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

Good morning, good afternoon, everyone. On behalf of UBS, I welcome you all to the Paris Global Mobility Conference, which we are doing a virtual meeting here. We have with us the management of TVS Motor, which is represented by Mr. K. N. Radhakrishnan, President and CEO and Mr. K. Gopala Desikan, Chief Financial Officer; and he is also the Group Chief Financial Officer as well for TVS Motor Group companies. And we will -- this session is for 45 minutes. We will start with a brief opening remarks from the management which will be followed by a Q&A session. And given that this call is for the benefit of the clients, I would request all of you to use the raise hand option to ask the question and identify yourself and your firm before you kind of ask the question to the management. So with that, I hand over the floor to Mr. Radhakrishnan. Over to you, sir.

Good morning, and good afternoon. I don't know which part of the world all of you are. I have joined from Bangalore and my colleague, Gopala Desikan has joined from Chennai. And it is 1:30 here, 1:35 here in the afternoon. All of you know about TVS Motor. If all of you know, if anybody doesn't know about TVS Motor, then I'll spend some time, otherwise, straight, we will go to Q&A because we have only 45 minutes.

I think brief remark, 5 minutes, and I think that will be great.

Yes. Okay. TVS is in the 2-wheeler category, 1 amongst the top 5 companies in the world in terms of the market share. We have an excellent product range starting from the moped to RR 310. And recently, we have also launched the electric IQ, which is doing extremely well in India. Of course, this is available only in India in about 130 city stroke towns. And as we speak, last month, we did more than 10,000 numbers. It's a cooper. And we are planning to take into much, much higher levels going forward in -- by March 2023. We did 10,000 numbers last month. On an average, we do about 300,000 per month. We have a market share in VAHAN of about 16.5% in India. And we have almost 24% market share in the international market where we are present currently in all the developing economies. On 3-wheeler, this is also another portfolio we have. In the international market, we have almost 40% market share. Domestic, we have close to 10% market share. The strength of TVS Motor is we have a very strong design and development group, and we invest behind that. There are very many brands which are successful in the last few years. When I look at it, we have a patch the premium category, then rider in the 125cc category then start entry-level economy motorcycles. Then in the international market, we have HLX in the taxi market, then 3-wheeler king. On the scooter side, we have TVS Jupiter, TVS Ntorq. Even in Jupiter itself, we have a 110cc and recently launched 125cc. This is from India. And then we have products from Indonesia, which is a skubek and bebek. There are 2 Bebeks, which are NEO and Rockz. And Bebek is Dazz, which are -- we sell it in Indonesia and also export in many markets. The strength of TVS is the focus is always on the customer. And depending upon the market, depending on what the customer requirements and segment, we invest in designing and developing. And most importantly, in J.D. Power, all of you know about J.D. Power. We have been #1 in the domestic quality and attractive quality and also service to the dealers. So this is a broad brief so that we can get into the Q&A.

Thanks a lot for that, sir. I think we will now start the Q&A session. So we would request participants to ask the question to Mr. Radhakrishnan and Mr. Desikan.

See, I can give you -- currently, we have -- we started off with iQube, the base version. Now we have 2 more versions, which we have launched recently. As I said last month, we did 10,000 numbers. And we are now having -- as I speak, we have more than 25,000 booking. Actually, we have put a cap of 25,000 because when the customers book it, he will agree for a delivery date of up to even 3 months. But the moment that he books if he wants it on the same day. So we are now looking at ramping it to the next level. Our internal target is by March delivering this 25,000 into the market. That will be a big, big change because if I look at 25,000 scooters, today, the industry of scooters on an average in India is about 500,000. I'm just rounding off to the next number. It is about 470,000 or so per month. And already EV is clocking, the medium speed is clocking around 45,000. Okay, 45,000 to 50,000 average. So almost 10% of the industry is EV. And in that, we are 20% market share. And we want now that to move to almost 25,000 by March. The most important thing is customers love our product. iQube, they are really, really low product, and that is the biggest reason for the success. Now when we look at our scooters, I can only give you an analogy, I don't want to give the exact number how many products we are planning to launch next 12 quarters, we are focusing on all segments. What are the segments available, for example, in the i segment. There is an entry-level scooter that there is a Jupiter. There is a Jupiter 110. There is a Jupiter 125, then it's an Ntorq, which is a 125. So please understand, there is a ladder of commuting for scooter to young and the premium scooter. This is something which goes up. Same way if I look at a premium motorcycle, we have Apache at 160cc, which is the 2-weld and there is about 64 weld, there's a 180, there's 200, then there is a 310. So there are segments available. Each of the segments we are planning to enter in the next 12 quarters. That is our plan. And most importantly, the design and development of whether it is battery management system or controllers or the iVCUs. These are all internally designed, and we partner with some of the suppliers, some we make, some we buy. So that is the kind of arrangement we have. We believe in completely. That's why I said, our strength is looking at the customer, customer segment and the usage and also investing in the complete in-house design and development. See, we have -- today, we are importing it and we have a very good supplier with whom we have a good partnership. I may not be able to give you more details because these are very, very strategic in nature. But anybody whom we associate will be high quality and high safety, okay? And for other volumes and this one, we have to now look at many suppliers. I'm not talking about sell depending upon the capacity and the kind of arrangement. We will keep discussions on strategic area. But 1 good thing is 10,000 has happened, thanks to them, and now they are focusing on delivering 25,000. And food, we are also looking at an EV 3-wheeler. So this requires our own battery management system, and these suppliers are definitely supporting. It is not only the sales supplier also, we have to look at other semiconductor suppliers in this area, and they are all automotive range. So I think it's an integrated effort from many suppliers globally. Plus I cannot give you any guidance on the margins, but I can tell you that we are positive. When we started, it was negative. Now it has come to positive. For me, it is like any other investment. For example, we invested in our Indonesia PT.TVS. I think in the first few years, we made lost, huge losses. But in the last 3 years, thanks to the investment and the maturity to stand the pressure. Today, we are now coming to almost 10,000 per month on 2-wheelers and 2,500-odd 3-wheelers. So EV is going to be exactly like that. Most important thing is we have to build the top line. So building the top line, you need products, you need to segment waste products, and there has to be a very good appreciation from the consumer. That is where we have 25,000 bookings. And please understand with EV, there is a great opportunity to start giving it to the developing markets where we are exporting currently also developed markets, including Europe. Europe and many markets because over as seen our products, that is a great opportunity. And all of you know that when you go to the exports, the pricing opportunity and also developed markets, better pricing opportunity. So EV -- has its volume. When the top line happens, every line happens, okay? For example, when 10,000 goes to 25,000. Absolutely, you're right. We'll have scale benefits. We will have more and more opportunity to look at suppliers, okay? As you know, there are opportunities in terms of instead of just 1 supplier, you can always expect 1 more supplier. And it is very, very important when you have that kind of opportunity. So our first focus is to customer delighting products deliver that, grow the volume disproportionately on the top line and then start looking at what all things we can do in every line. And I can give you an analogy. The same analogy we'll be using even in the electric. When we started Jupiter ICE, we had only 1 based model. Then we looked at the customer and the customer requirements. And because always, there is some -- and when you talk about the sales and marketing department, they will say that no, no, it should be competitive enough with the competition products. So we have a product Jupiter-based model along with Activa. You know Activa the most important selling model. Then we felt that there are a set of customers who are -- who really want a lot of features, a lot of new technologies. So then we gave a ZX model in Jupiter, then we gave a Grande model in Jupiter. And recently, we have launched a connected cluster model in Jupiter. And each 1 is much, much higher priced, much better contribution. And I can tell you, more than 50% of the sales happen from these models, which are higher variants, which are priced higher. Similar strategy, you will see already iQube, there are 3 variants now we are launching. What happens is India has got a set of customers, and we have a very strong retail financing now. When somebody comes in and he looks at a product and say, "Oh, this is a Jupiter ZX model or a Grande model or a classic model. He says, "Oh, per month, it is only another INR 100." Immediately migrates from a base model to that market. So similar strategies we will be using between varianting, which is limited editions and giving -- recently, we gave a model with completely voice assist and talk doing extremely well. And if I look at Apache, we have given rideshare the which are there in the 100 -- 1,000cc and 1,200cc. And all of these are priced high and good margins, and there are customers who really want to buy this. So this strategy, even in the EV space will continue. The last 3 years, you look at the performance, related performance TVS versus our competitors. I completely agree that our margins are the lowest and EBITDA margins are the lowest, but some 7% kind of an EBITDA. Our last quarter, we were at 10.2%. And we have done it by continuously growing faster than the industry, thanks to the customer delight on our products. And we have invested behind excellent new models. Today, there are plenty of brands, which are super hits. When I say super hits, those brands, which are selling more than 25,000 per month. including the recently launched Raider and Jupiter 125. So what is most important is you have to get super hit brands, invest always in the new products and new technologies and features and areas. Invest in EV, okay? This is something we will continue and grow the top line ahead of the industry. And 1 more most important thing, we are not giving any credit either in domestic. Earlier, we used to give huge credit in the domestic system. Today, we have less than 30 days of stock with the dealers, and they bring money. What happens is when you don't give your money, the full system, they will buy only what is required and what colors, what models and what happens is we want the customers to get fresh products, really, really fresh products. If somebody keeps 3 months -- company got interest on the credit whatever there. But ultimately, whatever is wanted by the dealer, not wanted by the dealer gets into the dealership. So we always believe in kind of a very systematic pull from the channel and getting the customer the best, customer, the latest, customer, the -- ideally, if you have seen, they should be able to get is within a day or 2 from the production date. But that is not easy because there are fans times and logistics and all that. So 30 days is a very good period. So a lot of new ways of working in the customer satisfaction area we have done and a pool system and dealers have to focus on that. And like I said, excellence in customer experience, customer care, that is why the J.D. Power has given us #1 for several years. Now coming back to the margin, the moment you see top line growing, we have very clearly 3 strategies. One is the product mix premium products, for example, Ntorq plus you have the Raider and you have the series of Apache. I think the proportion quarter-after-quarter is going up. And also, the variants are going up. So on 1 strategy is very clearly looking at premium products and the proportion going. Second is exports. We look at our exports; okay? Now even though there are industry challenges, our retails are always ahead of our stretch. We always -- we'll always look at the stock levels, retail going up, moderate the supply. So never, never the customer gets a problem, and I'm pretty confident that the kind of range that we have the customers are delighted and we are able to grow ahead of the industry. Now coming back to the cost side, the moment you are able to grow the volume, we can always get a second supplier, third supplier. And we used to import. I remember, there was a period we used to go almost 22%. Now our import has come down less than 5%. So localized. Quite a lot of things are localized, and it definitely supports us and common platforms, a huge focus on common platforms. So the themes on material cost reduction product mix, premiumization and making sure that we invest without compromising on investing in new products, new technology and the brand. That is exactly what we have done, and that is giving a huge benefit. I'm pretty confident that you will see -- I can't yet give you a guidance on our EBITDA journey. You look at the last 6 quarters, I think that will tell you that consistently, we believe in sustained and consistent growth in the EBITDA.

See still we are evaluating all options, not that we have zeroed in on 1 direction. We are in a very advanced stage. We will come back to you with all your questions very soon. But at this point of time, we are evaluating all options.

I'm a firm believer that EV transition is there to stay in India because I think -- the consumers -- my experience so far, now we have almost sold more than 60,000, 70,000 numbers of EV. When I see the profile of the customers, they are willing to look at a new technology, new way of looking at green. So this technology will stay there. But what is most important according to me is consumers choose. There are positives in ICE. They don't want to -- for example, I can give iQube. Whichever customer whom I have met, they say that it is a Jupiter. It gives me all the benefits of 2 plus 2. Me, my wife and my 2 kids and I can carry certain bags and can go good road, bad road, any flyover, rain, dusty, absolutely no problem. In addition, it's completely connected. It has got all the smart features of the smartphone. So I think consumers -- if you are able to connect with the consumers and give something which is liked by them, I think they will immediately migrate. And there is definitely a full credit to the government. There are a lot of support in same and GST. -- that is definitely is good to enable this transition, okay? So I think EV is good to happen. And I may not be able to put a number to it. I think it is for us. In TVS Motor, the way we are looking at this next 12 quarters, we should be presented every segment, and we should embrace the change proactively. -- not wait for somebody to come in and then start thinking. And that is the reason we are invested. Anyway, on the ICE side, we have a very good range and we have a very good team. Now we are building a very strong team for EV see some of you, if you are happen to visit Bangalore kindly let us know. We can take you around and say the kind of products and the investments that we make. I don't want to comment anything on that. But all that what I can tell you is by March, I want to achieve 25,000. 25,000 will be much more than whatever you said at that time. So our objective -- that's why I said our objective is, EV, we see as a great opportunity to seize, not only in India, not only in the developing economies where we are exporting today also enter into many developed economies like Europe or U.S. or Japan or any other part of the world. I always tell this to prabhu, we invest today because we have been patiently investing and standing in the trees, okay? Even in a Twenty20 match, if the batman waits for the right ball to hit, yes, so TVS CS, when we started, many people used to ask me, I don't know. But today, it is a 20,000-plus book size, and it is the most profitable and also respected financing company. We started with 100% with the 2-wheelers. Now the 2-wheeler dependence is less than 40%, correct [indiscernible]?

Yes, you are right.

Same way PTT wins. We waited there. And the last 3 years, we are profitable, and I can tell you we will disproportionately grow now. So even EV space, I look at as an investment for future. So you invest, you stay there, you stay calm and do the right things with the right mindset. That's why I don't want to give credit and you 3 months talk. I want to keep only 30-day stop so that the customer gets the best. Internally, the day in and out day out, we discuss that. But I want to say that is to get iQube kinds of super hit brands built, okay? And you need to have at least 4 or 5 brands, which are there in the next 12 quarters, like Apache or Jupiter or Ntorq or Raider or Star Group or XLX or so you build some 5, 6 brands, which are strong. Okay, let me delight all of you. The next product, the cool bike for -- with the partnership of BMW is completely designed by us, and it is going to be easy. See, closer to launch, I'll give you exact details, okay? You are absolutely right. There's a huge pressure from many of the distributors to give them this product, but when I have 25,000 booking, and I am able to give only 10,000. Maybe this month, a little better and ramping up to 25,000 by March. And we are present only 25%, 30% of the market even in India. So -- but I will not wait for only for India to be fulfill fully, I think we will start soon. But I'm very, very sensitive with customer booking. I always say that the customer has book something, we have to honor it. Otherwise, it's also customer dissatisfaction. If you ask me, I wanted to do it yesterday, but there's good from all supply chain people and our ability to ramp up to the volumes. That is what the constant challenge in the dilemma, but our booking is this INR 10,000, whatever I have been talking, at least I was trying to do it in September, October, it did not happen, but however, it happened. So it's giving more confidence now because once you cross 10 then go cross 15 and 25. Definitely, definitely, this is something we want to focus and drive. But the only thing is you know us pretty well, see whichever market you do, there may be some certain variants, they allow certain features, they love it. So we have to -- we may have to do some modification, but may not be the modification of the platform, but some design elements we have to look at it. Certain the features, we have to look at it. Such mortifications might happen. I assure you, we won't look at this only, okay? Because the moment you get into this thing, what you said is absolutely right, my existing customers will cheat it, okay? We always say that if I wait for a longer time, I can get -- I'm not talking about 0.5 kg sweet given or sometimes they give in a season time, maybe half base helmet free. I'm not talking about that. I'm talking about literally the price coming down, okay? I'm a firm believer that there are retail finance schemes, which are available with down payment and EMI. Even there, we are very clear. You don't give it to any type of customers give it to quality customers. Quality, when I say quality customers, you ask Desikan, he will tell you, delinquencies are less than 3%, Desikan?

You're right.

Yes. So to me, the quality of customer and the quality of the resale price is very, very important. Why do I say that because more than 50% of the customers use this down payment when they buy after 3 years or 4 years. Very, very important, okay? Number two, even when we all wanted the cost to come down disproportionately. But please understand this is a cycle we have seen, okay? For example, now, we went through the lockdown then suddenly, the lockdown got released, and we were all happy. Suddenly, there is inflationary pressure because of the war. So I have always seen there are planned headwinds, unplanned headlines okay? So this is life. Third, I think the most important thing we have to give is give better and better value to the customer, technology to the customer. Features to the customer. That will enhance your pricing power, okay? And growing volumes will always help you to build the -- your EBITDA margins, both in percentage terms and also in absolute terms. So I'm a firm believer that -- and we have to invest, we have to invest. For example, EV, we are disproportionately adding the software engineers, the analytics and digital team, which was not kind of numbers we had in the past, okay? So disproportionately, we are adding that. And that is the space for the future. And some of the things even what we are trying to do in the EV space will be applicable in some of the ICE products. So I think these investments, one, your overall top line will grow disproportionately. The cost will get amortized. I'm very sure you would have seen our marketing costs. When the brands become stronger and stronger, your costs get amortized over a larger revenue figure. So the percentages will come down. So overall, the strategy is sustained grow the EBITDA has to come to double digit. Now next step we have taken, and we will continuously do that. But we will never compromise building a brand investing behind a brand or investing in technology, never. Good times, bad times immaterial, customer, technology, brand, these are here to stay. And you need to invest. We never look at it as a cost. We look at this as an investment. And EV business, I'm very sure like a TVS CS. This is an investment for -- proactive investment, let me put it that way for the future, which is going to take this company to even develop markets. Surely, surely, surely because first is to leverage the Norton brand in many of the developed markets because there is a huge positivity about that. And once you have the brand and the kind of -- you would have definitely seen and like running. So this is the first -- the good thing is already we have sold more than 10,000 bikes. there are 10,000 proud customers in the last 3 months. So I'm excited about it. Like Apache brand, how we build on it is another full category, which is getting built. So I'm very sure India is -- I think next 50 years or 100 years belongs to India, that is the way I look at it. We have the right demographics. We have got the right population. There is a lot of investment happening in the infrastructure. And even a small percentage, who in 1% of the premium multiplies into the population. It's a huge number, huge and huge numbers. So definitely, we cannot ignore even with an open brand India. I think when the volumes start growing, that is the time to look at having common platforms. I think that gives a huge benefit, huge benefit to the company. And to even the supply chain and for even the surveys and see, always people talk about part count. See, part count is very, very critical when it comes to the end-to-end supply chain. And indirect costs of managing the number of parts. So this is 1 of the key points what we always look at inside the company. But for that, the most important is disproportionately growing the volume. And it has started, for example, if you recollect, there was a Brad V-Go, which was doing extremely well in trend Sri Lanka, Bangladesh and some other markets, which Sri Lanka is not there, Iran is not there. But the platform is common with completely Jupiter. So you understand what I'm saying. Huge opportunity I can give you. But most importantly, 1 thing we are very conscious is always the customer retail ahead of the dispatch from India, okay? If we collect, I think September. September, I think we were 66,000. Last month, I think we were 72,000. Or you will see every month going up, but I can tell you my retails are far, far ahead. So I'm very sensitive to me, the stock with the distributor, the stock cannot -- we cannot pump and pump in pop because it will affect the stock levels at the distributor level and the customer will not get a fresh way. So I'm coming from the customer side. Customers should always get a very, very fresh vehicle. So we always look at country by country, model by model even if it is giving you some pain, okay? Now my retails are picking up, I'm gaining in retain. I'm also gaining in dispatch because it's sustainable. Even in India, you can visit any of our dealers. I think March 2020, I think when -- just before locked down on our rooms, that is the time we said let's pull out all the credit. That there will be a cash and carry model in the domestic market. So it's a very difficult decision because when you give credit, you can push what you want, not necessarily what the customer wants or the dealer wants, okay? Today, they -- when a dealer brings in money, they will take only what they want, what the customer wants. But ultimately, you will not have any kind of customer issues because customers get what color they want, what model they want and relatively very, very fresh. Those are the principles which -- and in the international market, I feel there is a huge opportunity for TVS because we have the best range. We are the best range, including Indonesia, if I add it, it's a huge opportunity for TVS. I think the journey has just begun. I'll put it that way. .

I'm mindful of time, but just wanted to take up the discussion on the domestic demand scenario, sir, because there is a lot of optimism, a lot of this is coming from the 2-wheeler retail data in the festive season and saying that rural is coming back in a big way led by 100cc category. So what is your read on that? And was there other factors which kind of resulted in the shaft spike in retail? And -- if you look at 100 for the last couple of weeks, numbers of cooling off. Numbers are cooling up very rapidly. So if you just make some quick comment whether we have turned a leaf on the rural side and it's going to be a sharp comeback on the rural demand side going into next year, especially for 100cc.

See, the rural is according to me post, I would say, 2022 in January. The COVID situation and the hospitalization that worries are now getting slowly, slowly, slowly getting mitigated. I think first was the Mary season and Diwali season, practically there are no hospitalization. Even when I speak, I don't see anybody getting affected and getting into ICU or a ventilator. I think that fear is gone. And then kind of vaccination drive and other things are definitely helping. Now why is it important? Because rural was most affected. Now the moment this was opened, I think slowly now we are able to see -- see, rural that are 60% or so is self-fed part. They earn every day all my moped customers are utility customers. They earn every day $2, $3, $5. They carry milk, they can agricultural goals, they sell apples, oranges, whatever, I think they do. And many are self-employed like plumber, electrician. They go house to house and do and they'll earn. I think that activity is back, which is very, very positive, very positive, number one. Number 2. India, definitely, there is -- public transport is very poor. A lot of investments have been made in infrastructure today. I travel by road quite a lot. Now even in the rural area, there are a lot of efforts in connecting and people want to -- people really want to [indiscernible] people want to be [indiscernible]. And that visibility is there. This is number two, okay? When they are mobile means they need 2-wheelers, okay? So far, if I look at last 12 quarters, again, I don't want to repeat, which I always believe in, 45% is the price increases. Of course, it is BSVI. Of course, it is not EFI technology. It has got everything. But I don't think consumers' ability of income earning has gone up 45%. Now the conflict has come from the people side that the income is going to be continuous. I think the basic hygiene factors have taken care. The medical worries are not there. So I am very positive over 2023. Going forward, you will see -- and we have seen that in our TV if the delinquencies are not there practically, that means people are ability they are paying back on time. The things are coming back in a big way. And in my opinion, India has got the latest [indiscernible]. The demography, the profile of the people, the mobility needs. I'm a firm believer that at some point of time, you should start seeing the 10% CAGR happening in the [indiscernible] site.

No, that's great to hear, sir. And I think you did mention about TVS credit. And I just want to touch base on that business in terms of you've stated your intent publicly earlier that you would like to bring in financial investors in this company for the first time. So far it's entirely captively funded from TVS Motors cash flow. So just any update there, which you can share, sir? And what could that mean for TVS' incremental investment run rate? And also the valuation -- value unlocking what one should expect from such transactions, sir?

It's too early to comment on that now. Still, we are discussing the fact is, yes, we have engaged a banker. And if everything goes well, probably in the next 30 to 45 days, we will come out with the clear proposal on that till such time TVS investment for maintaining the business-related reasons, we will be investing.

Sounds great, sir. And I think we overshot on the time side. So I would like to thank you both for taking time out and spending time with the investors. And I also would like to thank all the participants and my colleagues from Europe for taking time out and being on this call. I wish you all a great day. Stay safe. Take care. Thank you.

Thank you. Thank you so much.

Thank you very much.