Welcome to the Q2 FY23 results conference call of Hero MotoCorp hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Raghunathan N from Emkay Global Financial Services. Thank you, and over to you.
Thank you. Good morning, everyone. On behalf of Emkay Global Financial Services, I welcome you all on the Q2 FY23 earnings call of Hero MotoCorp. I would like to thank the management for giving us the opportunity to host this call. Without further ado, I would like to hand the call to Mr. Umang Khurana, who is the head of investor relations, to introduce the management. Over to you, Umang.
Thanks, Raghu. Thanks for having us. Hello and welcome everyone to Hero MotoCorp's Q2 FY23 post-results investor call. Trust everyone had a happy and a good festive. With us on the call today, we have our CFO, Niranjan Gupta, our CGO, Ranjivjit Singh, and our head of EMBU, Swadesh Srivastava. As usual, we'll begin with opening comments from Niranjan. Over to you, Niranjan.
Thanks, Umang. Hi. Welcome, everyone, to Hero MotoCorp's quarter two, fiscal year 2023 earnings conference call. Namaskar to everyone. Easier to use namaskar given the time zones. Anyway, it looks like namaskar may become the most used form of greeting even in the global financial capital. You would have seen our results announced yesterday evening. We delivered total revenue of INR 9,025 crores and net profit of INR 716 crores. The results include one-off mark-to-market loss on account of Gogoro investments of INR 44 crores. Our first half revenues grew by a solid 25%, while profits grew by 15%.
Continuing our focus on both top line as well as profitability, we improved our EBITDA margins sequentially from 11.2% - 11.4% and delivered our highest ever first half gross profit per vehicle at INR 17,140 per unit of vehicles sold. We continue to drive portfolio premiumization, and launch of XTec variants across all the key models has met with huge success. During our 32-day festive period, the XTec variants comprised 20% of overall retail sales volumes, where our total retail sales, as you know, grew by 20% over last year. This builds a strong foundation for growth, both in volumes and value moving forward. We are building a strong pipeline of premium products as well, and you will be able to see exciting model launches in this segment every year.
This will help us build market share in the premium segment and boost profitability over medium term. We've been focusing on growing our parts business in the last few quarters. I'm glad to report that parts business revenue for first half was at INR 2,300 crore, registering a growth of 45%. Parts business revenue now accounts for 13.7% of revenue, and we aim to increase it to 15%. Beyond the growth prospects in the parts, which is a traditional business, we aim to grow our accessories and merchandise, which have got huge opportunities over the next few quarters. In order to address the affordability in the entry segment, as we all know, we have been continuously driving finance penetration, making mobility easier for the masses.
Our finance penetration has now gone up to 60%+, and again, this builds a strong underlying platform to translate the desire and need of people into real demand. We are excited about the EV opportunity, and we will be starting test rides soon. Deliveries will begin as planned, and from initial 3 cities, we plan to get to 10+ cities by March. As you have seen, we are establishing Vida as premium and aspirational brand with many segment first offerings. Beyond the immediate, we plan to cover both the mid and affordable segment as well, and our teams are working towards building a strong pipeline of products, ecosystem and offering, as we explained in our investor conference recently during our product launch in October.
Coming to overall macroeconomic factors, while there are headwinds linked to inflation, the consequent rate increases and impact on economic growth, however, we do believe that inflation and rate cycle may be close to peak now. Signal of growth in developed markets may take a while, but India clearly is relatively much better placed with strong consumption base, favorable demographic profile and significant headroom for per capita consumption relative to other countries. Recent resurgence of spending across categories during the festive season is reflective of return of consumer confidence and augurs well for the industry growth moving forward. On that note, let's open the floor for Q&A. Over to you, Umang.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait a moment while participants assemble. The first question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah. Hi. Thanks for taking my questions. My first question is on the industry demand outlook. Now, clearly, I mean, we've talked about some green shoots during this festive. Could you give us some more color as to, you know, was it just the pent-up demand and, you know, a lot of aggressive schemes that you had around festive that helped? Or you're seeing some decisive change in the growth outlook and you think, you know, from here on, you know, industry is back to growth. Some color around, you know, what you saw during the festive and how should we think about the growth. You know, along similar lines, you can share the inventory levels for Hero as well.
Right. Thanks, Gunjan. Let me hand over this to Ranjivjit Singh. Ranjivjit Singh, you're there, can you just take this?
Yeah, sure. Hi, Gunjan, and hi everyone, and wish you all had a very good Diwali. I'd like to just, you know, talk a little bit about festival and then move on to the demand and how we approach it, touching upon therefore how, you know, this entire result has come about. Festival was as usual this year. This time, of course, it came a little bit early from 26th of September to 27th of October. We were close to the consumer trends. We were close to our dealers and our customers and understanding, you know, what is the sentiment, what's going on.
That's why we came up with this idea of India let's celebrate, Jashn Dil Se , and created a grand Indian festival of trust, which is, you know, something that was very well appreciated because this is the time when consumers wanted to come out. After two years of COVID, you know, this was the pent-up demand, of course, like you mentioned, would come out. In that, it is also very important to understand what the trends and the underlying trends are. There was a clear sense towards premiumization.
This is what we were working on, the premium portfolio, getting that out into our dealerships, making sure, like Niranjan said, the XTec range, that we prioritize that, because this is also the range that uses the chips, which have been in short supply. I must commend our supply chain team for having managed to bring in, you know, those supplies well and prepared for this festival during Q2. Whether it was Destini or Passion or Glamour or Splendor, all of them we prioritize in terms of preparing for a modern mix, because that is the key. That is critical, that we are very much in tune with where the consumer is and where the consumer demand is.
It also, therefore, it was incumbent on us to prepare for the entire ecosystem. The ecosystem, you know, had come out of two years of COVID. Would we pick up to the level that we were anticipating? That required a lot of engagement with our ecosystem at the dealerships, and also very importantly in the rural network, the secondary networks where, you know, Hero has a very strong position. Getting that alignment with the ecosystem was something that we worked on. Those are fundamentals. Then we prepared for the go to market. The go to market from a marketing campaigns perspective or a retail finance, which really picked up also during this time.
The exchange program that we put in and customer offers and a lot of the work that we did was digital, including upper funnel as well as lead generation on this. It went, I must say, you know, rural overall in July and August was a little bit soft, but then was moving ahead at a slow speed. We saw a lot of pent-up demand. Addressing your question, that demand did come up during the first 10 days of Navratri very well, and then came the rains. The rains, which for the next 10 days or nine, 10 days were incessant and they were prolonged, and they were pretty much unprecedented.
Our consumer base in the rural area did need to, you know, fall back and take care of their crops, take care of whatever else they needed to do. In the last six days towards Dussehra and Diwali, they came out and that was very promising that even the whole portfolio that we have was very, very well served. As you can imagine, we came in with a 20% growth during the festival season. What I really wanted to say, Gunjan, is our Q2 was all about preparing for the festival. When you get the holistic effect at that time, that's really what works. That's what we had predicted.
It was good that work happened and you know we were able to satisfy consumer needs for the festival season with a whole portfolio of our Hero products. That's very much there. Then the last part of your question. The other side of the rains is it actually could be an upside going forward for the winter crop in addition to which there are quite a few auspicious days that come up in November, December, right up to you know April, May, etc.
I think fundamentals and the underlying performance is pretty strong from what we see. When I told you about 20%, it is end consumer retail. There actually what consumers have bought, so it's not what the dealers have bought. That gives you a good sense of the underlying performance. I hope I was able to answer your question.
Sure. This is very helpful. Maybe, you know, the inventory levels, if you could share that, and then I'll get on to my second question.
Yeah, sure.
Gunjan, I'll take this one. Our inventories are at one of the lowest post-festive. As you know, we won't give out at this point, but it will be 10 - 14 - 6 weeks. It is down to actually the lowest end of that spectrum, Gunjan.
Okay, good. My second question is a little bit, you know, more around the strategy. I mean, you're clearly calling out more of premium and new entry has also been seeing a lot of slowdown. 125 cc segment is where, you know, we've done well in the past and it's a segment which is now expanding, and we're seeing lot more competition from the rest of the players as well. So, you know, what is the thought process here in terms of, you know, product intervention? I understand Glamour and all you've tried to, you know, make some interventions, but it's not really worked. We are losing market share in that segment. So maybe what's the broader strategy there if I think from a next two to three year perspective?
Ranjivjit, please.
Sure. The 125 cc segment is a very interesting one. Of course, it's seeing growth from upgraders from the 100, 110 cc as well as downgraders from the 150, 160 cc segment. We are well-placed. Our Super Splendor, which we've now come up with a canvas and we backed it up with a beautiful campaign, has in the festival season done very, very well in terms of, you know, the key markets that it operates in. When you look at Glamour XTec, Glamour XTec is something that initially in the earlier part of the year, we had some shortages. We were able to address that. We have now introduced a new product, which is the Metallic Nexus Blue.
We came in with a campaign with mega star Ram Charan. It's created a lot of excitement, not only in Andhra Pradesh and Telangana, also in West Bengal, in other markets where in quarter two itself, it had a very strong double-digit growth. We are seeing good momentum in the 125 cc, and you'll continue to see more innovations from us and more of the portfolio coming in the 125 cc as we go along.
All right. Thank you so much.
Thank you.
Ladies and gentlemen, to ensure that management is able to cover questions from all the participants in the queue, we request you to please limit your questions to two per participant. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Hi. Thank you for taking my question. First question was around EV. How has been the bookings so far in terms of purchase and, you know, in terms of booking for our Vida portfolio? And what's the value proposition our JV with Gogoro brings in, given that they would be competing mostly as well. Where do we stand on that front? That would be my first question.
Thanks, Kumar, for the question. What our plan on EV is to open the test rides very soon. We will be starting deliveries as planned. As booking numbers are concerned, you will have to be patient for the sales to happen. Then as the sale numbers happen, then you will get the disclosure then. In terms of the Gogoro part of it, what we have announced is an operational credit. Learning from the operational credit will be helpful across the entire ecosystem. As far as the partnership and the thinking and the discussion on that is concerned, as you know, that's on swapping. Swapping is a flexibility that we have always said that we will build.
Obviously there are optionalities and flexibilities that are coming along, and it will be across all the segments of 2W and 3W. Swadesh, would you like to add anything?
No, I think you covered well, Niranjan. We are, you know, really gearing up for the test rides to start soon. With that, obviously getting into the sales and delivery, and you'll have those in front of you very soon. On the Gogoro piece, you know, whatever helps increase the category and helping the EV category grow is always welcome. There will be good pilots going on this front. You know, we are in discussions to close out the rest of the plan with Gogoro.
Thanks. Thanks, Swadesh. Second question was around the Hero FinCorp business. Last quarter we had invested about INR 7 billion in that business, and we had mentioned last quarter that you would be covering maybe around credit cost in business of maybe 5.5%. Could you please expand on that in the first half or September quarter, whatever you could share?
Yeah. I think they're progressing well, Hero FinCorp, and actually their profits have gone up from a level of quarter one, where the PAT was around INR 110 crores. They delivered INR 160 crores. Their actual profits before credit cost they delivered in the quarter is one of the highest. Their GNPAs have come down to 6.5% in the quarter. They are targeting that industry to move towards 5% over next few quarters. I think they're progressing pretty well with AUM growth, which is close to double digits. Even in their financing generation and the debt to GDP ratios, the opportunity in NBFC segments are significant. I think Hero FinCorp, we believe, are on a platform which augurs well for a takeoff from here on.
Thank you.
Kumar.
The next question is on the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
Hi, good afternoon, and thank you for taking my questions. My first question is on Hero's quarterly model mix in 2Q. Normally, we see HF Deluxe and entry-level model volumes improve in the September quarter versus June. This time it seems that it's been a QoQ decline, but a lot of that decline seems to be covered by the Splendor and Passion volumes. Just trying to understand what is driving this model mix shift. Is there a conscious effort to promote a better Splendor and Passion mix or any other on-ground demand factors at play?
Let me start, and then I'll ask, Ranjivjit ji to add on. You are absolutely right as far as model mix is concerned. It's been favorable in terms of portfolio in quarter two, as well as in festive, where we have Not only just the Splendor, actually, if you look into festive also, the XTec, which actually comes at 5%-7% premium to the core models, that has sold very well. In the overall festive, as we talked about, that XTec models comprise 20% of the revenue this year. Quarter two, also favorable mix, and that has been reflected even in the average selling prices. We anyway have been consciously moving towards premiumization, as we have talked about.
Therefore, the customers which are actually on the customer pool as well wanting to upgrade and equally are pushed in terms of our efforts in the market through XTec and through, marketing these variants for more premiumization. That's what's helping. Ranjivjit ji, add on, please.
Yeah, absolutely. I mean, you know, the premiumization is a trend that we are seeing not only in two-wheelers, we are seeing it across industries. The good thing is that consumers are really appreciating the XTec range. Glamour already above 60%-70%. Similarly, there are lots of other models that we have. Passion is doing extremely well with the XTec range. There's a lot more demand for Splendor XTec than what we can currently supply. Destini XTec has been a big uptick as well in terms of growth. So overall, I think that's what's been happening. After the rains in you know in the mid part of the festival and towards the last part after the rains, we saw even HF Deluxe come back.
Look, that's pretty normal. I would say that the big trend is towards premiumization, and we were able to gear up our portfolio and the model mix to meet the consumer demand.
All right. That's helpful. My second question is on the post-festive demand trajectory this year. From a registration standpoint, we have seen a bit of festive month for the two-wheeler industry compared to the past four years. Wholesales from most two-wheeler OEMs in October have not necessarily followed through with that kind of momentum. Just trying to check what is holding dealers back from accepting more stock from the two-wheeler OEMs in general.
Let me just begin, and then I'll ask also request Ranjivjit to build up on that. The most fundamental thing and good thing is about the festive retail, because once the retail happens and the retail with a 15%-20% growth, of course we grew by 20%, augurs extremely well. We saw that inventory levels are down to one of the lowest ever post-festive.
Obviously that builds a base for the wholesale moving forward. On the post-festive retail demand, because that's what will drive the wholesale, given that the inventory levels are anyway at the lowest and it also provides that headroom. Ranjit has already covered about the optimistic prospects of the demand moving forward on the first one. Ranjivjit, if you wanna build a little bit more on the demand prospects moving forward.
Yeah. I'll just build on. You know, also when you look at October last year, festival was in November, so obviously there was still a stocking up that inventory levels that dealers were going for. Here, with 24th, 25th being Diwali around that time, and then you have a few, a week of you know, non-festive in a true sense. So not entirely comparable, but as you go forward, like I said, it's a more optimistic kind of view that we have right now with the rains, with the rural sentiment, which has been demonstrated during the festival that we saw and the upcoming marriage dates that we are seeing, whether it's in February or in March.
I mean, it's definitely looking more optimistic for us.
Got it. That's helpful. Thank you very much and all the best.
Thank you. The next question is from the line of Jinesh Gandhi from Kotak Mahindra Research. Please go ahead.
Hi. My question pertains to premium segment share from data points with respect to sales revenue and operating other income for the quarter.
Yeah, Jinesh, we can do that. As far as the parts business revenue for the quarter is concerned is INR 1,244 crores. Quarter one was INR 1,061 crores and corresponding quarter last year was INR 1,141 crores. The other operating income for the same period is INR 231 crores, INR 181 crores and INR 305 crores.
Okay. Secondly, with respect to retail during festive, how were they as compared to pre-COVID? How much below we are pre-2019 levels and what is the absolute retail, like you were sharing in the past? Can you share that?
Yeah. Ranjit ji.
Sorry, the voice is a little muffled. I didn't fully.
My question is, how were retails as compared to pre-COVID levels, and what were the absolute level of retails during such a good festive?
Like I mentioned, we are 20% higher than last year, so that should give you a good sense of that. As far as the pre-COVID, we're not, you know, we are still a distance away from that in terms of maybe 2018, 2019, but not that much of a distance. I would say, you know, the rains had its impact. There was definitely demand, there was latent demand, but there was a reality. I've been visiting the markets, the dealerships, and people were more busy trying to protect the crop from the unseasonal rainfall. I would say that the underlying factors are pretty strong there. You know, it's retailers, absolutes are good.
I think overall the economy for that segment, which is greatly linked to, I think will be positive.
Jinesh, just to build on what Ranjit has said. If you look at pre-COVID and broadly talk about 95% of the pre-COVID level, during this first two quarters, which I think augurs extremely well, given in a discretionary category, the bounce back that has happened to consumer confidence and the build-up that we are seeing.
Oh, wow. We are just about to sort of very, very good outcome.
Great. As a continuation of that, were you seeing any different signs during Diwali between retail versus urban, sorry, rural versus urban and markets where monsoons were weak, how did it go in those markets?
Ranjitjit?
Yeah, sure.
Are you able to hear?
Yeah. You know, it was, it started off again a little bit more positive for urban. Like I said in the beginning, rural was recovering at a slower pace. The second part of it, when the rains came, of course, that would have and did affect overall. In toward the pre-Diwali phase, rural bounced back and bounced back really well. I think when people were able to put their worries aside and when they had dedicated the cash from the monsoons, everything was in place, they came and did what they really wanted to do, which was to come and buy their favorite two-wheeler. I think that's what happened. Rural came back, urban was anyway performing better.
Like Niranjan said, we were very close to our, you know, pre-COVID days. Overall, I think across, you know, zones it was fine except for maybe an Andhra Pradesh, Telangana, which is undergoing some kind of, you know, industry overhaul, which, I'm sure all of you have followed. Beyond that, I think, a good performance across the board.
Good. Lastly, if Niranjan can talk about how RM cost impacted EBITDA margins in Q2 and our expectations for Q3. That's my last question. Thank you.
As far as RM cost is concerned, you would have seen, Jinesh, that the cost in the quarter has come down, whether you look at the previous quarter or you look at the corresponding quarter of the last year. In terms of moving forward, metals we have seen are cooling off. Therefore some benefit of that is likely to flow in. Having said that, there is a bit of headwind rising out of the currency depreciation, which we have seen in the recent. I think we'll have to continue to navigate this space like we have done in the past, through a mix of pricing and savings initiatives. We need to continue to navigate this space.
Okay. We saw some savings on commodities in Q2, right?
Yeah. As far as commodities, you can see the benefit in the material cost actually getting reflected in quarter two.
Okay. Got it. Thanks.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Hi, sir. Continuing on the previous question, is it possible to quantify how much commodity benefit you got because, you know, we would have a benefit of positive mix also?
Largely, you can say that if you compare with the preceding quarter, because sometimes year-on-year comparisons in these cases do not make that much sense. If you look at, you know, our material costs have come down from 70.8% - 72% of the overall revenue. Roughly you can say around 30 basis points of that would be on account of the commodity cost, while the rest could be a mix impact.
Okay. That's quite helpful. Going ahead, you know, do you expect larger benefit to come or most of the benefit to come in third quarter? Is that the right way to think about it?
Kapil, I'm not gonna forecast guidance on that because that will lead to those guidance numbers. I just reiterate that there is part of the commodity benefits that are yet to flow through, which will flow through in the coming quarters. The only headwind, I would say is the currency. How that plays out over the quarter, over a longer period of time will determine finally is it a net benefit or a net actually cost on.
Sure. That's helpful. Secondly, if you could also just comment on, you know, operating leverage overall, because we have seen slightly higher other expenses on a quarter-on-quarter as well as on a year-on-year basis. How will these, you know, costs evolve going ahead? You know, we have maintained a longer-term margin guidance of 16%. Where do you see yourself, you know, getting there?
If you look at the quarters, other expenses have got impacted by a higher marketing expenses which we did. As Ranjivjit talked about, Xtec launches that we've been doing, so there are campaigns running. Higher marketing expense in quarter two, and there was some bit of spend phasing. I think the best way to look at the H1 other expenses, which are at 10.1%. That would be a fair bit of range to actually look at in terms of building forward rather than the quarter, which was impacted by phasing as well. In terms of moving forward, look, our long-range guidance still remains.
Obviously, we've been navigating very successfully in terms of the entire commodity inflation that has happened, trying to balance it off as to how much we can pass on to the customer, how much do we offset, by our savings programs, and how much, therefore, we actually take it down in the margins. We've been balancing that off, quite sensibly. While doing a percentage, it's also important to recognize the rupees per vehicle absolute delivery, and which is where I said in the beginning that percentage is one way to look at it. Of course, the guidance of the long range remains. In the meantime, we've delivered our highest ever gross profit per vehicle if you look at the first half over the last few years.
I think from an absolute perspective, it augurs well, given that the volumes still on an overall basis are not at pre-COVID level. Especially with the 35% is on a full year basis, the industry is very short. As volumes build up, the unit per vehicle margins that one is delivering will then help in getting operating leverage significantly. As far as the margin action of the long term are concerned, let me address that as well. It is obviously, as we talked about premiumization, which we are driving, you've seen our portfolio mix. We are working on launching premium models over the next few quarters, and you will see every year that coming. That will actually improve the supply.
Obviously, as the rate cycle and inflation cycle peaks, then we'll have the dividends of the commodity softening as well. I think there are things that favor well. We're not too concerned about the percentage margins at this stage, given that at least on a per vehicle basis, we are able to deliver, pretty strong, bottom line on even a per vehicle basis. Thank you. All the best.
Thank you. The next question is from the line of Amyn Pirani from JPMorgan. Please go ahead.
Hi. Yeah, thanks for the opportunity. First, just a quick question. Any reason why the Gogoro related mark-to-market loss is being driven to the other income instead of the other comprehensive income?
That would have been an option, but we did follow the accounting standards. Actually, even in the last quarter, this quarter one, we took it through the other income itself, and therefore we followed the consistent practice of actually following it. There could have been a choice of actually moving to other comprehensive income as well, as you're rightly saying.
That just increases the volatility in your EPS. I just thought, you know, I'll just ask. Secondly, you know, appreciate the point that, you know, on a per unit basis, in fact, your per vehicle is well above INR 7,000, which is close to your all-time peak. Going forward, do you think that on the other expense side, inflation could continue to remain high? Is this because of marketing costs? Is it energy costs? If you could help us understand, you know, what kind of costs are going up. Because, while commodity may come down, is there a risk of inflation in the other line items? That is what we would like to understand.
Honestly, I mean, no, we don't see inflation in the other items. As I explained, they're a bit elevated in the quarter because of the marketing spend and the spend phasing. If you look at the H1, which is mostly around 10.1%, that we are looking at, we don't see significantly higher inflation on the back. There's no energy inflation. Our employee costs, broadly, it moves along with the industry. As we get the higher volumes, as the industry grows and we also gain market shares, the operating leverage also should kick in. There's no fundamental concern around inflation in the other expenses outstripping this one.
Having said that, just one thing I wanna highlight, and then therefore we can, you know, pick that up moving forward as well. As we are moving forward, obviously, as our EV is scaling up, the CapEx spends are going to be high, but that's actually something which is building investment for the long term. And therefore that's something. But underlying ICE business, if you're asking, there's no concern around inflation outstripping our top line growth on the other expenses.
Sure. Thank you. That color was helpful. Thank you.
Thank you. The next question is from the line of Chirag Shah from Nomura. Please go ahead. Chirag Shah, your line has been unmuted. Please proceed with your question.
Yeah, thanks for the opportunity. Sir, I had a few questions. Two questions. One was on the premium product, the 150 cc plus product. Can you just elaborate how should we expect the product launch timelines and intervals? Why am I asking this? We have launched XPulse, which is doing extremely well, so this is kind of a niche category.
Yeah, Chirag. Thanks for asking the question. While we would not be in a position to give you the exact timeline, but what we can say is, and you are absolutely right, the XPulse has been received extremely well, but it's in the niche segment. You will see us launching premium models in the core segment pretty soon. I mean, if I were to say over the next 2 years timeframe, you will see models which are in the volume segment and the profitable segment of the premium as well, including the platform that we are developing jointly with Harley-Davidson.
Thank you. We move to the next question from the line of Shivan Sharma from Citigroup. Please go ahead.
Yeah. Hi. Good afternoon, sir, and thanks for taking my question. Sir, the ASP seems to be doing very well, for sure, and because of the price hikes. At what point do you think that these price hikes would start impacting demand? Especially asking because market share has been a little volatile in domestic bikes and competition is intense. Do you think at some point in time one has to take a relook at the kind of price hikes, et cetera, or maybe take some pricing action in order to boost volume? Is that something that is part of the plan?
Right. I think the best indication of price absorption in the market has been the festive retail. We have seen that festive retail growing at 20% or you can say 15%-20% for the overall industry. That means that all the price increases that have happened so far have been absorbed by the market. The way industry has been doing is in a very sensible way. It's not been taking very steep hikes. It's been taking kind of a moderate hike. If you look at actually overall inflation in the economy is at 7%. Versus a 7% inflation, if you look at the price hikes that have happened, probably they would be close to maybe 5%-6%. Yeah.
Equal to or below the general CPI inflation that we are talking about. Moving forward, we do believe that a moderate level of price increases will continue, but they are likely to be below the general inflation rate, and therefore that augurs very well because that gets absorbed in the economy as well. Of course, in terms of pricing action for the volume, typically in the industry, when the commodities cool off, then of course that allows the industry to recover the margins in terms of percentages as well. Then it allows also headroom for more investment on the product side, feature side, and providing value to the consumers from that point of view rather than taking pricing down.
Sure, sir. Thank you so much. Sir, just one last question. Your comments on the market share trends and anything that is in the target or something which you have planned, especially in the domestic motorcycle industry?
Ranjit?
Yeah. The market share trends, I think the biggest indicator that you will get is, you know, the festival growth that we got. I wanna just draw your attention to the retail side of it, because we've been focusing a lot on the end consumer demand and the end consumer retail. There was a little bit of a blip in September, but we bounced back very strongly in October, and that further got strengthened in November. You know, we ended October in Vahan at 34.6%. We went to 38.5% in November so far.
It's you know that's one way of looking at it, although Vahan has a lag of about 2-3 weeks and is not always very stable. If you look at it over a long period of time, it has been a good trend line of where the trends are. So far we seem to be doing you know pretty okay on that.
Let me build on what Ranjit has said in terms of the overall medium term, the way we look at direction and the drivers of the market share. As you all know, we continue to be extremely strong in our entry segment. We continue to be very strong in our Deluxe 110 segment with Splendor Plus actually outstripping all the models and that has got fortified more with the XTec variants. 125 cc we covered where we actually lost market share. We will be on our way to recovery. We have launched XTec on Glamour as well. Ranjit talked about the action on the 125 cc. That will be entry and Deluxe 110 will be about maintaining the strong position that we have.
125 cc will be about recovering the lost market share through the actions that we have. Premium will be building the market share through the portfolio that we are launching. Those will be the drivers of the market share moving forward over the medium term from a domestic perspective.
All right. Thank you so much for taking my questions. That's all from my side. Thanks so much.
Thank you. We lost the connection from Mr. Chirag Shah from Nuvama. We have him back in the queue. Chirag Shah, please go ahead with your second question.
Yeah. Thanks a lot, sir. I could hear the answer for the first question. In case you have summarized then I'll take that. Like I'll repeat the first question. On the premium product, I was trying to understand your launch pipeline and the timelines that you are looking at because after XPulse, which did very well in its niche category, we have yet to materialize on the brand build that we have done. So if you can share some thoughts and check. Yeah.
While we have the Karizma, I'll still amplify a little bit more on that. XPulse has been. It's not that we've not utilized that brand equity. I think we are expanding that. You know, we are doing, you know, lots of actions on that at the dealer end, at our rallies, et cetera, et cetera. On the product pipeline, as you know, we had signed the agreement with Harley-Davidson to jointly develop a platform, which will be right in the four most profitable segments of the premium. That is in advanced stages. While we are unable to give a timeline, it's in advanced stages of coming on ground. Beyond that, we've been working also on across the cc, right up to.
We have talked about it earlier, Chirag, right? Right up to 400 cc in the sports adventure racing segment as well. You don't see it because the work has started 2 years, 2.5 years back, and typically, as you know, the launch is 3-4 years starting from scratch. Therefore, you will see the model launches every year from here on moving forward.
Thank you very much, sir. The second question was on Ather. What was the dilution that resulted in Ather? Can I presume your equity stake is maintained in Ather, right?
Chirag, there's a minor dilution which is happening. If you look at our fully diluted basis, this is gone down by around 2%, close to 2%, on the current holding, which was around 39%, and it's gone down to probably around 37%. Now, that's because they've raised funds from GIC, which is INR 400 crore, at a valuation of INR 6,000 crore. This is almost an extension of the previous fund round, and we had already put our capital in the month of May, if I remember right. That's a minor dilution that happened. Strategically, our direction, our intent, our position on Ather doesn't change.
Ather as a company, as a portfolio, is doing very well.
If I can squeeze in one last question. H2 volumes versus H1, given the festive has been reasonably strong after a lull, can we expect a strong kind of a double-digit growth frequency in H2 over H1 at industry level and at Hero level?
Right. Chirag, we're not able to give a number guidance on H2. I think overall, if you look at the industry, and again coming back to industry, I think the fact that the festive retails are 95% of pre-COVID, we know that on a full year basis the industry is far away from the pre-COVID, but at least the festive retail being there, that's very encouraging sign. On top of that, when we look at even the crop cycle, where the crop harvesting is happening because of delayed rain now. You look at the other fundamental factors also, the GST collections as we know are good. The crop realizations are good. Consumer confidence on spending is coming back. I think it all augurs well.
Now how fast, how quickly it translates into industry volumes moving forward, that could be a matter of a few months here and there. I think we stay positive on the outlook moving forward on the back of a very strong festive performance by the industry.
Thank you. Thanks very much and all the best.
Thank you. The next question is from the line of Vaibhav Jalan from Axis Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. I have two questions. Firstly, if I look at your sales volume of models like Passion and Glamour, good to see that we have seen some pickup in the last few months. Still the volumes of these two models are significantly below the volumes which they used to do 3-4 years back. Just wanted to understand your thoughts as to what went wrong and according to you, what will, you know, what will be required from your side to go back to those models? Because Passion used to do 70,000-80,000 per month and Glamour used to be there at some point of time. Now they are significantly below those levels. That is the first question.
Second question is on, sir, our receivables have gone up very significantly. We do have some seasonality, I think in the September quarter. If I look at the receivable days have gone up almost 33, 34 days of sales. Is it purely seasonal or have you made any changes to the credit period that you are giving to dealers because the inventory was high, so you're giving higher credit period? I just wanted your thoughts on these two questions. Thank you so much.
On the first question, let me request, Ranjivjit, to answer. Ranjivjit, over to you.
We've seen a good revival on Passion and Glamour. I think the XTec range, as we've talked about, has been the primary driver. Consumers have really appreciated the first in segment features that we have, whether it's the navigation, the Bluetooth, the LED headlamps, a lot of premium features, and that's what drives this segment. Rest assured that this is coming back. We've also invested, as you know, and as I've told you on Glamour XTec in terms of the celebrity Ram Charan as well as, you know, the campaign and the new colors, et cetera, which have come up very, very well. People are saying that they want that bike, you know, which Ram Charan is riding. We've got Passion also, which is now coming back in a big way.
Going forward, we see that these segments will continue to contribute and grow as we go along. The upcoming marriage seasons, we will see that you know that will play a big role because these are the models that will be in demand. The retail finance has played a very big role now. That will continue to drive demand for these kind of. Because these are aspirational products and that is what will be driven. We're very confident about the growth.
Thanks, Ranjivjit. Let's just build a little bit on that, specifically on Passion. Of course, we need to address, and Ranjivjit just talked about the actions, and we are confident of addressing it. Whatever we have lost on Passion, actually we've gained on Splendor Plus. We've been able to capture that within our own portfolio at actually higher margins. Having said that doesn't take away from the fact that we need to, you know, get Passion back to those volumes, and the actions are in place. On the receivables, it's purely seasonal. There's of course a bit of the, you know, when you look at the price, you know, increases that have happened. Yeah, in terms of number of days when you look at it's just seasonal.
In fact, as we stand today, we've already had the collections bringing it down to the normal levels. There hasn't been any change in the underlying credit period.
Okay. Sir, just one follow-up.
Vishal, I'll just add that both Passion and Glamour in Q2 have really performed very well. Rest assured on that, they've been very strong double-digit growth, Passion and Glamour.
Yeah, yeah. Just one follow-up on receivable days. Can you remind us what is the credit period that you give to dealers and how much of it is free of interest and then how much is basically chargeable on an interest basis?
It's 15 days free of interest.
Can you give a credit period with some interest also to the dealers?
Yeah, after that interest is chargeable.
Okay. Okay. Thank you so much.
Thank you. The next question is from the line of Hitesh Goel from CLSA. Please go ahead.
Yeah. Just wanted to take a sense more on the commodity cost side. We look at, you know, steel, aluminum, precious metals, these things, right? You know, you have been talking about energy cost. We're looking at, you know, oil price also, which change actually come down from first quarter levels. Where are we seeing this inflation? Is it due to vendors seeing cost increases which they're passing on in terms of, you know, overhead costs or also on the semi side? I would believe would be mostly in the premium side and would be very small proportion of retailers. Just give us more color on where we are, why we are not calling for a decent increase in margin in second half from the commodity side.
From the second half perspective, it's the currency, honestly. As currency, as you know, the currency is depreciated down to 83. Currency impacts across all the cost, right? Because most of these commodities are denominated in terms of their pricing at quote parity pricing to a dollar level. That's what impacts steel, aluminum, et cetera. As far as the semi is concerned, yes. That kind of indicates, you know, it basically the premium end part of it. I would actually put it down to a second half outlook, which I talked about, is down to broadly to the currency. This could actually offer some benefits of the cost that we're getting into.
Okay. Thank you.
Thank you. The next question is from the line of Jyoti Singh from Arihant Capital Markets Limited. Please go ahead.
Yeah, thank you for the opportunity. My question is on the rural side, what's your outlook going forward, as you did mention that rural is doing well? Another question is on the EV front. If you can tell us or guide us about the expectation of EV revenue contribution going forward.
For the first question, I'll request Ranjivjit to answer, and then I request Swadesh to answer the second one. Ranjivjit?
Sure. Like I mentioned that, rural recovered a little slower, but when it bounced back, it actually came at three points higher than even last year during the festival season. We, you know, with the rains behind us, with a positive outlook, we think that things will. We are more optimistic about rural demand coming back. I believe that will happen. Marriages in February, March particularly will play a role in driving rural demand. I believe your question is very fair in terms of, you know, the balance that we have in our portfolio, and I think rural will all go well.
Yeah. On the EV side, as you see, the EV market is actually, you know, almost tripling up from the last year to this year. If you look at it, from the segment within the EV, from mass to mainstream to premium, if you look at higher price point, where we are playing, it takes about almost 32% of the market in the first half, and that's where we are well positioned. In the three cities which we have already launched, and soon we'll start the test rides, that takes up about 26% of the premium market. We are playing in a very significant portion of the EV market.
As we launch another set of cities, that will cater to another 20-odd% of the market, right? I think we are playing in a very significant segment of EV. We're playing in the top cities of the EVs. As we had mentioned earlier during our launch, we are here to create the category and we are putting the right building blocks, whether it's the right product, charging infrastructure or the IoT platform and our touch points, customer touch points. We want to make sure that all this is set up, doing well, and customer is taking it well. We are going towards you know having this foundation built very well in the coming months. We know that from there on we will be able to garner a leadership position.
Just wanted to give you the segment and the cities we are playing in, and we are very strongly building the foundation in the next two weeks.
Okay. Thank you. I invite other participants. Please leave your questions to other participants. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Yeah. Some of my questions have been answered. Thank you.
Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Thanks for, you know, giving the opportunity. My first question is on the impact of RDE norms on two-wheelers. How do you see that in terms of cost increases?
I didn't get your question because your line is a bit muffled, Jinesh, so. I will repeat your question.
Is it better now?
Yeah. Try again.
Any sense on what could be the cost increases because of RDE norms or BS-VI Phase 2 norms, which is coming in from April 2023?
Okay. You're talking about the OBD Phase 1 and Phase 2, right?
Yeah. OBD Phase 2. Correct.
The impact is not significant.
Okay.
It's very marginal from a regulatory cost point of view.
Secondly, with financing penetration going up to 60%+, what is now our share, I mean, share of financing from Hero FinCorp?
HFCL continues to be hovering around 35% ± a few basis point, depending on which period actually you take.
Okay. It hasn't gone up materially with increase in penetration rates. That's great. Lastly, on the operating other income side, you said this quarter was INR 251 crores, right? Q was about INR 699 crores.
Other operating revenue quarter two is INR 251 crores and Q1 was INR 181 crores.
1Q was INR 181 crores. Okay. Got it. Thanks. I'll follow up with you.
Thank you. Due to time constraint, this was the last question for today. I now hand the conference over to the management for closing comments.
That's it. Thank you so much. Thank you everyone for joining in. We look forward to speaking to you next. If you have any follow-ons, please feel free to reach out to us. Thank you.
Thanks, everyone. Thanks for joining our call.
Thank you, everyone.
Thank you. Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.