Ladies and gentlemen, good day, and welcome to the Hero MotoCorp Limited Q1 FY '24 earnings call, hosted by Anand Rathi Shares and Stock Brokers. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, sir.
Thank you, Aman. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Hero MotoCorp Q1 FY '24 conference call. I thank the management for giving us the opportunity to host this call. I would like to hand over the call to Mr. Umang Khurana, Head, Investor Relations and Risk. He will introduce the management and take this call ahead. Over to you, Umang.
Thank you, Mumuksh. Thank you, Aman. Good morning, and hello, everyone, to the Quarter One FY '24 investor call, of Hero MotoCorp. On the call with us today, we have our CEO, Niranjan Gupta, the Chief Business Officer of the India Business Unit, Ranjivjit Singh Chief Business Officer, Emerging Mobility Business Unit, Swadesh Srivastava. Begin with opening comments from Niranjan, and then we'll open it up for questions and answers. Over to you, Niranjan.
Thanks, Umang. Good morning, good afternoon, good evening, depending on which part of the world you're joining from. I'm sure all of you would have seen our results by now. We've declared a top-line income of close to INR 9,000 crore for Q1, with our overall EBITDA going up by 28% and our profit after tax up by 32% after the exceptional item of the VRS, which was INR 160 crore. Our EBITDA margins reported 13.8%, and as we talked about in our press release, the underlying ICE business margins are now 14.5%. Effectively, it means that we are back to pre-COVID levels, which are around 14%.
Therefore, moving forward, having covered the margins back to pre-COVID levels, our singular focus is going to be growth and market share on the back of lots of launches that we have done and the launches that are in the offing in the next few quarters. Our journey of premium, as you have seen, has begun extremely well. X440, we have been overwhelmed with the response. 25,000+ bookings. In fact, we've closed the online bookings, and now the focus is on ensuring that each of our 25,000 customers who have booked, actually become our brand ambassadors, and they get an experience which is world-class. We've got to ramp up capacity and demand fulfillment as we move forward. As our EV is concerned, again, our ramp-up in terms of number of cities is on track. We talked about 100 cities by December.
Glad to report that we've already crossed 36 cities as we speak. We will be covering 100 cities well before December end. Then, of course, we'll be building the portfolio, which will be the next year on our way to EV leadership, which is our goal. Within our current portfolio on 125 cc as well, we've been doing lots of action there with Super Splendor XTEC, which has started doing well. As we speak, the Glamour 125 cc revamp has gone and is going into the market. All of this augur well for recovery on our core market shares as well. Overall, the focus on premium, the EV rollout, and of course, recovering the shares is well on track, as we speak.
As far as the demand side for the industry is concerned, we know that the last couple of years, the government has been spending a lot of capital expenditure, almost to the tune of INR 1,000,000 crore a year, and CapEx has a time lag, and time has come when this CapEx will translate into income, demand, and employment as we move forward. Therefore, that augurs well. We also know that the rate hike has peaked. RBI has paused the rates for the last two or three times, and clearly, that means that the cycle of increased inflation is going to pause, and that, again, will mean that more income in the hands of consumers to be able to spend. The third factor, of course, is monsoon, which so far has been pretty decent.
All these factors combined, they augur well for a double-digit growth as we move forward through the festive season. Of course, on the back of the launches, as we talked about, that we have done and we are going to do, we are quite confident of increasing market share as we move forward. Just to repeat again, margins back to pre-COVID levels now. The focus moving forward similarly will be on growth and market share. Thanks.
We will begin with the questions and answers now, please.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Kapil Singh from Nomura. Please go ahead. Kapil, the line is unmuted. Yes.
Yeah, good morning, sir. Can you hear me?
Yes, we can hear you now.
Yes, Kapil, go ahead.
Yeah.
Sorry. Sir, first question is on Harley. You know, we've seen very, very strong bookings, clearly. Can you just talk about what is the expected supply, and why the bookings have been stopped currently? Also, what will be the milestones that you're looking for, based on which you will decide on, working on further models, in this lineup?
Kapil, so, the, the booking stoppage is part of the plan. So there's a whole marketing sales strategy around it, and it's all part of that plan in terms of online booking having stopped. For that, we will open the window very soon, because we do want the first set of this 25,000 customers to experience the motorcycle, to experience the test drive, for them to become our brand ambassadors. Of course, we know that a lot of customers have been demanding for bookings to be reopened. We will soon reopen the bookings as well. As far as supplies are concerned, in fact, on the launch itself, we had started ramping up our capacities, looking at the response that we had received on the launch date itself.
The teams are working on that because we got to ensure that each of these customers, their demand are fulfilled. We are very glad that, now demand is chasing supplies, and we want to ensure an world-class experience to each of our customers we move forward, Kapil.
Okay, sir. Thanks. Anything on the milestones for deciding, you know, further models under Harley-Hero partnership?
Kapil, as you know, that the model that we have launched in the segment that we have launched is one of the biggest segments in the premium, both from the revenue point of view as well as profit pool point of view. We are focusing fully on this model as of now. Obviously, there is a thinking in future to extend the portfolio and also to look at geographies, but those are discussions that we will have with our partners, Harley-Davidson, at an appropriate point in time.
Okay, sir. second question was on margins. Can you just talk about what will be the margin trajectory you expect from here? Because I believe we have taken some more price hikes. you know, at the same time, EV mix may also rise going ahead. in light of, you know, both of these factors, how to think about margins from here on?
Kapil, we stick to our guidance on the ICE margins that we had talked about even long time back, and we've always stuck to the tramline of 14%-16%, which we have been saying. Of course, during the COVID period and with the cost inflation, the margins had gone down to around 11.5%. And we're happy that with all the efforts around whether it is price, whether it is mix, premiumization, the savings program, of course, helped also by the commodity tailwinds, the margins are back to pre-COVID levels. Our tramline on that will continue, which is 14%-16%. We just said, given that the margins have been repaired, the focus will be moving forward on growth and market share, and obviously, it allows us headroom to invest more behind EV as well.
Okay. I mean, what I was trying to understand is that your EV volumes will also rise, right? The losses that we are seeing, as the volumes go up, they-- the losses will come down, but the EV mix will rise. Is there a break-even level of EV volumes that we have, at which, this drag will start to reduce?
Kapil, broadly, while it's very difficult to predict, but broadly, we have talked about that in the range of hundred basis points on the EV business, yeah, as a dent or, or the investment, I would call it, not a dent, which goes behind that. As volumes go up, of course, there'll be economies as well. In terms of the scale economies we will get, and there are cost reduction, there's a localization happening. Both the factors will come into play, and therefore, cash burn per unit actually is going to come down in the industry if you take two, three quarters away from now. That's what the industry is working on. It's not going to be like proportionate to that, the cash burn amounts and all that will go up. Yeah?
Okay, sir. Thanks. I'll come back in the queue.
Yes, Kapil. Thanks.
Thank you. The next question is on the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah, hi. Thanks, team, for taking my question. Just, you know, good to hear so much focus coming back on growth. I just needed a little bit clarification on your thoughts on a number that you've put in annual report, where you call out 6.5 million units production for FY24. You know, what will... I mean, how are we looking at this 20%+ growth, if you can, you know, share your thoughts, what comes from premium? What are we doing to, sort of, rebound the entry segment, which has been depressed? So, you know, some color on how should I read this 6.5 million number that's there in annual report.
Gunjan, you know, I, well, I'll not comment on the, on the numbers part of it, in terms of, in terms of production. What we are aiming is, as we talked about, we are talking about a double-digit, revenue growth, in the two-wheeler industry, and then we are looking at market share gains. I'll ask Ranjit Ji to talk about what are the actions that, we have taken and are taking, to ensure growth and market share, across the segments. Ranjeet Ji, over to you.
Yeah, thank you for the question, and let me just, you know, build on that in terms of the whole demand and the, then the projections that are coming in. With the recent launches that we have done, for example, you know, Xoom that we launched, it's already added up market share there in the scooter segment. We very recently now dispatched Destini Prime. That's another beautiful product, you know, bang on the key buying factors of the segment that is really at the bulk and the belly of the market, and it's getting a very good reception. So overall, in scooters, across 110cc and 125cc, we're seeing very positive movements from a volume perspective.
If I then go to Super Splendor XTEC, we have launched that in March, and we have been able to see increasing volumes in the 125cc motorcycle segment, coming, very, very, well, building up. We've just started dispatches of Glamour, the, the classic Glamour. You know, markets like AP Telangana or West Bengal or Assam Northeast, these are the ones that are really looking forward to that classic style, updated with all the latest features, with the digital-analog speedometer and the whole styling, the comfort of the Glamour. That's, that, you know, is something that the market is really looking forward to. If I then go deeper into Passion Plus, that's another one which recently has helped to bring in, bring it in, in the top 10 motorcycles in June and July.
It was the fastest to cross 10,000 units within 15 days, is doing very well. It's very well received, particularly in the south and the west, now it's going across to the other zones and the regions as well. As we launch our new premium products, we also see great momentum coming back, whether it's Xtreme 160R, or V, or the 160, 200. Sorry, the Hero Xtreme 200S that we have also recently launched, the upcoming launches, which are Karizma and many others. When you look at the whole pipeline, never before has Hero, you know, brought in so many products in within a year. You're going to see a lot of action coming in this year.
The numbers that you're referring to, I mean, basically, I think we are on a very positive sort of a ramp up that we are seeing from a market perspective.
Okay. That's good to hear. The second question I had was on this, you know, the console and the standalone, difference. These losses seem to have gone up in this quarter, I mean, almost about INR 120 crore or so. If you can, you know, give us, you know, give us some color on what, you know, what subsidy losses these are, and, you know, how should we think, think about it through the course of the year? Is, is this the trend line that we see, you know, it is going to be INR 100-120 crore each quarter loss on the sub?
Gunjan, there is a one-off item there, which is on Ather, which is one of our associate companies, which had to take a hit, because of the regulatory issues, you know, the charger refund that the.
Mm-hmm. Okay.
That was around INR 175 crore of the in one quarter that they had to take. Obviously, our share of that based on 35% comes what it is. I think that's the one-off. I think you take that one-off out, then the rest is Ather is stable, then FinCorp will continue to increase the profits and improve that, therefore that's what is going to be the trajectory going forward. Yeah.
Okay. Rajesh, last question, if I can pitch in, is on the Hero 2.0.
Yeah.
Where are we on that in terms of, you know, the rollout plan? You know, what is the sort of investment that the dealer has to do in terms of refreshing the, the look of the dealership? What has been the acceptance from the dealer, you know, dealers while you're rolling it out? Just some thoughts around it, and I'll join back to you.
Sure. So Gunjan, currently, you know, firstly, we shared the new VI. We did a couple of pilots. We tested out the consumer response. Overall, it's worked on many, many dimensions. The whole experience that it provides the customer, the customer really feels a very elevated experience in, in that whole, not just buying. Buying, of course, the conversions are much better, the premium portfolio becomes better, the scooter conversions are better. Coming to a Hero showroom, the kind of feature that the customer gets from that kind of an experience is really good. So we've been able to roll out the pilots to around 38, which are live as of today across the country. We have a very strong pipeline where the designs, the architectural designs, the interiors, all of that has been worked out.
In fact, our dealers are very, very keen and enthusiastic to get many, many more up and ready and running, by the festival season. We've got a very strong pipeline, I would say between 200-300 dealers, you know, depending on the way we, the range and everything goes on. We have a really good pipeline, and that bodes well for the entire portfolio that we're bringing in. The platform that we are creating for experience, customer experience, is very solid, and I believe it's truly differentiating versus anything else that's out there in the market. The brand trust just becomes even stronger with this entire experience. There are 1 or 2-
Just to add to, Rajesh, your point, and Gunjan, again, just like we talked about, the number of new launches that we are doing this year is unparalleled as far as our history is concerned. Probably unparalleled in the industry as well. I, I don't recall any, any player launching so many products in such a short period of time. Equally, the Hero 2.0, which you picked up, is of a scale which is also unparalleled. When we go back to in terms of the lifting, the VI, absolutely the fastest ramp-up in the industry, number of stores. What's, what's helping this is also because what we are saying is, "You get to store VIDA only if you're Hero 2.0." Yeah? You have a chance to sell Harley only if you're Hero 2.0.
All of these things are also exciting the dealers.
Of course, they are extremely excited and, and they are coming up much faster in terms of building up the stores.
Everything that goes with a really premium experience, a great planogram.
Yeah.
less clutter.
Yeah.
You know, It's not only the hardware, it's the software. It's how we treat our customers.
Exactly.
the training of our people, everything gets elevated.
Thank you so much. Thank you. Before we take the next question, I'd like to remind our participants to limit their questions to two per participant. If time permits, you may join the queue for any follow-ups. Thank you. The next question is on the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Hi, sir. Can you talk about the spare sales in the quarter and any reason why realization should have dropped on QOQ basis in this quarter by a reasonable margin?
I couldn't get the question clearly.
Question is, one is, can you talk about the spare sales in the quarter, what, what level it was? Secondly, why did realizations decline...
Please, your voice is little muffled.
Yeah. Is it better?
We got the question.
Yeah, I got the question. I can address that. We been able to clock a net revenue of INR 1,210 crore, which is a growth of 14%. Of course, it contributes to about 14% of the revenue. What I just wanted to say is, this is a really a very good strategy and execution of the pivot that we've taken towards expansion of availability, because really what you need is in the aftermarket, availability at arm's length, and we were able to get that. The second thing that we are doing is we are also adding new lines of business. Whether it's attires or oil, there's a lot of new, you know, business that's coming in, and our parts distributors and our super stockists are embracing this new way.
It's a, it's a very CPG, FMCG kind of approach that we have of, you know, order fulfillment, demand pull, all of those kind of things that are, that are helping us. As we do this, there's also the parts, but there's also accessories, and then there's merchandise. Each of these three is getting an individual focus from, from, you know, the team here. We've been able to pull that through in terms of the range and the way we display it at our dealerships, and how that gets integrated into the product planning itself. When we think about a premium product, we start thinking also about the accessories and the merchandise that goes with it. All of this is really not only a top-line growth, but also a-
Hello? Hello?
Jinesh, just checking, is your question answered?
I missed out on the later part of the question.
We could move on. Maybe we can get Suresh for that.
Yeah.
Thank you. The next question is from the line of Amyn Pirani from J.P. Morgan. Please go ahead.
Yes, hi. Thanks for the opportunity. My question was on the volume trend. Now, obviously, on the wholesale side, you know, your growth, YTD has been below market. I think part of that has to do with inventory correction. Even on the retail side, you know, you know, it hasn't been as good as what we would have hoped for. Can you help us understand what's happening on the retail side right now? Given that you have been correcting inventory, wholesales have been lower than retails, where we would be currently on a retail, inventory point of view?
Yeah, sure. So there's a bit of a backstory that is important for me to just preamble here. You know, Q4, we started the, and all of you will remember, the OBD-II transition, and that's where our dispatch market share was higher than our retail shares. We were first off the blocks. We were able to position our OBD-II products into the market, as we were closing out on Q4. When it came to Q1, it was extremely important for us to do the FIFO, to make sure that we transition well and we, manage whatever, you know, maybe the calculated risks there were in, in the market in terms of the transition of the two, different things. I must say, credit to the team, that that has been managed very well. Therefore, you see a higher retail market share.
We managed to keep the 36% market share in terms of retail, and that's on VAHAN, and, and, and lead that over the dispatch so that we, in quarter one, we actually reduced inventory while the industry collectively added to inventory in quarter one. That's, that's part of transition planning and depends who, you know, takes what kind of a strategy. We decided to go with the market first, retail first, strategy. That positions us well now as we build up towards the festival season. This festival season, as you know, versus last year, is also a little bit later. We know that. 15th October is when the demand starts picking up, goes beyond Q2.
Therefore, as we build up the inventory, we will look at between Q2 and the beginning of Q3 to prepare for festival season. What also helps is the range of new products, both at the mass level, which is the high volume products we talked about, whether it's Passion or it's Glamour or it's Super Splendor XTEC, or the more premium portfolio that we're coming up, whether it's, you know, the Xtreme or the Karizma, or even in the scooter portfolio. I believe we are very well positioned, and we continue to work on that to make sure that we are aiming towards the retail off takes, and then, of course, dispatch will, will naturally follow that. I hope that's helpful.
No, that, that context is helpful. Would it be fair to say that the inventory levels are, you know, lower than where they were, say, 6 months back? Like, what is the kind of inventory levels that we're looking at right now, if you can help us, you know, quantify that number?
...Typically, and, and that's, you know, we have already given that in terms of how we look at it in terms of the future. We're currently really managed between six to seven weeks, at the range that we are, we are at.
Now we are at 6 weeks.
We're at six weeks currently. That's something that is very well positioned, you know, for the festival season as we start building it up.
Okay, thank you. Lastly, one thing on the EV side, I mean, based on the press release and even in your commentary, you mentioned that ex of EVD margins are already above 14%, which means that around 70-80 basis points of a drag from EV. Is there a part of it which is also because of the same subsidy removal, or is it just a normal general, you know, investment on the EV side? You know, where does this cost fit, if you can help us understand? Like, is it because the other expenses which had gone up earlier are come down now. If you can help us understand, where does this cost related to EV fit?
It's more of the gross margin side, because we didn't have a past sale, so we didn't have any one-off like the other players on the subsidy withdrawal. Of course, the subsidy withdrawal has a impact on the unit gross margin, which is overall, underlying some price increase and some margin hit, which is there. As we have guided already, that around 100 bits is the investment that goes into the combination of all the cash flow that happens. Let me ask Suresh to pitch in and talk a little more about this, and also in general, about the plan for EV as well.
Yeah. Thanks, Arvind, for the question. As Arvind just said, we are obviously investing heavily on building the infrastructure for EV. When it comes to subsidy, we are also preparing ourselves to be, you know, profitable without the scenario of subsidy. Obviously, subsidy has been helpful to the industry. As a business, we need to make sure that we are geared for that. We have products, which will be coming up in the near future, where we will be, you know, more geared even without the subsidy. Having said that, obviously everybody has gotten a bit of a hit because of this. Thankfully for us, it was much lower.
It has also led us all to accelerate our product portfolio, which will be geared for a subsidy-free environment.
Great. Great, that context is helpful. I'll come back in the queue. Thank you.
Thank you.
Thank you. The next question, follow-up question from the line of Jinesh from Motilal Oswal. Please go ahead, Jinesh.
Yeah, sorry, can you hear me?
Yes. Jinesh, go ahead.
Yeah. The question was, also on, the gross margin reduction or RM cost increase, which we have seen on QOQ basis. Is that just a mix impact as, our economic segment has seen a good recovery on QOQ basis, or there is something else also, are we seeing any cost increases there?
Yeah, Jinesh, it's a combination of a bit of time lag on the cost and also mix. Overall, if you look at it on the, on the trend basis, which is year-on-year basis in terms of our gross margin, that remains healthy. You're right, it's a combination of those two, which, which moves between quarter-to-quarter. Overall, it, it is, it is something which is, which is in a position year-on-year basis at a, at a reasonably steady level.
Got it. Got it. The second question was for the EV side. I mean, given what we entered with Vida around December, and now we are in scale-up mode. How do we see scale-up of Vida over FY24, what kind of volumes are we looking at? Then subsequently, when do we launch our next product? Because that, I believe, will be contingent upon how fast Vida will also ramp up. Any thoughts on that?
Yeah. Hi, Jinesh. I'll take this up. Yes, as, as you heard, we had announced that, starting with the 3 cities from last year, we will be going to 100 cities this year. We are already at 36 cities, and we will, well, before the end of the calendar year, we will be reaching 100 cities. As you all are aware, that we are coming out with 3 formats. We started with experience centers. Now we are doing VIDA Pods , which are shop-in-shop, and you'll also see some of our dealers putting EV specific dealerships over the course of this year. We are really building that platform very strongly. We are also expanding our charging infrastructure, you know, to have convenience to the customer and not have the range anxiety.
I also want to share that we have also partnered with Ather, you know, where we have made the investment, and we've also partnered with them for a common connector. You will see interoperable charging network coming out very soon, so that our customers will have much expanded charging network available. Coming to the product, we are focusing heavily on, on the product we have launched right now to get it to the each and every corner of the, of the country. We also have working on a strong portfolio for the entry and the mid segment as well, and we will announce those launches in the due course of time.
Got it. Got it. Thanks, thanks. All the best.
Thank you.
Thank you. The next question is from the line of Mumuksh Mandlesha from Anand Rathi. Please go ahead. Mumuksh, please go ahead with your question.
Yeah, yeah. Congratulations on the good EBITDA margin performance, sir. Sir, just continuing the VIDA, sir, any market share target we have over the next few years? Any aspiration numbers we're looking at for this product, sir? On the, can you update on the PLI scheme benefits for the EV, sir?
Yeah. On the leader side, thanks for the question, Mumuksh. We have definitely put, as I also explained in the last question, we are really putting all the building blocks to get to the EV leadership within the shortest amount of time, and you can assume within few years, we want to take that top position across the segments. We also are taking EV as our starting point in a lot of global markets as well. We'll see a lot of focus on whether it's through our GTM, whether it's through our product, or whether it's through our digitally enabled services. We want to get to the leadership position very, very, very, very fast. I think your second question was around PLI incentives.
We are also working very heavily on making sure that we cater to all the criteria for the PLI, and we will sort of announce when we are closer to those to those qualifications. It is an important aspect for us, and we are doing all which is required to make sure that we are ready to qualify those, for those for those requirements. Mostly, yeah, the focus right now is to go to 100 cities plus. Thereafter, like we talked about FY25, is about portfolio building. As we do all of these, clearly our aim obviously is to take leadership in this EV segment as we move forward.
Thank you so much. Coming to Harley-Davidson, what are plans to ramp up its standalone stores over the next one to two years, sir?
We will be, one, we will be servicing through definitely our current Harley-Davidson stores, plus also select Hero stores. Going in itself, it will be starting with almost 100 plus stores to begin with. Then thereafter, the gradual ramp up will happen based on that. Let me also at this point ask Ravi Avalur who heads the Harley-Davidson Business Unit, to provide a little more color on what we are doing as plans for this product moving forward, not just the stores, but overall. Ravi?
First, to get your question regarding the stores, of course, we have the Harley legacy stores in 26 locations across the country. That number is quite sufficient to provide a Harley-Davidson experience in India. We'll also, as Niranjan said, be opening Hero Premia , Hero 2.0 stores, and perhaps even directly serving customers in certain markets. It's a very exciting time ahead. Our current focus will remain on the X 440, and providing an experiential experience, and then rapidly expanding over the next few months, test rides to customers who book the motorcycle, and then after that, as a means to serve the market. That's an overview of what we'll be doing.
Also remember that, the way we've gone about this is that this is not going to be a push-based model, it's going to be a pull-based model. You don't need to have the product in advance to create the demand. The demand is actually going to change the supply. Then serving and fulfilling the supply will be through various modes that happen. It's, it's a change in the, in the order in which, we used to operate our, our two wheelers, so far.
Thank you so much, everyone.
Thank you.
The next question is from the line of Raghunandan from Nuvama Institutional Equities. Please go ahead.
Congratulations, sir, on strong margin performance and Harley booking. My first question, on the objective of growth and market share gains in premium segment, Harley, Karizma, Xtreme 160R and other products within next 18 months should strengthen position. Can you indicate any volume potential that you are targeting? I mean, 125cc model itself has a potential of 30,000 plus units per month, and Harley can have a 5,000 plus units, kind of a monthly potential, assuming supply follows the strong demand.
I'll leave the volume, estimates and calculations and modeling, to, to you. We would not be giving any guidance on the volume. But again, reiterating what Ranjit just talked about, that the, that the 125cc, clearly Glamour, which we have done, just going in, Super Splendor XTEC, which has been received well, are going to be big volume drivers. Harley-Davidson X440 is in a segment which is really big, and our bookings indicate that, that, that really this can become a very big model for us moving forward. We're getting so many bookings in one month itself. Then we have follow-on launches, like you talked about Karizma, which is coming back, which is an iconic brand, coming back in a different avatar very soon.
Of course, Q4, we'll have on the same 440 platform another cross batch product as well. There is lots, lots that are coming, coming our way and coming to the market, and clearly these are, each one of them, are volume... I won't say volume, let's call it revenue and profitability drivers, market share drivers. More importantly, all of these, what they are doing, going to do, is to build our strong credibility in the premium segment. Which so far we were known in the commuter segment, but clearly strong credibility building in the, in the premium segment. Remember when we met on the Investors Day, which, which happened 2 months back, we did talk about changing gears, and you can see it already happening, and more and more you will see it happening.
Of course, numbers are something that will follow. Once you do the right things, now we know that the revenue and the profitability and everything will follow.
Thank you, sir. Wishing you all the best. My second question is, if you can share some thoughts on how you are seeing the urban versus rural demand in the recent months, and what is the expectation for the festive season?
Yeah, sure. Look, urban continues to be a strong driver. We, we see good momentum out there. As far as rural is concerned, I think there are some very good indications that we have got. Already Niranjan has covered that, whether it is the CapEx that drives the, you know, income in the hands of the people, the rains that have been spread across the country and therefore, you know, how it's coming in forward as we look to the festival season. We have seen some, you know, green shoots as we see Super Splendor moving in, as we see Passion coming in. These are products that have a very good balance across the country.
I think overall, the good monsoons, the elections, the festival, all of these things are all pointing towards a good festival season that's coming up, and we are preparing for that.
Thank you so much. Just a last question. On the raw material cost side, any benefits of commodity deflation on precious metal, which, which could accrue in the coming quarter? For Q1, on other expenses side, it, it has been, on the lower side. Any, any specific reason or it's just seasonality?
On the other expense, just the seasonality, and therefore, I think more importantly to look at a full year basis, what has been the trend. As our, as our revenues go up this year, obviously there will be operating leverage that will come in. As far as the commodity is concerned, now moving forward, we expect the commodity to have a stable operation. So I think from here on, unlikely that we will see big movements on either side, on the commodity. Of course, nobody can predict. As and when it happens, obviously, as we have shown in the past, we will be geared to take our dynamic action on our side.
Thank you very much, sir. That's all from my side.
Thank you. The next question is from the line of Rakesh Kumar from BNP Paribas. Please go ahead.
Good afternoon. Thank you for taking my question. My first question was on understanding your commentary from the near-term and medium-term perspective. In the monthly release, you had talked about that there are some crop damages, and that is something which is impacting the demand. Whereas you have also talked about with the earnings release that you are expecting demand to recover, and especially in the second half, you are expecting better demand. So what would translate from the near-term weakness, which we are seeing right now, to a better demand into the second half?
I think there are two reasons that we talked about. One is the more underlying, which has been progressively. You know, if you spend INR 15 lakh crore-INR 17 lakh crore of CapEx over a 2-year period, obviously that's going to translate gradually into demand, because CapEx takes a timeline, and therefore there's a belief. So it's not about 1 month or 2 months. It's like an uptrend that should start happening on the back of the capital expenditure, the government expenditure that we're talking about. The second part is a more recent part, which is as we have seen the progress of monsoon across the board, which is earlier when we saw that somewhere it was deficit, somewhere it was too much excess.
Now it seems to be evening out as we move forward, and therefore that's a more a short-term nature that we are that we are talking about. Therefore, these are the reasons to say that as we move forward, as a build-up to festival, the demand in the rural side also should start recovering.
Thanks for that. My second question was more of clarification. If you can just give some sense on, in the VRS scheme, how many employees have subscribed for that across staff and worker category? There's a small investment you have done for the, in the Netherlands subsidiary. What is that meant for?
Therefore, as far as VRS is concerned, INR 160 crore is the charge that you see in the P&L. Broadly, around 10% of the top levels opted for the voluntary retirement scheme. The small investment that you're looking at subsidiaries is the investment in Colombia, if you want.
Got it. Thanks a lot.
Thank you. The next question is from the line of Chirag Shah from White Pine.
Yeah, thanks for the opportunity, sir. As a broader question on the demand side, if you look at over last 12 months also, without going into a longer issue, because we know BS and emission on transition, et cetera, COVID. Even over the last 12 months, while the industry is hopeful of demand recovery, somehow it is becoming easier and getting postponed by a quarter or 2. I'm giving a general industry comment rather than a company-specific comment. What are the parameters that you are tracking closely internally to gain the confidence that from now on or whenever, 2nd or 3rd quarter, we should be back? Festive season is generally a seasonal every year it comes, right? That momentum will build on sequentially, but I'm more looking at on a YOY basis.
Chirag, again, the way to look at it is you look at demand by segment and by cities and by state and by region. It's not like overall as a country, the demand has not been recovering. For instance, we know that last year, the premium segment grew by almost 25%-30%, yeah, in terms of the overall growth. That segment is registering growth. If you look at any of the models that are launched at a higher features and higher this thing, it, it grows. You have seen the bookings, indications that have a booking number that have come for our H440. At that price, and some of the other players also are having launched in that price segment. Really speaking, you know, India is becoming a, obviously, a story of many Indias.
There is a part of India which has recovered much faster, from whatever it was, and actually really growing very well. Of course, there's a bottom of pyramid, which is taking more time. It's only a question of time. It's not that the entire sector is not recovering. It's that by part, it's already started recovering. Some part is strongly growing, some part is recovered, and some part is yet to recover. That's how I would put it, and that gives the confidence. And also there are underlying indications. Economic indications are there, of course, which we all know. But yeah, we have to be patient sometimes that you predict that this quarter, next quarter will happen, may get shifted. But the underlying factors are there, which can drive demand and can drive growth.
On the commuter segment, which has been a sore point for the industry in general...
Right.
Right? If, if you can closely indicate the trigger points that you are watching that, which will really give you confidence, and you would be ahead of the time in building up the inventory. How should one look at that? Because that has been the sore point for the industry.
Yeah. Chirag, Chirag, very simple. Yeah, some of these things do take time. One has to, one has to rely on the underlying factors. Underlying factors what drive, and we all know the economics theory, is that you need to do huge capital expenditure, which then percolates down. Now, how fast and how far, that takes time. There's been inflationary pressures, inflation is coming down. We are not just talking inflation in terms of two-wheeler, we're saying overall general inflation. Of course, we do know, you know, some vegetable prices might be, but overall, when we are saying the rate cycle peak, inflation coming down, that is. Third indication, the replacement demand is coming back as we see. In small measures, it started coming back.
The people who are postponing and therefore looking at holding on to their, to their vehicles for a longer period of time, now that is actually we see a replacement demand is, is coming back. You know, from, from what it used to be around, it had gone down almost to around 4%, 5%, 6%, and in the latest month, we see that almost 10% of the buying is coming from the replacement demand. There are a lot of these indicators, lead indicators, which are there, that, that is going to come up, and that gives the confidence that, yeah, that segment also should see a growth coming back. I mean, just to talk about even 125cc, 20 g, with of course, some of the new launches and launches by players, others, that segment started growing as well.
It's, it's a question of Ranjit, do you have to add anything on, on color on, on the commuter segment and bottom up?
Yeah, I think broadly, the question is on the industry, and you're absolutely right that, you know, there are different segments and they behave differently. Again, coming back to where we are, and talked about 125cc, not only are we talking about Super Splendor XTEC and Glamour revamp, but also we're preparing for another one, which is coming up soon. We will continue to proliferate with our, you know, very differentiated portfolio to drive the market upwards and drive our market share upwards as well. Whether it's premium, which you've heard a lot about, it's also 125cc. Scooters also, you've seen us, and anyway, you've seen the market share getting strengthened with Passion Plus for the commuter segment.
You know, recently we also did a look at our branch scores and branch strengths, and I have to say that we are very pleased with the way the market continues to give confidence to our brands, whether it's across the portfolio. It's really something that we are preparing well for this festival season, seeing that the industry, the volumes. You're right, over the last two, three years, there was a bit of a lag in terms of, you know, the industry growth, et cetera. Now we are seeing that turnaround coming in. You've seen how Q1 has happened. We've seen positive movements as we go along with good monsoons, with inflation under control, with people coming back.
Whether it's for the occasions of marriages or festivals, you know, there is a far more economic activity and more participation in that economic activity that will drive our entire industry. I think overall, it, it does well for the industry, for the two-wheeler industry.
Chirag, good to hear from you from the other side as well.
Thanks. Just one comment on commodity side, if you have anything, so any benefits expected going ahead, or how should one look at that side? If you can just make a brief comment on that.
I think, Chirag, moving forward, I, I, I would say that we do not expect, as we said, any significant up or down on the commodity. The way we are building our models is for commodity to stay stable, and, and no more benefits to, to be coming through, on a more stable regime. Yeah, if, if there's any benefit that comes through, it will help us actually, again, further invest behind growth and market share like we talked about.
Yeah. Thank you, and all the best.
Thanks, sir.
Thank you. The next question is from the line of Pramod Kumar from UBS. Please go ahead.
Yeah, thanks a lot for the opportunity. I just wanted to bridge the disconnect between what I hear from you guys on the call in terms of all the parts of product launches, what you had and the great response what you're getting. The one market share, because of the data suggests that start of the fiscal till now, we've lost some 400 market share, and market share for August is trending below 27.5. I'm just trying to un- and I'm talking about YOY market share here, like, to like seasonality. I'm just trying to understand what have we been here? What, despite all the launches, we continue to see market share slip. What, what explains that? Because in the core segments, you haven't lost market share, as you alluded to.
Just help, help us understand this gap between what we, what we're seeing at your end and what we're seeing on the, on the, on the retail database.
Right. Right. Pramod, I'll answer. I, I remember a couple of years back where we had the call, and we were having a very good dispatch market share, and you did pick up the VAHAN and the retail market share, which were bad at that point in time. I'll revert back to your logic this time, which is the right logic to look at the retail market share. Look at the retail market share. Retail market share, 36.6%, for the quarter, so there's no loss as far as the retail market share is concerned. In fact, on a sequentially basis, the retail market share up by 300 basis points. That's one number that we need to look at.
The second is more fundamental, is that when we are putting these launches, remember, these launches doing well is what we say is an indication that's coming from how well customers have received. Now, no launch will translate into a full potential market share at the point of launch. Therefore, that we know that it takes four to eight quarters to actually get to the fullness of the potential. Now that, you know, you've got a Xoom, which has been launched, when Ranjivjit talks about received very well in the pocket, the early customers, fantastic feedback. That means the potential for this to rise over the next eight quarters is big. Similarly, Passion, which has come back in terms of the classic, Passion classic avatar, which again, a lot of customers picking up. They're all lead indicators.
You have Glamour, 125cc revamp, which is coming in the market. Harley-Davidson X440. If you were to ask me, is it reflected in my market share? No. Will it reflect in my market share in the next 8 quarters? The answer is solidly, yes, because that's the indication. Similarly, Karizma will come. Similarly, that will come. Actually, all these launches, Pramod, it's very important that once you launch, how customers are receiving it, what is the market feedback, which is that, and therefore, this is something that will translate into market share over a period of time. What's very important, do the right things, which are in the market, and it will translate. Hope that answers your question, Pramod.
Yeah, yeah, I think that explains, because, it will you need to seed this brand, make the marketing investment.
Correct.
Second follow-up, how should we look at the marketing budget? Because you're talking about, like, never seen before, kind of a launch pipeline, right?
Yes.
That definitely would require enough marketing support so that you don't kind of, the investment, rather, not even marketing costs, it's investment, right, behind the brands. How should one look at this and the ambition to get back to growth? Because to begin with, for the first four months, we are down 5% on retail and 5% on wholesale. We got a lot to cover on in terms of ground, in terms of volumes, right? How should one look at the balance between volume comeback and marketing investments and the profitability, from-
Pramod, yeah, Pramod, I talked about if you carefully again, see what we are talking about is that from a margin which had gone down to 11.5%, we are back to the pre-COVID levels of 14, 14+. Remember, we had this conversation as well. There are 12, 12.5. Are you still going to maintain the 14%, 14.5%, you know, whether it be possible at all? We have proven that, yes, we can get to that level of margin on the tram line. I think that job done. This time, we have been very categorical that moving forward, we know so many launches coming, that we would be now focused will be on growth and market share.
It allows-- Remember, the portfolio is so big that the investment allows us to reallocate and reprioritize, which is what we do, and that's what we explained earlier as well. Of course, we are increasing the spend, because there'll be whatever benefit that we get out of our savings program, out of this incrementally moving forward, will be plowed back as far as the investments are concerned. You're right to pick up. We don't call them a marketing cost actually. Behind these new launches, these are the investments. None of these will be starved at all. We will do whatever it takes to ensure that all launches are backed completely, and we have a strong P&L to back it.
Given that the P&L is comfortable and we know how to navigate that, and we've actually proven that time and again, then obviously, the comfortable position on the margins allows us to ensure a higher level of investment while actually maintaining margin, because that's repaired already. Yep.
Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead.
Hello, good afternoon, sir, and thank you for taking my question. While you did allude to, the spare part revenue being strong, if you could just throw more light on the overall pricing environment, especially given the pure realizations when we talk in purely revenue by volume, they have fallen. What are the reasons for that ASP decline? You valued it to it, but just more details that we can get.
I don't think the ASP has declined. I mean, if you, if you really look at it, you know, year-on-year basis, our ASPs are up, even sequentially, our ASPs are up. And, and I would suggest that maybe on, on an offline basis, Umang will be able to, able to provide. It may be that when you're looking at sequentially, then the per unit of the, of the parts revenue that comes, that shows a little lower, and therefore, you may think a blended ASP, being, being lower. If you look at two-wheeler ASP, that ASP has gone up. If you look at the parts as a part growth, it's about the parts as a percentage of revenue. That, of course, quarter-on-quarter, because some seasonality goes up and down.
Fundamentally, each of them independently are on a growth path. Arvind, we'll share more offline numbers to you, so that it helps clarify the split on the 3. Yeah?
Sure. Thank you so much. Just one more thing on, one more question on the EV part. You already reached the target level in terms of ICE margins. I think you again, you know, talked about it, but what has been the learning from Ather? You know, at what level do you see that VIDA, where the pricing or the cost part is? Where do you think it starts becoming at least EV neutral? Not talking about the units per se, but, you know, maybe this year or next year. Otherwise, ICE margins are very strong. When do we, when can we see that the impact of VIDA is not that high, you know, 70, 80 basis points? What's the timeline that one could see?
Yeah. I think, Look, I, I, I'll tell you in, in a little bit broader way. First of all, each of us in the EV industry are learning from each other, because it's a nascent industry, so you learn from each other's experience, and therefore, it's not just about Ather learning from us or us learning from Ather. I think each of us learn from, from what somebody is doing well, where somebody is not doing well, and you start learning and building, that part. I think that's about the industry per se. In terms of our focus, the focus, the focus has to, you know, it's about putting the right focus at the right point in time. Right now, this year, the focus is that go to 100 cities. The focus is on building portfolio, which you will see next year.
Then thereafter, obviously, as you gain scale, and there's a focus on cost reduction as well, and therefore, the unit cost and the margins will follow. It's important to actually prioritize and focus on one thing at a time, and this is the sequence in which we have prioritized. Rajesh, you want to add anything overall on this?
No, Niranjan, you, you, you clarified how we need to make sure that we don't, you know, start focusing on 3, 4 things at the same time. As, as you know, we came out with a very strong product, which customers have loved, whether it's removable battery, whether it's the look and feel, whether it's the drivability, customers are really loving it. Right now, our focus is how do we take this product to every corner of the, of the country, which is where we come with the 100 cities. Very strong work is happening behind the scenes on, on reducing the cost, where we have strong work happening with our suppliers, with our R&D teams, and bringing that cost down very strongly.
With the product portfolio coming in the mid and entry segment and the costs coming down, you will see that we will move towards profitability very fast. We need to make sure that we are doing this, laying the foundation very strongly, while behind the scenes, we are working towards profitability.
Clearly, look, given our scale, and that's the advantage I think as, as a Hero we have, that we have a scale of portfolio, a portfolio that where the margins are now back to strong, which is generating cash. Therefore, you can invest behind portfolio, which we are building, whether it is EV or the premium segment that we're talking about, and including, of course, the global business as well.
Got it, sir. Thank you so much for taking the question, sir.
Thank you. The next question is from the line of Pramod Amte from InCred Capital. Please go ahead.
Yeah, thanks for taking my question. The first question with regard to the aggressive product launches you are planning. Considering the amount of effort which goes in the product development and planning, how are you planning the system gearing up so that the full justification is made for these products to reach their potential, especially at the dealer end, to give a time gap and to give a proper attention to these products? Otherwise, they usually go out of the scene. Can you give some color on that?
I think, good question. It's not that the launches are coming. While to the market, it seems like it's all coming now, this has been in the preparation for the last 3 to 4 years. Because remember, any new model takes 3 to 4 years' time. The marketing team, the sales team, have all structured and planned very well. In terms of making sure that each of these launches receive adequate resources, the attention to detail at the sales, at the marketing level, at the planning level, operation level, all that is planned. Your point is very valid, given that the number of launches that we have, extremely important for us to make sure that each of these launches receive the necessary support and the paraphernalia that is required. Ranjit, if you want to just add a bit of color on this.
Yeah, I just want to say the whole organization comes together to, you know, bring these to market. Whether it's at an R&D side or the plant and operations and just making sure that the products are really well received in the market, the sales and marketing guys, making sure that, for example, when Niranjan and I traveled across, you know, the country, we said the sales capability of being able to explain because our customers know a lot about not only our products, but also other products.
Being able to bring that value proposition alive at the store, making sure our online journeys are well crafted and they are frictionless, building all this out with the new, you know, visual identity of the stores, bringing in the right kind and, and attitude of the dealers who are so enthusiastic about, you know, the growth opportunities that these present. I believe this is the kind of preparation that you're alluding to. It's not a trivial thing. It's something that the whole organization supports and builds out together.
Thanks for that. The second question is with regard to the prolonged government agency inquiry which are happening. As a shareholder, do you need to know, do you have to make any provisions or impact for these taxes or any of those matters? One. Second, what type of policy corrective actions you plan to take so that such things won't repeat?
As far as we are concerned, we've given the commentary and the accounts as well, that we do not see a need for making any provision. Whatever the information that is required by various authorities, the company continues to provide and cooperate with the authorities on this item.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Umang Khurana, Head, Investor Relations and Risk, for closing comments. Thank you, and over to you.
Thank you, everyone. Thank you for coming in, and we look forward to keeping engaged. Lots of products coming, lots of launches coming. Let's talk offline as well. Have a good rest of the day.
Good weekend.
Thank you very much.
Happy Independence Day to everyone.
Happy Independence Day, everyone.
Thank you. All right. Ladies and gentlemen, on behalf of Anand Rathi Shares and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.