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

Thank you so much for understanding. We can start the meeting.

So continuing on the EV side, I think there is a great opportunity. I think strength again is our design, development and product and the range and the ability to give the 2-wheelers and 3-wheelers. So we are expecting initially to start with the domestic market with change and then using this product range for the international market.

So I'll ask one question.

Please.

So on the EV strategy itself, I just want to understand on your medium- to long-term strategy, right? So let's say, I mean, EV is more margin dilutive, isn't it? Like, I mean, we currently make 10% EBITDA margin, right? Do we think that EV will be able to do the same kind of margin going forward for -- maybe when we achieve economies maybe in 2 years?

See, we already told you, I think the most important thing is getting the customer satisfaction, the customer pull on the product right, which you have got in iQube and I'm pretty confident that the new product is also -- whatever we are planning to launch is going to delight the market. So once you get the customer satisfaction right, we are pretty confident that the demand lever which is the revenue lever, that will do extremely well. And that's where a bit of semiconductor is an issue, but there is improvement. I can tell you this one, like I said, the production is much better. We will try to reach the 10,000 mark and maybe we will exceed this year around 1,000 per day, which is 25,000 per month. So demand getting it right, which is customers getting delighted about the product is a priority one. That we have almost there. Number two is once you have the volume, I can tell you, you can work on every element of cost, every element of the customer benefit we can look at it. And the variating strategy, even the 3 versions, whatever you have seen, you have seen the pricing difference. You have seen the convenience and the safety and the new features, whatever we are giving. And customers are willing to pay. So overall, we'll be profitable in the next 24 months. I'm pretty confident even the EV, okay? I don't want to give you guidance on the EBITDA, but definitely, the EBITDA will grow year after year in the EV business as well.

Right. And what number we are looking at for the breakeven?

Breakeven, I think we have to put it a little differently. I think we have capacity. And what is most important is, like I said, at the moment, we are able to do -- for example, the current iQube and the new products, first of all gross margin will be positive. Then the more the scale and the revenue comes, you will be able to get the PBT level positive and EBITDA level positive. So that is the way we look at it.

Right. And in terms of...

Most importantly, hitting the 25,000 mark for which I see only one risk, the semiconductor working with them very closely. Month after month, there is an improvement. I won't deny that. But how quickly we can do that? It is not only in EV, we are seeing the same challenge in the ICE also. So it's possibly because of the last year lockdown and a couple of big companies like Renaissance in Japan who have got the fire accident and the [ DI ] which had flood. So there are assignable reasons last year, and suddenly, they were all closed for 45 days one block and then later another 45 days. And when they reopen, they realize that the demand in the consumer durables are also going up. Two big companies having practically other than this lockdown, another lockdown or another stoppage because of natural calamities and fire. So all put together today, any lead time they're talking about is 52 weeks, okay? We have given those kind of projections as well. And on top of it, all of you know the kind of delays in containers. So I think it's multiple factors all coming together. But everybody wants better and better business. Even semiconductor companies wants to support us.

Right. And in terms of external investor, we are reading this like always, there's some speculation that how much you're going to like raise for the EV subsidiary. Is there anything happening on that side in terms of external investor?

Desikan, do you want to say that?

Yes, yes. No, no. See, we discussed this last time also. After having incorporated a new subsidiary, we are evaluating various options, and we have the Board approval and the structuring is happening. But I don't know, some news item appeared yesterday. We don't know. We are not commenting on that, but we are exploring various options. That's all.

Right. Understand. And in terms of this demand, right, we have seen that because of all the fire incident happened in the last 1, 1.5 months, so EV incrementally didn't do well for the last month. Is that -- you think that it's going for -- I mean at least for temporary, we are seeing the same kind of expectation that...

Last time when I met you, I told that we have a booking of 12,000. Today, I have a booking of 20,000.

Okay.

So what we need to understand is safety, quality, the standards are very, very critical, and everyone should adhere to it, okay? And this is not something new. I think every customer, any technology, the last thing they want is anything related to safety. So we have to constantly work on the area of safety standards and the -- or taking care of the customer needs. This is something we have to always look at it.

Right. And in terms of like overall 2-wheeler demand, I mean, we are seeing some kind of improvement is happening for last 1 month or so. But let's say, if you're talking about PV or tractor, we have seen more -- I mean, much more improvement. We are -- we have not even reached even pre-COVID kind of volume yet, right? How we are seeing going forward demand in terms of industry as well as for ourselves?

See, I think your observation is very valid. The positive news is, this year, after 2 years of lockdown, we had the marriage season, April, May, June. So marriage season, there is an uptick. Definitely, there is an uptick. The second is thanks to good monsoons and good agricultural produce and MSP. The rural is slowly coming back, okay? So that is a positive news. And please understand the severity in the bottom of the pyramid, where the prices have gone up, but their income is not steady. Self-employed has not got jobs. I think possibly last 6 months have given a confidence that the Omicron wave 3 and even whatever is happening today, there is no hospitalization. So slowly, the sentiments and the positivity at the bottom of the pyramid is coming. And they also have regular jars, regular income. So I am positive that the rural will start doing well month after month, okay? Now what is most important is we should all recognize that the cost increases due to all the regulations, plus the steel increase, plus the insurance increase. It's a huge, huge increase as a percentage to the on-road price when it comes to 2-wheelers. So when you compare a tractor -- when you compare a truck cost, this one, it is very, very small, 2%, 3%. But the moment you look at something like a 2-wheeler, the costs are very, very high, very, very high. So their income level has not gone to that level. That's why it's taking a little longer time, okay? Only thing we need to note down is public transport system is not so robust. There is a need for mobility. So it will come back. We are seeing the CAGR of almost 10% in 2-wheelers. That 10% will come back, okay? Unfortunately, these regulation changes and the insurance and the GST, all have happened in the last 12 to 18 quarters plus the increases now, which is happening now on steel and insurance. So all put together, the income increase has not been proportional to the kind of price increases, whatever has happened in the 2-wheeler side.

Right. So we are expecting at least FY '23 would be at least like FY '20?

Yes. Possibly. I think this year will be better than FY '20 is my estimate. If -- like I said, I'm very consciously optimistic on this lockdowns and the vaccination is definitely helping. And the rural is -- agricultural produce will be good and MSPs were good, they will have regular income. That is going to trigger good demand, okay? I agree that it will be better than somewhere in between 2019 and 2020. That is my estimate.

Right. And so like moving back to the like margins, right? So because of all the raw material price increase and we did this price hikes. So are we now done with the almost price hikes and we should be maintaining the margin or?

Price hikes are part and parcel of -- this kind of unprecedented raw material cost increases has never happened in the last 18 months, I think, It has been huge increases. And always, there will be some portion of uncovered portion will be there. So what we look at is we can't pass on in every model all the price increases because certain models, the customers will have the ability to pay. One thing we are able to see is premium products are doing extremely well. The demand is extremely good, which means people are having money and they are willing to price -- they are willing to take it, okay? When I say premium products in our category NTORQ or Jupiter-125 or Apache series or Raider, okay? All are okay. All are okay. Unfortunately, in the case of Raider and Apache, we had some setbacks in April and May because of the semiconductor suppliers even in the ICE side. It is becoming a little better in June, okay, for Apache, May was a little better. June is also better. But, Raider it is yet to start. So I think premium products, even in 2-wheelers, there is a good demand, and people are willing to put the money. It is the entry level moped to the computer motorcycles and regular scooters where you have the challenge. Because buying farmer is really, really low. But I'm pretty confident that with their regular stability in income -- most importantly, stability in income, with all this vaccination, will help them to come back and buy even the entry-level models.

Can I go ahead with the question?

Yes, sure, [indiscernible]

Yes. Just the continuation on the EV strategy, right? So if you got talk about the e-bike side of things, right, where you've made a few investments and acquisitions, primarily target at the European market. Just a thought process on how does that sort of get aligned along with your India EV strategy? So maybe the overall piece, if you could touch this?

I will try to help you people. If you look at our moped to our Indonesia products up to RR 310, we have got an excellent product range. I can say one of the best product range in the industry today, okay? Indonesia, [indiscernible] we are also exporting from there. We are also selling in Indonesia. So we have that type of portfolio. Now you know we have come with the iQube and there is a series of products we are looking at. And you will see many more products on the 2-wheeler side from EV and also from the 3-wheeler side. So that is going to be there. And you know Norton, which is in the super premium category, which is really, really super premium. Now when you look at the e-cycles, I think there are 2 purposes. One, with electrification coming in and our opportunity to get into developed markets like Europe, okay? One of the key things we have seen is the e-cycles are really, really doing very well there. The CAGR is around 20%. And somebody like, SEMG, when we took over, I think we get products, we get their omnichannel. Most importantly, you will understand the customer behavior in Europe because the moment you understand what triggers them to buy any cycle, okay? What are the decision criteria they look at? I think that is going to help us in a big way. This is number one. Of course, we can also leverage all of our product EV, product portfolio that is coming from India for all the developed markets have. So definitely, we will use it for Europe and many other markets. So overall, if you look at it, this is going to be supplementing or helping in the e-cycle area. And once we understand this market and this one, one, is entering into a geography like Europe. Another one is understanding the behavior of the customers on the e-cycle side. And then these e-cycles can be leveraged to any other country, including India. So overall -- that is the overall strategy perspective when we look at the kind of SEMG or when we looked at investing in those investments for future. And all of you know that SEMG is a profitable company, okay? So it's going to give us enormous understanding of consumer usage, European market, behavior of the customer and the new category for e-cycles.

Sure. Sure. But do you think that there is a risk of trying to sort of spread it to thin across multiple markets and across multiple segments rather than probably focusing on the Indian EV space where you already have an established brand?

But we have separate teams. See, what is most important is you need to have good resources and teams to manage it. India has got a very strong team. And whatever we are developing for Indian markets, as you know, we are using it for the international market in a big way. ICE, you know how we are leveraging it for the international markets. The same thing we will be doing. I think I wish I get more chips and semiconductor available. I think I could have done easily very high volume of iQube and then started into the international market. Today, the biggest constraint is the availability of some of the electronic parts, so [ e-born ] parts. So that is not a problem at all. And whether if it is SEMG or Norton, there are separate teams. And we can always take the synergy of our R&D design development capability, sourcing capability, Indian capability supporting these companies, but there will be a huge learning. And it is going to be concurrent. And please understand today's business scenario you have to be concurrent.

[Operator Instructions] Sir, while we have other questions, if I may push another one. So you briefly alluded to export opportunities on EVs. I just wanted to know if the same -- if there are any differences in terms of products for export markets? So does the Indian product is -- would that -- would the same product work in the export markets as well? Or you will be launching separate products for the international markets? And where are these opportunities coming from, if you could just also give some color on that?

See, export -- country by country, we have to study that. But I'm saying the basic backbone will be same. The battery management system can be tube. The ICOs can be -- the VCOs can be looked at depending upon the preference. Of course, local language will be required. So there are certain portion -- significant portion backbone will be common, okay? Then the design element, okay? Country by country, there are preferences on what type of design elements they want, okay? So whatever experience we have on the developing markets and whatever we are now learning in Europe through SEMG, all this will be useful. And please remember K02 K03 with BMW, we have sold more than 100,000 bikes in all the developed markets. That gives us a huge insight into what type of customer usage, what kind of homologation needs are there, standards are there, safety standards are there. So all these are going to help us. Any other clarifications?

Yes, if we have no other calls. Can we conclude the session?

Sure. Sir, let's give a minute if anyone has any questions.

This is Shyam from Sundaram Mutual. Sir, pleasure talking to you on this forum. Sir, just one question. On the existing export business that we have. We have done extremely well if you look at a 5-year period, whether it be our own numbers or from exports from India perspective on the 2-wheeler side as well. Now given where we are today, sir, what are the growth legs for the next 3 years? If you can talk about the big geographies from a new geography penetration or from an addition of distributors, what we have done in the past 2 years, what further growth legs are there in exports to support 13%, 15% kind of volume growth over a 3-year period?

I'll divide Shyam into 3 or 4 buckets. First, I think what you said is absolutely right. Last 5 years, the exports from India CAGR is around 9%, and we have done 18% kind of a CAGR, okay? Then let me take the existing products. There are existing products like Apache, HLX Series, 3-wheeler, then scooters, especially NTORQ and now the Jupiter 125. These are products which are -- which can be leveraged to much higher volume in many markets because these are markets where we are seeing huge potential to grow for the future, okay? And if I take key markets like Africa, I think we have done extremely well. We are either #1 or #2 in many of these markets. And my prediction is, in 10 years' time, Africa is going to be like India, okay? Roads are going to be there. Consumers are going to -- consumers are becoming literate. They are investing in many of the education and college. I think they are becoming developed. You will see urbanization happening. So Africa is going to be the growth market. So you will see the CAGR. And most importantly, you are seeing political stability. You're also seeing the foreign exchange availability in [ Mari ] markets. And of course, the fuel prices are stable. Of course, the war is a little bit creating some problem, but I'm assuming that will settle in few days. Now coming to the areas where we are now focusing on ASEAN region, okay? We have got distributors in all the places, Indonesia or Philippines or Myanmar or this entire area, okay? Asia, 2 markets are closed. But at some point of time, they have to open, which is Sri Lanka and Myanmar, okay? Good markets for us. At some point of time, we will see it coming back. Now the clear focus from our side is how do we take ASEAN to next level because these are excellent markets where the industry is doing well. We have started out the journey. But given our learning in Africa, there is a huge potential for us to succeed in these markets, okay? And remember, we have [indiscernible] also. Today, month after month, we are able to do 10,000 from Indonesia, okay? Now there's a huge upside to take it to 15,000 and 25,000 in the future with the current products itself. Now coming to LATAM, it's a big market, huge market, okay? There is a huge opportunity. Middle Eastern, ASEAN is another -- sorry, LATAM is another market where we have a huge opportunity ahead where we can significantly gain market share. Now coming to new products, Raider, for example, it's not only in India, it's doing extremely well in the international market. NTORQ, we have started now marketing. See, one of the strengths for TVS is you have to have new products, which are very clearly looking at the customer needs and customer space and understanding. The moment you put it, demand is there. So we will complement between existing products, existing market and the typical 2 x 2 and invest behind the kind of products for the future, okay, and that is going to definitely help us to grow same way better than the industry in the next 3 years. I promise you that.

Sir, one other question, if I may, ask on the -- now from a profitability perspective, we have done multiple things. You have been talking about it in the last several years from a fixed cost getting absorbed over a larger base. All that we are seeing now in a very well-orchestrated manner in our results per se. Are there further legs to these fixed costs that are being absorbed? Because the reason I'm asking is now that domestic market will open up much strongly. Does that mean that our marketing spend, specifically in terms of brand building, et cetera, will that have to go up per se, what are your thoughts on that?

See, the opportunity, for example, whether it's a Raider or Jupiter 125, look at the volumes, it is taking a vertical takeoff. So that is going to help us disproportionate growth in the top line. So the moment you see disproportionate top line increases, that is going to help us in amortizing across every fixed cost element. And also on top of it, thanks to the top line being robust, we are able to look at multiple sources from single sources in the past. The moment you get multiple sources, you get some sourcing advantage, you know that. And we are also now looking at it in a big way, what kind of modularity we can bring in. Because modularity can really bring down the costs, okay? So there is a huge element of design. And we have significantly reduced the import content now. So it is a combination. I'm a firm believer that first grow your top line disproportionately. Unfortunately, what has happened is last 2 years of lockdown out and some chip availability or some availability is creating a lot of headwinds for us. Otherwise, you would have seen our EBITDA much, much better than whatever you have seen, I promise you that. The headwinds have been huge, and some of them are unplanned, really unplanned. So you have to look at -- one thing, if you invest in the right products in the right segment, customers are there, Shyam. That we will continue to do, that we will continue to do. And that is going to give us a huge benefit when things are -- it's not going to be -- life is going to be always headwind, headwind, headwind. There will be a tailwind, I promise you.

Sir, one last point, just from a balance sheet perspective. We have spoken about getting external capital for some of these new growth initiatives, specifically on the EV side per se, and even from monetizing our Credit Solutions business as well. If you can give any update on that part? Because the reason I'm asking is we are at a stage where our balance sheet looks to be getting more leveraged going into the next 3 years. And there are pulls for demands for capital from multiple directions there in. So how is that progress?

Sure, Shyam, see, very consistent in my reply. We are exploring various options. We are in a very advanced stage. So we will let you know once everything is finalized, both in the finance business as well as in the EV.

The overall new investments whatever we have made. You have seen TVSCS is a great success. You would have seen PT TVS last 2 years excellent profit. I can tell you that the opportunity to grow Indonesia business and export from there is a huge scale, both on the 2-wheeler side and the 3-wheeler. So all these are going to help us. And this constitute almost 70% of our investments. And where we have invested in something like SEMG, it's a profitable company. It is going to give a huge learning in terms of Europe and the consumers and their behaviors. And fortunately for us, we have an excellent EV portfolio. And all of you know that the new EV 2-wheeler, the cool 2-wheeler, which BMW, we are developing, we are designing also. We are designing, developing for them as well as for us, for the global market. So all these are going to be -- really, really going to give us huge benefits going on.

So the external environment changing has not impacted in any way our plans to get external capital?

It's the only one change which has affected is the semiconductor and this container.

Because I was not talking from capital markets and the...

No, no, no. Actually, TVSCS and all, Desikan will tell you that last 3 months, okay, 0 delinquency. That kind of scenario, we have not seen.

Absolutely right.

My request to some of you is -- all of you should visit, whenever you can to TVS Motor, okay? Let us know in advance so that we can be present to interact with you. Seeing is believing.

Thanks, sir. Are there any further questions?

Then we will join the next session.

Yes, sir. If you have any concluding remarks?

I think the strength of -- our continued strategy on focusing on the customer. And definitely, even in the EV side, that is what is very clearly seen from the consumer side on iQube. It will do very well in the market, and we are confident of ramping up to 10,000 and moving towards the 25,000. And you will see in the next 24 months, really, really high-quality, new technology product launches in the EV space, okay? And I see all of you know. We will continue to invest. So we will grow ahead of the industry, both in domestic and international with a very strong portfolio of our brands and products. And I'm pretty confident that we will continue to deliver the EBITDA promises whatever we have given going forward.

Thanks for a very comprehensive session, sir. On behalf of Morgan Stanley, I thank all the corporates and investors.

Thank you and finally anybody is interested in this group, whenever you're visiting Bangalore, kindly let us know or Chennai, so we can host you.

This is an operator from OpenExchange. The meeting will start shortly. Once the meeting -- we are awaiting for the corporates to be in. Thank you.

Hello, everyone, a very warm welcome to the Morgan Stanley Virtual India Summit. I've actually dialed in from 2 lines, so you may see my voice a little distorted. But nonetheless, I'm very pleased to have TVS Motors management here with us today. The company is represented by Mr. K. N. Radhakrishnan, Chief Executive Officer.

Good evening, everyone.

And he's joined by Mr. Gopala Desikan, the Group Chief Financial Officer.

Good evening.

Given we have almost 18 clients on the call, in case you have a question, then you can either raise-your-hand option and then unmute yourself or you can just in case the queue is empty, you can just unmute and start. So with that, I think I would hand over the floor to the management to say some opening remarks, and then we'll move to Q&A. Thank you.

I think extremely happy to meet all of you. I think you know that we have strong product range in the portfolio, and we always invest in new product development. And we're seeing the Raider and Jupiter 125 and Apache and all the premiumization is also helping. Overall, we have grown ahead of the industry, both in domestic and in the international market. Our continued focus on premiumization and also volume growth and also looking at cost reduction initiatives and focusing on fixed cost has helped us to cross 10% consistently while we had huge headwinds, especially in the last 4, 5 quarters. And on the EV side, you know that we have really a very clear vision. And we have put our iQube. And recently, we have launched the 2 versions of iQube and also the third version is likely to be available soon, ST version. While I'm talking, we have more than 20,000 bookings of iQube. iQube customers allows it, and it is one of the finest product in the EV space in India. In this year, we'll be launching a few more products, focusing on different customer segments. We are also planning to have a complete portfolio, both 2-wheeler and 3-wheeler EV in the range of 5 to 25 kilowatts, which will be there in the market in the next 24 months. We have a very clear partnership strategy because we want to give a wide and reliable charging infrastructure for our EV consumers in India. Recently, we have collaborated with Jio-BP. And all of you know that we already have got widespread access to Tata Power and CESL. We are pretty confident that the EV industry will grow, and we have a subsidiary formed on the EV business. This is to create better flexibility and focus. I think the strength of the company is in design, development and our own R&D capability. That is exactly what we've seen in the success of TVS. And of course, we always focus on the customer satisfaction. Customer satisfaction leading to the top line growth ahead of the industry. And in the last couple of years, our focused work on the profitability side has helped us to really take the EBITDA 10%. And I'm pretty confident that we will march ahead with the product range, both in ICE in domestic market, international market as well as in the EV space.

Thanks, sir, for the opening remarks. If any investor has a question, please unmute and you can ask the question. Yes, [indiscernible] please go ahead.

I have a couple of questions. So starting off with our investments in the overall EV space. So when I look at our investments, which we have done in FY '22 in terms of for 80% stake in [ EGO ]. We have invested in Norton. We have invested in Swiss E-Mobility. So just wanted to get the thought process behind going for international -- more international exposure on the EV side and at the same time even going aggressive on the EV side on the Indian contact. So just wanted to know the thought process in terms of capital allocation. From an overall EV perspective, how should we -- one look at it going forward from here?

Brilliant, brilliant,. I think you know TVS. If I look at today, the India ICE space, we have starting from moped up to RR310, very good range. And we have continuously invested in the new product development, like the recent launches like Raider, Jupiter 125. And if you recollect, we have launched Apache various versions from 160 up to 200 cc and 310, same way NTORQ. So we -- the strength of the company is really looking for the customer segments and understanding and really plugging the space with excellent products, which delight the customer. This is number one. Now when I look at Indonesia, we have skubek [indiscernible] that is supplementing it in a very, very good way in the range, all under the ICE space. And like you said, iQube is the first product in the EV space. We predicted that scooters is one area which is likely to -- more and more customers in the urban area, looking at the EV space. So that's why we started with iQube scooter and we are seeing excellent pull in the market, and you have seen 2 launches recently, and one more will come -- one more product, the ST product of iQube will come in the market and a few more will come in the next 4 quarters, both in the 2-wheeler space and the 3-wheeler space. Now coming to the overall portfolio, you have the Norton on one end, which is really, really super premium, okay? It's a brand which is unique. It is -- it is special and it is all about developed markets, okay? And we are currently with ICE space, we are present in 70 developing markets, okay? Of course. With the K02, K03 relationship with BMW, we have sold more than 100,000 bikes, they are all in the developed markets. Now coming to the e-cycles if I look at it at the entry level. There is a huge opportunity in terms of understanding Europe, so -- and the consumer behavior. So that is the reason we invested SEMG, EGO. And SEMG has got products in this space also omnichannel. So you will understand the behavior of the consumer, what is it they are looking at. And I'm pretty confident once we know that fully, we can also leverage the EV products what we are designing and developing in India. Many of these products can be used there. So one is to understand Europe as a developed market and another one is to leverage our existing EV whatever we are developing here. Equally, when we understand the e-cycles in a much better way, I think market by market, we can also look at because we have the ability to look at what is the core, what is the customer requirement, what we can fine-tune country by country. So it's a portfolio which is starting from e-cycles up Norton, you look at it that way that means especially getting into developed markets now. So far, the game has been in the developing markets and leveraging ICE capability in TVS. Now we are looking at it in totality.

Okay. So is it fair to understand that going forward, since now we have covered from the premium bikes to e-cycles. I mean, from an investment perspective, the intensity of investments in this company plus any new -- in any new ventures beyond this space will be limited. Is it a fair understanding? Or you would still have more -- cover more white spaces in this space?

See, I'll answer about the white spaces in the ICE area, then I'll come to EV and then I'll come to e-cycles. Please understand -- and before that, I want to only clarify that SEMG is a profitable business already, okay? Now coming to -- if you look at ICE space, like I said, TVS Raider or Jupiter 125, these are unique spaces. When consumers in the 100 cc or 110cc, they always look at upgradation. Because especially in urban, the income levels are better, so they will go for a premiumization. I'll give you another analogy. We launched NTORQ, okay? Typically, if you look at Jupiter, all versions of Jupiter, the young customers still prefer better power, slightly powerful bikes, leaner, stylish, sharp. So the customer segments, you have to constantly look at the spaces. And those white spaces where there is opportunity, we will continue to invest -- whether it is ICE or even the EV, okay?

Sure, sure. That's helpful. And my last question, and I'll join back into the queue. In terms of we have a commendable work in terms of the cost reduction initiatives, which we kind of envisaged I think 3, 4 years back, and we have been able to get a margin 10% plus. So from here on, how much of more optimization and efficiency benefit can still be -- still accrue to us in your sense?

There is an excellent opportunity. Our belief is be #1 in customer satisfaction, that we always focus on that, because that leads to growing the top line faster than the industry. That is happening. Unfortunately, what has happened for us is products like Raider or Apache, semiconductor is a little bit affecting. May is better. June is expected to be much better. So you leverage your products to grow your top line in a big way. It has got 3 purposes. One, the fixed cost gets amortized, because I don't think the fixed costs are going to be higher, because we are selling more, number one. Number two, when you sell more, that gives us an opportunity to get scale benefits, okay? And number three, the last couple of years, 2 things we have done. We have reduced our import content, okay? We also introduced some new suppliers, because volumes are there. And then as you bring a new supplier, you can get some better negotiation with the current supplier. So it's a combination of -- and now we are looking at it in a big way when the volumes are going up, how do we look at modularity, how do we look at platform modernization, how do you look at rate. So it's a constant and continuous journey. And I pretty confident that the double-digit has just started.

Yes, [indiscernible], please go ahead.

I wanted to get an update on your expectations of how profitability could evolve in EV in exports, especially in EV subsidies came down and productive [ hours ], but also in exports?

See the subsidies in exports, it was there. It was not there for some time. Now it has come in the form of RoDTEP, but significantly it has come down, okay? In fact, what we look at is, we have an excellent portfolio, how do we -- how do we become very strong in every market, okay? Today, 100,000 customers are liking us every month. And we feel that there is a huge headroom. Recently, we have launched the Raider. The acceptance in many markets are very good. And we have NTORQ, which is a unique kind of a scooter, attracting the young people. So product is our strength. And we always believe in customer delight through service, parts, genuine parts, because in 2-wheeler business, the first service comes in 15 days or 20 days. So these are the special strategies or focus, we always believe in. Now coming to EV profitability, most importantly, you have to get the customer delight, which we have got in iQube. When we address all of you sometime after the last quarter, the booking was about 10,000. But today, when I'm talking to you, it's almost 20,000 with this new launches. Unfortunately, we want to go to 10,000 production. While the semiconductor companies are definitely supporting us, still, there are some challenges, because again, semiconductor when I look at it, they have -- in lockdown 1 and lockdown 2, they had stoppage of almost 45 days, 45 days. Then 2 companies, big companies, 1 company in Japan, they had fire accident and the 1 company in U.S., TI, had flood. So unfortunately, what has happened this today, anything you talk about to them, it is 52 weeks of lead time. They are very much partnering with us. So I'm pretty confident that a couple of months, we will be there at 10,000. But what is most important for us is well beyond that this 10,000, we can exit this year by 25,000. The benefit is even the variance you would have seen, features are different, pricing is different, okay? And this gives us profitability on 1 side. And the scale gives us profitability. And we are able to better negotiate with the suppliers on overall costs. So most importantly, to build the scale in EV, which with the product range, what we are planning, we are confident. So that's why I said in a couple of years' time, we will be profitable in EV, completely EV business as well.

Okay. So it sounds like that the accumulated experience and accumulated scale, you expect operational gearing to benefit and profitability to improve. So therefore it also...

Absolutely. And most importantly, it is the strength of TVS is even in iQube, battery management system is ours. The controllers are ours, PCUs are ours, the motor controller is ours. So we collaborate jointly with the supplier, okay? It's not buy some parts, some assemblies and give it, okay? The benefit is, if you completely know the design, then you can look at what all things you can do with the variance, you can look at the platforms, how do we leverage it for the future, like huge opportunities.

Okay. So my follow-up question has to do with what you just been explaining. I've admired your focus and competency in design and development. Do you see execution risk? Or do you see any other risk at all in TVS going after quite a lot of things and trying to do a great job in very many things? You are going after all sorts of segments. You're -- the best in chasing Bajaj in export markets. You launched iQube. Is that maybe spreading your great engineering and managerial talent a bit then?

I want to clarify 1 thing, whether it is Norton or SEMG or EGO, they have separate resources. The core of that learning, there is a strong team of R&D here, and we can definitely learn from each other, but there are separate resources to manage that, okay? And coming to India, I think we have tremendous capability in ICE and now it is the time assuming that everything is EV. So we are really, really investing behind EV. And we are supplementing people on the software side, electronic side. There are certain unique experiences on the digital side, because these are -- you need to supplement. You cannot build the capability alone. Also, we partner with many, many competent people globally. It can be universities, it can be individuals. So -- it is a collective kind of -- most important thing we put it in people and the core competence, how do we build it in turn.

Okay. So over the next 3 to 5 years, are we getting to a stage where you slowdown in identifying and building scale in new segments? Or will there be additional product lines, additional markets, additional segments you will identify and target and invest in?

I think most importantly, what we have seen is constantly give the customer delight and look at the space where there's an opportunity to come up with the products. Delight the existing customer with variants and variants and variants, because customers are demanding. Every new year -- if you look at the smartphone industry, they want something new, okay? So 1 of the things we have constantly look at is how do we keep delighting and updated in line with what the customer experiences are. There is no choice, okay? I don't know. You call it a slowdown, speed out, updated, best-in-class, you can call whichever way, okay? I'm of the view that always you put yourself in the shoes of the customer. And look at not automotive experience. You look at other experience of the -- for example, every consumer today looks at the smartphone, okay? So they want everything like smartphone. They want that speed also. So we have been constantly at -- so that's why I said put always customer at the center of the table and look at whatever they want, keep doing it. I'm not say 100% we are going to be right everywhere. Somewhere, there will be a mistake, somewhere we will learn, but never make the same mistake second time.

[ Dipen ], please go ahead.

I'm I audible?

Yes.

I wanted to understand from you, when I look at your past 3 to 4 years of performance, you've done tremendously well across various segments and continuously gained market share as well as improved profitability. And it's a very commendable thing when you look at the stress during the COVID times across various companies and industries. TVS has kind of been an outlier and have done the great job. So if you can elaborate between urban and rural, and between various segments, including motorcycle, scooters and your product portfolio, what are the gaps which you had plugged in and what are the areas which you have addressed, which has helped you gain this market share as well as profitability? And having done this now, reaching at this level now, when I look at the next 3 to 5 years of journey from your, what is it that will help you? What are the areas you're looking at to continuously gain further market share and profitability?

I'll put it into 3 buckets. First is, you have -- whatever you give, give best in class to the customer. Never, never compromise on that. Always, give best in class to the customer. Both in sales experience, service experience, product experience, you have to at it. And now you have to give digital experience as well, because today the youngsters, they are on the ball. They are on the ball. This is number one. Number two, you would have seen, if I look at last 3 years, for example, I was also personally worried when we had last 2 years, a lot of lockdowns, how are we going to make sure that we deliver new products but our teams have done a brilliant job. So we have learned a new technique of work-from-home or work digitally, clear many things digitally. So I think it's a core competence we have, whether it is Raider or Jupiter 125, both are great success. Great means really great success, both domestically as well as internationally. And we have to constantly look at the spaces where there is opportunity from the point of view of the consumer. Urban markets, people want to keep upgraded. In the urban market, since you brought rural and urban. If you ask me, urban, money is not a problem. Even this pandemic period, all the premium products have done well. Supply is the problem. Semiconductor has been the problem. Containers have been the problem. Whereas you go to the rural, the biggest problem is lockdowns; self-employed, a significant proportion; no job; no income. They have demand. They have mobility needs. But the moment you don't have income, the first priority goes for your food and education of the children. So they have been postponing, postponing, postponing. I'm of the view that April, May, June, first time marriage season, the pandemic now, whatever number, no hospitalization, which is a positive news. The vaccination going at the current level, brilliant. I'm of the view, India will have the rural coming back in a systematic and a good way. Month after month, we will see the confidence building up. Month after month, you will see the -- and the monsoon has been very good. The rural produce has been good. MSP support has been good. So I'm of the view that multiplier effect will start now coming in and slowly you will see the rural sentiment and the positivity coming up. That is good for India. And definitely good for the 2-wheeler category.

Sure. So in case of rural, what your thoughts on the significant increase in the cost of ownership, both from the point of view of the vehicle prices as well as the running costs, looking at the way fuel prices have gone up? While in urban, what you highlighted that money is not a problem, affordability is not a big issue, people are willing to pay that higher price, including the running costs and by and large things are not affected, it's more of a supply related issue. How does that work out when you look at the rural customer, who is relatively more price-sensitive and cost conscious?

Fair point. Fair -- absolutely fair point. But please remember, today, for example, all of our products are BS-VI, are all EFI, far better fuel efficiency, far better durability, far better convenience in riding. Those are customer benefits. But I agree that the regulation costs plus material costs, plus insurance parts are really, really putting out a challenge to these customers. But I'm of the view that last 2 years, they have been postponing the new bike, number one. Number two, the mobility needs are there. What I have seen is in the self-employed -- typically, if you take a moped customer, earlier he used to make INR 100. Now everywhere, people are also willing to give another INR 10, INR 20, so also he can earn his money from INR 100 to INR 150, INR 130. So I think it's -- unfortunately, what has happened is everything has happened in the 12 to 18 quarters. One after the other, including this pandemic slowdown. I think give them a little bit of time, you will see rural coming back. And thanks to the government, a lot of improvement in infrastructure, good roads. You travel anywhere in the rural part of India, you're able to see good roads. Good road is first portion of starting the mobility. And it makes the self-employed to earn more.

Sure. My second question is on the -- related to the -- 1 of the earlier question, on the quantum of investments that we've seen, which your company has made over the last couple of years and across various verticals. So looking at the size of the balance sheet and the quantum of this incremental investment and the cumulative investment that we have currently made, what is the kind of indication of the payback period that you want to share with us?

So overall investment made, I think 70% has started paying back very well. Whether it is TVS Credit Services or PT TVS, Indonesia. And the SEMG whatever we have acquired now, it's a profitable company. It's going to really make us understand the European market, the consumers, it's an omnichannel. They have products. So we are going to have complete -- so far, we are not in the developed market, please understand. All of our exports have been to the developing markets. All our products has been only in the ICE side. EV in India, we have started with iQube. And we are of the view that now is the time where you have to look at a global complete arena. And there also, you have to look at priority and say which products, what can supplement to the range what you have. So I'm pretty confident that all these investments are going to give very good returns in the future, like we have seen in TVS [indiscernible] and PT TVS.

Would you like to give some indicative time line of the payback period, 3 years, 4 years or whatever?

Yes. I already said EV -- I'm confident that in 24 months, it will be a profitable business.

Okay. Sorry. And lastly, on the EV, there were some news articles that you're looking at raising some INR 5,000 crores. And if you can just highlight some -- give us some sense on that or what is the structure that you're planning for the EV NDP? Are you kind of looking at putting it in a separate subsidiary or raise...

We have formed a subsidiary which is already communicated. We are in the process of exploring various opportunities. We don't want to comment on a news item that appeared yesterday or day before. But we are exploring various options and opportunities, not only for EV, but also for our finance arm. So we will come back to you at an appropriate time definitely.

[ Ajit ], please go ahead.

Yes. First of all, congratulations on the launch of 2 good products on the EV side. So continuing on EV, if I see our distribution, we did expand with the launch of new products. So how many -- I see the website mentioned about 85 cities. So the distribution before the product and how is it now and [indiscernible] demography of the [indiscernible] market, what's is the distribution we can reach [indiscernible] end of '24?

See 33 cities -- just before this launch, we had 33 cities, primarily because of the ramp-up speed, and the ramp-up speed was only because of semiconductor. I did explain about semiconductor and the challenges. But now semiconductor companies are able to ramp up and support us. So I'm pretty confident that we'll move to 10,000 and then possibly, we will try to exit this year by 25,000 kind of a number per month. We are -- with the confidence of getting higher delivery, we are now expanding. But our ambition is to go all India. And maybe start some few countries because many export countries have shown interest in this product, but we have not given to anyone of them. Because we have to first satisfy all the Indian customers, start giving them with a reasonable delivery period. So that is the focus totally.

[Indiscernible] given our understanding some of the rural markets might not be ready for certain products, so the distribution can [indiscernible]

Practically, for example, like ICE in India, we are in every town, every city, every rural area. First, we will cover all the urban areas and semi-urban. So the structure will follow exactly like that, exactly like that.

[indiscernible]

Your voice is a little bit breaking. Sorry for that. So can you...

Yes. Just a minute. Is it better now?

Yes, a little better, a little better.

Also can it go to up like 250, 300 cities [indiscernible]

All areas? See, once we have 25,000, we will cover all cities in India.

And 3-wheeler EV, any timelines you would like to share?

3-wheeler EV, we are already tied up with CESL, we will be supplying them and then we will be launching into the market. Very soon, we will be launching into the market.

[indiscernible] can we see the [indiscernible]

You will see in this financial year. That's what I am saying.

If any of the other investors have a question, then please unmute yourself and go ahead. So this is just 1 question that we get on electric vehicles arm. There's always a discussion about the cannibalization risk. Because it can be seen as a cannibalization risk. At the same time, it can be seen as an opportunity to expand further. So I do understand that for now, the anecdotal data is fairly limited since you are sitting with almost 20,000 order book and the ramp-up will be very certain. So, a, your production targets on EV that you talked about 10,000, are you on track ramp up of that in the coming by July or something?

Yes, yes. We are on track, because we are getting more and more confidence from the semiconductor suppliers. Otherwise, everything is fine. And on cannibalization, my view is that urban markets, you will see the scooter category expanding. So what is going to happen is, today, the scooter category is about 30% to 33% of the total 2-wheeler market. I'm of the view that it'll go to even 40% or 45%. I'm not -- I say from my experience, because like I said, scooter is a place which is going to -- electrification is going to start. I'm not saying motorcycle, it will not happen, but it is going to start, because of the flexibility, the convenience it gives, multiple usages from home, father to wife, to father to mother, to daughter to son, everybody can use it and flexible on ranges. All benefits are there in it. And typically, women various dress codes, it is comfortable in the scooter. So I'm of the view that more than the cannibalization, the category is going to expand. Scooter category is going to expand, which is going to be positive, positive for companies like us. And of course, this is a great opportunity to seize the developing markets for companies like TVS, because even in our export, we are in the 70 developing markets. With EV coming in, we can go to all developed markets as well.

And sir, even within that, 1 of the things we've seen globally is that the legacy companies usually face this dilemma of selling EVs aggressively in the starting, right? Because if you sell a lot, then there is a margin pressure. But at the same time, if you don't, then you end up missing out on being a market leader in a new category. So how do you see the balance like?

The way we see it is a little different. Any new projects, for example, when we went into 3-wheeler business. Couple of years, it's took for us to come up with the product and understand the distribution. And couple of 2, 3 years, we made loss. But today, it is very, very profitable. Same way, simply when we started Mysore plant or Himachal plant, same learning. When we went to Indonesia, you know the story. Today it is profitable. Like that EV is also an investment for the future. So it's a technology, it is a new technology. So you will enter some investment. We don't treat this as losses. These are investments for greater success in the future. That is the way we look at it.

And sir, what about electric motorcycle, because that is also like we've seen that everybody in the industry has taken a lead on the scooter side, and we understand the form factor argument the fact that it's a very urban product. So -- but what is your take on electric motorcycle space?

See, it will happen. It will happen. Because there are enthusiasts, for example, in premium category or certain executive category. It will happen. See EV is the technology change. So something will happen earlier, something will happen a little later. So we are very clear that every aspect of area, EV will be there. Timing is only change, which will come first and which will come second and third, like that.

And sir, recently, in the electric vehicle space, we've seen a lot of news flow about safety concerns from the customer side. So at more -- at the company level, TVS is anyways known for its engineering capability. But have you seen a little bit of a win in the market, because of that, that the customers are now going back to reliable brands versus trying out these new brands?

See, anybody who gives a good quality and safety wins. I'm a firm believer in that. So invest in good quality standards, safety standards and keep working not only in the product experience, sales experience, service experience, taking care of the customer. I think the -- every technology has got every challenge. I will look at it that way.

And sir, just winding up. In fact, we have another 5 minutes or so. So if any of the investors have a question, please unmute yourself and ask, but just like last few questions. One is when you look at FY '23, which is a segment where you are the most bullish on in terms of growth? Because we've seen -- we are seeing exports doing well. We are seeing domestic also after a very tough time now, supply chains being -- doing well. But which segment do you think is going to lead on growth in the coming year?

See we have always seen -- I think you have said already exports will continue to do well. Premium segments in India will do well. But I'm also saying that the rural will come back this year because of the stability of income, most importantly income, and no hospitalization, because the fear of this COVID with the vaccination, I think, it is moving away. And with a good monsoon and the agriculture produce prices being stable, I think the confidence level. Because India, if you look at it, rural, majority is self-employed. They have to go out and work, then only they will earn money, daily money. And the schools will reopen -- another good news is schools reopening. So schools reopening as a good news for scooter. So there are positive pick. There's only 1 negative pick, which is the cost going up. The regulations and the insurance going up. These are all challenges. Unfortunately, all have bundled up and happened in the last 12 to 18 quarters. Out of that 8 quarters has been pandemic. If it was phased out, nobody would have realized it. So I'm pretty confident that 2-wheelers in the long run in India will do well. And exports market, wherever we are present, it is going to do well.

And sir, overall, just on the cost pressures, we've seen a pretty good performance, in fact, across industry, like March quarter, everybody had record high EBITDA per unit or gross profit per unit. But then again, there's a little bit of a lagged impact on commodity hit that comes through. But again, we've started to see some cool off on commodity side. So where exactly are things in terms of commodity headwind versus price hikes taken?

See, this commodity versus price. If you build good brand, I think pricing is not a problem. I'm yet to see one consumer saying that, "I will not allow prices to go up." The challenge is to -- according to me, the semiconductor, even in the ICE sector. For example, April, May, we had a little bit big problem on semiconductor availability for Raider and Apache, our premium products, you have to supply to the market, because consumers are very young, they want it. So -- and -- there is always something, which is not passed on to the customer. But we can always look at our variating strategy. We can look at cost reduction. Because the volume goes up, many things we can work out. So I'm not so much worried about headwinds on commodities. It'll be there. So we have to -- and please understand, I'm not so much worried about every quarter. I look at the long term. One quarter, you are not able to increase prices, yes, come on, wait. You focus on the new products and give it to the market and do better than the industry. It'll come. It will come. It's not a rocket science in my view. I think what is most important is building good brand, customer getting delighted, good revenue. Top line is that every line we can make it happen.

Yes. But that is actually exactly what we've seen in the last few years, right? Right from your market share the way it has grown in scooters and motorcycles...

Five years back how many hit products we had. Today, how many hit products we have. We have Apache, we have NTORQ, we have Jupiter. We have now Jupiter 125. We have Raider, HLX series, TVS King, come on. I think the role of all of us is to build very, very strong brand.

Yes. Yes. No, that clearly has been at the center of your growth story. But I think with that, we've also run out of time.

Thank you very much and anyone who's coming near Bangalore or you are coming here, kindly do let us know. You can visit, spend some time in the factory. Tell us in advance, so that we can host you. I can be there and I can interact with you people.

Thanks a lot, sir. Everyone, have a good day ahead.

Thank you. Thank you so much.

Thanks.