going forward, products which are premium. If you look at the kind of investments we have done in infrastructure, I think things will come back. I think this lockdown has been for a longer time. So that is definitely affecting all of us. So please understand, my hypothesis is premiumization will happen. India, we have a very strong, young segment, which definitely look forward to futuristic products, futuristic technology. I think that is reflected in the demand as well in Apache and NTORQ. So I am very confident about that. You may see some hiccups in urban markets, but this -- there will be a solution which will come for the COVID. I think I -- we should isolate this because premiumization will happen, okay. This is likely a little bit delay, 1 quarter, 2 quarters, but no way the customer's inherent behavior is going to change.

Understood, sir. Understood. So even for the industry also, you don't see any shift between -- to the entry-level motorcycle vis-à-vis the premium motorcycles even from an industry perspective?

I can't say about that, but I'm very confident about Apache. I'm very confident of NTORQ. These are brilliant brands and very clearly targeted to young customers, and they love it.

Right, sir. Sir, on the production side, are we facing any production challenges from a supplier perspective or from our own plant's perspective? Any challenges are -- that we faced or is it all over and we have now returned to the normal production levels, if you can talk about that a bit?

We had huge challenges, especially in the month of June. Definitely, we would now like to produce much more because the demand levels are much, much higher. We have taken action by action. I think there are challenges. We can't win any suppliers because we have seen lockdowns again, containment zones, people movement, material movement. Even now, it is there. If you look at Chennai, for example, it was under lockdown. Then we had Pune side. So many of the supply chain hubs, whenever you have lockdown, it is fair because we are talking about people, safety. So sometimes we have to go through. We are also working very closely with the supply chain. And what is good about is definitely our July numbers are much better. And going forward, I think we also know how to manage these situations because we'll have to see how to take this forward into the month of July, August, September. When you have a good pull in the market, the stocks are lean, you have to produce. So I think there will be challenges, but majority of the work has been done by the company by last week of June. The demand is definitely better than what we expected. So overall, I'm very confident that day by day, week by week, you will see a significant improvement in production also aligning with the demand situation.

Next question is from the line of Ronak Sarda from Systematix Group.

Sir, just wanted to understand on scooters, particularly. I mean how has been the recovery in scooter demand, can I say, from May when stores started to open up, June and now July? I mean is there a situation like till the time schools and colleges don't open up, you might not see the real potential for scooters? Just wanted to understand on scooters from your perspective?

Scooter demand is also picking up. For example, NTORQ, the demand has been excellent. And Jupiter is also picking up very well. And products like Scooty Zest, the demands are very good. So overall, I would say that definitely, we are seeing a good pull even in the -- see, the first quarter is not an indicative quarter because in the first quarter, we saw sales industry declining by 77% and we declined by 71%. But what is most important is our decline, we would have supplied much more because we had some challenges and ramp-ups, like I said earlier. So I think I'm very confident, going forward, you will see the pickup in scooters as well.

Right. And I mean -- just in addition to this, I mean, how should we look at the festive demand? I mean it starts in August fourth week at this time. I mean, do you see people coming back, especially -- I mean rural has been doing well, but the top 10 or top 20 cities, how do you see -- I mean any feedback from the sales team discussing it with customers? How are you looking at the festive demand?

I am -- see, festival this year is October, November. I'm very confident that -- thanks to our government and the support taken by the medical staff, support staff, I think the recovery rates are going up. The death rates are coming down. I think we have another, in my opinion, 90 days. I think we will definitely have much more confidence in dealing with more recoveries, lesser death rates. And many places in India have shown that once the curve starts flattening and it starts declining, I think the confidence level will go up. And two-wheelers, there will be additional benefit of social distancing and people preferring from public transport definitely to two-wheelers. So I feel, definitely, you will see Diwali season. And in the greater interest, I want the Diwali season should be safe and healthy Diwali season, not for -- not looking at only from TVS Motor point of view. But overall, people's point of view, I wish that we'll come to a better level by the time. That's why I said I'm optimistic. The recovery rates for COVID is going to help us this transition faster. And I'm very sure government is also -- will also look at some more support, especially GST, also some other additional support because commuter motorcycles and the two-wheelers right GST is 18%.

And sir, final question on exports. I mean, again, if you can just help give us some break up on the regional, which regions are performing better. I mean, have we passed on any of the currency benefits or we have been able to retain that? And I mean, finally, how do you see dealers in the international market upfront or paying up for the vehicles as such? I mean, have you seen any working capital deterioration in that sense?

Actually, international markets, again, our stocks are lean. There is a good opportunity for us to supply. And April, May, they also had COVID situation. June, they have opened and the retails are good there. So there is -- absolutely, in my opinion, there is no deterioration. And it may not be fair to give a comparison of Q1. I think we should all project Q1 as an aberration. I think Q2 onwards, we should be able to look at how quickly we can do, and I'm very confident that July numbers are very healthy.

Okay. And that is standard across the markets? Are you seeing the similar response? Or...

Most of the markets because, for example, even Sri Lanka, we are seeing good retail. Of course, they have not started importing vehicles. So I think once the stock starts coming down, every government will start looking at allowing imports to happen. So most of the markets, for example, Bangladesh took a little longer time, Africa, certain markets took a little longer time, but most of the markets are responding now. I think they are opening up. Whatever we have seen in India, we are able to see in international market. And for us, this portfolio has been very strong. So going forward, I think the stability in oil prices and the products availability is going to definitely help us.

Next participant is Hitesh Bhargava from B&K Securities.

Sir, can please help us with what is the share of rural for us, like what is the percentage of volumes coming in from rural?

Can you -- I didn't get your question, please?

What is the share of our volumes from rural region?

Share of volumes from?

Rural.

Oh, rural and urban. I think there is no significant change with respect to rural and urban, okay. And again, Q1 is not the comparison. I don't want to take any Q1 comparison in terms of -- because more cities, we are seeing lockdowns. So it's not a fair comparison.

Okay. Sir, what is the share? I mean, as a number, how much of our volume comes from rural area?

For us, fairly good proportion. It is almost equal, rural, urban.

And 1 bookkeeping question. Can you help us in export revenue for the quarter?

Export revenue for last quarter, Q1?

Yes, sir.

Yes, just a minute. I think it is about INR 463 crores.

Next participant is Basudeb Banerjee from AMBIT Capital.

A couple of questions. One, though as you rightly said, for the full quarter, it is immaterial to look at. But if I see the June numbers, brand Jupiter and NTORQ are very much closer to pre-COVID level volumes in June, whereas brand Apache is significantly lower than pre-COVID level. Whereas if I see competitor brands in the same segment have recovered quite well. So why there's such kind of a deviation? Is retail significantly higher than the mentioned wholesale for brand Apache or it will take time to design? How to look at this?

I think Apache is one of the brands, we had a severe production constraint. I think the demand has been outstanding for Apache in the market, but unfortunately, we had a huge reduction in terms of the production, and that affected our supply. That also affected a little bit on the material cost. If you look at the product mix, definitely, it affected the material cost in the first quarter. But I'm very sure because that is recovered, this month, you will see our numbers in Apache much, much better. Production has moved to good levels this month. It can be a little better, but I'm very sure we will be able to come back very soon between July and August. And retail in the market is very positive for our brand Apache.

Surely, sir. Second, sir, if I look at this quarter, as you mentioned earlier, aggressive cost cuts in terms of SG&A, travel, marketing, et cetera. So your other expenses have come down significantly, almost 50%. So how to look at that line item with volume reviving up? How much of that will be fixed in nature and variable in nature as such?

You will definitely see, especially items like marketing, you will see going forward, more digital. And you will see more online and digital. So definitely, we will also look at -- we have now strong brands. And those strong brands will definitely help us the need for the kind of marketing expenses, whatever we had in the past. So digital, as an overall strategy is going to be significantly higher going forward. And travel and other costs, I think the new normal has taught us quite a lot. Work-from-home is something we have learned. And definitely, some of the initiatives, whatever we have learned in the lockdown will continue. And some of the things, definitely, there will be -- we'll look at -- which need investments, for example, new product investment, technology investments, brand investments will continue going forward because that is what is most important for future. But overall, what we have to look at, if you look at after Q4 our EBITDA journey, we will pick up from Q4 last year to this year, and you will see significantly that EBITDA journey coming back in Q2 onwards.

Next, sir, FY '20, you turned EBITDA positive in Indonesia after many, many years. So what's the outlook for this year with COVID impacted 1Q? Are you still confident that it will remain EBITDA neutral to positive or there can be a reversal?

I think first quarter, like any other players, I think it is an unprecedented kind of -- not a representative number. The product portfolio there has got very good demand, Rockz and the Dazz there. I think all the products, whatever we move from Indonesia has got good demand, and we are already seeing markets like Philippines and ASEAN markets opening up -- African markets opening up. So I am very confident that this year, we will be EBITDA positive.

So as you mentioned that investment towards credit services will be lower Y-o-Y. So any such ballpark statement for Indonesia outlook this year from a cash outflow perspective?

I don't want to give a guidance, but we are pretty confident because once the demand starts coming back, we are very confident about Indonesia. This year, year as a whole, definitely, we will be EBITDA positive.

That's great. And last question, sir, any comments on brand launch pipeline for domestic market?

I think our BS-VI technology, whatever we have launched is excellent, ET-Fi and RT-Fi. Consumer feedback is very positive. And we have launched this product with many attractive features. So this is something we have to constantly look at it. Of course, we are investing via new products and closer to launch, I'll share with you which are the new products we will be planning to launch this year.

Next participant is Jinesh Gandhi from Motilal Oswal.

A couple of bookkeeping questions. First, what was the USD-INR rate for the quarter?

You are asking about?

USD-INR rate.

INR 72.

And any reason why it was low? I mean are we hedged for the quarterly...

Yes, we have a hedging policy. We are run by that. And it's a 3-month kind of a hedging policy. We are a net exporter. We will get the benefits in the future quarters.

Okay. We hedge. So you said 6 months in advance -- or 3 months in advance?

Yes. We have a hedging policy. As per the policy, as what KNR has said, the Q1 realization was around INR 72.1 or INR 72.2 as against the INR 70 of last year, first quarter. But with spot being around INR 75, even the June realization is much better. And July is, again, better than the June. And therefore, going forward, with spot being at INR 75, the realizations will improve.

Right. Okay, okay. And what are the spare sales in the quarter?

Spare sales for Q1?

Yes.

Just a minute. Hold on. It's about INR 180 crores.

INR 180 crores. Okay. Got it. And any reason why depreciation should have declined on Q-o-Q basis or Y-o-Y basis?

The depreciation is charged based on the actual utilization of the plant in accordance with the accounting standards. And therefore, since the whole of April was not there, the depreciation per se is lower. But going forward, it will normalize.

Okay. Got it. And last question on the retail side. You indicated retails have been very good. So as against domestic two-wheeler wholesale of 186,000. Any sense what were retails against that number?

I don't -- again, I don't want to give a guidance. I think I gave 2 important parameters. Normally, we keep 30 to 35 days of stock. Now we are in a very lean stock with our dealers, and that gives us an opportunity. Plus, our retails are also very good. So a combination of these 2 will help us to do better month after month.

Okay. Got it. Okay. And any guidance on the production side, how it is ramping up now in July versus, say, 1Q? Was there...

Definitely, July week after week is better than June. And going forward, you will see better and better ramp up because suppliers are also -- for everybody it is a learning. You have to take care of the employees, you have to look at the safety, you have to be very careful and even the transportation, for example, logistics take longer time nowadays, suppliers supply some parts from some place, it comes at least 20%, 25% more time. So I think there are many checks and balances. So I think we are all learning to live in the near new normal situation. So one good thing about all of us is we adapt and we are flexible.

Sure. So we would be about 80%, 85% of pre-COVID level production in July?

Yes, it is improving. Definitely improving. You will see the numbers from 1st of August.

Next participant is Satyam Thakur from Crédit Suisse.

I have a couple of questions. Just trying to understand some macro trends better. So first, on financing, some channel checks say that for other completion OEMs, some lenders might have tightened their lending norms, so rejection rate might have gone up. Is that something that we have observed as well from lenders other than TVS Credit? Have their rejection rate gone up? And other metrics also, LTGs, has there been a change in the LTGs? And -- like, for example, while you share your finance penetration, and that has not gone down, but then looks like TVS Credit share in your financing seems to have gone up. So is that a function of this playing out, is that what is driving this?

See, one is the other major players for financing TVS Motor products are Shriram Finance around 12%, L&T Finance at 7%, IndusInd around 7% and IDFC around 6% and HDFC also at 6%. The -- some of these players -- particularly some of the players, they were not fully present once the COVID lockdown was lifted, but they're all slowly coming back to the market now.

Q1 cannot be taken as representative sample according to me because June, we were trying to get used to. I think July, August, September will give a better indication. Anything inferring based on Q1, I think it may not be a fair conclusion.

Okay. So what you're saying is that just the fact that some of these guys are not up and running as well, it's not that they have increased their rejection rate?

I don't want inclusion...

Yes. Absolutely, you're right.

I don't think inferences can be made in Q1. Q1 data is only .

Okay. And sir, the second question that I had was on the lower-priced BS-VI solution that you have introduced. So what is happening at the entry-level motorcycle segment? How is the customer seeing your solution versus the other larger OEM who has not gone for that who has gone for fuel injection? So their products obviously have become a little pricier now by contrast. So is that at the micro market level where you and them compete equally? Is it kind of leading to market share gains by you and other players also who has gone for this lower price solution? Or customer doesn't care about all this? I mean how -- what's really happening on the ground level, customer response to this?

We have gone for only fuel injection, okay. Whether it is all models starting from moped till Apache, we have gone ahead with EFI solution. I don't want to comment about competition. But our ET-Fi and RT-Fi gives significant customer benefits, and that is what is resonated in the market as well. Each company has got their own strategy. I don't want to comment on that. And our ET-Fi and RT-Fi, both are EFI solution. It's our unique technologies what we have developed, and both of them give unique advantage to the consumers, okay. If you look at ET-Fi, it's -- all the commuter motorcycles and scooters and mopeds, it gives 15% improvement in fuel efficiency, very good rides, very comfortable, very smooth. Yes, there are lots of benefits. And if you look at RT-Fi, it is for the racing customers' delight.

Okay. And sir, if I can ask just 1 last thing on the commodity cost, what is the trend that you're observing in all things put together, including the precious metals and everything? And is that fully factored into our current price now with the latest round of price hikes? That's all from my side.

Commodity because of the demand, I think -- I don't think it is likely to spike. The precious metals have gone up a little bit, and we are closely monitoring that. I'm hoping that they will also recognize and there will be a correction in that, but we can't predict because the content -- the percentage of precious metals and all bikes thus far, but we don't anticipate a big spike in the commodity price.

Next participant is Pramod Kumar from Goldman Sachs.

First, a couple of clarifications before I move to your questions. On TVS Credit, did I hear the morat number as 14% or was it 40%?

1-4, 14%.

Okay. And sir, what is the GNPA number there for TVS? If you can share what is the GNPA or the net NPA number, what we're looking at in the June quarter there?

I may have to come back on that, please.

No issue, sir, because I was just looking at more from asset credit. No problem. But your morat number indicated that, that shouldn't be a challenged asset and you said that your depreciation stocks will go up and...

The reason is, one is the collections are sober and those who are earlier offered for morat have started keeping the money. And therefore, it will not be a very significant or an alarming number.

Okay. That's really good to hear. And on the -- clarification on the depreciation side, you said it's going up. And at the same time, you also highlighted earlier that your interest -- your debt situation is back to pre-COVID level, the net debt number, pricing up in because of the interest cost spike. So is it a fair understanding that as depreciation kind of comes back to normal level, even interest costs should go down and normalize to the pre-COVID level? Is that understanding right?

Absolutely right.

Absolutely right.

I think the sessions have been very good and...

Okay, okay. And this is for you. Broadly, is there anything you should like to put up as a pent-up demand number if you have? Because I do agree that as urban market open up, there will be a pent-up demand there as well for you. But broadly, so far, in the first 4, 5 months, whatever we have seen, how much according to you is the pent-up demand which is driving these recovery across the board? And which -- where we run the risk of them trading and probably demand setting at a lower level? Are there any taps on the pent-up demand?

See, pent-up demand -- see, April and May, I think markets were closed. So we tend to expect that June, July, some benefit of that, not able to put a number to it. What I can say is dealerships were more or less opening around 10 o' clock in the morning and closing by 6, 6:30. We are able to see in the month of July close to last year levels of customer retail, okay. That is a very, very good change, okay. So all that what we need to look at is how going forward in August and September, if the COVID situation, the curve starts flattening and the recovery starts going up, I think definitely, this trend will continue. And there are many consumers, especially in the urban looking for using a two-wheeler instead of -- because of the social distancing, instead of public transport, that will support. So these are the 2 factors we have to very closely monitor. And we have assumed that going forward, every government, every area, I think there has been a very, very focused effort on making sure that the recovery rates go faster. So -- and good monsoon, positive sentiment in the rural, that is definitely going to help the season time.

Sir, final question on the rural premiumization because you do have fairly large rural exposure, thanks to moped and Apache . So what are your thoughts on as the rural market continues to be buoyant, cash flows are good, cost support is good, outlook momentum is good. So is there a trend of premiumization what you're seeing even in the rural economy because we have seen some of your most premium brands are doing extremely well in the northern and eastern markets right now? So from your -- within your portfolio, are you seeing that upgrading from a consumer in the rural economy?

See, consumer is consumer. There is nothing like rural consumer or an urban consumer. Anybody who's in the rural also wants to become urban, and he is also very aspirational, okay. If you look at the trends in smartphone change even in rural or urban. It is rural. Aspiration-wise, the consumers are definitely, definitely looking forward something better and better. So products like Apache, NTORQ. I think their affordability is lower, but those customers who are already part of our products, they upgrade to definitely an Apache or an NTORQ from a Jupiter or a commuter bike. So I'm very confident that even rural, you will see the premiumization will happen, may not be at the level what you see in the urban markets.

Next participant is Rakesh Kumar (sic) [Kumar Rakesh] from BNP Paribas Mutual Fund.

Can we have after this 1 more question and close, please?

This is Kumar Rakesh from BNP Paribas Securities. My first question is around the repayment part of MCD, which you talked about that whatever was raised during the quarter have been repaid. Now we don't have the cash flow, but I would understand that your operating cash flow during the quarter before working capital would have been close to 0. So that means a large part of the funding would have to come from squeezing the working capital. A good part of it could be from inventory, but that also implies that you would have drawn a lot from the receivables part. Something which ties up with talks with dealers as well that the credit terms of TVS has definitely gotten more stricter. Do you think that we could be creating a competitive disadvantage here when the dealers already are struggling financially? This additional working capital requirement could push them further at a time when demand is not that great. And also I assume that Norton payment would also coming up, and that implies this stricter credit terms could continue?

See, we've always been working very closely with our dealers. Every dealer also, like any company, prefers a lean inventory. I am yet to see somebody who wants to keep more stocks. So lean inventory is a very, very correct strategy, and we have been practicing it not today. We have been practicing it throughout -- if you look at last couple of years. And that is one of the reasons we were able to change over from BS-IV to BS-VI very systematically. So it is not -- it is going to be beneficial for the dealer and for the company and also for the suppliers because the predictability of supply chain, end-to-end, is going to be much better. And it is better to keep lean inventory so that the customer gets the best. So these are the fundamental policies and the principles TVS has always believed in.

Right. Yes. No, definitely point taken on the lean inventory, but I was just...

No, no. You had a -- you got a doubt that it is going to affect our competitors or dealers. Actually, dealers are extremely happy with TVS Motor Company. Last year, in J.D. Power customer satisfaction, we were rated #1. And this is one of the factors. Two factors they were very happy with us was our new product development and marketing, and the way in which we interact and work with them on keeping lean inventory.

Got it. And last quarter, you talked about that you're building strategy around Norton acquisition. Have you made any progress on that? Any update you could share with us?

I think Norton is a great brand. Like I said, this is going to give us a huge opportunity into the super-premium category, the classic racing buyer segment. And overall, the regional benefit, global benefit. I think very close to when we come up with a strategy and when we can share, definitely, we'll share it with you. It's a great, great investment, which is going to significantly support our overall long-term strategy. We'll take the last question, please?

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

My question is on -- first on your scooter portfolio as in you have talked about NTORQ is doing very good. I mean phenomenally good response so far. So are you expecting that brand to come very closer to what Jupiter sales on a monthly basis, maybe not at 60, 70, but at least on 40, 50 level. That is one. And secondly, on your -- I mean I think you have answered, but probably I have missed it is on your TVS Credit Services, what kind of investment do we require in this financial year to be particularly the...

I'll start with the second question. Already, Desikan answered that. It'll be around the INR 75 crores, we are looking at investment from TVS Motor on TVS Credit Services. And coming to NTORQ, I think it is a great brand. It's uniquely positioned for young customers, and we are seeing growing month after month, stronger after stronger, and we want to continue like that. I don't want to put a number to it because what is most important is build a very strong brand like Jupiter and it is having all the positives of building into a great brand for TVS.

But as in my question is more related to because many of our products have shown initially very good response, including, say, Radeon, but we are not able to live up to our expectation, probably in terms of building on those initial great response because we have still started around 20,000. I mean, on a normal basis, I am not talking about the pre-COVID time, but on a normal basis also we are still stuck at 20,000, where the market is used for those kind of commuters.

If you look at -- and in the last 4 years, you have seen Apache, you have seen Jupiter, you have seen NTORQ, you have seen selected international market, you have seen Apache international market, you have seen now TVS King. Radeon, we are very confident. I think certain brands may take a little time, but we are pretty confident. Those customers who are buying Radeon are very, very happy. So you have to -- you have to show a little bit of patience in some brands because you have to show the patience and it will succeed. That's exactly we have done even in Jupiter, even in Apache. So we have to build stronger and strong -- if existing customers are delighted, that's exactly what TVS believes in. We have been number in customer satisfaction. We have been definitely best in quality. So we have been insisting on building very, very strong brands with quality, customer satisfaction and futurization and the kind of products with RT-Fi technology, whatever we have given, and ET-Fi technology. I'm pretty confident that going forward, our Radeon will be a great brand.

And lastly, and 1 thing on -- because I think if I look at the tractor market, the southern market has done phenomenally well. So what kind of response you are seeing for the -- your moped customer as of now. And because, I mean, still larger share of moped sales happens in the southern market. And secondly, any outlook on the export front? Can we move on to normalized level, say, from July, August or something because export markets typically a little early in terms of order booking?

Export markets, I think it's improving. Definitely, it's improving. And my feel is maybe by September, it should consolidate, and you should start seeing good pull. Again, the cautious optimism, please understand, COVID and how the recovery rates are going to happen in each of the market is very, very important. And if you look at the southern markets, we have done extremely well. All brands have done well. So as far as we are concerned, we are confident that September quarter will consolidate. And going forward, I am optimistic recovery rates in COVID will improve significantly. I think everybody is putting good effort. And I'm pretty confident with the kind of product range what we have, we will do extremely well better than the industry, both in domestic and international. And the kind of sustained focus on our cost reduction, I think the EBITDA journey, whatever we were doing, will continue. Leave Q1, I think Q2 onwards, you will see a significant change in EBITDA as well. Thank you. Thank you, everyone. Thank you for...

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

I think the key closing comment is July, we have already started. June, we have already seen a good change. EBITDA and PBT are positive. And I think July is going to be better. And going forward, by September, you will see consolidation. And H2, we are cautiously optimistic because that cautiousness is coming based on the COVID recovery rate. Rural markets are definitely seeing positive trend. International markets are seeing very good trends. So overall, given the kind of strong brands what we have, product range what we have, we are confident that we are likely to grow ahead of the market. Again, that cautious optimism is what is most important. And second, on EBITDA journey, you will see the journey picking up from Q2. The kind of last 8-quarter journey, whatever you have seen, we are very confident with our cost reduction efforts and our strong brands, you will see Q2 onwards the EBITDA coming back in a big way. Thank you. Stay safe. Thank you very much.

Thank you very much. On behalf of B&K Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.