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

Hi Patricia, you're on.

Hello. Hi. Good morning [indiscernible].

Hi, Patricia, good to see you. [indiscernible]

Yes. No, it was an issue on our side because we were -- I wasn't able to come on that platform. So I requested this change last moment, so apologies for that. But let me not waste much time for you guys and I'll just introduce you. We have Mr. KNR, who is the CEO, TVS Motors and we have Desikan sir, he is the CFO. And it's always good engaging with them. So I'll let you guys -- let you take over the meeting. Sir, Patricia is from Edmond Rothschild. She is the emerging market PM and there is [indiscernible] as well who works with Patricia. Over to you guys.

Yes, thank you very much for the nice [indiscernible]. Thank you very much for your time to introduce your business. We have also an India fund dedicated to India. I'll let [ Ashique ] to take over this conference. Thank you again for your time for doing this conference for us and presenting your business, actually the first time that we have this call with TVS.

Can you hear us?

Yes. Yes.

Good afternoon. Good afternoon.

Yes. Good afternoon. And as Patricia mentioned, that is the first time to having a call with TVS management. So we just wanted to get some idea of the business and strategy. So I'll start with some questions, unless you have something you would want to start...

Better for time management, you start with the questions because you know the basics of TVS and...

Little louder please.

Little louder, that will definitely help.

Sure, sure. So like my first question is around the EV business because it has gotten some very warranted attention in the last few quarters. So like, you double the guidance for the [indiscernible] around close to 25,000 a month. So can you please explain how you are expecting to reach that number? I know you're looking to examine the network, but I would also like to understand, is the supply chain aligned for the ramp-up, given that we are already delivering the premium models almost to demand?

See, EV business, like I have always highlighted, first is to get the product right. And iQube has been a fantastic product, which is really delighting the customer. And currently, we have about 200 outlets, our own outlets, ICE outlets and our bookings are little more than, close to 30,000, I can say, 27,000, 28,000 because we have stopped the booking primarily because we have to deliver. So the focus is on -- fully on delivery. And month after month, we are able to ramp up better, thanks to the supply chain. And we are moving towards that 25,000 -- close to that 25,000 in the month of March. This is one. From the point of view of the product, it is like any other scooter, but what is most important is it has got a lot of digital connectivity. It has got many connected features in iQube and that is really delighting the customers. So it's a mobile one -- on digital on mobile system. So consumers are liking both. Now coming back to our overall EV strategy, we have a plan to deliver segment-wise products because there are many segments in India, if you look at the ICE we have seen very different segments. So you will see many more launches from the company in various quarters. We are also getting ready with our 3 wheeler on the EV side. So this is going to be a great opportunity for TVS, first to expand in India, 200 dealers, it can go up to much, much higher level. Second, deliver these new products to delight the customer -- various customer segments and then start international because there is the requirement in the international, there is interest on this product. But without satisfying the local demand, we don't want to start it. So possibly next year, we will see, we're getting into some of the markets.

Okay. I was just -- so if I understand it correctly, for now you don't see any roadblocks in the supply chain because, I think, in the last call, you mentioned there was some problem with Apache in September, which got sorted. So I was just trying to see if you see any major risks to ramp up in the future? That's why you don't see...

ICE product, primarily, we use electronics in the ECU. But in the heavy vehicle significant proportion of whether the software or connected cluster or motor controllers. We have more and more EV parts. Their ramp-up because month after month, we have to move to -- when I spoke about 25,000, it is getting 1,000 per day [indiscernible]. We are not yet there. We are not yet there, but everybody has promised to support us to get to 1,000 per day. So that is the focus which is going on.

Okay. Okay, sure. And you like mentioned something about different segments and like regarding also the collaboration with Amazon. And I believe the company commented something along the lines of intent to expand across multiple segments. So I just wanted to get your idea about your plans for different segments of the EV portfolio. Like does the company plan to make the 3-wheeler available through direct-to-customer channels or by when can you expect the products in different segments?

I can give you an analogy. If you look at Jupiter, for example, you have a 110, you have a 125 Jupiter, you have an N-torque. So same way, if you look at Apache, there is a 160, 180, 200, there is a 310, there is a Ronin. And if you mind-map the type of customers, I think each customer, the requirements are different. Their expectation is different. Their performance expectation is different. And also, if you look at 310 Apache or N-torque, the customers are very young, okay? Very young means around 25, 22, 23, that kind of age group. So we will have products. If I look at iQube, it is used by everyone, practically everyone. It's a common commuter scooter EV. Okay. Beyond that post the launch I will be able to give you more insight because these are really, really confidential, and we want to really excite the customer just before launch.

No, yes, that makes sense. Okay. So my next question is around the subsidies, the FAME subsidies and with the [ gained ] acceptance for iQube. And no doubt it's like a great product. But with that sort of response -- it's a double-edged sword, right? The [Technical Difficulty] these, somewhat getting shorter, maybe 7, 8 months...

No, your voice is...

Your voice is breaking. We are not able to able to hear please.

Your voice is breaking.

Okay. Okay.

We have put some extra effort to understand your question.

Could you repeat that question?

Yes, yes. I'll switch off my video for a second, maybe that makes it better. All right. So is it better now?

Yes, we can hear you, but you can little bit be louder.

Yes, sure. So my question was regarding the subsidies, the FAME subsidies. And I just wanted to understand, since we have received such a good response for the iQube and you're coming up with the new models and we're expecting a ramp up, with that sort of response, the runway for subsidies, it keeps on getting shorter, maybe around 7, 8 months now on like if you look at the optimistic side. So just wanted to get the understanding of the strategy once the subsidies are not extended. And secondly, like with the tightening of the battery standards, do you think that this would also like have any material cost impact going forward?

See, subsidies are, first of all, thanks to the way government has put support, when you need such major transitions, you need competitive price to change the mindset of the customer. So that is the reason government has taken this very strong support in the form of FAME. But in my opinion, what is most important in any business is to make sure that the customer loves your product, okay? Once you -- once the customer loves your product, then you are sure of the demand. Second is, I can give you an analogy when India started exports, we have almost 15% benefit in export. And that continued for 2, 3 years and then they kept reducing the rate. And today, practically it is only 1.5%, the export benefit, what we get, okay? It is to aid, it is to support. So if somebody assumes that FAME is going to be continuously there, it's not going to be. And we are also not planned in our business plan that FAME is going to be permanent feature. That is number one. Number two, what is most important is when you are present in various customer segments, the pricing will become different, the profitability becomes different. Even in iQube, if you look at it, there are 3 products now, 3 variants. There is a basic variant, there is an S variant, then there is ST variant. It's completely priced differently. And when you give higher and higher variants, you can price it higher. I can give you one example. You are -- very sure you would have seen our Jupiter. Okay? Jupiter is equal in terms of price to Activa. Activa is a Honda product. It is our biggest competitor in that segment. But we have been able to put very clear variants of our Jupiter. We have Jupiter ZX, then you have Jupiter plastic, then there is a Grande version, each one has got certain features and certain attractive features plus technology, plus certain look and feel itself and priced differently. When we started, 95% was the basic model. Today, it's 50-50. And these variants also gives you better and better profit opportunity. So this is one. Second, you know that these products can be exported both to our current developing markets and developed markets where the pricing can be completely different. So it will be a strategy of, first, growing the top line. Coming up with variants, very clearly having new products launched over a period of time, exports. And please understand when the volumes go, there is a huge opportunity to cut down the cost. And I'm very sure even the cells, when we started it was INR 18,650, now it is INR 21,700. There is a chemistry change. There's a cost change. There's going to be future chemistries, which are going to come. But everybody is continuously working on how do we bring down the per unit cost. So it's a journey. So I'm not so much worried about FAME not there. What is most important for any company is to delight the customer. If a customer gets delighted about your product and the top line is assured every line will fall.

Okay. Okay. Yes. That definitely makes sense. And I think the ideology of being customer-centric is what kind of garnered attention in the first day stores TVS, so yes, it's a great way that you are still aligned with that. All right. So my next question is around the fundraising part for EV business. I understand the company, they recently filed a disclosure that it's continuously exploring new value-creation opportunities. So I just wanted to understand your thoughts on like what sort of importance and implications you think that these investments have? And where does this process sit on your priority list? Is this something that you are actively working towards? Or is it still something -- that still needs time to be finalized?

This is fine. We are still in the same stage of evaluating options, including through a fundraise, not yet close, not even decided at any level. Whatever that is there in the press are all -- I mean, it's not something very authenticated. We will come back as and when we decide once the Board decides. As of now, still we are exploring options only.

Yes. No, I understand that. I just wanted to understand, like get your thoughts on, do you think it's really important and -- or like could you see the business growing without that as well? Like what's your understanding of the fundraising part?

Fundraising doesn't have any kind of connections with the business, okay?

In fact, the various options I said, including the option of investing my own money. So in no way this will stop or hamper or delay our process of EV journey.

We have a very clear road map of what kind of investment we have to put, what kind of customer segments, what kind of technology. That will continue. That will definitely continue. Of course, we are evaluating various options. That is what Desikan is highlighting, okay? And whatever is appropriate, what is the best for the overall business division, we'll take a call.

Okay. Okay. Yes. Sure. That definitely makes sense. All right. So regarding the domestic business and in your recent comments, you seem very confident about the demand recovery. But if you look at the exit trends, other than the festive season, the demand has been very moderate and where we were expecting like a cyclical rebound. Can you maybe explain why the market was so weak and also like give your comments on like the on-ground sentiments about recovery?

See, market, we should believe this Q1 of last year because previous year to last year, the Q1 showed huge growth primarily because last year we had -- in Q1, we had COVID-related closures. But this year, if you look at Q2, Q3, I think the demand has been moderate. I won't say it is bad. Purely if you look at the Vahan, which is the registration, I'm not even taking the dispatch data, dispatch data. So Vahan has been around 4% to 5%, which, according to me is a good start, okay? There are some more improvements required. But one positive thing is the COVID situation is really, really easing out and we don't anticipate any more lockdowns, okay? If lockdowns are not going to be there, you remember that in 2 wheelers, the 2, 3 fundamental principles with the government putting a lot of effort in the infrastructure development, roads -- good roads and public transport not being there so good, I think 2-wheeler is the most important mobility vehicle, number one. Number two, more than 50% of the Indian consumers are self-employed, okay? And the efficiency and effectiveness goes up when they have a 2-wheeler, whether it's a plumber or a electrician or an agriculturist or somebody who has to distribute milk or any items, he earns money every day, okay? And on the other side, premium, India is the youngest country. Okay? The demographic has been fantastic. Okay? So on one side, you see the premium products growing up, industry growing up. On the other side, the confidence of self-employed, that there are no lockdown, they are able to do their job. So I'm of the view that -- and monsoon has been very good. So overall, the sentiment month after month is likely to go up is my last time feedback. And it's happening. 4% to 5% is not a bad growth. I won't say it is a bad growth, given, if you look at the overall geopolitical situation, I don't think there is any country which is seeing 5% growth in this kind of integration. And you know the economy has projected next year, 6.5% to 7% of GDP growth. I think all these are going to aid India 2-wheelers doing extremely well.

Yes. Yes, sure. And on that front only, like I want to talk about the ASP, and we are seeing like really constant improvements in the last quarters and almost 6% this quarter. So can you please comment on the impact of different areas, like how much is like the percentage of price, i.e., domestic versus export, introduction of EVs? And how do you see this metric change in the future?

I think -- I don't have the data. I'll try to just take out the data. On terms of price increase, I think we have been very, very conscious, whatever the material cost increases, whatever we have seen, we were able to take up the prices. Even last quarter, we have taken up -- just give me a minute, just referring to my notes on the -- yes, if I -- see, if you look at Q3 this year to Q2, actually, our material costs have come down 76.3% to 75.5%. There was almost 3.5% commodity increase. Most of it has been passed down. And there were benefits on material cost reduction. And overall, there is a net benefit of 0.8%. One important thing which has happened for TVS is the focus on material cost reduction and premium products selling, the proportion going up. And whatever I told in the meeting was that this year, the electronic cost price, we are not seeing much of a shortage. I think the situation is likely to ease out going forward and ICE. So the demand is good. Overall -- and raw material may not go up the way it has gone up last quarter. So we are seeing the settling down of the raw material cost. The material cost reduction sits in, also the availability of the electronic components becoming better for EV. So overall, I think you will see the same trend in terms of better demand, okay? Only in the case of international business, please note that there were some challenges, but we have been very careful because the moment the industry came down, we started moderating our stock levels based on the retail. And today, if I look at last 3, 4 months, our retails are much ahead of our dispatch because we are thinking that this slowdown may be another couple of months. So by April, you will see the recovery coming back. But we always believe in keeping at the distributor or at the dealer in less than 30 days of stock, plus whatever is the lead time for transportation. That has been the fundamental principle we have always looked at.

Okay. Okay. Yes, that definitely adds up. So just like you mentioned about the export market, so like one question on that front. You mentioned that you're expecting recovery around March or somewhere around that. So what I've noticed in the last few quarters that TVS has gained a lot of share of the export market. So I was trying to understand what were the drivers behind that? And what do you think that once the demand recovers, is TVS going to continue doing that and improve their share in the export markets? And how would they continue to do so?

Surely. Surely. See, I always say that the share is the best indicator because industry, you don't have a control, geopolitical situation beyond a point you don't have a control. Some of the best markets like Sri Lanka, Myanmar and even Bangladesh when you have this geopolitical situation, the currency situation, you can't do much about it. But overall, within the industry, you are able to do much better. In fact, the gain of market share has been very, very good for us, thanks to the consumers having confidence in our product range. So we always believe in putting the right product range, investing in the right kind of segments and giving new products, also upgrades in the current products. That journey will continue. So that gives us enormous confidence that we will be able to continue to gain market share, even international market and domestic market going forward.

Okay. Okay. But I just wanted to -- like -- so you consider that upgradation and confidence in product has been one of the main drivers for you to improve international market share, correct?

And even in the international market, we always believe in customer service. So we have authorized service people, parts availability. These are very fundamental things we always closely watch. Many of the markets, the first service comes just after 2 to 3 weeks. So genuine parts have to be there, even before we send the material, we send the parts. So these are all certain value systems of the company focusing on the customer and the kind of focus on product and product range.

Okay. Okay. Yes, sure. That definitely does make sense. I think that's all the questions from my side. Patricia, if you have any questions.

Yes. I have just some very complete -- just have one last question on my side. If you could just, to finish the call, what's your view for TVS in 5 years in terms of penetration rate on sustainability of margin? What's the margin that you think is sustainable for your business? That's my last question. I think the overall information was very good.

I already told you about the EV vehicles now and in the partnership with whatever we have done with BMW, there's a great opportunity to take TVS brands, not only to the developing markets, but the developed markets. So you will see big drive in really becoming TVS brand global. That's number one. Number two, we are at 10% EBITDA. And with the customer delight and more and more new products and the revenue going ahead of the industry, I'm pretty confident that our cost will get amortized over a much, much higher revenue and that will definitely translate into much better EBITDA numbers. I may not be able to give you a guidance. But I am pretty confident that the premium focus, the geography focus, developed market focus, the drive on cost reduction, and the overall focus of the company on looking at various elements of cost is definitely going to help us in terms of doing better and better EBITDA above 10%.

Okay. Do you have time for one more question on...

Yes, yes, please.

Okay. In terms of your cost...

Before you ask the final question, any time you are in India, kindly visit us, you can have a direct feel, we can host you.

Yes, that will be great. I love to, love to see the product. I haven't seen it yet.

This invite is for everyone who is now in this stream, including Gunjan.

In case you all maybe can recognize that. But my question is in terms of you said like the materials, you put some pressure on the -- on your margin. Do you see -- like how do you see the battery evolving in the future? We have seen some experimental with sodium battery for scooters in China. Do you think there could be something to go as well? Like what's your view on the cost side, especially on the advanced material like the battery part?

I think battery, when we started, we started with INR 18,650. Now already we have moved to INR 21,700. I think the rate of pace of change in battery cells and the technology and the chemistry, I think all are linked to the volume. So Patricia, if you ask me, honestly, the most important thing is top line, how do we grow the top line? How do you make sure that I deliver all the new products, whatever I have planned? If these 2 are done, I assure you with every innovation, whatever we have seen, whether it's cell or BMS or the motor or the controller or the integrated VCO, you will see significant cost reduction. In fact, disproportionate cost reduction is the word I would like to say to take this company forward.

Okay. With the operational leverage, right?

Yes.

Okay. That's great. I think -- thank you very much for your time and organizing. Thank you very much Ashique -- if we go ahead, everything. I wish -- thank you very much for organizing the call as well, and I wish everyone a good weekend.

Thank you. Thank you. Thank you very much.

Bye-bye. Bye-bye.