Q1 21/22

Aug 13, 2021

Quarterly report

Ladies and gentlemen, good day and welcome to the Hero Motor Corp Limited Q1 FY 2022 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Janesh Gandhi from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir. Thank you, Faisal. Good afternoon, everyone. On behalf of Motilal Oswal Financial Services, I would like to welcome you all to 1Q FY 'twenty two post results conference call of Hironomotor Corp. I would like to thank the management for taking time out for this call. I will now hand over the call to Mr. Rumang Khurana, Head IR and Business Support, to introduce the management. Over to you, ma'am. Thank you, Dinesh. Hello, and welcome, everyone, to the post results conference call for Hironomotive Corp. On quarter 1 FY 'twenty two. Trust all of you are keeping well and hope that this continues to improve as we meet for the next quarter as well. For today, the plan is to begin with our CFO, we have Nilanjan Gupta on the call and our Head of Sales and After Sales, Navin Chauhan. The CFO will begin with opening comments, and then we will take your questions. Okay. We'd now begin the call, please. First, Niranjan, Odi. Thanks, Sumant. Good afternoon, everyone. Welcome to Hero Earnings Call. You would have seen our results announced yesterday evening. We delivered 10.25 lakhs of volume, 200 basis point market share gain In quarter 1 over full year 2021 and our bottom line of 365 crores significantly better than Q1 of last year. As all of us know, Q1 was a difficult quarter for not only the industry, but the country as a whole With Wave 2 impacting across several sectors, several lives and across the board, Fortunately, as we speak now, it seems to be behind us. We at Shio during the quarter prioritize safety Of our employees, of our customers, of communities, of all the stakeholders around us, we closed our manufacturing operations much earlier than others. We, of course, as we know, we restarted also on a very fast pace once things were clear. Vaccination, there's a big drive that has gone on. More than 95% of our employees, direct, indirect, across the channel, everywhere have got vaccinated with first dose And they are well on their way on the second dose. That gives us huge confidence as we move forward on returning To normalcy, not only economy, but sector, 2 wheeler and our company as well. As we move forward, There are positive signs in the economy that have emerged very clearly. DST collections have come back on track. We see e way bills coming back on track. We see a very good monsoon, which is happening as we see on the August well, not only for the crop cycle right now, But actually the next crop cycle as well as you know because Indian economy depends a lot on irrigation. As we see ourselves, More than 90% of the outlets now are operating normally without any kind of micro lockdown, and our retails have reached more than 80% of the pre COVID level. There are more fetters which are coming, So I'll affect this throughout this month and part of the next month, followed, of course, by the big festival, as you know, with Nalata and Diwali period that happens that will happen in the month of October. Moving forward, as we said, looking at the shape of Monsoon looking at the shape of economic revival, we do expect positive trends, which have started already emerging, Picking up through the festive and thereafter big buoyancy to return in H2 of this fiscal. That's about the medium and short term. As far as long term is concerned, the opportunities for 2 wheeler sector remain intact. For India, the economy, we remain very confident and for the 2 wheeler sector because the underlying factors of under penetration, more women in education and employment, More financing opportunities and more organization, they all remain intact. And to top that up, more of personal mobility as a factor that will slowly play out now. So on that note, let's open now floor for Q and A. Thank you very much. We will now begin the question and answer session. Ladies and gentlemen, we will wait for a moment while the question queue assembles. At this time. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, Please limit your questions to 2 per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The first question is from the line of Gunjan Tithyanne from Bank of America. Please go ahead. Thank you for taking my questions. Two questions. Firstly, on the demand side, Can you give us a little bit more color? Is it evolving post the reopening? Particularly when we look at the retail numbers, they are not Encouraging, the registration number, I mean. And the rural narrative doesn't seem to be that strong as it was last year, given the 2nd wave has hit, You know, it has been quite disproportionate there. So what is it that you're picking from the dealers in terms of We are starting to see some small festive, as you mentioned, which will start coming through in the next couple of weeks. So some feedback from on the ground what you're hearing will help us. Thanks, Gunjan. Hope you are settling down in your new role well. Let me hand it over to Navin To address your query on the demand, Saketan. Okay. So the two things you wanted to check on the demand and then you said you also referred to registration data. On the registration data, which normally we refer to Wahan, there is a lag in registration that we know. In some of the states, it's like instantaneous and Delhi in Rajasthan, but in some other states, it lags. So you get the real sale of The retail number after a certain period of time. 2nd, on the demand front, we all know the impact of COVID in Q1, which was very, very high. But if we look at some of the stories regarding the festivals, the There has been a good uptick in our number. For example, Rathyatra, which is celebrated in Gujarat Mainly, we had 40 odd percent plus kind of uptick in our numbers, similarly on Eads and Guru Purnima. So there are These occasions which are coming in, which tells us that there is a unique occasion to buy and make a purchase. Well, I think if I refer to the employee strength which are coming in, if you refer to the kind of customers who are visiting our The e shops, the virtual showrooms, there is a positivity and we see while Q2, they'll be Positive, not very strong, but I see strong comeback in 32 days period that falls in. Okay. That's encouraging. The second question before I get to second question, if you can clarify Financing side is an issue that you're seeing in the market, given particularly how asset quality, which We know, with the NBFCs is standing out. And maybe I can Sure. Go ahead, sir. Go ahead, go ahead, Gunjan. Complete your thoughts. Yes. And the second question I had was on the difference between the console and the Standalone, there is an associate loss of about INR 135 crores. So if you can clarify a bit on this, my guess is Sure, Gunjan. Gunjan, the finance penetration that has been there in this quarter was 41%. As we know, the quarter is not fully representative given that different parts of India started opening at different points in time. So considering that 41% penetration is pretty healthy and FinCorp share amounts that was 41%. As we move forward, we do expect in a normalized quarter We'll move it to 45%, 46% and maybe even closer to 50% as we move forward through the festive season. As far as your consolidation question on that is concerned, yes, indeed. It's the one off 1 quarter loss in the FinCorp. And as you know, across the NBFC, because of this wave 2, in quarter 1, the GNPS have gone up and so have in FinCorp. So they're one off provision that they had to make. And moving forward, they expect the GNPS to settle down and come back to normalized levels by quarter 4, and therefore, a breakeven profit to restore in the second half of the year. Just to add to what Selangyan just talked about on the finance penetration. We remember that In Q4 last year, there was no marriage pay and all marriages were shifting into the Q1 of this year. Normally, marriages, these are more of cash purchases and hence, that also has an impact on the overall legal finance valuations. As we move into Q2, I feel that it should improve. Sure. Can we get some more numbers on the Eurocity Corp? Because we don't have the annual numbers as well, just a little bit on the operating trends, it will be useful For the broader audience as well. Sure. Then Uman will come back to your time. Yes. I'm just going to request everyone to do 2 questions at a time, The next question is from the line of Jirak Shah from Adialwifes. Please go ahead. Thanks for the opportunity. First housekeeping question, just on the commodity inflation, So how much of the impact is already there and what we can expect going ahead, if you can give some indication? Chirag, thanks for the question. So on commodities, as you know, that generally what reflects in Daintex Comes to industry with quarter's lag. So as you see, the quarter was already impacted by commodities. You see the mature cost percentage going up. We, of course, managed to offset a large part of that to lease savings of almost 150 basis points. And of course, we have taken price increase as well of almost INR 600 per vehicle from 1st April. From 1st July, What we have done to offset what has come forward as a cost impact is to take a price increase of almost INR 1200 per vehicle. And combined with then the lead savings, we do expect moving forward the recoveries and savings to actually neutralize the costs. Thereafter, actually, we expect the commodities to soften and therefore, the margin recoveries to happen over the next 2, 3 quarters. And also, spare parts here, can you just say the spare parts review number, is it lower versus the normal trend in the quarter as a percentage wise? Yes, Chirag. This quarter was lower. As you know, again, it's very difficult to read this quarter, and I'll keep repeating that Different geographies in India opened at different points in time. So even mobility was restricted on the road, and therefore, you see lower parts. So the parts revenue For the quarter, it was INR 455 crores, which is 8% of revenue. What we did in quarter 4 of fiscal year 'twenty one was INR 1050 crores, which was 12 percent of revenue. Now moving forward in a normalized quarter, as we see, let's say, quarter 2 or quarter 3, we would expect it to go to 10% -plus At least, and therefore, to return that. So it's more of the lockdowns and the openings and not so much of any underlying Yeshu, as far as the past revenue is concerned. And I think just to add to that, there are certain fundamental changes that we've done in Step Out Business, which has seen The result last year, Q1 is an aberration. I see strong numbers coming back from Q2 onwards. This is helpful. This explains part of the margin pressure. This is helpful. And one question on the demand outlook, while you expect a Strong comeback. Last year also, we have a reasonably good base. So for the balanced part of the year, can we expect some growth, Hi, the single digit growth for the year. Is it fair to assume that we can expect a growth in the balanced part of the year? So Chirag, look, early indications like Naveen talked about in some of those single day festivals, You talked about Yatra, you talked about couple of others. Those single days are showing growth. So it is showing that for festive days, customers are coming back. The second bit is last year, you saw a lot of pent up, which came very fast in June July. And this year, that hasn't happened because of the staggered lockdown and more impact which has been wider. So therefore, the recovery has been a bit slower. Like I said, we have reached already 80% of the retail and it keeps inching up. 2nd half, surely, we should see a growth as compared to next year. At least that's what we are expecting and that's what we are building for and that's what we are confident about. And It is really helpful. I look at fundamentals on basic demand drivers coming back, Vaccination improving, yes. And this is 2nd year consecutive years of the kind of number that we're seeing. And hence, H2 should be a good half. Thank you. Mr. Shah, may we request that you return to the question queue for follow-up questions. The next question is from the line of Vimal G from Union AMC. Please go ahead. Yes. Thank you for the opportunity. I hope I'm audible. Yes. Yes, you are, Wimari. Yes. Sorry, just one, I missed on the spare part revenues for this quarter. How much were they? INR 4.55 crores for this quarter. Got it. Got it. And for the last quarter, they were above INR 1,000 crores, right? INR 1050 crores was the quarter 4 FY 'twenty one. Got it, got it. Right. So the next question was On your overall strategy on EVs, what are the launch plans over there? Do we sort of plan to launch our own brand of EVs this year, maybe next year? So that is the first part of the question. The second part is, are we looking to sort of leverage the technology that we have in our associate company, which is Ather. And obviously, we sort of formed a partnership with Gogoro as well. So what are the plans on EVs going ahead because they are fast catching up and there's a lot of buzz around EVs? So if your comments on that would be helpful, sir. Thank you. And lastly, just CapEx numbers expected for this year and if possible for next year as well. I see, Vimal, that you are combining many questions into the one question. That's fine, but we'll answer that. On EV, firstly, our Hero product, We already announced we'll be out by March of 2022, which means this fiscal end of this fiscal year. As far as Gogoro is concerned, as we have announced, the product will be on swapping basis because we do believe that moving forward For EV category to evolve rapidly, customers will need to have both as a fast charging option As well as swapping option because swapping what it does is it kind of mimics your fueling, which the customer is used to. So you just give the battery, take another battery, it just takes less than a minute or maybe minute and a half, same time that you spend in a few stations. So that product, we are it will come in the we are planning towards latter part of 2022. So that's why you will see a lot of action In the next calendar year on EV front from our side, as far as Ather is concerned, we continue to be the largest shareholder in Ather. They have expanded to multiple cities now. And of course, like you said, there are multiple forms of further collaboration and synergy is possible between the two companies, which the companies continue to explore. As far as CapEx is concerned, I'll not give a specific guidance for this or next year, but generally, our trajectory of CapEx has been around INR 750 to INR 1,000 crores per year keeps on changing a bit here and there depending on what the plans are. Right. And do we have an arrangement with HR or that do we have the first right of refusal in terms of funding and does HR require funding as of now? So I gave this question a pass. Electrification, as you know, EV is a Ashburn Sohri and Ether keeps raising capital as and when required. And so far, we've been participating And all their capital rounds. So this is all I can say, Vimal, at this point in time. Fair enough, sir. Thank you so much, and all the very best for the rest of the Thank you. The next question is from the line of Ronak Sada from Systematics. Please go ahead. Yes. Hi. Thanks for the opportunity. So a couple of questions again. One was On the demand side, I mean, last year, given we were pretty short on inventory and pent up demand was pretty strong. But how is the inventory position now? And related to that, What will be the comfortable level of inventory going into festive season? Thanks, Ronak. So we've talked about the demand already. As you know, this is the time that we start building inventory. Yes, last year, we were kind of shocked because of the late start that happened post the lockdown. And this year, that's not the issue, even the semiconductor issue that's impacting the industry. As far as our portfolio is concerned, given the portfolio as well as our supply chains, that's not impacting us. So we are building well Towards a good price pay, our inventories are building towards that. So there's no either an alarming level on the upside or there's no alarming level on the shorting Got it. Got it. And second question on electric vehicles again, right? I mean, Mr. Munjal highlighted that it would start with a pilot project. But assuming the product quality is as good as what we have in the market right now, How quickly can we expand to, let's say, top 20 cities, given assuming the penetration would Right, Ramiq. So firstly, let me just repeat The launch that will be there is not a pilot, but actually a full launch that will happen by March of 'twenty two on our product. As you know, I mean, Hero has got a huge distribution strength, And we've got 100,000,000 cumulative customers. And people coming into EV are not going to be entirely new ones. A large set will actually come from the cumulative base of existing customers. And therefore, Hero stands at an advantageous position Given the cumulative base of customers and the reach that it has to the nooks and corners of the country, of course, the pace of scaling up and The rollout of the exact number of cities, we will not be giving out at this point in time, Ronak. So what's the space? I'm sure when we come to it, You're very excited. Sure. My question was, I mean, given our reach, it should be much quicker than what the Startups are doing over the last 2, 3 years. Is that the fair assumption? Yes. I mean, We would like to exceed all expectations. Let me say, at this point in time, only this much. But let's launch the product. And of course, when we can have further discussions on the future plans around the product. But we have all the fundamentals In place, which places us in a position, and therefore, it will be up to us, honestly, to how fast we want to scale up and take it up. Combination also will be the infrastructure readiness of the country through the OEMs and through the government. Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead. Hi, good afternoon, everyone, and thank you for taking my question. My first question again is on the EV side. So can you please help us in what is the strategy, The broader strategy we are working with, so currently my understanding is that there are 3 pieces which we are working with. 1 is in But broadly from the product and marketing stand market positioning standpoint, where these three products would be sitting? We know where the data product is sitting, But the other 2 products would be today. From a medium term perspective, how are we looking at our mix From the EV and product portfolio from the EV side coming along? So Kumar, This is actually, I would say the question is a bit early to answer about the entire portfolio and the product and the pricing and where they'll be placed. But it will explain again, as far as the Our own product that we'll be launching in the month of March, what we have said, is going to be based on Fast charging solutions, right, why the Gogoro tie up is on swapping battery solutions. So we have 2 different ways to actually, in a sense, energize of charge, the product. And we are saying different customers will prefer it different ways. Taiwan has shown a big penetration that has happened only through swapping, while there are some other countries and geographies which have shown unable to charging. And therefore, basically, those are 2 different solutions that are going to customer. As far as Ather is concerned, as you know that we actually invested in Ather way back in 2016 in a start up. And in EV, we believe that it's still early games where you need to actually play out multi pronged strategies. And therefore, as it manifests later, there will be space for multiple brands in a category that is just evolving. Also just bear in mind that in fact all of the EV evolution, most of it, in the 1st few years will be around scooter. And scooter EV penetration, EV evolution actually plays well to our portfolio given that we are very under indexed as far as scooter market share So therefore, that becomes incremental and additive. And therefore, more of the brands actually will they won't compete, but they actually will expand the EV category. Thanks, Nilanjan, for that. My second question was, recently Mr. Munjal was quoted in a news report that Wherein he has talked about that Hero will not shy away from cash burn and not shy away from turning net Can you just give the context in which those statements are made? And are we looking at Changing our business strategy in the coming years during the transition to EV? So fundamentally, it's not a big Change in the business strategy. It is about a category that may require and we all know that EV category will not be profitable from day 1. So it will require some bit of investments or in other words, you can call it cash burn. And it's in that context that the statement has been made That we will do it appropriately. And the other thing is that as far as we are concerned vis a vis other players, It places us in a much better position on optimization of these numbers. We'll be able to get more out of our investment Simply because of our scale of buying, our scale of manufacturing, our scale existing scale of reach, which are nuclear we'll have to replicate and therefore we'll have to have Far more cash burn than what hero will need to have. So and we are talking about it's only for the EV category. It's not about a cash burn at a hero level. There is a cash cow and a cash generating machine that we have, which is our traditional ICE business. In our portfolio, 90% is motorcycle. So even if there's some cannibalization that's happening, that is happening at the market level, not to us with the portfolio. So first of all, for us, we see EV to be incremental to our top line. And second, we generate enough and more cash in our traditional business, but cash burn was more for the leading category as such I'm not going to hear it at enterprise level. Okay. Got that. Only I think that you may ask that question is that we are sitting with almost $1,500,000,000 of net cash position and the willingness to go to net debt position indicates a significant amount of cash burn Appetite is what we are showing. So I just wanted to understand from that context that is that aggression To lead in TV is so high that we are willing to give away that level of cash burn. I think that's more a question of that look, how do you play out on returns and your capital structuring. So it's about if there are opportunities in the M and A space or investment space, which actually can generate Super normal and fantastic returns, then fine. Then clearing the balance sheet for a debt actually It's not a problem at all. So it's not about debt through cash burn withdraw debt through any of the acquisitions, if that makes sense, if that makes value adding sense. And this we have been saying in the past as well, that it's not about shying away from those opportunities. It's about that we always keep looking at those But you always see whether an opportunity makes a strategic fit and whether it will give returns to us. Thank you. The current participant has left the question queue. The next question is from the line of Aditya Makariam from HDFC Securities. Please go Yes, sir. Just wanted to check on your premiumization side. Hold on. We can't hear you. Mr. Makaria, we are not able to hear your audio, sir. Mr. Makaria, you are not audible, sir. Request to please rejoin the question queue. Yes. Mr. Makari, are you there? Yes. Can you hear me now? Yes, Yes. We can hear you, Aditra. Yes. So just on the premiumization strategy, how is the market share of the extreme today? When does it hit up in your view? And on Harley, how are we progressing? So, Abhis, thanks for the question. So I'll ask Naveen to answer the first one. Sure. And then I'll take up the same part regarding Halim. So I think the word used, premiumization, I think is the right word to be using Because we are looking at the whole portfolio, right, it's like you've got acceleration class Across the segment and how do you cater to the needs of that App Solution Cloud across these segments? So from the technical point of view, it's about 150 cc and above, but what we are looking at is how do you minimize each and every segment. So if you look at Right from Splendor, there is a Canvas edition which came out. In Scooter, we've got Platinum series which came out. And these all these Bear games, which are at the higher end of the segment in terms of pricing and features, are increasingly contributing more and more to our total sales in that And it's going well with the X Tek launch that we recently had in Glamour, terminal distraction. Now coming specifically to the premium portfolio, which is 150 cc and above, I've been saying about Xperts. It is creating waves, And we've got very huge traction. We will be adding to the capacities in terms of what we can produce Shortly, and that should help us gain our numbers. But I think our overall strategy in the premium Category is building up portfolio and gain volumes. And let me take up the Harley And as we have said before, there are 2 legs to the Harley tie up strategy. 1, of course, that we are the Distributors for Harley Bikes in India, we have 12 dealers around 30 touch points, And that's going well. The second part of the strategy is to launch a bike In that retro segment, which, as you know, is almost onethree of the overall premium segment, Under the profit pool, I dare say that, that segment probably has around 60%, 70% of the profit pool of the premium segment. So that's the second leg of the strategy to launch by in that segment. And clearly, Harley is an iconic brand. And the work is going on in full swing on that. So that's the second part of the strategy. Right. Just last question, any market share targets on the premium side we can share? See, on premium, look, we have to look at what are the right enablers that we are putting in place. 2 years back in Hero World, we did talk about that over the next 5 years, we are going to build a full portfolio of premiums Across the CC range and across the customer range, which is Force, Adventure, Tudor, etcetera, etcetera. And you've seen us staying true to that task. So you've seen earlier Extreme 200, you see Extreme 1 6ER, you see XPulse, And you will keep seeing more and more action. But as portfolio is concerned, we are building that. As far as brand is concerned, You know that we have got brand ambassador in Virat Kohli, and you would have seen that. And so therefore, on a branding side, marketing side, we are doing a lot to build that up. The 3rd element is also on the distribution side, where there's a facelift, which is happening. And as the portfolio builds up, You will see on the comp channel side also premier channels also coming up as both the things build up. And of course, the 4th strategy is actually So I think all the enablers are in place, and you will see the results coming through. So watch this space is all I would say. And we are excited about how we are going about this. And clearly, in the medium term, it should give a big boost to our portfolio. Okay. Thanks and wish you all the best. Thank you. Thank you. The next question is Yes. Hi, sir. Good afternoon. This is Shyam. Thanks for taking the question, sir. My first question is on the demand trend. Just Qualitatively, if you can share some feedback on the recovery between the Tier 1, the regional towns and the Tier 2, We have 3, we will count between June to August, which is doing better than the other and what I think that is my first question. And along with that, between motorcycles and futures, how are these what So, Shamsun, there was unfortunately a lot of disturbance from your call, What we could get is about the more qualitative color on the demand recovery, Tier 1, Tier 2, Tier 3. And secondly, any impact on customer sentiments to the price increases that have been happening and how do we see fanning it out? So Navin, over to you. So Including the fuel costs. Yes, sure. So Shyam, different part of the year See different impacts on various tier of towns, right? The time like this, wherein the slowing is happening, You would normally see Tier 3 and Tier 4 pound contribution going down. And as the slowing gets over, You start seeing that the traction in those markets start coming back. So it is different part of the year playing out differently for different tiers of town. As we said that in terms of rains and drawings and everything going in the right space, right direction with COVID impact slowly and slowly coming getting over. I think we should have the normalization happening in terms of the contribution of each of these towns. On the scooter front, the second question was on scooter, right? No, on the Between motortriters and scooters, you have just between the segments, how is that I didn't get it, sorry. Okay. You can answer more about ATCO and the project. Okay. Okay. Okay. And maybe it's between motorcycle and scooters. Yes. So yes, there is we see that the prices of fuel is playing on the mind of consumers. But Hiro as a brand, I think we have a very, very high value prop in terms of the TCO, both in terms of the fuel efficiency that our product delivers and also The cost of ownership once you buy the bike. So while it will have its impact on overall industry, but I think it is going to play out better 4, 0. Let me just also add to what Navin has said. And if we look at the monsoon numbers and the water with the void numbers and the tariff crop, We already see that the sowing is 98% of the last year. Now on top of that, if you see the MSP hikes that have happened in different ranges. The overall farm income, we do expect just mathematically to go up. We also see water reservoirs, which are At above 10 years average. So as the crop get harvested, you will see money coming in and you will see, therefore, that getting manifested in demand. On the TCO, actually, I'm not so sure that the TCO is adversely impacted because as the prices of vehicles have gone up, the resale value of the vehicles have also gone In fact, in some cases, what we have seen is that the retail price of vehicles have probably gone up more than The original price or the OEM price of the vehicle that has gone up. So honestly, the TCO, I don't think has got impacted from that perspective If you make up the resale value and on fuel, like Naveen said, because of our bikes being more fuel efficient, Actually, that augurs well from a market share point of view. And as Miranin, you also mentioned in the initial part that there is a personal mobility factor which is playing very strongly. I think the solution lies in coming up with innovative finance offers, and that's something that we are exploring with associates and other partners. Sure, sir. That was very helpful. Sir, the second question is on the capital allocation. You did indicate a CapEx of between INR 750,000 crores. How do we think of capital allocation between the existing product development on the specifically, we are more Focused on the premium product development and the electric vehicle development per se, What are the kind of investments we would be would one have to think about on in from an EV perspective over the whole, say, 2 to 3 years? If you can share your thoughts on capital allocation, sir. So, Samson, over a medium term, like we have announced, I'm not sure if it's 2 to 3 years or 3 to 5 years. But if you look at over a medium term, we are talking about broadly, as we announced, Mr. Munjar also announced that 50% of our investments to go towards EV, to go towards premium, to go towards global business, yes. So those are the key priorities on which we will see. And of course, that investment includes what you get classified as capital Our R and D, our brands, so we have to see it holistically, the investments that are going in. But that's a broad trajectory, While the other 50% actually peaked the core. Understood. Sir, one housekeeping question, the other operating income alone, if Sorry, I didn't get that question. The other operating income, sir. Okay. So we I mean okay, while it can be calculated because I didn't give out the past number, but The other operating income for the quarter was INR 110 crores. For the quarter 4 was INR 200 crores And last year, same quarter was INR 67 crores. The lower other operating so it's higher, 50% higher than same Q1 last year. It is lower sequentially, obviously, because other operating income comprises of fiscal incentives. And as your volumes are lower, therefore, your fiscal incentives are also lower. Sure. Thank you very much. Thank you. The next question is from the line of Venugopal Gare from Bernstein. Please go ahead. Hello. Thanks a lot for the opportunity. One of my questions again is on EV. Just wanted to understand that we all understand All the 3 different ways in which we're approaching the market. Now the point is that in terms of the charging infrastructure viability, Palook Credit has their own network. You will have your own network. The swapping requires a different network. So in that construct, Long term, isn't it doesn't it really make sense to at least have some commonality between the 3 different things that you're exposed to, especially on the battery pack configuration and chargeability of that. And I'm asking this because swapping in general also requires you to have Some degree of working capital investments into extra batteries. Otherwise, we really can't work as work network. So there is a cost associated with that. So any thoughts around how that would evolve for you? Well, a good excellent question. So as it moves and evolves, You are seeing charging infrastructure, which is being put up by government, the charging infra that also OEMs are looking at it. As it evolves, obviously, there are a lot of discussions that are also happening around standardization and around interoperability. So that team will evolve. And eventually, whatever makes more sense in terms of a combination of capital efficiency and customer convenience. I think these are the 2 prime drivers which will be there that will drive the entire industry towards the necessary levels of harmonization, factoring, of course, safety and innovation, all the other points also into consideration. So that space will definitely evolve as we move forward. Okay. Thanks. My second question, I think this might have been discussed even earlier. I just wanted to refresh on this more on distribution side of things. Now that When I look at the kind of things you're doing, it's like almost everything, right, from entry level bikes to premium, to scooters, motorcycles and as well as EVs, Right. Of course, Acer has a separate distribution network, but I don't know how you plan to go to Gogoro distribution as well as your own EV distribution. So the point is that, how does the distribution network evolve? Because when I actually visit your distribution outlets, Then I do feel this feeling of clutter because it's like vehicles of various varieties around. So I don't know how you actually intend to sort of build that network over a period of time. I'm sure it might have part of this might have been discussed earlier as well, But there's electric fees coming in. I just wanted to understand how that will evolve for you. So Again, Renu, watch this space is what I would say, but overall as a strategy, which we have said already, Firstly, we have to look at that the reach of our network, which is there, almost 6000, 7000 touch points across India, is the widest reach and therefore is a big advantage for us whenever we want to do anything on the back of that. Consider any new player Who has to put in investment behind manufacturing side, behind sourcing capability, behind organization, behind distribution, there are a lot of investments That are required. But for Hero, it's about capitalizing and leveraging a large part of that. As you come to premium, where we've already said as the portfolio builds, Apart from, of course, being present, in our current outlet, there'll be a facelift and of course, premier channels, some of the outlets that will be launched over the next few years, which I already talked about in the premium strategy. As far as EV is concerned, when we launch, we will talk about how we are planning to distribute. But internally, the team has worked 360 degree on all aspects of the launch, including the product distribution, marketing and everything, and you will see That rolling out very clearly once we launch our product. And just to add to what Anandin just said, so there is a evolution that we are seeing on product, There is an evolution that we see on the consumer needs and consumer aspirations. There is a little evolution that we have seen in terms of the way distribution outlets are designed. And you would now see that there is a digital play that's going to get integrated into these outlets. There is a Stand alone digital distribution that will kind of start evolving, and we are seeing green shoots in that space. So as Well said, watch for the space, how it evolves. Thanks a lot. That's it from me. Thanks, Venu. Thank you. The next question is from the line of Tarun Sharma from Citigroup. Please go ahead. Hello. Yes, hi Arvind, go ahead. Yes. Good afternoon, sir, and thank you so much for taking my question. Sir, slightly detached from the quarterly results, but since What are the incumbent majors and 2 wheelers, including you and your peers? But have they been Slightly more reactive to EV before Hilo given a very strong legacy, a high level of R and D, which we saw and an outreach that is in multiples of what a new company could achieve and the fact that you showcased your prototypes Maybe 2014 Auto Expo, would it have been that you would have been more proactive or is it something that is more Shraddishik in nature that maybe you're waiting for infra such as head up or partnership because what He who brings to the table or any other players bring to the table that's not very easy to replicate for a new company, So, Nishith, it's not about being reactive, 1st of all, and of course, We can see for ourselves, our investment in InterContinental 2016, because there are multiple ways of getting into a business, Right. You either you do everything your own or you actually invest and be the largest shareholder. So through that vehicle, I would say that we are ahead on the EV game already. Secondly, it's important that for any new player who is not the existing OEM, It takes years to build what the current OEMs have already built. So therefore, it's far easy to get on to that path by the current OEMs and somebody who's starting from scratch And building up R and D, building up scale, building up organization, that's the time that takes. 1st, remember that everyone needs to be judicious and measured in the approach because you go too fast, 5 years back, 7 years back, You don't have infra. You don't have paying subsidies. You don't have all of that sort of stuff. All the thing combination needs to come into play to ensure that while you do this, you are doing in a more commercially prudent manner. And that's exactly what we are doing, And that's exactly what you will see once we launch our product. And I mentioned this comprehensive response to Venu as well. Thanks for that. Look forward to the new model. Just secondly, probably it's been touched earlier in the conversation, But swapping or charging, essentially the powering infrastructure, what's the plan? Would you have franchisees or With charging agencies, how would that function? Because suddenly, when you have an EV, this becomes an important part of the whole proliferation strategy. So do you have a partnership with your franchise model in mind? Or how will it function from here on? So Nishith, these business models will evolve, And we are open and evaluating all the business models. As we said, the key drivers of these models will be scalability, will be viability and will be capital efficiency and of course, customer convenience. I think we are the factor that will drive to which business models we go to. It could even be a combination of different business models because India is not a story of 1 India, but actually India is a story of many Indias. So all of these will evolve. And as I said, our teams are working on all aspects of EV, including the charging infrastructure that you talked about. Thank you. The next question is from the line of Vasudev Banerjee from Ambit Capital. Please go ahead. Yes. Thanks for taking question. Couple of things to understand. So in the initial comments, The scooters route where EVs are going to take in the initial years and all the nuances up there and regarding market share in that space we are So how to look at the initial phase of electrification? It would be The scooterization in EVs will only be limited to substituting existing petrol scooters or as the largest 2 wheeler maker in India you see Risk of substitution from executive level bikes to e scooter also because of limited offerings in e bikes. Batu, thanks for the question. If you look at how the TCO pans out of EV scooters As of now, there are only even they will take almost 3 to 5 years Do we actually breakeven to the traditional scooters itself? When you compare with bikes, Substitution of bikes into EV scooter through cost economics, we don't see that happening because they are far off when you look at the TCO simply given that the bike's fuel efficiency versus scooter fuel efficiency, All the retail price, everything that you take into equation and also the purposes for which bikes are used, the performance levels, All are very different now. That will require a very different level of battery configuration. So long story short, we do expect The EV to actually come out from ice scooter category only and not from the bike category into the EV scooter category. And which is why we do believe that for us with the current 10% Scooter market share that we have, any evolution in the scooter category on EV side, we expect it to be accretive 2 hero portfolio on top line. Sure, sir. Completely agreed. But suppose after 2 to 3 years with that realization happening and if our e scooter TCO is comparable to our executive bike TCO, under Such scenario, how to look at it, sir? Not in next 2 years for sure. Certainly not in next 2, 5, 7 years. And beyond that, obviously, our own EV portfolio would have evolved. So we'll be up in the game. And as it evolves, Then of course, as we said, for us, it will be more about getting more accretive, whether it is one form of Energy or another form of energy? That's great. Second thing, sir, in this raw mat basket inflation, which has been happening almost for last three quarters And lag price hikes happening. So at current juncture, where do you see further scope of raw mat inflation? When you see the peaking out and convergence of price hike with the raw mat basket inflation? Thanks, Akhil. I think I did kind of respond to Chirag earlier on this. But if we just reiterate, We do think that the commodities where they are, whether steel, aluminum or otherwise, Seems to be it's very difficult to predict commodities. But given the range has gone up too and the supernormal margins that The industry now has on these commodities, the law of economics should prevail and therefore more supply should come in and price should balance out. So I would say that we should probably are more closer to peak than to bottom as far as commodities are concerned. We've been taking Judicial price increases very measured steps every quarter, as you have seen. And moving forward, I think, by and large, as I said, we should be able to neutralize and then next 2, 3 quarters recover back the under recovered portion through a combination of savings and price increases. Can I chip in with the last question, sir? I think you should, Vasu, we should you can come back in the queue, let's get it. Sure, sure. Thanks. Yes. Thank The next question is from the line of Hitesh Goyal from Kotak Securities. Please go ahead. Yes. Thanks for taking my question. Niraju, my question is on the investment that you made in Ather, right? I mean, you said company invested in Ather at that time because was not agile enough to look at EV. Now we are launching a EV on our own, and I think it's not a big investment from a user standpoint. So just wanted to understand what has changed because you'll be now running a parallel portfolio, Aether will have his own portfolio and you guys will have your own portfolio. This can lead to cannibalization also in the market. So why spend in Ather, first of all? Have you learned something or the learnings have been much greater In your product development, can you share some light on that? How has been the journey, Vijith? So Hitesh, as we said, EV is a category which is Evolving. And our view is that a multi pronged strategy works better from that perspective. Also, it's not a 1 on 1 cannibalization that happens because there are multiple brands that get to play in a category. The category, especially when it's missing, will have space for more brands. So we're not really concerned about that. Of course, with a closer collaboration with Aether, There's always exchange of knowledge, thinking leadership and that benefits both companies. And moving forward, like we said, there are multiple opportunities, whether it will be charging side, whether it's on the back end side, of the capital efficiency, There are multiple opportunities of collaborating. So we see that as a strategic investment. Understood. And that's how we've been participating on there every Cap program. Sure. And just a follow-up on the EV side. So basically, the main concern that we are hearing on the scooter side is that Customers are OEMs are offering 50,000 kilometers as the warranty period. After which, the battery degradation is quite Significant because of which customers are not quite sure to move to EV right now because Active RNS for 1 lakh kilometer or so, right? So is there a thought on that? How should we improve that given the cost considerations And range also because Ola is talking about 150 kilometer range. So would there be a product differentiation there from Hero versus the regular scooters. What do you think about that, Manu? These are 2 key issues from, right? Right, right, right, right. So, Hitesh, obviously, all the product specs and all will be disclosed when we launch the product. But let me give a very general view of this. And you rightly ticked off. There are multiple factors that need to be addressed as an industry, whether it is the range, Whether it is the charging time, whether it is the capital cost, whether it is the cost of battery itself, which should be coming down with scale. And therefore, you come to a viable solution, which is viable from the manufacturer's point of view and then convenience from customers' point of view. So I think we'll have to address both as an industry. And of course, that will take time as it evolves. I'm sure more and more solutions will emerge and come, come through collaboration and sometimes it happens through competition itself. Great, great. All the best guys. Thank you. Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead. Hi, sir. Good afternoon. Can you talk about exports? We've seen very good traction over there. So which are the markets that are doing well for you? And Kappil, thanks for the question. I was just waiting for someone to ask a question on export. And as you rightly picked up, the trajectory is looking good. We are and in fact, we had highlighted in the last call as well, We are at a run rate of 300,000 on a per annum basis right now versus what we used to be at 200,000 earlier. And we have much higher targets to move on that. There are tractions even in our current markets. We are Seeing positive market share movement in 7 out of the 8 key markets. Of course, our current market shares are small. But as we pick up, the trajectory is right. We as you know, we tied up with distributor in Mexico. The retails are stocked in Mexico. As far as Nigeria is concerned, we launched our renewed product, which is which appeals to the Tax Segment, which is the biggest segment in Nigeria, where we've actually, in fact, trained more than 6,000 mechanics across Nigeria along with 360degree campaign. So a lot of stuff is happening around GB in terms of product, In terms of rollout, in terms of service network in the countries that we are there, and therefore, we remain extremely positive about the trajectory of our exports or the global business, as we call it, volume, and we are seeing Those happening in our numbers as well. And sir, could you also tell us On the price increases, what is the average price increase we have taken? And how much is the raw material cost inflation we are seeing for So Kappel, I think I did cover that the price increase we took from for February was around INR 600 per vehicle. We took from 1st July, which was close to INR 1200 per vehicle, which we have taken. The commodity cost had gone up in quarter 1 by close to around INR 2,000 per vehicle. But a large part of that, along with the INR 600 price increase, is also offset by lease savings, And the balance you see is the impact that has come in the P and L. Moving forward, as we said, we've taken $1200,000,000 price increase. And along with a combination of savings, we do expect the forward cost to get neutralized and then thereafter, of course, the recovery of margin in second half to the staggered price increases as the commodities top off. Okay, sir. Thank you and wish you all the best. Thank you, Kapil. Thank you. Thank you. This is Sahiro management. Thank you, everyone, for coming in. Pleasure to connect. Happy to take your questions offline now. And keep safe, everyone. Hopefully, when we meet next quarter, Life and everyone will be so much happier. See you. Have a good day. It's happy even now. Happier? Yes. Thank you. All right. Thank you. Thank you. Thanks, everyone. All right, Dinesh. Thank you so much for hosting us. You too. Thanks, Dinesh. Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference.