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

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of TVS Motors Limited 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, Stephen. Welcome to TVS Motor Company 2Q FY '22 post-result conference call. From TVS Motors management, we have with us today Mr. K. N. Radhakrishnan, Director and Chief Executive Officer; and Mr. K. Gopala Desikan, Chief Financial Officer. I'll now hand over the call to Mr. K. N. Radhakrishnan for the opening remarks to be followed by question-and-answer session. Over to you, sir.

Good evening. Good evening, everyone, and thanks for joining us today. First, let me take this opportunity to wish you all a very happy Navaratri, advance wishes for Diwali. Trust all of you, your family members are safe. I request each one of you to continue to be careful, maintain the COVID-appropriate behavior of masking, sanitization, social distancing. I'm very sure everyone would have completed the second vaccination as well. And God bless all of you with great help, lots of happiness, peace and prosperity. During this quarter, company posted highest ever revenue of INR 5,619 crores and highest ever EBITDA of INR 562 crores, despite various challenges in terms of increase in commodity costs, scarcity of containers for international business and shortage of semiconductors. Achievement of these results were aided through significant cost reduction initiatives and growth in revenue. We are happy to inform that the company's premium scooter brand, TVS NTORQ 125 achieved new milestones by crossing 1 million mark, thanks to all the customers of TVS NTORQ 125. And BMW 310 series motorcycle crossed 1 lakh mark in less than 5 years, I think, again, thanks to all the customers globally, BMW G 310 R and 310 GS, okay. This is now available in 120 countries. During the last 3 months, we launched 2 new products, 125 cc segment TVS Raider and TVS Jupiter 125. Excellent feedback received from the market for both TVS Raider and TVS Jupiter 125. TVS Raider is a naked street design motorcycle globally for the Gen Z, equipped with its best-in-class acceleration, first-in segment ride modes, reverse and CD cluster and outstanding milage through powerful advanced 3-V engine, TVS intelliGO and ET-Fi technologies. An upcoming TVS SmartXonnect variant will offer TFT cluster, Blutetooth connectivity and voice assist. We launched TVS Jupiter 125 this month, packed with ZYADA SE BHI ZYADA industry first-in-class features, new 125 cc engine wit ET-Fi, TVS intelliGO, best-in-segment acceleration and mileage, industry-best 33-liter underfeed storage, which stores 2 full-face helmets for the customers, longer seats, unique progressive styling, LED headlamp, front external fuel filling and so on in MetalMAXX body, and I can keep elaborating the attractive features in this product. Now coming to sales during Q2. Company operating revenue grew by 22%, clocking INR 5,619 crores, which is the highest, vis-à-vis the last year same quarter of INR 4,605 crores. Domestic market, we sold 5.99 lakh units of 2-wheelers as against last year's 6.5 lakh units, better than the industry growth. International market, company sold 2.7 lakh 2-wheelers units with a growth of 46% as against 1.85 lakhs last year during the same quarter. Again here, we have grown ahead of the industry. Total 2-wheeler sales for the quarter is 8.7 lakh unit against last year's 8.34 lakh. Again, total also, we are better than the industry growth. The mix of premium products Apache, NTORQ, Jupiter Classic, Grande overall grew to almost 34%. We lost Apache because of semiconductor availability, almost 25,000 during this quarter. Else, the premium product proportion would have been much higher. Total sales of 3-wheelers is at 0.47 lakh units against 0.33 lakh during last year same quarter. Profit during -- EBITDA during the quarter is INR 562 crore, again, this is the highest. Last year, similar period, EBITDA at INR 430 crores. Company registered an EBITDA of 10% (sic) [ EBITDA margin of 10% ] as against last year's 9.3%. This includes 0.4% benefit of RoDTEP relating to the earlier 2 quarters. As I said, during the same quarter, semiconductor availability, we lost more than 25,000 of Apache, where we had an extremely good demand. During the quarter, company faced significant headwinds due to commodity price increases. With the focus on product mix, premiumization, sustained cost reduction initiatives and price increases, we could manage the material cost vis-à-vis last quarter and last year. PBT for the quarter is INR 377 crores as against INR 267 crores. Profit after tax is INR 278 crores as against last year's INR 196 crores. During the quarter, focused working capital management helped in improving the operating -- and improved operating performance helped the company to generate a cash flow -- free cash flow of INR 1,090 crores. For the first half, PBT before the exceptional item is INR 479 crores. We incurred about INR 30 crores towards the COVID-19 expenses during H1. The profit after tax is INR 331 crores as against last year's INR 57 crores. Indonesia, PT TVS, we sold 28,500 units of 2-wheelers against last year's 14,700 units, despite a huge challenge of wave 2 in Indonesia. PT TVS registered 3-wheeler sales of 2,400 as against last year's 1,250. PT TVS posted an operating PBT of USD 0.9 million as against USD 0.05 million last year. H1, PT TVS posted a PBT of $1.3 million as against a loss of $1.3 million during last year first half. I already highlighted the 2 product launches of TVS Raider and Jupiter 125, excellent feedback from the market, thanks to every customer who have received it well. In addition, we have also launched, for the season, advanced range of TVS Apache RTR 160 4V series. With new headlamp assembly, signature daytime running lamp, 3 ride modes (urban, sport, rain). Top variant will be equipped with TVS SmartXonnect. We also launched TVS Jupiter, now equipped with various additional features, which includes engine kill switch, mobile charger, lockable glove box, et cetera. TVS Radeon now comes with black and red and black and blue, dual tone color options. We have introduced the coral silk colors and satin matte finish TVS XL. TVS NTORQ 125, new era connectivity, power and style. It has got SmartXonnect and ride modes. And this is the only scooter in the 125 cc segment to have more than 10 PS power. We also launched Built To Order platform in RR 310, making foray into factory customization and personalization. The TVS Apache RR 310 customers can now select preset kits, graphic options, rim color options, personalized race numbers. There are Dynamic, Race. Offer an array of features that further accentuate performance and styling as per customer usage and needs. This will -- this platform will be introduced across other product portfolio from a stable of TVS Motor Company in a phased manner. During last quarter, we acquired a majority stake in the European e-bike EGO Movement through subsidiary in TVS Singapore to build an aspirational product portfolio while nurturing sustainable and scalable brands. This is as part of our overall strategy to expand global presence in developed markets commencing with Europe. It's a Swiss technology company providing innovative mobility solutions through portfolio of e-bikes, e-cargo bikes, e-scooters. In terms of EV, excellent positive response again from TVS iQube electric. It continues to draw very good interest from the EV intenders and very healthy pipeline booking. Biggest challenge we are facing here is the EBOM material availability on time that is affecting our production. iQube currently launched in 33 cities. We are planning to reach across the country by end of the financial year. The company is progressing as per plan to invest INR 1,000 crores in building the portfolio, next level of capacities and market development and product portfolio. We are creating a capacity of 10,000 per month in last quarter of this year. We are also planning for aggressive capacity plans, they are being worked out for '22-'23 financial year. We are committed to lead the technology development in EV and green fuel towards electrification of our product portfolio is in plans for catering to segments in 2-wheelers and 3-wheelers. We entered into a strategic partnership with Tata Power to set up electric vehicle charging infrastructure across the country. In our vision of electrification, we envisage a wide and reliable charging infrastructure for EV customers across India. Our partnerships with widespread and reliable charging network partners like Tata Power, CESL will substantially enhance the customer convenience. During the meeting held today, the Board approved for establishing a separate subsidiary under TVS Motor to operate its EV business. The subsidiary will give us freedom, better focus and flexibility to create scale in the EV business globally. When we look at H2, the government vaccination drive and the COVID-appropriate behavior adherence seem to be helping in reduced positivity ratio and severity of COVID-19. Normal monsoon is definitely helping agriculture, a bit worried that a little bit of flooding, especially in the rural area during this Navaratra season. Hopefully, for Dhanteras, we are expecting this should come down. Navaratri festival season was a bit subdued this year because there was no pent-up demand compared to last year. However, during this Navaratra season, we have gained almost 2% market share in VAHAN. With the monsoon settling down and rural market likely to do better for the Diwali season, we are expecting to do very well. New products of 125 cc segment, TVS Raider, TVS Jupiter 125, and all the other product refreshes and upgrades, whatever we have delivered in XL, Radeon, Jupiter and NTORQ, Apache 4V, 160 4V, BTO, all are definitely going to excite the customers. And we are confident of growing much better than the industry during the season going forward. Exports continue to do well, 2-wheelers and 3-wheelers. This is likely to be fueled by the stable economic and political situation in all the TVS operating geographies. Crude oil prices are stable, and it is positive. Bangladesh, where we had COVID challenges, is opening out. Restrictions related to the -- Sri Lanka is also relaxing its restrictions on the import of vehicles. All this will help improve our sales in international markets. Though container availability continues to be a challenge, some of the South Asian markets are at to come out from COVID-related pandemic, we are confident that our -- thanks to our customers and the product range what we have, we will do extremely well, better than the industry surely. 3-wheeler demand is robust, and we will continue to grow ahead of the industry. We are continuing to witness the trend of premiumization in all markets. So we are confident that our premium products such as Apache and now Raider and NTORQ, Jupiter ZX and above will continue to do well in the domestic and international markets. With appropriate counter issues, we were able to improve the premium product production from September. Along with long-term relationships with semiconductor suppliers and tying up with additional sources, we are able to now minimize the shortages in semiconductors. The company has taken up prices in October, about 1.1%. There is a commodity cost pressure because of the aluminum increases. I think we will, going forward, mitigate this with cost increases with product mix maximization, sustained cost reduction initiatives. And the growth better than the industry growth in both the domestic and industry will help us on the EBITDA growth trajectory. In terms of our product portfolio, we have a very strong portfolio of brands like Apache, Jupiter, NTORQ, Star Range, HLX, Radeon, TVS King, along with our new products like Raider and Jupiter 125. I'm very confident that the revenue growth, increased premiumization, continued cost reduction initiatives, we will lead to have sustained EBITDA improvement. I'm very sure despite various headwinds in Q2 '21, '22, with Q2, we were able to achieve EBITDA of 10% and the best, both revenue and EBITDA, absolute values. With expected demand improvement in Diwali season, good response for the new product and the entire product range and the cost reduction, we are continuing -- we are very confident we'll go ahead of the industry and we will continue our EBITDA growth journey. Thank you.

Sir, can we open for Q&A?

Yes.

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

Congrats on good performance. First of all, can you share data on export revenues, spare revenues and dollar realization?

Export revenue for the quarter, just give me a minute, is about INR 1,834 crores.

Okay. Spares and USD realization?

INR-USD -- just a minute.

It's around INR 74.40.

Right. And spares revenues?

Spares revenues. INR 984 crore.

INR 984 crores. Okay. So secondly, a clarification on this RoDTEP benefit in this quarter. You said 40 basis points benefited there for previous quarters. And what would be it for current quarter?

Current quarter is about...

Your question is not clear. What is your question, please?

What's the benefit of RoDTEP scheme for second quarter?

No. See, on money terms, it's around INR 15 crores for this quarter.

Okay. Okay. Got it. And sir, lastly, on -- when we look at your expectations for industry on the festive season sales, I believe Navaratra is maybe down in double digits for the industry. Do you expect overall festive season to be flattish? Or what are your expectations for the industry as a whole?

So far, it was a little bit subdued. But I told you, there are 2 reasons. One is the pent-up like last year is not there. Plus this time, the rural, unusual rains has a little bit affected definitely the harvesting. So now the rains are a little bit settling down. So I'm hoping that the Diwali season should be good. Dhanteras should be good.

Okay. You expect some catch-up to happen during Diwali.

Before that, there's one correction, I think, on the spares. What we have indicated, INR 984 crore, is for the first half. But what is for Q2 is not INR 984 crore, it is INR 614 crore.

INR 614 crore. Sorry, sorry, sorry.

Got it. Got it. Okay, okay. And lastly, on this -- we have -- we talked about some stability in semiconductor supplies. So we expect Q2 onwards some normalcy to restore, particularly for Apache volumes?

Apache, we were able to take some internal countermeasures that have helped. But in the area of iQube, we are still having some challenges. We are having some very good discussion with some other suppliers, and I'm very sure they will also try to support us.

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

A couple of questions. First one is on the EV plan. I see that you have mentioned that it's EV mobility business globally. So just wanted to understand what all will it have in addition to the India EV business and EGO Movement? Is that something else, which will be in terms of your investments in a lot of these Internet start-ups or IoT companies? So what all will this e-mobility subsidiary have in itself?

As of now, it's a part of our strategy, Pramod. So we are on the -- first of all, we are investing, as I told you, more than INR 1,000 crores to create a product portfolio of EV products from the company in addition to iQube, which you will see. Very shortly, some of the products will be coming in the forthcoming quarters. In addition, you have seen the EGO as a very good investment because in the European market, this is a trend we have seen. So this subsidiary will definitely give us, as I said, freedom, better focus and flexibility to create the scale in this area. And we are looking at, like I said last time itself, this product portfolio, you can look at global markets as an opportunity, both developing and developed markets.

And on the India EV ramp-up, understanding the near-term headwinds on the semiconductor side, but can you help us understand where is the demand for you, for example, in this 30-odd cities? Because I understand, even in all these cities, you won't have the product available with all the dealers. There will be only a handful of dealers who will have the product in those cities as well. So if you can just help us understand what would demand look like if capacity was not a constraint? And by when do you expect to cross certain milestones like the 5,000 or 10,000, which then it starts becoming a more reasonable volume number? Currently at around 700 units, it kind of doesn't kind of fully reflect the demand on the ground. So if you can help us understand where the demand could be?

See, iQube is very well appreciated by the customers as a real good quality, exactly like an ICE scooter. It has got all the features of EV, and it has got all the benefits of the normal scooter. At this point of time, we are targeting 10,000 per month from January, okay? We have created internal capacities, work is going on. I wish we are able to get a little bit better on the EGO -- the EBOM material. There are genuine challenges in terms of COVID wave 2 affecting any parts of Malaysia, Taiwan, especially these part of the world affecting -- that has definitely affected in the last 1.5, 2 months. But we are in discussion with many of our partners, and they will definitely support us.

And sir, just a clarification, you said 10,000 per month, that's the assembly capacity, but the semi capacity is what will decide throughput. So just want to understand what would be...

We have to, at this point of time, work on the overall capacity and drive and every supplier will align. It is not a question of -- because everybody wants to sell more.

Okay. Fair enough. The last question from me on the container shortage side because I have -- we see that export numbers have been stable at a particular level for the last few months. I just want to understand how much is of a bottleneck currently you're facing on the container side? And what could be the kind of order backlog which you have on the export and which could result in step up in export numbers from the current level once this container issue sorts itself out?

It is a daily challenge. According to me, we have been struggling with this for the last few months, both availability and also the time taken for delivering. The retails are extremely good in most of the markets. So quantification is going to be really challenging. So we are now looking at how do we further enhance and work with many of the freight forwarders and how do we deliver that, that is what we are working on. And it is a continued challenge, but we are pretty confident that we will see some improvement possibly in this quarter and going forward.

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

Congrats on a great set of results. Firstly, I wanted to check on the industry, we have not been seeing positive growth for last few months. So do you expect industry to end on a positive note this year in FY '22?

Year as a whole, it is too early to comment because the COVID 3 wave, I think, thanks to the vaccination drive and appropriate behavior, I think the feeling is the positivity ratio is reduced, severity seems to be settling down. So that is a good news. Another good news is the agricultural sector should do well, even though this Navaratra season we have heavy rains and some issues related to harvesting. So we should look at it. The challenge is the price increase is what every manufacturer has taken in the market. That is -- the ability of the customers to buy is continuing to be a little bit of challenge. But I'm pretty confident that once the fear of this COVID settles down, you will see definitely 2-wheeler started picking up because I always believe that today, the demand what you're seeing is because of the last maybe 12 quarters or 15 quarters of lot of changes from demonetization to BS III to BS IV to BS VI and all safety -- all got bunched up. And the 30%, 40% -- almost 40% increase in the cost and the price in a very short stand is what we are seeing. Otherwise, if you look at in terms of the GDP penetration, the mobility, the kind of infrastructure, what the government has created, there is a huge demand for 2-wheeler. It should come back. It's a question of time that once the fear goes away and the kind of income generation starts coming into the industry, I think it should come back. So we have to be cautiously watchful in terms of wave 3, but I'm getting a bit positive on the COVID wave 3 situation. And should look some improvement in the market going forward.

Okay. Good to hear that.

I'll not be able to say what will be cumulatively because whatever Q1 and Q2 numbers, we know, okay? And Q1 and Q2 are not comparable also because it is on last year, it is COVID and this year partial COVID, COVID wave 2. And practically, Q2 was okay -- this year was okay. In Q3 last year, we had pent-up demand and good growth, primarily, which belong to Q1 and Q2 according to me last year. So that is the way we have to look at it because many times, we have a tendency to look at Q3 over Q3. But what has gone before last year, Q1 was completely washed out and Q2 was a lot of anxiety, all that got into the benefit of Q3. So that way, looking at [indiscernible] may not be the right approach is my feeling.

Understood, understood. And sir, on the spare side, we see that there is a big ramp up that we have seen this quarter. So should it be looked on a half yearly basis? Or is there something more to call out here?

No, no. I think Desikan corrected it. Sorry for that. INR 984 crore is for the quarter -- for the half, first half.

No, no, I got that. But still, I mean, when I see the numbers, they are much higher than the run rate that we have been doing. So I just wanted to understand...

Similar numbers we were doing. We were doing similar numbers even in the past.

Okay. Because what I have is a run rate of more in the range of INR 500 crores odd. And this quarter, we have done INR 600 crores plus. So it looks like almost [indiscernible].

I think overall similar range we have. No, average, we have done similar range as a total revenue, if you look at spare parts, this has been the range.

So average, you mean, we should look at H1 numbers basically.

Yes, yes.

Got it. Got it. And lastly, on electric vehicles, we formed a subsidiary. And also on the CapEx plan, which we can talk about because we have seen INR 250 crores of CapEx and also some INR 300 crores of investments. So what is the full year plan? And what are the areas in which those investments or CapEx can go? And does TVS also need to look at external funding? Or do you think there is no such requirement that you see at this stage?

I think CapEx for the year, I think last time also, I indicated with the EV coming in, it will be about INR 750 crores. About this new subsidiary that gives us lot of flexibility, we will come back to you with more details.

Okay. And on the investment plan? For the full year, what should we look at?

Investments, I think TVS CS will be about INR 200 crores, Desikan, for the year?

Yes, it will be around INR 200 crores for the year. And -- see, overall, the first half year invested around INR 500 crores. Probably another INR 250 crores to INR 300 crores will be the second half-related investments, which includes this TVS CS related.

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

I just had this follow-up on the CapEx only. If you can give some color on what has this INR 500 crore investment gone towards in the first half? Bulk of this, I see INR 330 crores in this quarter. So if you can just give us some more information on what this investment is for?

EV and products.

Sir, EGO is already included in this investment.

The investments are predominantly EGO, right, Desikan?

No, EGO is around INR 140 crores we have invested. TVS Credit Services, another INR 100 crores gone there. We had also invested in Norton in the beginning of the year, close to INR 120 crores. That's what it is overall.

Okay. Got it. And when you talk about this INR 1,000 crore EV investment, I'm guessing the EGO and some of the global investments that you're making are not part of this INR 1,000 crore CapEx plan?

The CapEx plan, this INR 1,000 crores, it is on investment. We are not saying this is part of -- this is basically for building the portfolio, next levels of capacities and market development. And -- yes, product portfolio, we have a very, very structured program on the product portfolio in addition to iQube, which you will see in the forthcoming quarters, both the 2-wheeler and the 3-wheeler.

Okay. Got it. And sir, can you just give us directionally some sense on how we should think about the commodity inflation because you mentioned that there are incremental cost pressures as well? So does the October price kind of cover up the incremental inflation we are seeing?

See, we have taken up price almost 1.1%. Still there may be an uncovered portion of about 0.5%, 0.6%. That we are looking at in terms of both product mix, premiumization, cost reduction, overall revenue growth, I think we have to constantly look at it and keep moving.

Okay. Got it. And last question on the subsidiary. I know this is very early stages given you've just announced the formation for this structure. But does it in any way -- given -- is there an openness to look at, let's say, alliances or look at other partnerships, given we are trying to put this business separate from the parent business? I mean I'm just trying to get the thought process because we had called out this INR 1,000 crore investment last quarter itself. So the subsidiary is a follow-on decision, but just the thought process behind it?

This subsidiary, as I told you, gives us a lot of freedom, better focus, flexibility and it will help us create a huge scale in the EV area globally.

Okay. Any partnerships we are open to or we are comfortable with this INR 1,000 crore funding that we've called out?

Again, it gives us freedom, better focus and flexibility.

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

Congratulations on very good set of numbers. Sir, I have 2 questions. Firstly, on the export side, can you give some more regional color as to how demand is shaping up across different regions? And the context why I'm asking this is, we have recently seen that naira has depreciated quite significantly against U.S. dollar in parallel markets, gone to as high as 550 to 570 against official rate of 400. So are you seeing any major inflation because of this and any impact on demand? And second question is on, sir, you have invested about INR 130 crores in a company called TVS Supply Chain. So just wanted to understand, is this a new subsidiary? What kind of stake we have? And where are these investments going on?

In terms of the international market, like I said, vis-à-vis what kind of instability or kind of currency fluctuations we have seen in the past, in comparison to that, now it is much, much better. And again, the reasonably stable economic and political situation in most of the countries, crude oil prices are stable. So these are all positive, whether it is Africa, South and Central America. All these countries can definitely boost the exports. And fortunately, the COVID situation is far better. And Bangladesh is also easing out. So overall, if I look at it, our growth opportunity and the demand is robust in international market, and we are pretty confident that both in 2-wheeler and 3-wheeler, we will grow ahead of the industry. Industry will do well, and we will grow ahead of the industry.

Sir, my question was specific on Nigeria because from 400 to 550 naira movement against dollar, that isn't sharp movement. So have you seen any impact or this impact will come with a lag, given the Nigerian country government is looking to devalue the currency to kind of -- in more relationship with the parallel rate. So basically you are indicating so far, you have not seen any negative impact and you couldn't foresee anything as well in the [indiscernible]?

We have seen similar instances in some of these countries in the past also. So I think what we need to look at is the consumer sentiment, the demand requirement and the need for the customers using it. As you know, the demand in these markets, it's like taxi segment in a big way, and this is the key employment opportunity for them. So I don't think it will have a serious impact at this point of time.

Got it, sir. And sir, second question on TVS Supply Chain?

TVS Supply Chain is a strategic investment.

And the percentage is around just 2%. It's a very small stake, 2% to 3%.

So basically, you're saying you have taken 2% to 3% stake in TVS Supply Chain for INR 130 crores. Is that correct?

Yes.

Okay. So because then it puts the valuation of TVS Supply Chain at a very big number, right? Almost $1 billion kind of a number?

That's why I said this is a strategic investment.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sir, just a question on the electric. You said that the focus is to start selling 10,000 a month. In such situation, because we are seeing the penetration eventually going up for the electric, how would you try to tackle the challenges of your base business? Because there wee -- everyone is launching, whether it's the people funded by private [ OCB ], whether it's you guys. But somebody don't have a base business, so he doesn't need to be for him, it's a fresh market. Does that become so easy that whatever the EV will come out will actually come out from the ICE part and -- so will that be easy to continue and start taking price hikes because it's the way you are taking price hike, it looks like the EV pricing and your ICE pricing will converge one day. So can you throw some light, what's the strategy here to really -- to minimize the impact on the ICE part?

One correction, this raw material is applicable even for EV. Where there is a frame, there is a chassis, there is a seat, there are many parts. Only engine is not there, okay? So the price increase is applicable, whether it's steel, plastic or whatever material, okay? So that is one correction on your query. And if I look at it, these are technologies which are likely to happen. We started the EV technology and designing our own products and subassemblies, subsystems 4, 5 years back and this investment has gone in terms of -- today, what you are seeing, iQube, is that rigorous investment in R&D. And that is the strength of TVS and that is why we are also coming up with a product portfolio. Now coming to scooter category, we are now -- scooters in India used to be 70%, 75% at some point of time. When EV becomes more and more in the scooters, the category will expand. So it's not that -- so there is a great opportunity. There is a great opportunity to seize this opportunity. This is one. Number two, you know the numbers and the product range what we have in the international market. So ICE will co-exist and also EV. And EV, we have a great opportunity to go to both the developed markets as well as developing markets. So I see it is a great opportunity, and we have to concurrently run. And the strength of TVS is a very strong R&D, design and development and the most important... [Technical Difficulty]

Request all the participants, please stay connected while we reconnect the management. [Technical Difficulty]

Sorry, sorry, the line got cut and -- see, what is most important, the strength of TVS is ability to design, develop and create the local supply chain. So it's really AatmaNirbhar Bharat. It is not just producing something. It is designing and developing in India, with Indian engineers and capable global partnerships. That is the capacity of TVS.

Okay. You're right, sir. The cost of raw material is going up for the EV, but we are not seeing the EV prices going up. Maybe the battery prices must be falling. So the question was more from that side.

See, these are all technologies which are very, very early stages, okay? So you have to wait for the -- most importantly, why we are very happy is today, every customer -- we have almost some 5,000 customers of iQube. They are delighted. And we have a very huge order book, okay? So I think I wish I'm able to get EBOM better supplies. What you need to get is the customer delight and that we have got it in iQube.

The next question is from the line of Satyam Thakur from Crédit Suisse.

So first question on EVs again. I mean EV market has seen launches by certain start-ups, who seem to have product with good specs and more pipeline then us as well. So in that context, in that environment, how do you see the TVS' strategy evolving here? I mean we also have to match that level of competitive intensity and especially now when our volumes have started going up [indiscernible]. Do you think we will maintain the current level of margin profile that we have on this?

Can you -- a little bit louder because I was not able to clearly hear you?

Sorry, I'll just repeat it. So the EV market has seen launches by certain start-ups, who seem to have product with better specs than us probably, at least on paper, and more pipelines as well. So how will TVS' strategy evolve in response to this? Do you see TVS also having to match that level of competitive intensity? Or do you think we are okay with the current level of [ portability ] that we have and even with higher volumes from [indiscernible]?

See, we are focused -- as a company, we are focused on the customer, okay? For me, competition is a reference, and I always respect all the competitors, okay? And we have a very clear strategic plan of coming up with product portfolio very clearly for the customer segments. This is number one. Number two, any EV kind of a product, we treat this as an investment. Once the customer is delighted, then sky's the limit. You can always take it. And in the case of EV, global market is available for you, okay? So that is going to be our strategy, a very clear strategy.

And just a follow-up. Sir, currently, our margin on the iQube, is that in the negative at the EBITDA level or are we breaking even already?

See, EBITDA margins all will get [ separate ] when you are able to meet up the demand. I think once the volume comes, we will get a better partnership with the supply chain, we'll be able to reduce the cost of sales. I think it's a journey. I think first, you have to invest. And customers, once they get delighted, it's a question of another 4 quarters, 6 quarters where we will work with the suppliers and our own design ability and also partnership with cell manufacturers, how do we cut down the cost. But what is most important, you have to get right. A big tick is the customer liking your product, and they -- once they get it right, then scale benefits will flow in. That's exactly what we have done, even in TVS Motor strategy. First, we focused on JD Power #1. Once we got all the JD Power #1 for 4 years, 5 years, both in product as well as in customer satisfaction, we started putting the right products and we started gaining market share. Then concurrently, we have started now our EBITDA journey. Now we are always double-digit margin. So it's a concurrent journey. We have to take it up very systematically, okay? Look at our Indonesia journey. First, we got the product right. We started now. Now it is almost about 10,000 per month. So once you get the revenue up, it is beneficial for everybody, the entire supply chain. Without top line, there is no line. So first, you get the top line right. Concurrently, you work on -- first, you get your customer delight first, top line right, grow ahead of the industry, then you can get every other cost right and you will be profitable.

And the second question, again, on margins on the -- but on the other side, ICE side of the portfolio. We have had great discipline on passing through the cost increases in the last few quarters. But I think the festive season also, one gathers that the price increase is one of the key factors why demand seems to be soft. So how do you see that shaping up from here? And especially if commodity index starts going down, do you think -- do you see this as net pricing kind of going down, given the competitive intensity in ICE? Or it not, then how long does it take for this to absorb the price increase impact?

See, India has got great opportunity in 2-wheelers. I always believe that we have seen 10%-plus CAGR in 2-wheelers. That will come back. I think what 12 to 15 quarters of continuous -- we are best in class. We are the best 2-wheelers globally now in terms of all the technology, safety and emission. But all this has happened in the last few years. And the GST at 28%. Smartphone is at 18%. So there are many things we have to look at when we look at. And government has invested in the infrastructure. The public transport is not so great in India. There is a huge opportunity. People love the 2-wheelers and that is the biggest mobility needs. So you will see the 10% coming back, okay? Then the technology portion, how much will be ICE? How much will be what you call the EV? So the penetration -- and I'm pretty confident that it's a question of time. I think the last 24 months or 18 months or 19 months, this COVID has created a huge uncertainty. If COVID wave 3, it is going to be mitigated, that will bring in lot of confidence and rural is likely to do well going forward. So with all that, I'm pretty confident, if you ask me medium to long term about 2-wheeler, it will do very well in terms of even CAGR.

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

Congrats on a great set of numbers. Just your thoughts on this PLI team which has been announced. Would you look to apply for it because you have a very aggressive plan of INR 1,000 crores of CapEx? So that's question #1. Second question was just on TVS iQube, which you can -- I mean, obviously, as you say, your customers are getting delighted. Just what is the customer profile of iQube? Who's buying? Is it a new category of customers for us? Or is it someone who is buying a Jupiter, who has gone on to buy an iQube? And last question is, I'm still not clear on the semiconductor issue. Are you seeing mean reversion or the issue is getting ironed out in the next 2 months? And by Q4, can we expect a normalized production? Is that what you are trying to guide for?

See, semiconductor, I'll start from the last. Semiconductor is a combination of Texas deep freeze plus fire accident in Renata, Japan, and COVID happening in the last 3 months, plus consumer durables doing extremely well and delayed shipment. Four, five factors all coming together -- suddenly, you are seeing this challenge of chips not available, semiconductor not available, okay? So I think we have to -- we have the little bit -- and when you have a little bit of arrears, it takes time. So you have to engage with the suppliers and with the manufacturers. And I think everyone wants to succeed because the last thing anybody wants to miss is the sale opportunity, okay? I am -- that is the reason I'm saying whether it is the deep freeze or the fire accident or COVID situation in Malaysia, where predominantly all these semiconductors are made. And sudden -- in the COVID situation, first 3 months lockout and then again a pickup, then consumer durables doing extremely well. But it's a sudden hike in many things and some stoppages of capacities. All put together, this has created a huge issue on the supplies. I think now, like I am saying, COVID wave 3, a little bit vaccination, settling down. See, the settling down of this COVID anxiety itself globally will start creating some kind of production capacity availability, all that, okay? So that is the point. And we have to constantly engage with every supplier in this category so that we are able to ramp up. That is one. PLI scheme, we are eligible. I think...

Yes, PLI scheme is -- we are eligible both with regard to the overall turnover criteria and also the fixed asset base. Being in the electric vehicles, we will be entitled to only the 2 conditions to be satisfied, both will be satisfied with regard to the investment [ afresh ] to be met and also the turnover minimum criteria to be met. The percentage range is whatever it has been now prescribed up to INR 2,000 crores and about INR 4,000 crores. So it depends on how much we do it. Therefore, on the -- the prima facie to answer, yes, we are entitled to. We are fulfilling the criteria.

And customer profile, TVS iQube?

Customer profile. See, any customer profile when we started Bangalore, initially we got mostly the innovators. I call that -- in any product, I have always seen the innovator first coming.

Got it. Got it.

Okay. So the innovator, but now we are getting people, the more and more they see, there are many assurance customers coming and say, "This is a good scooter, so I would like to have it." What is most important is the usage, okay? The difference between -- in a scooter, typical usage in India is the entire family, 2 plus 2. They should be able to carry whatever bags or whatever. They should be able to go in any road condition. It should go in any flyover. So these conditions once you meet and which all -- and in addition, it has got all the connectivity, digital, every element of technology in iQube.

Correct. So sir, when you say assurance customer, I didn't understand. Is it somewhat -- I'm assuming that the product is reliable and we've got that right with whatever reviews I have seen. So that is...

That is a set of customers who will give you more going forward. But when we talk about -- I told you about product portfolio, I can give you, for example, we have Scooty, we have Zest, then we have Jupiter basic, then we have a ZX version, then there is a Classic version, there is a Grande version, then NTORQ. Even in NTORQ, we have a Race version. So you imagine the profile of the customer segment, okay?

And sorry, if I may ask it the other way, does this capitalize Jupiter sales in the cities which we have launched? Or are you seeing a cannibalization or it is not happening?

See, the more and more EV starts, I think, again, I answered you. You will see scooter category expanding.

Got it. So this will build on to top of your business. That's what you guys are seeing, this will not cannibalize?

Absolutely, absolutely, absolutely.

Can you have -- this is the last question, please?

We take the last question from the line of Amyn Pirani from JPMorgan.

Congratulations on a good set of numbers. Most of my questions have been answered. Just a few clarifications. You said that you are already in 33 cities for the iQube?

Yes, yes, yes. Yes.

Okay. Okay. And in terms of the new launches that you're talking about, so is this -- I mean will we see new scooters or 3-wheelers, say, in the next 1 to 2 quarters? Or is it more like in the next like 4 to 5 quarters, if broad time lines can help us?

Close to the launch, I will reveal more details. Really excited with now Raider and enjoy with Jupiter 125. And of course, the BTO and Apache RTR 160 4V with Urban, Sporty and Rain modes and SmartXonnect, I think we have done a lot of -- for each of the customer segment, we have special feast for Diwali. So before I close, once again...

One update, KNR, on the performance of TVS Credit Services. I just want to add that the company's book size has grown. We are at INR 11,420 crores today. And the profit for the quarter, PBT, is INR 35.10 crores as against last year's INR 14.3 crores. And the net worth stands at INR 1,658 crores. So all other norms of capital adequacy all are fully met. Very comfortably placed. Liquidity is not an issue. Business-wise, completely tied up funds as well as for the debt-related. Just want to give a heads up about the good performance of TVS Credit Services where the collections have been extremely good for the Q2, is around INR 2,400 crores, is against the comparable quarter of around INR 1,800 crores. Just want to give an update on this.

Before we close, I just wanted to once again highlight, even though we got a 0.4% RoDTEP benefit in Q2, what we lost due to Apache loss of 25,000 is huge, okay? Despite all these headwinds and the increase in cost, we achieved 10% in Q2 EBITDA. And wish all of you a Diwali -- Happy Diwali. I am pretty confident that the kind of product range what we have, and whether it is Apache, Jupiter, NTORQ, Star Range, HLX, Radeon, TVS King, and the new Raider and Jupiter 125, we will grow ahead of the industry. Our robust revenue growth, increased premiumization, better mix and continued cost reduction initiatives will definitely help us to have sustained EBITDA trajectory growth going forward. Thank you.

Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.