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

Ladies and gentlemen, good day, and welcome to the TVS Motor Limited Q2 FY '21 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 India Private Limited. Thank you, and over to you, sir.

Thank you. Welcome to TVS Motor's 2Q FY '21 Post Results Conference Call. Apologies for postponing the call by 1 hour. We have with us today from TVS management, Mr. K. N. Radhakrishnan, Director and Chief Executive Officer; and Mr. K. Gopala Desikan, Chief Financial Officer. We'll start with Mr. K. N. Radhakrishnan, who will brief on the 2Q FY '21 results and outlook, to be followed by the question-and-answer session. Over to you, sir.

Apologies for the delay. Happy Dussehra to all of you, all your family. I hope all of you are fine and safe. As far as TVS Motor's Q2 results are concerned, despite challenges related to COVID, we strengthened our supply chain during September quarter. Production and sales improved consistently from July. July was INR 2.44 lakhs. It improved to INR 2.77 lakhs. In the month of August and September, we further improved to INR 3.13 lakhs. And we're hopeful that this month should be better than September. The total two-wheeler sales for the quarter was INR 8.34 lakhs, almost in line with last year's numbers. The September alone, if you look at it, we have grown by almost 4%, 4.2%. Exports is very strong, almost 7.8% growth over last year Q2. We have significantly done better than the industry. Three-wheeler production also started improving, and we have sold 33,000 numbers compared to last year's 43,000 numbers. Total revenue for this quarter is INR 4,616 crores, growing by 6% compared to INR 4,348 crores of last year's second quarter. Strong focus on the cost reduction initiatives helped the company to improve EBITDA for the quarter, 9.3% compared to last year, 8.8%. EBITDA in absolute terms increased to INR 430 crores from INR 382 crores, growth of almost 13%. PBT before exceptional items for this quarter is INR 267 crores compared to last year's INR 344 crores -- INR 234 crores, sorry. Second quarter last year, we had reported a onetime exceptional gain of INR 76 crores. Excellent working capital management result in substantial reduction in inventories, receivables. In addition to that, improved profitability resulted in a net cash flow of more than INR 1,000 crores. This is for the first half. With respect to PT TVS, I think we were able to -- Q1 was a challenge, but Q2, we have started improving. We sold almost 14,698 compared to last year's 13,934 numbers, registered a small growth of 5.5%. Three-wheelers also started doing now 1,253. With that, we have operating PBT of [ USD 0.04 million ] compared to last year. Last year, same quarter was USD 1.03 million loss. For the season, we have launched the TVS NTORQ 125 SuperSquad edition which is inspired by the Marvel Avengers. We are associated with Disney India's consumer product business to introduce a special SuperSquad edition. Of course, this is the India's first Bluetooth-connected scooter with RT-Fi technology. The SuperSquad edition will compress 3 new enticing offerings, Invincible Red and Stealth Black and Combat Blue. This is inspired by the Iron Man, Black Panther and Captain America. Another exciting color glossy yellow and black added in TVS NTORQ variants. Apache RTR 200 4V single-channel ABS variant launched with smart connect and the Glide Through technology. And I'm very happy that during this quarter, Apache brand has crossed 4 million sales, and thanks to all the customers of Apache. Festive season we are seeing marginal growth over last year. We are seeing predominantly in premium products. And we are very sure that the agri growth being positive, reservoir areas are full, sentiment was positive, urban markets are opening up. And we are seeing urban market retail reaching pre-COVID levels. So as we have said last time, we are cautiously optimistic about Diwali sales, and we have been putting enough effort in terms of supporting and supply chain is also improving. Overall, second half, this positive sentiments in rural will help and the series of relief measures announced by the union government will improve the liquidity and that would be beneficial for medium to long term. And we are hopeful that government will consider and reduce the GST for two-wheelers from 28% to 18%, which will definitely help the demand. Urban markets are now open. We are witnessing pre-COVID levels of consumer retail. The spread of COVID is also slowly coming down, and we -- we're sincerely hoping that the personal hygiene, social distancing, wearing of masks, I think, if we systematically are disciplined, I think it can definitely bring down the incidences and the threat will come down. This is very, very important. As far as international markets, we are witnessing very good growth, stable urban oil prices, availability of foreign currency and stability of exchange rates are healthy. In addition to the pent-up demand, many are preferring two-wheelers to avoid public transport and shared services. We continue to remain cautiously optimistic about the second half of the year for the domestic market, and export market is definitely going to do much better. And we will gain momentum. We have a very strong portfolio, mega brands like Apache, Jupiter, NTORQ, HLX, Radeon, TVS King. I think we are very positive that we will continue to grow, and we will -- the TVS CS -- TVS Credit Services help. I think that is also definitely helping us to build these brands very strong. And we are confident that we will grow ahead of the industry, both in domestic and international. The cost reduction initiatives what we have put in place 2 years back have started yielding results, and the same focus will continue. With that focus, I'm pretty confident that going forward, we'll have robust improvement in EBITDA. Thank you.

Thank you very much. Shall we begin with the question-and-answer session?

Sure, sure.

[Operator Instructions] The first question is from the line of Jinesh Gandhi from Motilal Oswal.

So my question pertains to the retail trends. You indicated marginal growth during the festive season. So this would be -- you're just referring to Navaratras and Dussehra, right?

There's a small growth, I think, compared to last year. So as you know, the Dussehra season is about 1/4 or 1/3 of the season. So we have to cautiously look at it, but we are optimistic. Given the kind of product range what we have, we are very optimistic. The caution is, again, we have to be very, very careful with respect to the COVID. So given the kind of stable start and also the opening up of the urban markets, I think we are cautiously optimistic about the future.

Okay. And you also indicated that this growth has been predominantly driven by premium products. So does it mean that rural market, in fact, declined during festive season?

I think rural market, the sentiments are positive. Even in the rural, these products like NTORQ, Jupiter, Apache sold very well. And I say the Jupiter Classic version, Grande version, they are all available in rural market also. So the customer points of view, I think what we are seeing is a more higher pull in terms of products which are a little bit more premium, which is expected, primarily because of the money availability.

Right, right. Got it. And second question pertains to the cost cutting efforts, which we have done. So we have seen a substantial reduction in staff cost on Y-o-Y basis as well as on other expenses. So can you indicate how much of this is sustainable? Are there any one-offs over here? How should one budget for this?

No. See, it is not cost cutting, it is cost management. That is one clarification I would like to give because we have been focusing on material costs in a big way, okay? And that is definitely helping us. And with respect to marketing, we have gone along with this new normal significant proportion through digital and that will sustain. With respect to the employee cost, we had a salary reduction, which we have reinstated from 1st of October. So overall, I think the initiatives, whatever we have started in material costs or our other costs like marketing and other areas will continue.

Okay, okay. Understood. And lastly, a couple of data points on what is the inventory at the ground now at the dealer level? And secondly, our USD/INR realization and export sales for the quarter?

No, inventory, we are always careful because we always believe that around 30 days of inventory, we try to keep. And in the season times, it will go a little bit up. Again, it will come back to that level because that is sustainable that we have been maintaining for a longer time. And that policy will continue.

Right. And export revenues and USD/INR realization?

Exports revenue, just give me a minute. Q2 revenue is about INR 1,123 crores.

Okay. And USD/INR?

I didn't get your question.

Dollar realization?

I think it is about 74 -- 74.5.

The next question is from the line of Pramod Kumar from Goldman Sachs.

Sir, at the front, I think, congratulations on a great set of numbers. We haven't seen companies expanding margins in this current environment. So on that point, actually wanted to check if there are other -- anything which would kind of reverse out going forward in terms of benefits, like say, MEIS? And also now that you're talking about salary getting reinstated, so what does things like MEIS benefit being capped at INR 2 crores and employee expenses going back higher and probably some commodity inflation or what does all this do to your margin journey for the coming quarters? And how do you plan to mitigate them if at all you're kind of looking at sustaining this margin level? So in short as and whether these margins are actually sustainable? And if yes, so what are the mitigation factors you have for the headwinds ahead?

The salary reduction was voluntary because of the uncertainty at that time. The moment we are able to see improvement with respect to the business, we have reinstated. That is not going to create any impact going forward. Number two, in terms of this export incentive, they are very small, okay? We have very clear action plans. And I'm very sure that government is also planning to propose new schemes coming, which is likely to be from January onwards. There are discussions happening. So the remission of duties and taxes on export product, there is a scheme now government is planning. So any -- wherever the reduction is there, there are some price increases, some cost reduction. So overall, it is not going to any way affect Q3 and Q4.

So in a way, in short, you are kind of hinting towards sustainability of these margins, subject to volumes, of course?

Absolutely, absolutely. I think the initiative of continuous focus on cost reduction, cost management on all aspects will be further strengthened, so that we are able to deliver very robust margins going forward.

Fair enough, sir. So second question is on the market side, both in domestic and international. On the domestic side, we've clearly seen as per even VAHAN database that your Y-o-Y market share for the season, at least so far seems to be trending up materially well. And you also referred to the fact that your inventory levels are not that high. So if you can throw some color on what exactly -- and you did talk about retail growth for the first 10 days of the season, which is encouraging, given that most of the experts would put the industry at a decline. So if you can just help us understand what has actually worked for you on the ground because I believe you are not one of the -- you're one of the few who is not discounting in the marketplace as well. So what is working for you in this season on the market share side? And similarly, we have seen your export volumes have been kind of hitting new highs recently. So even there, if you can just broadly help us kind of gauge as to what could be the potential ramp-up of volumes or the kind of growth, what one can expect even on the [interacting] market side, given the fact that your volume or your market share is still not that high in the export side of the business. So if you can just help us understand these 2 parts.

The stock levels in the market, we always have a simple principle, 4 weeks and during season time, maybe add 1 or 2 days extra. But 4 weeks, we have seen 30 days, 28 days to 30 days is sustainable for dealer point of view, and that we always look at. Second is that the first 10 days, we have seen a marginal positive growth, and we are hoping that the same trend will continue. That's why I keep on highlighting that we are cautiously optimistic because urban markets, we have to see that it is all opened during the next 10 days, and Diwali season is a very important season. The sentiments in the rural are positive, okay? And definitely, the product portfolio is definitely helping us because the NTORQ and Apache and Jupiter variants are definitely helping us. And I'm -- with the retail finance availability, I am cautiously optimistic once again in the domestic market. Export market, as far as we are concerned, I think we are seeing a very good pull. Again, it is primarily because of the pent-up demand. Again, the stability in the oil prices, foreign currency availability, stability of exchange rates so -- and our product range. I think HLX is an excellent product range. Apache is a very good product range and TVS King. So overall it's a combination of consumer sentiment, stability. And I think more [Audio Gap] disciplined. I think we will see markets becoming better and better going forward. Only thing is we expect in the domestic market, some more support in terms of the GST reduction, that will also aid this revival of the demand.

Sir, on the export side, is it -- given the ramp-up you have and all the performance of what you had the last several quarters, right, is it fair to assume that it can be a double-digit growth opportunity on the next few years in terms of compounding a double-digit volume growth for the next few years. Is it kind of achievable? Assuming the macro environment doesn't deteriorate, definitely. Given that assumption, is it fair to assume a double-digit CAGR over the next 3, 4 years?

Our sincere assert is make the customer be delighted with our products. That is exactly our focus. So we will continue to do that and come up with models which are customer liking and then focus on working with the distributor in the international market, work with them very closely at the ground level. That is the simple strategy what we use. I think that is what is giving us results also. So I'm confident. I don't want to put a number on the growth rates because a lot of uncertainties. So the optimism still continues because please understand there are many other challenges because of the COVID and other issues we are seeing. So we have to be very mindful about that. Okay? And the product range, what we have is liked by the consumers very well. So -- and slowly and favorably, we are able to see the supply chain able to support us in terms of ramping up the numbers. Still, there are challenges, but we are getting over it, I would put it that way.

So final question, if I may. On the new launch pipeline -- because we understand that you have some white spaces in the 125cc come with the scooter 135cc come with the motorcycle, and you also showcase the cruiser. So if you can just broadly share will be -- kind of when will we have these launches coming to the market because these are substantially large addressable markets where we are not present. And this could be definitely a tailwind for the market share going forward. So if you can just comment if COVID has kind of really pushed out the launches or you still plan to make these launches in the near to medium term.

See, as a responsible company, we have a strong R&D, we have been always investing in product development. And we have been always looking at the white spaces. That journey will continue. I may not be exactly able to guide you when we will come up, but I can tell you that none of the projects are delayed. I think we have learned a lot of new normal way of working, okay? So I think closer to launch, I will be able to share more information on, which are the white spaces, what is it we are planning to do.

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

Sir, firstly, from a demand perspective, you were -- you seem to indicate the urban markets are doing better than rural for us. Is that what you're trying to communicate, sir?

I did not say urban is doing better or rural is doing better. I'm saying, overall, we are able to see pent-up demand, whatever we couldn't see in Q1. Second, more and more, we are seeing urban markets are opening up. Thanks to now opening up in many areas. And wherever we have opened up, dealerships, we are able to see the pre-COVID levels of activity and consumers walk in. So I think this year, the monsoon has been normal, agri is growing. These are all positive sentiments. So overall, we are seeing positive sentiments and more and more urban markets opening up, I think that is also going to help. Second, because of public transport, many people want to look at self-owning. So they are looking at two-wheelers, that is also going to help. Okay. So that is why I said we are very cautiously optimistic about Diwali, okay? At this point of time because wherever we are seeing the opening of dealerships, we are seeing the customers intending to buy. That is a very healthy sign, given where we were in Q1.

Understood, sir. Sir, and from a scooter portfolio, that is 1 part of a portfolio, which has been quite slow. So -- and given that schools, colleges are yet to open up, this urban markets opening up as we look into Diwali, what are your initial feelers? Is there more pickup seen in scooters, per se, due to the need for personal mobility, is that some trends that we are witnessing on an improving trajectory?

Urban markets opening up will definitely help a little bit more scooter. And we have been having some challenges in the ramp-up. The demand for NTORQ and all very good, but there has been some challenges in the supply chain, again, due to COVID. We are correcting it. Correcting in the sense that the COVID situation is also improving now. I think the new normal, everybody is learning to understand how to manage. So we -- while the urban markets are opening, we are also seeing better pull and also the supply chain situations are improving for us.

Understood, sir, understood. And sir, one question from a cost perspective. Our raw material cost on a per vehicle basis has increased more than the ASP increase, per se, if you see on a year-on-year basis. Is this more due to higher moped mix in our portfolio? If you can just help us understand this part slightly better?

See raw material, see, last year to this year, when you compare, there is a -- this year, everything is BS VI, okay. And the geography mix, product mix, there is also a little bit of impact on that. But overall, the cost reduction initiatives have helped us significantly, okay? And going forward, there will be some increases in the raw material because whether it is steel or aluminum, there are some increases, we are all expecting, okay. So that might affect, but we are confident because of the combination of cost reduction and some price increases, whatever we have taken. And overall, as a company, the kind of new normal, the way we have taken in marketing or in all other areas in terms of digital or overall cost reduction initiative, I think we are pretty confident. It's a combination of both the range mix and also international market plus the cost reduction initiatives. I'm saying we will have a robust growth in our EBITDA.

Understood, sir. And just on the commodity prices that you mentioned, sir, so given, I mean, aluminum prices have seen a very strong increase. And I presume you would have completed our half yearly negotiations as well. So given all this, are we seeing a little bit of -- is there any impact on our gross margin going into the second half of the year?

No. These are -- see, when the demand goes up, definitely, these are the costs which will go up. I think it is a combination of initiatives, whatever we have taken in terms of cost reduction, price increases and the product mix, healthy product mix and international business. That's why I said, a combination of all these actions will continue. That will help us to improve significantly the EBITDA to go.

Okay. Understood, sir. Sir, one question on the…

You have seen this quarter, for example, we are at 9.3 compared to 8.8 of last year. This year, 100% of our sales is coming from BS VI.

Got it, got it. Absolutely. Absolutely, sir, absolutely. Sir, on the export side, on the three-wheeler exports, particularly, sir, month-on-month, we are seeing an improvement there in. So going into second half, can we now start crossing the last year levels and go into a growth trajectory? Is that a basis -- or order booking, is that something that we are seeing, sir? Hello? [Technical Difficulty]

This is the operator. Members of the management, we can't hear you. We seem to have lost the line of the management. Participants, please stay connected while we reconnect the line for the management. We have the line for the management reconnected. Over to you, sir.

Yes. I couldn't hear you, the last question.

Yes, sir. Are the exports -- from a three-wheeler export perspective, month-on-month, we are seeing a good improvement per se. So from an end market perspective, as we go into the second half, are we seeing the three-wheeler export volumes crossing the last year levels and going well into the -- into a growth trajectory. Two-wheeler, we are already seeing that pickup like you had alluded earlier in the last call also, sir. Similarly on the three-wheeler side as well, are we seeing that kind of momentum building up in the end markets?

Yes. Two-wheeler, we saw a very fast recovery. I think three-wheelers have started slowly and steadily improving month after month. Again, we may not be able to put a number by when it will be better than last year, but we are very happy that it is improving month after month.

Okay. Understood, sir. One question on CapEx. First half year, [ down ] around INR 208 crores of capital expenditure from the cash on the cash flow. If you can indicate broadly where are we spending in terms of the CapEx in terms -- is it more on the new products per se and on the depreciation side, we have seen a jump there. So is this correlated to the CapEx spends that we are doing? And how much CapEx you're expecting for FY '21?

I think we have -- we are improving the -- estimating a CapEx increase because some of the new products and export business and some areas in the export business, we may have to invest in capacity. So we are planning to increase it to INR 500 crores this year, okay? The other expenditure has been on various new projects, tools, dies, BS-VI changeover. I think that is what we have spent in the last 2 quarters.

Okay. Understood, sir. Sir, one last question. From a financing perspective, in terms of financing penetration, how has it been in the second quarter say, and compared to the FY '20 level? So we generally hear the financing penetration is slightly lower this year compared to last year. From our perspective, how has it been? And what is the contribution of previous credit in terms of our overall financing type per se?

You are right, slightly lower for us also in terms of the financial overall -- Desikan, it is around 46% this quarter?

Yes. Yes.

So it is around 46%. And TVS share continues to be around 50%. TVS CS share, sorry, is about 50% and overall penetration is slightly lower. This is -- going forward, it will improve. Going forward, according to me, this will improve.

[Operator Instructions] The next question is from the line of Amyn Pirani from CLSA.

Sir, I think, first, I wanted a clarification. Does this quarter results or did it take into account the lower or the reduction in MEIS or that will happen from next quarter?

Yes. We have taken the reduction whatever is applicable in the month of September.

Okay, okay. Okay. Okay, so there is no incremental negative impact in 3Q versus 2Q because of MEIS?

Yes.

Okay. And sir, just on your other expenses, apart from marketing costs, are there any other cost line items where you have been able to manage costs? Are there any examples that you can give us? And also on the marketing side, is it possible that as we go into second half and as volumes, you know, start to move up for the industry and even for you, you might have to start spending more?

Okay. Could you repeat what you are saying?

On the marketing cost, as we go into second half and as volumes improve for you as well as the industry, is it likely that you will have to start spending more on the marketing side?

No. See, marketing, it is not an expenditure. According to me, marketing is an investment, okay? It is building brand, okay? Today, Apache, we are celebrating 4 million, thanks to all those customers. So we have to invest behind marketing. NTORQ, today, we are doing well, thanks to the kind of investments we have made behind the brand. So marketing is an investment, okay? I don't treat it as expense, number one, because that investment only helps to improve the brand and later translate into higher -- more and more customers looking at the product, awareness creation, considering it and buying it. The critical change is more and more digital, you will see, okay? And more and more customers, we will be looking at online. So these are all in line with what is the new normal, okay? And I think this is where we have to be prepared as a company, and we are already ready in that area. And we don't participate in any tactical things. So you give good products to the customers, good retail finance and create enough awareness of the product, that will help.

Okay, okay. And sir, you mentioned that you're increasing your CapEx outlook to INR 500 crores. Apart from CapEx, in terms of investments into subsidiaries and probably some investments required per model, can you give us a ballpark number as to how much you will be spending on an overall in investment?

Investment, I think TVS CS will be another INR 50 crores, Desikan?

Yes. Yes. Something in the INR 50 crores. And long term we will be investing another around INR 40 crores, mainly to -- for certain CapEx which are being planned. So no other current investments are contemplated.

The next question is from Prateek Poddar from Nippon India Mutual Fund.

I just wanted to check, when you say that these are the new normal, I mean post COVID, you have adopted new normal practices, how sustainable is it even when a vaccine is finally developed and launched? Would you be able to build on those practices and not reverse to the old practices? Is that a fair understanding?

I think it's a very fair understanding because each of this, pandemic, I think we are also learning certain things which are new. For example, before this, if you were to ask me about work from home, I think all of us would have had a different way of thinking, saying that work from home is applicable only for IT companies. But we are able to see that our own design team, our own development teams are able to work from home. We have shift A, shift B, and shift C. We are able to see that this is working out very well. So any good practices, which are going to improve the effectiveness and overall reduce the cost, I think as a responsible company, we will also adapt, okay? It is not the question of pandemic. Same way, now we are also able to see that online many things are happening digital. I think if you look at India, our mindsets are always -- we are a young country. We want to be looking at premium products. We want to look like Apache or NTORQ. That is our aspiration. And such customers, they are already coming through online even before pandemic. So this is going to make some new learnings and new normal that exactly whatever is applicable, we will definitely use it. And it is sustainable. Definitely, it is sustainable.

So sir, if I may just extend this, and I'm just clarifying this. If you were to go back to FY '19 levels when the industry peaked, the margins for us, we would build on these other expenses, right? It's not that these other expenses would be lost, but we would build on this and profitability versus on a like-to-like basis, if we were to reach again FY '19 level, the margins would be substantially higher, maybe possibly double digit. So I'm not trying to put words in your mouth, but they would substantially be higher than what they were even in this quarter, right?

See, I look at it, first, we have to delight the customer so that we grow the revenue faster than industry, number one. Number two, towards that you have to invest behind marketing, invest behind brands, invest behind new products. That is our job. Number three, if you look at all the cost we have to keep looking at, what are the innovative ways of reducing the material cost or any other cost, okay? 2 types of benefits will come. One, scale benefits will come. Second, you have to keep reducing rate on the product, ordinate processes, ordinate material. These are all consistent journey, okay? Then you come up and build huge, big brands like Apache or NTORQ or Jupiter or HLX, build a scale, okay? Then automatically, it will have its own benefit across the supply chain. So like that, we would like to do many of the aspects, whatever we have learned as we focus on customer. Second, we focused on the -- growing the market share. Now we are focusing along with that in the last 2 years on the EBITDA journey, and I'm very confident that if you systematically put the process behind that, I think it will improve quarter after quarter. That's exactly what we have seen even this quarter.

Fantastic, sir, this is very [indiscernible] years. So last, I just wanted to check this MEIS reversal, has it been done for the first 6 months? Like there have been a lot of competitors who have done the reversal for the first 6 months? Have we done the same or it's only for 1 month?

Okay. Again, I always respect competitors, okay? We have done it from 1st of September.

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

I just had 2 clarifications on some of the comments you made earlier. Firstly, on the inventory side, you mentioned that your 28 to 30 days is normal. What is the current inventory level in the market, if you can just give some sense on that? I'm not sure if I missed that part. And secondly, if you were to talk about the recovery across your subsegments within your own portfolio, what you -- how would you rate as mopeds, bikes, scooters, how would you grade the recovery across different subsegments versus pre COVID levels, last year level, whatever is comfortable with you?

See, inventory, 30 days is a ballpark number, it can go between 28 to 32 depending upon market to market because there are Dussehra markets, there are Diwali markets, okay? Broadly, if you keep this kind of an inventory, ultimately, this inventory is made to make sure that there is no retail lost. The customer walks in and say, there is no material available. The vehicle is not available. It's a big loss. So if somebody wants Apache, somebody wants NTORQ, they will come back, okay? So if a commuter motor vehicle or a normal scooter, they might even go to competition and buy. So that is what we have learned through our very good system saying that 28 to 32 days, 33 days is a very good time. And we are maintaining that, okay? Because there is always this flexibility. And also this helps the dealers also very well, okay? Now coming back to what we need to look at is we need to have a portfolio of products so that overall we look at, okay? There may be always some models doing very well, some models not so well. So it's a journey. And even in India, India is -- each state is a different market, I can tell you. There are markets where we do Jupiter better than NTORQ. There are markets where we do NTORQ much better than Jupiter. There are markets where we do Apache 160 4V better than 160 2V. So I think we have to play, depending upon the market. Same with colors. If you look at certain markets want only red color, certain markets want only black colors, okay? I think we have to cater to the customer needs and provide products so that we balance it out.

Okay. Okay. And just one more question. Just going back to the margins. If I really look at the gross margins, they have moved up. Now and I'm just trying to get sense how they should pan out for the remainder of the year when we look forward, there are clearly some items -- headwinds we're facing. Now if I think -- if you could just give some perspective on -- more from a gross margin perspective. I mean, I appreciate the comments that you made on the fixed cost savings and other expenses, but some color on this would also help.

See, I think, first of all, we have to look at last year to this year, we have completely moved proactively to BS VI. Second, I think we have put the best-in-class technology, ET-Fi/RT-Fi, okay? Then there are export products. So it's a combination of products, technology and the geography and the pricing, what we do. Overall, we -- of course, we have internal targets on portfolio-wise. But I always look at the overall portfolio, how is it performing. And I overlay with that cost reduction, okay? That we are moving in the right direction, given the challenges, whatever we have seen in Q1. I think, Q2, substantially, we were able to improve. And going forward, I think with the demand, cautiously optimistic, I think things will be doing -- overall, margin will also do better, okay? So I may not be able to give you segment-wise targets and how we are working on it. Overall strategy, material cost reduction, look at the product mix, look at the geography mix, and we will keep investing behind the brands to make it bigger and bigger.

The next question is from Ronak Sarda from Systematix.

Sir, first question, if you can just highlight what kind of price increase we have taken in Q2 and, if any, in October?

I think Q2, we took -- just give me a minute, about 1.5%. And around 1%, I think, the 1st week of October.

Sure. Okay. And the other part was, I mean, if we look at the competition in the scooters segment has not picked up yet. But how are you seeing the inquiry level and the footfall, especially in the festive season? Are we seeing -- I mean, the way scooters have done, let's say, until FY '19, are we seeing those kind of inquiries or footfalls coming back? Or do you still think there's some time away and we might see the real scooter, the lift in demand coming back only in FY '22?

See, the -- most of the urban markets are now open. And whatever we are seeing is pre-COVID levels of activity that customers, the prospects walking in, we are able to see. If the same discipline, whatever I said, wearing masks, social hygiene and personal hygiene, I think if the people can be much more conscious about the safety, I think there won't be any need for again closing down. Otherwise, population being higher, and the density being higher, the urban markets are always susceptible. Suddenly, we cannot have celebrations like the olden days because the COVID is around. So wherever it is open, we are seeing customers looking at it. It's -- and we are also seeing some of the consumers saying that they want not to use public transport. They want to look at a two-wheeler, that also we are able to see. And definitely more and more urban markets being open, it will definitely help scooters going forward. And as far as TVS is concerned, we had some challenges in scooters ramp-up. Again, because of the COVID, and we are seeing improvements with respect to many of our suppliers helping us.

Okay. Sure, sure. And on exports also, you highlighted, there is some pent-up demand which is obvious, given how the Q1 has panned. So when do we see in India, the normal run rate coming back for the exports? I mean, do you think Q3 will be a pretty strong quarter and then from Q4 onwards, will it go back to the usual run rate? Or is there -- I mean, is there some kind of supply chain disruption in exports as well where we have been able to capitalize on some of the competitors, not only in Indian competitors, but some global competitors as well. How should we look at the overall exports ramp-up?

Exports, I think it is picking up well, and we are seeing robust growth in exports, and we have a very strong product pipeline, so that is going to help. I think oil prices are stable. Currency availability is also much better. Currencies are also stable. So overall, I think most of the countries are opening up. There also, I would put the cautious optimism because COVID is still around. It's not that -- we have to be respecting COVID. Again, the basic discipline of wearing masks, personal hygiene, social distancing, everything need to be strictly adhered to. I think that is going to be around for some time. So I think it is a very, very good recovery, I would say, both for the international market and for us period.

The next question is from the line of Venugopal Garre from Bernstein.

I don't know whether this has been answered before, but I just want to check, is there a way to quantify within motorcycles, how different is premium versus entry-level in terms of growth rates this festive season? The reason I'm asking this is we're getting a fairly mixed commentary. One of your competitors mentioned premium is up 30% for them, but entry-level is down 30%. So how are things for you?

I always respect my competitors because they are very strong. They are very good. They have very good products. As far as I'm concerned, I look at the direction. In terms of the direction, I think premium, it makes also consumer sense because those people who can afford, they're coming first forward. That doesn't mean that the bottom of the pyramid doesn't have ability to buy. They will also come because now only markets are opening up slowly, employment levels are coming. They are also earning some money. I think it's a question of time. We have to give little time for all the people. And what is most important is the COVID situation, the number should keep coming down. The death rate should come down. The recovery rate should go up. Further, the discipline is very important. So it's all related, interrelated, okay? So premium -- India is a young country, aspirational country. So people want only to buy -- I've always seen anybody who walks into our showroom, he may be a customer who is looking at entry-level sports or a moped, but firstly he will go to Apache and he will come back. That is the aspiration. But unfortunately, he doesn't have money so he settles down. And same way, I have seen always people look at NTORQ. And they may buy, let's say, a Scooty or an entry-level Jupiter. So this is something we should always respect. Initially, you will see pull in premium and that we are able to see and more and more urban, again, you will see premium products will have pull, okay? But it will slowly and steadily cascade. And if there is some more impetus from the government -- that's why I keep on highlighting the GST. There is some support, which is going to come, that will also accelerate, okay. It's a combination of very strong discipline from all our members in terms of managing COVID levels, controlling that. And on the other side, all the enablers to improve and retail finance, okay? And fortunately, we have a very, very strong product pipeline, and we have 2 excellent technologies, ET-Fi and RT-Fi. Excellent fuel efficiency, very good attractive quality. So -- and investment behind brand. It's a combination of all these things, that is what is generating the cautious optimism.

But just as a follow-up, you mentioned the government helps, of course, if GST gets cut 10%, there’s an advantage. But at the same time, given the things in the economy, especially when somebody has not showed up as employment or job, especially in certain segments as you mentioned, given that you would be getting some commentary on the ground from retail walk-ins, you think that price sensitivity or reduction in price is a more important variable, which could actually help drive demand in this sort of an environment as compared to a usual environment where I probably could bring in more demand? So employment versus price cut? Is it material? Does it really help much?

See, the two-wheelers, according to me, two-wheelers is a very, very important aspect of Indian auto industry, especially for mobility because thanks to the investment behind infrastructure. Today, the mobility needs are there, okay? And mobility is not only commuting alone. It is also self-employed. There is a significant proportion of customers who are self-employed. So if they're able to buy a two-wheeler, they are able to do much faster things and they earn a small income out of that. So this is also supporting employment in a different way. So I'm saying, we have to be looking at the bottom of the pyramid and see what all things we can do to enable them to earn money, okay? This is very, very important. And in that, I'm saying the GST revision, it's a -- 10% is a significant proportion with retail finance. Somebody can own a bike. It is going to help them for revival. So it's all interrelated. It is all interrelated. All the points where you put it. One is -- so for example, COVID. COVID Levels are coming down. More dealerships are open, more dealerships are open. Definitely, we are able to see more walk-ins. People are able to buy. People are -- existing customers are able to come for service, they're able to travel more. They are able to do activity more. It's all correlated.

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

I have a couple of questions here. First question. Like one of your competitors has said that they have gained market share in a few of the geographies they operate. So did we also gain some market share in export geographies?

Overall, if you look at our number, I can tell you so far, the exports industry has grown by almost minus 40%. We are at minus 29%, okay? I'm talking about April to September. So we always look at can we do better than the industry growth? And we are -- keep trying, it's not going to be easy because you have to look at the retail, customer retail, you have to look at stock levels, you have to look at the lead time for reaching the pipeline. So I think it's a combination of everything. So our simple task is as much as possible, keep growing faster than the industry because the industry has got many other factors, okay? Q1, we saw many challenges. Q2 challenges are a little different. So we have to look at strong brands and keep investing behind the brands, customer and work along with the distributor dealers to generate more and more walk-ins. That has been our focus.

Sir, actually, I was referring in export market in many of the countries which we are…

I'm only taking about -- I gave you answer only related to exports. The industry declined by 40% in the first half, April to September. We have declined by 29%.

Okay, sir. And you have -- for someone's question previously, you have referred that the MEIS impact is already visible. So can you quantify what was the impact of MEIS in 2Q? And did we pass on this in the export market?

So on MEIS, I told you these are certain things which will be -- always be there in the market, we have seen in the past also. So whatever the decision of the government, we have also adhered to that in the 1st week of September. So there is -- we have considered that for the September month. And going forward, we are very confident that new scheme, which is likely to come from 1st of January, there is already representation. So we are hopeful that it will come. Meanwhile, whatever is the net impact, we are also looking at price increases, cost reduction, a combination, product mix. It's a combination, we look at.

Okay. Can you quantify what was the impact in last quarter?

Last quarter, September, it is very, very small, very small. Can we have the last question, please?

Sure. We'll be able to take one last question. We'll take the last question from the line of Basudeb Banerjee from AMBIT.

Just a couple of things to understand. First of all, congrats, great set of results. If I remember last year, credit services delivered earnings of almost INR 155 crores. And so what has been the health of its business in the first half, if you can say, because I can see around INR 55-odd crores investment in credit services. And in the call, also, you said further INR 50-odd crores in the second half. So while it is already profitable significantly, so why further investments are going out?

Not very clear, the question. Can you please tell me again?

TVS CS first half quarter performance and how is it going? I can share it. I think the TVS CS book size as on 30th September is INR 9,920 crores. Net worth of the company is INR 1,399 crores. The PBT for Q2 is about INR 14.3 crores. We have provided about INR 25 crores in this, correct, Desikan?

Yes, we have provided INR 25 crores of provision on this.

Okay. And it is doing extremely well. Liquidity is not an issue for the company. And going forward, I think they will do very well.

Surely. So just coming back to the question. Coming to this question because this quarter, if I see your consolidated earnings is lower than stand-alone earnings by INR 10-odd crores. So typically, credit services have been giving a good cushion to the losses of Indonesia. So something must have happened this time so I think this INR 25 crore provision gets done. And as a part of the initial question only, sir, why this continued investment in the credit services, like INR 100 crore investment in this fiscal '21 while still it is self-sufficient as such. So anything on that angle?

It is very profitable. This business is definitely profitable, and it has been giving a steady profit. This quarter, there is a provision of INR 25 crores, Desikan, you are able to hear?

Yes. Yes, yes. INR 25 crores provision in line with the restructuring-related provisions. After that, I mean, just to give a few more things, the collections are comparable or better than the pre-COVID level, that's number one. Number two is the capital infusion that is happening is to maintain the capital adequacy ratio, which is -- though they are say 15% [indiscernible] of that, we maintain a 17% capital adequacy ratio. Therefore, this investment from TVS Motor is required. And the business, what we have done in Q2 is around INR 2,300 crores when compared to INR 1,800 crores in the comparable previous quarter. The -- again, as already informed, the penetration for the two-wheeler -- for TVS motor is [ 46% ] retail finance, and [ 50% ] is catered by previous [ credit house ].

Sure, sir. So one thing I just wanted to understand, as I'm not an NBFC expert, when this capital adequacy ratio-led funding requirement will come to a halt, if one can understand, sir?

Yes. We'll come back to you on that. The company is doing extremely well, and they are an important enabler for TVS Motor. And it is very well run, profitable. [indiscernible] not an issue.

It is also growing. And book size is also growing. Yes, it is growing steadily.

And the last thing, sir, any comment on health of Indonesia business in this quarter?

Indonesia, PBT breakeven, we have made a small PBT this quarter. But going forward, the demand is very good. Q1 was not representative this one. This quarter, for example, Q2, we have done almost 14,698 two-wheelers compared to 13,934, a growth of almost 6%. And three-wheelers, also, we have sold about 1,253. Overall, we have made a small PBT of 0.04 million. Going forward, we will make better volume as well as PBT.

So that's very encouraging, sir, as compared to INR 42 crore loss in FY '20. So already you are at PBT profit, leaving Q1. So one can assume leaving Q1 that particular loss might also go away turning into profitability.

Absolutely, absolutely. Thank you very much, and thanks for joining. Sincere apologies for the delay. So like I said, we are cautiously optimistic, thanks to the kind of portfolio what we have, both in domestic as well as in international. I think overall, Q2 has been very good. We are seeing good initiatives of cost reduction, definitely giving us the benefits. Excellent working capital management also helped us in substantial reduction in inventories and receivables. And that has helped with the net cash flow in H1. And going forward, this optimism, cautious optimism is -- and the good product range what we have will help us grow ahead of the industry. Cost reduction initiatives, whatever we have put in place will help us to also steadily grow our EBITDA. Thanks to everyone. Happy Diwali. Stay Safe. And hope for complete recovery of COVID soon because of our discipline. God bless and thank you.

Thank you very much. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.