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

Ladies and gentlemen, good day, and welcome to the TVS Motors Limited Q1 FY '22 Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities. Thank you, and over to you, sir.

Thanks, Malika. Welcome to TVS Motors 1Q FY '22 post-result conference call. From the management we have with us today Mr. K. N. Radhakrishnan, Director and Chief Execute Officer; and Mr. K. Gopala Desikan, Chief Financial Officer. I'll now hand over the call to Mr. K. Radhakrishnan for the opening remarks, to be followed by question-and-answer session. Over to you, sir.

Good evening. Good evening. Thanks for joining us today. Trust, all of you and your family members are safe. The impact of second wave of COVID is gradually coming down. Our prayers are with all those who suffered during second wave. I urge each of you to continue to be careful, get vaccinated and maintain COVID appropriate behavior of masking, sanitization and social distancing. During this quarter, company supplemented the efforts of government by providing life-saving supplies, oxygen-concentrated PPE kits, medicines and medical equipment across the country. In addition, the company is focused on vaccinating all employees and their immediate family members. We are happy to inform you that over 98% of our employees have been vaccinated with at least one dose so far. We also support our extended enterprise, including suppliers, dealers and society. Company incurred INR 30 crores towards COVID relief measures. During second half of the last financial year 2021, two-wheeler industry recovered from the first wave of COVID-19. While industry grew by 20%, we grew by 35%. We expected the momentum to continue during the current year. Unfortunately, the second wave of COVID resulted in extensive shutdowns across the country. The shutdown commenced with the second fortnight of April '21, continued until mid-June '21. Consequently, the domestic sales declined sequentially. However, the proactive safety measures implement in the company and by supply chain partners helped the company to manufacture and meet the growing international business requirement. Fewer numbers of current year are not comparable either with the corresponding quarter of last year or with the preceding quarter. Now let me get into the details of the first quarter financial performance. Our company registered a revenue of INR 3,934 crores as against INR 1,432 crores during last year, first quarter. Domestic market, we sold 3.29 lakhs against 1.86 lakhs during last year. Company discussed that stats are lower than the retails to support the dealers during these tough times. Company recorded two-wheeler sales in international markets for the quarter 2.9 lakhs as against 0.69 lakhs during the last year's similar quarter. Total two-wheeler sales is at 6.19 lakhs against 2.55 lakh units during the last year first quarter. The mix of premium product, Apache, NTORQ Jupiter Classic, Grande and overall two-wheeler portfolio has also increased to 37%. The total sale of three-wheelers are at 0.39 lakhs that's against 0.12 lakh units during last year. In terms of the profit, company registered EBITDA of INR 274 crores as against EBITDA loss of INR 49 crores during Q1 of last year. Company registered operating EBITDA margin of 7% as against negative 3.4% in the first quarter last year. During this quarter, the company faced significant headwinds due to commodity prices, with a focus on product mix, premiumization, sustained cost reduction initiatives and price increases. We could manage the material cost as a percentage of sales at 75.7% as compared to 75.3% Q4 of last year. Reduction in the sequential quarter EBITDA from 10.1% to 7% is mainly on account of reduction in the revenue, almost INR 1,400 crores, if you compare with Q4. But for this, company would have continued with the EBITDA growth. During financial year 2021 from Q2 onwards, EBITDA has grown steadily, delivering 10.1% in Q4. With the markets opening up from Q2 '21, '22, both in domestic and international. Company is confident of the sustained EBITDA growth. PBT before exceptional items for the quarter is INR 102 crores as against loss of INR 190 crores during last year first quarter. During the quarter, company incurred INR 30 crores towards COVID-related expenses, same is shown as exceptional items. Profit after tax for the quarter is INR 53 crores as against loss of INR 139 crores during first year -- last year, first quarter. PT TVS have sold 20,000 units of two-wheelers as against 6,000 corresponding quarter Q1 last year. PT TVS has registered three-wheeler sales of 4,000 units as against 500 units last year, first quarter. PT TVS posted a PBT of [indiscernible] as against the operating loss of USD 1.8 million last year for first quarter. With respect to EV, electrification is going to play a big role in future and changeover into electrification is certainly being promoted by the progressive policies from the government starting from FAME-II and followed by recent enhancements and states adding further benefits. Despite the sale and the tax promotion from the government and OEMs also contributing, price of EVs are still higher compared to ICE with equal in performance and quality. Clear road map and long-term consistency of these policies can aid sustain transition for EVs. Localization of supply chain, especially on sell electrical parts, electronic parts makes acceleration from policy and industry participation. TVS has always been at the forefront of delivering more efficient and green vehicles to our customers. This is possible by undertaking in house technology, research and development. We are committed to lead the technology development in EV and green fuel. Towards electrification, our product portfolio is in plan for catering in 2 segments in two-wheelers and three-wheelers. Towards this, our first offering was TVS iQube electric. iQube electric has been receiving very positive response from the customers. It's now available in [ 650s ] with a very healthy pipeline of booking. Global uncertainties on electronics and battery supplies have affected some of our plants. We plan to reach across the country by end of the financial year, also targeting international markets. Company has shown commitment to EV by completely designing, developing and manufacturing iQube indigenously. Company will invest INR 1,000 crores in building product portfolio, next level of capacity, market development, including ecosystem. We have established a separate vertical for EV business with more than 500 engineers working on various concepts to meet the market needs. During the quarter, company launched NTORQ 125 Race XP with a new era of connectivity, power and style. It has a park breaking technology deployed on SmartXonnect connectivity platform. It's renewed right terrain with ride modes. This is the only scooter now with more than 10 PS power. We also introduced the TVS King Kargo three-wheeler across select markets, North and Western part of India. Vehicle goals of green mobility by providing options for CNG, LPG. It is especially focused to the needs of e-commerce, logistics and captive businesses. King Kargo is equipped with ICE technology, which facilitates low consumption of fuel and comfortable ride experience. With respect to Q2, post-COVID second wave, we are seeing revival of the domestic demand. Based on the dealership opening, we are expecting this to improve further due to in terms of vaccination drive and COVID appropriate behavior. Social distancing requirement will continue. This will result in growing consumer preferences towards personal mobility, new demand in the two-wheeler industry. The company is cognizant of this change in the consumer behavior and well poised to leverage this opportunity with a superior product range and offering. Monsoon is satisfactory. We expect normal Monsoon, and this will definitely help agricultural sector to grow. Rural economy should benefit from the global agricultural price trends, which promise encouraging returns for the farmers. Export of two-wheelers is likely to grow in the coming quarters fueled by consumption growth and stable economic and political situations in all TVS operating geographies. Stable oil prices will have positive impact on the oil dependent economies of Africa, South and Central America. This can boost exports of two-wheelers in these countries. We expect the withdrawal of local shutdown in Bangladesh and Nepal by August. We are witnessing the trend of premiumization in all markets, and therefore, we are confident that our premium products, such as Apache, NTORQ, Jupiter ZX, Grande Series will continue to do well in domestic and international market. We'll continue to invest in new product development, and we are planning a series of product launches during the second half of this year. During the month of July, company has already taken up prices, both in domestic and international, and we will also take up further prices, if warranted. Commodity cost pressure continues in Q2. Company will mitigate these cost increases with the focus on product mix, sustained cost reduction initiative. With the opening of domestic and international markets, we are confident of delivering EBITDA growth trajectory. We have a very strong portfolio, brands like Apache, Jupiter, NTORQ, Star Range, HLX, Radeon, TVS King. And consequently, we are -- we expect TVSM to grow ahead of the industry, both in domestic and international markets. Robust revenue growth, premiumization, better mix and continued cost-reduction initiatives will lead to sustained EBITDA improvement. Despite lower sales Q1 due to COVID-related shutdown, company was able to achieve EBITDA of 7%. If stability in sales coming back post-COVID second first, company is confident of continuing the EBITDA growth trajectory. Thank you.

[Operator Instructions] The first question is from the line of Nitin Arora from Axis Mutual Fund.

My first question is that we continue to see INR 50 crore to INR 75 crore kind of investment in TVS Credit, TVS Singapore. Can you elaborate where this money is actually going and for what use? And don't you think that instead of putting money there, where I think we don't generate too much profit. It is better to invest such money, making our capacity higher in the electric part as we have got a very good feedback of our existing electric products? And just extension to this part, can you throw some light on what's your capacity today if sudden search comes in the, let's say, scooters, your competitors has a 10 lakh capacity. Can you throw some light how much capacity you have today enlisted? That's the first question I have. I have 2 more questions after that.

See, the investments in credit service is primarily for retail finance, and they are doing extremely well, okay? The book size -- Desikan, you want to add on?

No, no. The investment in TVS is huge. I mean, the NBFC plays a very important role in the two-wheeler-related sales, close to 50% of the buyers are dependent on retail funding. And TVS Credit Services plays a very important role. The performance of TVS Credit Service, the book size as of June is INR 10,663 crore. And the quarter results, though reported a loss of INR 25 crores, mainly because of the collection-related stress and in accordance with the RBI norms we have provided. But the performance on July has been very encouraging. The collections are back and the morat customers have also come back and started paying. Second is, as far as the debt equity also for our TVS Credit Services, they are at 6x as against 6.5 in March '21. The morat customers continue to be around 4% to 4.5%. It has not gone up. The collections for the quarter ended is INR 2,300 crores as against the previous INR 1,222 crores. And the business disbursement for this quarter is around INR 1,723 crores as against last year's INR 1,222 crores. To sum up, this TVS Credit Services performance is very good. There is a general related -- industry-related issues with regard to the stress. Otherwise, the performance of the company has been quite encouraging. This is about TVS Credit Services. As far as TVS Singapore is concerned, the money has -- we have invested in the various start-up business relating and relevant to the nature of the business. One is most connected factory-related investments, IoT-based companies where we have invested. They have -- the digitalization of assembly line and the transformation to a paperless-related work has been possible through these type of investments. We have also invested close to around INR 160 crores in these digital investments in various start-ups, which are very relevant to TVS Motor Company and TVS Credit Services. One is a project ...

It is also going to definitely support our future mobility solutions. So all these investments are going into the right kind of investments. And coming to your last question, currently, we have got capacity up to 10,000 vehicles. I think both the launches and capacity for this year in terms of the iQube and other associated vehicles are being worked out. And we are pretty confident that next year, we will be enhancing the capacity that work has started. So I think it is in a combination of launches, capacity creation, all are happening concurrently. And we are very positive about the iQube and the other products what we are planning to launch in this space.

Sir, my second question is that you talked about the margin impact was largely because of the operational leverage ...

[indiscernible] Only because of the operational leverage.

Right. So is it right to assume, given what will be your mix in Q2? And there would be some impact. You can throw some light. You said there are some shutdowns because of COVID in Bangladesh and all, you're already doing a lack -- consistent lack volume in export. Putting all this into account, do you think you'll be able to deliver 10 -- or a double-digit margin in Q2, not the EBITDA growth, the margins in double digits?

If you look at Q4, we delivered 10.1%. And with the opening up of the markets in domestic and international, and the kind of focus on product mix and sustained cost reduction, we are very confident the EBITDA journey is sustainable, and it will continue.

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

In light of the EV investments of INR 1,000 crores that you talked about, can you just update us on the CapEx plan and investment plans also in terms of -- also, you can share some breakdown of the same? That's first. And second, on the EV, if you could also share some perspective as to -- there are many start-ups also who have come up and who have launched products. So just when we look at the overall market 2 years out, what kind of advantages does traditional two-wheeler company have? Or do you think some of the start-ups would also end up having significant share of this pie, which they don't have today? So some perspective on that will be helpful.

See we always believe in focusing on the customer. And even in EV, the iQube feedbacks are very positive. We are now currently present in 6 markets and 6 cities in India, and we are going to scale up. By end of the year, we will be present in every year. We are also concurrently building the capacities for that. What is most important is the existing customers are extremely positive about the benefits what they are getting out of iQube. And we are committed to lead the technology development in the EV and the green fuel. And that is exactly what I said. When we are planning to look at not only this product, there is a series of product portfolio we are building in terms of two-wheelers and three-wheelers, both the domestic and international market. In terms of the CapEx, this year, a loan will be INR 800 crores, okay, which is -- which includes the EV. And next year, again, early part of next year, depending upon the capacity is what we are planning for EV plus the product portfolio, I'll let you know closer to next year financial year.

And K. Radha, just to add, whatever CapEx you have said, this will be funded through internal accruals.

And for investment?

Hello?

Yes. Can you also share investment guidance, please?

I couldn't hear you. Investments?

Yes, investment guidance, like what is the investment target for FY '22 in TVS Credit and in other subsidiaries?

TVS Credit, we have invested INR 50 crores so far. And depending upon the business needs more to maintain the capital adequacy, we may be infusing further INR 100 crores, INR 125 crores going forward. That depends on the business requirements. The other related investments like capacity expansions, we will continue to do.

No, I was talking of TVS Singapore.

So TVS Singapore, the start-up investments have already been done. For Norton-related capacity creations and expansions, we may be infusing further money. But that depends on -- closer to that, we will let you know. As of now, only the TVS Credit Services related investments is approved.

Okay. And can you also talk about demand environment now in the domestic market in July? At what level are we compared to where we were in Feb or March in terms of retail?

I think definitely ...

Exports, can we maintain the current momentum that we are seeing the order book remaining strong?

Yes. Exports will continue to remain the momentum, and we will even speed up because many markets are -- we have a very good range, and we are pretty confident of the international market. And by August, I'm very sure, Bangladesh and Nepal also will reopen. Hello, can you hear me?

Yes, I can.

Yes. And in terms of domestic market, definitely, this month is much, much better. I'm very, very confident that with the vaccination drive and the COVID appropriate behavior, August, September, October months are likely to be much better this year. So we are all looking for -- and as you know, the Monsoon is good, reservoirs are full, the rural is likely to do very well this year. So we are confident getting into the season from now on.

So what I was trying to understand, sir, is, where are we currently in terms of retail compared to where we were before the second wave?

Currently, I think we are coming closer to Q4 average retail levels. And I think the demand is picking up, definitely picking up with the opening up of the market.

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

Sir, my first question is on the other expenses line item in this quarter. I mean, sequentially, you see the volumes have dropped close to 30%. The other expenses have dropped only about 17% sequentially. Was there any flareup in any specific line items that you would like to call out for, say, which would obviously normalize as the volumes pick up in the second quarter?

Other expenses are not comparable, either with Q1 of last year or Q4 due to the COVID-related lockdown, number one. And I think if you look at it, these are all -- I think there is no one-off items in this. I think that is the second question, right?

Yes, yes. Okay, okay. Understood. Right, sir. And the second question is on -- from a margin perspective over the medium-term case, you take a 5-year review, per se, where does Norton fit in TVS motor's overall strategy there in? And what capabilities does Norton add to the TVS Motor? And If you can comment on that, sir, more from a strategy perspective? And are there any capabilities or learning from Norton for TVS Motors in -- from a product portfolio? And how do we think of this over the next 5 years?

I think the strategy we are working as of now, we have set up the facility in the new plays, and the overall product plan is getting developed. I think the product itself, if you look at it, it's in the super premium category. And definitely, this is going to help us in looking at developed markets as well. So overall, it is going to add to the overall product portfolio of TVS.

Okay. Okay. But more from a global perspective?

Absolutely. Including India, appropriate time in India as well.

Okay. Okay. Understood, sir. Sir, one housekeeping question. If you can share the sales revenue, export revenue? And any commentary on this exceptional COVID-related expenses which you can provide?

I think the exceptional COVID-related have started, it is more for providing the life-saving supplies of oxygen concentrators and PPE kits and medicines and medical equipment across the country because we felt that there is -- there was a big challenge in getting at appropriate time. So we supported most of the areas in Tamil Nadu, Karnataka, Himachal, many places, primarily to support the community at large. And also now we are supporting in vaccinations, suppliers, employees, dealers in and around all our plans. And on spare parts and oil for the quarter, it is INR 369 crores. What was the other question you asked?

Export revenues.

Export revenue was INR 1,830 crores. This is the highest in a quarter.

Understood. Sir, and this exceptional COVID expense has nothing got to do with anything in the other expense plan. Is that understanding correct?

Yes, yes, yes.

Sir, your question is answered?

Yes, yes.

[Operator Instructions] The next question is from the line of Sonal Gupta from Larsen & Toubro Mutual Fund.

Sir, just continuing with that question, would you be able to break out what was the other operating income also for the quarter?

Other operating income, you are asking the INR 60 crores, that INR 59.8 crores. These are all, all the benefits that we get and the ...

Okay. And yes, so that is you're saying INR 59.8 crores this quarter, is it?

Yes.

And would you have the last quarter number as well?

Last quarter, I mean, you were asking about Q4?

Q4, yes.

Almost INR 45 crores.

Okay. Okay, sir. And just on the EV side, I mean, like would you be able to give some more color in terms of the strategy, given that we're clearly looking at now with the support of the government for a much quicker acceleration in an option in terms of -- do you want to set up dedicated facilities or your existing facilities are fungible? And what sort of CapEx requirement would be there?

See, we have a separate EV team and a vertical, and we believe in completely designing, developing and manufacturing indigenously. So as of now, the investment is planned this year and next year for creating, building a product portfolio, next level of capacities, market development, including the ecosystem. And we have over 500 engineers, and that is a very strong team. Now we are enhancing that team, depending upon various markets, and this will be for both Indian market as well as for international markets in both the two-wheelers and the three-wheelers.

Right. Right. And just lastly, would you be able to indicate what was the price increase you took in April and in July?

Just give me a minute. July, I think we have been some up, about 2.4%, July. And last quarter, about 1.1%.

The next question is from the line of Nishit Jalan from Axis Capital.

First of all, a couple of clarifications. You talked about a capacity of 10,000 units in EVs. I would assume this is an annual capacity or you offer monthly capacity?

Monthly, monthly. Monthly capacity.

And you also crossed about INR 1,000 crores investment in the context of EVs. I mean I think you did not elaborate as to what timeframe and what are you exactly looking over there?

No, I think it's a combination of product portfolio and also the next level of capacities. Whatever I said, this 10,000 is for exist this year, that is in Q4 of this year. And the later capacity expansion, demand plans and the product portfolio plan on next year is in -- we are working out the detailing. So closer to the quarter, I'll be able to share with more details on that.

So that INR 1,000 crore investment was pertaining to EV over a certain times then, right? Is my understanding correct? Or it was for the overall entity?

So if you look at it, we have already committed this year about whatever we have invested so far plus what we'll be investing, which will be about -- almost INR 300 crores in the EV category. And next year, Q4 and the product portfolio will be additional. So this is the first phase. And depending upon how it pans out in terms of the product portfolio, the launches in two-wheelers, three-wheelers and the capacities and the ecosystem, we will keep updating.

Okay, sir. Okay. So my last question is on demand scenario, particularly in moped. I think in moped, we had started to see some sort of a volume slowdown even in the Jan to March quarter. We were doing a monthly number of around 50,000, 52,000 units. While prior to that, we were well over 65,000 units. So just wanted to understand how are we looking at mopeds? Do you think that COVID impacting SMEs have had a bigger impact on mopeds demand? Or do you think it will come back very, very quickly back to those 60,000-plus kind of run rate on a monthly basis of [indiscernible]?

See COVID -- if you look at the COVID, the second wave, it affected more -- all the Southern markets and then Maharashtra markets much more, okay? And these are definitely -- if you look at it, these are all moped markets as well. Scooter market as well as moped markets. Now they are all opening up. So we are pretty confident that as a category, moped will also come back because it has got a unique value in terms of the value for money in terms of the customer segment. So that is -- the moped is positioned there. While it may not significantly increase the category share, but we normally have around 4% of the market will be more moped. And we -- this is one category, which has got that value. Customers look at that value, definitely. So going forward, also, it will be operating around the 3.8% to 4%, that kind of a category share.

Sure, sir. Sir the last number, I think in TVS Singapore, as per your latest annual report, cumulatively, you have invested around INR 800-odd crores. Possible to share a breakdown into Norton with digital investments and any other businesses that you are supporting?

Yes, sorry. There is some connectivity issue. In Norton, we have invested in around INR 350 crores. And in the digital-related space, around INR 250 crores, INR 220 crore. This is what we have invested in these 2 spaces. And also from Singapore, we had earlier invested in PT TVS Indonesia also.

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

Sir, I just wanted to check, is there any semiconductor issue from a production perspective for any of our product categories as of now?

Yes, we have. We have, especially for Apache, from one of our suppliers, there is a challenge in terms of the supplies. So we are managing, but the present situation, the demand in the market is much higher, but we are not able to supply because of the shortage. The supplier is also making a lot of effort to look at arrangements to support us, but challenges are there.

So is this true for the industry also, sir?

I think industry also has got a lot of challenges in the semiconductor space. And also in the EV space, one of the biggest challenge we are facing is we have much higher bookings. And we are not able to produce primarily because of EV parts.

Okay. And sir, I just wanted to check -- look -- if you look at prices today after the state subsidies and the government subsidies, especially after the new revised FAME II subsidies, the bridge between equal and variant of, say, TVS iQube versus its comparable in terms of pricing is almost extremely attractive. How should we think about -- or how are you thinking about this situation? Can you capitalize on this, or because of semiconductor issues, this cannot be capitalized? And lastly, if you can also talk about what feedback have you got because it's been quite some time since launch of iQube in terms of what kind of customer apprehensions are there or what refinement is needed in iQube? Because one of the things which I could understand is that iQube doesn't have fast charger, which is an issue. There's a hub mounted motor, which has a lever issue in some of the reviews by customers. So just some thoughts over there would be really helpful.

See, iQube has got a lot of positives. So those customers are buying, they're extremely happy. Definitely, the area for fast charging and the next range of product portfolio, these are all part of the plan. So iQube has got a position, and iQube is doing very well, and that is the reason we have now gone to 6 places. And now across the country, it will be available. As of now, we are not able to fulfill any of the booking. And so we are in the ramping up stage, okay? In terms of fast charging and the other improvements in the new product requirements and the product portfolio, we are pretty confident because we have always come up with innovative technology and customer delighting feature. So we are very confident that the products what is likely to come, the variants what are likely to come will go to the next level.

Got it. And lastly, on the pricing difference today, are you getting more inquiries on EVs versus ICE engines because the bridge is extremely low today, right? The pricing gap between an ICE equivalent variant comparable to EV in terms of features, that gap is extremely low in certain stages.

See, ICE, we have a very good product range. And there, we have been investing and we have been, for example, the latest, you would have seen the NTORQ offering or Jupiter offering or Apache offering. I think according to us, you need to invest in technologies for futuristic, which is EV. On the current one, you have to continue to delight the customer, and we have to seize the opportunities in both areas. And TVS has been very, very proactive in this investments in products and technology and features.

And last question, if I may ask, how do you think about distribution strategy for your EV products? Would you go direct-to-consumer or it would be still through distributors and dealer? I mean dealers.

I think these are things which are getting involved. Definitely, it is getting evolved. But today, customers can also directly reach. So these -- the way the network is going to evolve, the way we are working out. I think it will all get evolved over a period of next couple of years according to us.

Got it, sir, got it. Great. I was just asking you, I was looking for how do you think about this involvement in the same? Would you also go direct? Or you would still go ...

I think we should align with -- again, I will say that we should align with the customer requirements.

Sir, your question is answered? Mr. Poddar? There's no response from the line of the current participant. We'll move on to the next question, which is from the line of [ Gunjan Goswami ] from Bank of America.

I had 2 questions. Firstly, on the P&L, when I look at the consolidated, there is a loss, right? And if I recollect, you mentioned that the TVS Credit business had about INR 25 crores loss. But still, there is -- there are losses from other subs also. So can you help us reconcile this where are the losses really coming from which all subs?

I think TVS CS -- this is because of the COVID situation because the markets were close to this year, and that was one of the reasons. Otherwise, if you look at it, both the TVS sum and PT TVS have made profits. Norton is an investment where we are now trying to invest and build that brand to the -- this is one of the super premium brands. Otherwise, I think, overall, if you look at profit after tax, we are much better than the losses compared to last year, first quarter.

Yes. So is -- so TVS Credit is about INR 25 crores, which you quantified, which essentially means Norton and some of the other digital investments that you've made are contributing to the remainder of the losses because you mentioned Indonesia is ...

Those are investments for future. Any investments take some time for reaping the benefits. I think if you all recollect PT TVS used to be like that. And now PT TVS has started resulting very good profits, good sales. So you have to give some time for any investments to start making good profits.

No. Fair enough. I was just trying to understand where the remainder of the loss is coming from. Okay. The second question I had, if I recollect that you've spoken about your CapEx and investments in the last quarter, CapEx of about INR 600 crores and investments of about INR 250 crores, INR 300 crores. And from what I understand in your comments now, there has clearly been some increase in lease investments. Is it -- particularly on the investment side. So is it that TVS Credit, given we've had this second wave and things -- I mean, if collections aren't -- haven't been that great. So is there any call out you want to make on the investments? Can it be substantially higher than INR 250 crores or INR 300 crores number that you called out in Q4?

I said only on the capacity side, especially for new products related to EV, we are investing more than what we planned at the beginning of the year, which we have started more product portfolio and also capacities planned this year. That will be additional INR 200 crores. The investment side, there is no -- not much change. Desikan?

Yes, absolutely right. On the TVS CS and also the capacity-related investments for Norton going forward will be there, which we'll come back as soon as it's decided. But otherwise, as of now, no.

Okay. And last question is on this. If you can just give a sense on how the margin -- what was the impact of commodity hit in this quarter? Price you mentioned was 1.1%, right, for the quarter, for the June quarter?

See, we have taken the prices wherever the material costs are there. There is -- July also, we have taken the prices to the extent of almost 2.4%. Maybe there is an uncovered portion of about 0.5%. We will wait for an opportunity.

This uncovered is incrementally for quarter 2, you are indicating, right?

Yes, yes, yes.

Any the next question is from the line of Ronak Sarda from Systematix.

The first question is on the domestic scooter demand. I mean, it's almost 5, 6 quarters, the demand has been subdued or has been impacted earlier with BS VI transition and now with the COVID-related shut -- lockdowns. But at the same time, the electric scooters have seen a very sharp demand from, let's say, Ola Electric, which has received a strong booking. Do you see there is a chance that the suppressed demand might move towards electric before the ICE vehicles pick up or the lockdowns are removed?

See, the scooter category, the volumes came down primarily because of the COVID, both wave 1 and wave 2 affected maximum urban areas, okay? And already, we are seeing this month, the demand for scooters coming back, okay? South and Maharashtra, where the high proportion, high category shares, scooter markets. And both the markets were completely closed and seriously affected in COVID wave 2. Now as the reopening happening, we are able to see the demand for scooters coming back. And the scooterization, which was around 30%, plus 32%, 33% will come back very soon, okay? Electric, according to me, the volumes are very, very small today. And going forward, electric, definitely the profile of the customer, customer segments, I think we have to closely look at it. And according to us, the total market of the category itself will expand with electrification and the product variance what you have in ICE. Our estimate is this 31%, 32% will grow upwards to much, much higher level in the total two-wheeler industry.

Okay. Sure. And the other question I had on the electric vehicles, right? The battery warranty has been one of the major issues. I mean, with the same to asking OEMs to guarantee at least 3 years valve warranty. But do you think the replacement cost or the battery repair cost could be a significant hurdle? And also in similar lines, with the new product development, what is the thought process on providing a battery warranty? Is there some thought around that?

I think batteries today are reliable, durable for a longer time. I think these technologies will get matured going forward. And I'm -- it is according to me, it is a too early comment on these areas because these all will get evolved over a period of -- as the EV market matures in India.

Sure. Okay. And the final cost -- final question was on the raw material cost. I mean, if you can help us understand what kind of cost increase did we see in the current quarter in Q1? And is this more inflation expected in Q2 as well? And what's the quantum?

Q2, we have seen -- see, we are able to manage by price increase of 2.4% and the premiumization and material cost reduction and overall growth. Maybe there is a 0.5% uncovered area in terms of the total, which we will wait for an opportunity because Q2 just now started.

Right. Okay. So the 2.4% was more to cover the Q1 cost increase? Or are you saying it has -- it covers part of Q2 as well?

I think we have to look at rolling quarters only, we should not look at that way because there are some cost increases, which are related to last quarter. This quarter is fresh. So we have to look at on a cumulative basis, how it is panning out.

The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

Sir, my questions have been answered. Just one question from perspective of USD-INR realization for 1Q and fourth quarter last year.

Give me a minute.

I think it's [ 73 ] [ 90 ] now this quarter, around [ 74 ] in last quarter is around [ 74.2 ].

So it was slight adverse realization in this quarter?

Right.

Okay. Got it. Got it. Right. And when we say, in 1Q, we have been able to offset or dilute cost impact of commodities. Are we indicating that the overall gross margin level, there was hardly impact?

Yes, absolutely. Primarily, I think the cost reduction initiatives and the premiumization is definitely helping the company. That was one of the factors of helping the EBITDA to move up. And that is why I'm also confident that Q2 onwards, you will see the same EBITDA coming back when the demand for domestic and international starts fully available. So when the revenue starts coming back, I think we will see the EBITDA journey as a sustainable one.

Right, right, right. And primarily, your peers had indicated about between 3% to 3.5% impact of commodity in 1Q. Are it be similar or lower as we have seen lower inflation in last 6 months or last 9 months?

The commodity increases may be similar. The actions, whatever we have taken, price increases plus the mix plus the cost reduction, I think, and the EV business, all put together, we were able to manage the margins. That is exactly I said.

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

Just with regard to the EV investment, this INR 1,000 crores, what is the time line you were talking about, one? Second is considering that you'll be facing competition from even the lower end of these e-scooters, which have been launched and also on the three-wheelers. Is there any priority which you are putting up, which segments you take up initially?

See, we focus on the market and the customer. And like I said, iQube is our first product, and it is getting extremely good feedback. And we are now scaling up the capacities and also launching in many, many markets in India. By end of the year, it will be available. Same way, we are also looking at international market. There is a very clear plan on the product portfolio also. So far, out of the INR 1,000 crores, we have spent about INR 300 crores. And we will, depending upon how we are investing in the product portfolio capacities, we'll keep looking at further investments required or not. That we will keep you updated in the next forthcoming quarters.

And sir, second related question is considering that you have announced big investments in EVs. Will you be going slow now in terms of your ICE-related product development or technology development there? Or it will continue at a similar pace, what we have seen in the last 1 and 2 years?

In both areas, we have opportunity, okay? EV is a great opportunity. It's a new technology area, where we have started investing in this technology at least 10 years back, and we are seeing the results now with iQube by the first product, and many products will follow, both in two-wheelers and three-wheelers. ICE, we have an excellent range and there is exceedingly good demand, and we will continue to focus on that.

And then last question, if I can ask, considering that some of your group companies are doing the decent work in the EV ecosystem. Do you think you have a better chance to pull it through with a relatively lesser investment profile or through a co-development on such things as compared to the peers in the industry?

See, we have a very strong in-house R&D capability to partner with technology partners globally within India, outside India. So we are pretty confident that we will do extremely well and seize this great opportunity of EV.

The next question is from the line of Basudeb Banerjee from AMBIT Capital.

Sir, a few questions. Just wanted to understand that so much of buzz in terms of EVs and government push coming up and your export mix, some internationally has moved up quite considerably. So how do you see e-two-wheeler adoption in your target export markets in the next 2 to 3 years? Or do you see the [indiscernible] models remaining dominance in the foreseeable future?

See, export markets, we have now started doing close to 1 lakh a month, and that momentum will continue. We will completely leverage the EV models, and we will also understand market-by-market because you need to understand the customer, the ecosystem, and we need to invest behind the technologies in each of this country. The strength of TVS is, like I said, our R&D capability, and we are investing behind the right technologies in this space. And we will also understand we are presently now available in more than 70 countries. This is a great opportunity to understand many countries, both developed economies as well as the current industry. So according to me, electric future mobility is a great opportunity for TVS Motor Company.

So continuing with the similar question the last person has asked. So across the e-two-wheeler market in India, the various priced kind of models from ------ 60,000, 70,000 to 150,000. So your iQube scaling up. So with further new launches with better features at optimum prices had to come up. Do you see any risk to your pricing in order to maintain share, which might be a reach to your 10% plus margin trajectory down the line? Hello?

Sir, the line for the management is disconnected. Kindly stay on line till I reconnect them. Ladies and gentlemen, thank you for patiently waiting. We have the management line reconnected to the call. Thank you, and over to you, sir.

Yes. Sorry, sorry, the line got cut. See, the most important thing is price is only a one factor of the overall package to a customer. Our belief is that the overall product, the features, the benefits what you give to the customer. Once that is completely aligned to the customer requirement, you will succeed. And that has been our focus always. So price is only one of the elements in that.

Surely, sir. So will it be right to assume that you will take EVs in an overall portfolio basket approach and still be confident of moving up 10% -- beyond 10% EBITDA margin down the line as such?

Yes, we are -- see, we are very, very confident on the EV category, and we will continue to keep up our momentum on the EBITDA journey. I highlighted with the markets opening up, we are pretty confident that with the kind of product mix premiumization and the growth -- the revenue growth and a sustained cost reduction initiative, whatever we have put in place, we are pretty confident about our EBITDA trajectory.

That's good, sir. And 2 small questions. One, in your reported numbers where the revenue was down significantly because of lockdown impact. Staff cost is still literally flat sequentially. So any bonus payout or any one-off or any provisioning in that number, sir?

So this year, we have given already the salary increases. Increments are already been paid. And all the -- all aspects of the salaries have been done this year, including the variable pay, everything has been done in the first quarter.

So broadly, slightly lower than this level is a sustainable number for coming quarters, when I exclude the variability?

Again, overall, we have to look at the EBITDA journey, and I said we are very confident about the EBITDA journey.

Sure. And last question for Gopal, sir, is, how much was the GNPA for the Credit Services this quarter? I missed that, you might have told it earlier.

Yes, it's around 5.2% as against 5% in March '21.

And in March '21, 5%, and 5.2% this quarter?

Yes.

Ladies and gentlemen, due to the time constraint, we'll be taking the last question now, which is from the line of Jay Kale from Elara Capital.

Sir, my first question is regarding how do you see the two-wheeler industry in the next 2 to 3 years? I think we're still well below the FY '19 levels that are being either the next 2, 3 reached those levels. And at the same time, we will be having the EV penetration arise as well. In that context, how are you planning your capacity increases for your ICE products? Do you think that we are at the last leg of your CapEx expansion for your ICE-related product, given that the growth will now be led by EV products? And to that context, my second question is, how do you look at the pricing of your ICE products today? I mean two-wheeler industry has been quite aggressive in terms of taking the price increases related to the four-wheeler industry despite running on a thin line between the transition from ICE to EV for two-wheelers relative to four-wheelers. So how would you approach the price increases for the ICE two-wheelers going forward? Do you think that we are at the last leg of the pricing power for the two-wheeler ICE industry given that it will drastically increase the penetration levels of EVs, if we further take aggressive price increases from here for ICE two-wheelers?

I think a lot of questions you have asked. So let me recollect all the questions and answer one-by-one. The first is the two-wheeler prospects. I think India, very young country, penetration levels are low. Public transport is -- we know the situation. There's a huge opportunity for two-wheeler to grow in this country. In the last 2, 3 years, if you look at it various factors starting from demonetization plus BS III to BS IV, then GST. Then after that, the insurance costs, then BS VI today, IC engines are the best-in-class globally. India is the best market for the best-in-class two-wheelers. So all put together, there has been an increase of almost 35% to 45% in terms of the price of two-wheeler in the last, let's say, 12 quarters. And unfortunately, during -- this is the time we had COVID 1 and COVID 2, okay? So I'm pretty confident on the prospects in the next 2 to 3 years on the two-wheeler side. Second, I think EV, as a technology, is evolving, and it is definitely going to take-up in a big way in India. We are pretty confident that TVS has got tremendous strength in our R&D capability. That is what you have seen in the iQube, and you will see more product portfolio coming for various customer segments from our side, both for domestic and international. Our -- and according to me, price is only one factor. What my experience and our experience has been, there is a complete package of product, product performance, features, attractive quality and pricing as a total package, the customer looks at it, okay? There may be some budget customers, but in my experience, budget customers are less than 2%, 3% in any market. Other customers, they look at the kind of products. For example, Jupiter, I know most of the customers [indiscernible], Jupiter Grande, Jupiter ZX, Classic. So each customer segment, if you're able to position and which is strength of TVS, we are pretty confident that price is only one of the factors, okay? Now coming back to ability to manage. I think we are a strong player. We have got good R&D capability. We can manage, depending upon how the market is going to take a change. I think we are proactive. We have invested rightly in the technologies, whether it is IC engines or BS VI or going forward in future mobility area. So I'm pretty confident that the way -- I see it is a great opportunity for companies like TVS to seize many markets with electric because it gives us an opportunity to go to any market, and we see it as a great opportunity.

Thank you.

So all that, I would like to request all of you, stay safe. And in summary, I think we are doing the right investments behind the future technology of electrification. We have shown very clear commitment by completely designing, developing and manufacturing and a portfolio of products, both into two-wheelers and three-wheelers, both for domestic and international markets. And the journey of EBITDA of 10.1% will continue with the kind of markets opening up and the product range, what we have, leveraging the revenue growth, premiumization, cost reduction initiatives, whatever we have put in as a strong base. We are pretty confident that Q2 onwards, you will see the EBITDA growth journey. Thank you. Thank you, everyone.