Q1 21/22

Aug 13, 2021

Quarterly report

Ladies and gentlemen, good day and welcome to the Hero MotoCorp 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. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jinesh 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 Q1 FY22 post-results conference call of Hero MotoCorp. I would like to thank the management for taking time out for this call. I will now hand over the call to Mr. Umang Khurana, Head, IR & Business Support, to introduce the management. Over to you, Umang. Thank you, Jinesh. Hello and welcome everyone to the post-results conference call for Hero MotoCorp for Quarter One FY22. I 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 Niranjan Gupta on the call and our Head of Sales and After-Sales, Naveen Chauhan. The CFO will begin with opening comments. Then we will take your questions. Can we now begin the call, please? First, Niranjan, over to you. Thanks, Umang. 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 One over FY 2021, and a bottom line of INR 365 crore, 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 Hero, during the quarter, prioritized 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 better. 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, two-wheeler, and our company as well. As we move forward, there are positive signs in the economy that have emerged very clearly. GST 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 and that bodes 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 retail have reached more than 80% of the pre-COVID levels. There are more festives which are coming, smaller festives throughout this month and part of the next month, followed of course, by the big festive, as we know, with Navratri and Diwali period that happens in the month of October. Moving forward, as we said, looking at the shape of monsoons, 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 short term. As far as long term is concerned, the opportunities for two-wheeler sector remain intact. For India as economy, we remain very confident, and for the two-wheeler sector, because the underlying factors of under-penetration, more women in education and employment, more financing opportunities, and more urbanization, they all remain intact. And to top that up, more of personal mobility as a factor that will slowly play out now. On that note, let's open now floor for Q&A. 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. Reminder to the participants, anyone who wishes to ask a question may press star 1 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. Gunjan Tulsiani from Bank of America, please go ahead. Thank you for taking my questions. 2 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. The rural narrative doesn't seem to be that strong as it was last year, given the second wave hit, has been quite disproportionate there. What is it that you're picking from the dealers in terms of inquiries? We are starting to see some small festive, as you mentioned, which will start coming through in the next 2 weeks. 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 Naveen to address your query on the demand short term. There are two things you wanted to check on the demand, you also referred to registration data. On the registration data, which normally we refer to Vahan, there is a lag in registration that we know. In some of the states, it is instantaneous and very in Rajasthan, but in some other states it lags. You get the real feel of the retail number after a certain period of time. Second, on the demand front, we all know the impact of COVID in Q1, which was very, very high. If we look at some of the stories regarding the small festivals that we've seen in the recent past, there has been a good uptick in our numbers. For example, Rath Yatra, which is celebrated in Gujarat, mainly. We had 40% odd plus kind of uptick in our numbers. Similarly on Eid and Guru Purnima. There are these occasions which are coming in, which tells us that there is a unique occasion to buy and make a purchase. I think if I refer to the inquiry strengths which are coming in, if we refer to the kind of customers who are visiting our website, the e-shops, the virtual showrooms, there is a positivity. We see while Q2, they'll be positive, not very strong, but I see strong comeback in 32 days period that's forthcoming. Okay, that's encouraging. 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 with the NBFCs is panning out? Go ahead. Sure. Go ahead, sir. Go ahead, Gunjan. Complete your question. The second question I had was on the difference between the console and the standalone. There is an associate loss of about INR 135 crore. If you can clarify a bit on this, my guess is this would be on Hero FinCorp, if you can give us a little bit more color on the estimates, I'll join back with you. 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. Considering that, 41% penetration is pretty healthy, and Hero FinCorp's share amongst that was 41%. As we move forward, we do expect in a normalized quarter to 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 one quarter loss in the Hero FinCorp. As you know, across the NBFC, because of this wave 2, in quarter 1, the GNPAs have gone up and so have in Hero FinCorp. They're a one-off provision that they had to make. Moving forward, they expect the GNPAs to settle down and come back to normalized levels by quarter 4, and therefore, a breakeven as a profit to restore in the second half of the year. Just to add to what Niranjan Gupta just talked about on the finance penetration. You remember that in Q4 last year, there was no marriage season, 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 retail finance penetration. As we move into Q2, I feel that it should improve. Sure. Can we get some numbers on the Hero FinCorp, because we don't have the annual numbers as well. Just little bit on the operating trends, it will be useful for the broader audience as well. Sure. Umang Khurana, we'll come back to you offline. Yeah. I'm just going to request everyone to do two questions at a time, please, and we'll take it from there. Gunjan Tulsiani, I'll come back to you offline. Thank you. Thank you. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead. Thanks for the opportunity. First, a housekeeping question. Just on the commodity inflation, how much of the impact is already there and what we can expect going ahead, if you can give some indication. Hi, Chirag. Thanks for the question. On commodities, as you know, that generally what reflects in data comes to industry with quarters lag. As you see, the quarter was already impacted by commodities. You see the material cost percentage going up. We of course, managed to offset the large part of that through Leap savings of almost 150 basis points, and of course, we have taken price increase as well of almost INR 600 per vehicle from the 1st of April. From the 1st of July, what we have done to offset what will come forward as a cost impact is to take a price increase of almost INR 1,200 per vehicle. Combined with then the Leap savings, we do expect, moving forward, the recoveries and savings to actually neutralize the cost. Thereafter, actually, we expect the commodities to soften, and therefore, the margin recoveries to happen over the next two, three quarters. Also spare parts here, can you just say the spare part revenue number, is it lower versus the normal trend in the quarter as a percentage rate? Yes, Chirag, this quarter was lower. As you know, again, it's very difficult to read this quarter, I'll keep repeating that different geographies in India opened at different points in time. Even mobility was restricted on the road, and therefore, you see lower parts. The parts revenue for the quarter was INR 455 crores, which is 8% of revenue. What we did in quarter four of fiscal year 2021 was INR 1,050 crores, which was 12% of revenue. Moving forward, in a normalized quarter as we see, let's say, quarter two or quarter three, we would expect it to go to 10% plus at least, and therefore, to return that. It's more of the lockdowns and the openings and not so much of any underlying issue as far as the parts revenue is concerned. I think just to add to that, there are certain fundamental changes that we've done in spare part business, which have seen the result last year. Q1 is an aberration. I see strong numbers coming back from Q2 onwards. No, this is helpful. This explains part of the margin pressure. This is helpful. One question on the demand outlook. While you expect a strong comeback, last year also, we have a reasonably good base. For the balance part of the year, can we expect some growth, a high single-digit growth for the year? Is it safe to assume that we can expect a growth in the balance part of the year? Chirag, look, early indications like Naveen talked about in some of those single-day festivals, he talked about Rath Yatra, he talked about a couple of others. Those single days are showing growth. 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 and July, and this year that hasn't happened because of the staggered lockdown and more impact which has been wider. Therefore, the recovery has been a bit slower. Like I said, we have reached already 80% of the retail, and it'll keep inching up. Second 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. This is really helpful. I look at fundamentals on basic demand drivers coming back, vaccination improving. Yeah. This is second year, consecutive years of the kind of numbers that we're seeing, and hence H2 should be a good half. Thank you, Mr. Shyam. 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. Yeah. Thank you for the opportunity. I hope I'm audible. Yes. Yes, you are, Vimal. Yeah. Sorry, just one. I missed on the spare part revenues for this quarter. How much were they? 455 crores for this quarter. Got it. For the last quarter, they were above INR 1,000 crores, right? 1,050 crores was the quarter four FY 2021. Got it. Right. Sir, the next question was on your overall strategy on EVs. Yeah. What are the launch plans over there? Do we sort of plan to launch our own brand of EVs this year, maybe next year? That is the first part of the question. The second part is, are we looking to leverage the technology that we have in our associate company, which is Ather? Obviously, we've sort of formed a partnership with Gogoro as well. What are the plans on EVs going ahead? Because they are fast catching up, and there's a lot of buzz around EVs. If your comments on that would be helpful, sir. Thank you. 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 1 question. That's fine. I will still answer that. On EV, firstly, our Hero product we already announced will be out by March of 2022, which means end of this fiscal year. As far as Gogoro is concerned, as we have announced, the product will be on a 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. Swapping what it does is it kind of mimics your fueling, which the customer is used to. You just give the battery, take another battery, it just takes less than 1 minute or maybe 1 and a half minutes, same time that you spend in a fuel station. That product, it will come, we are planning towards latter part of 2022. That's why you will see a lot of action in the next calendar year on the 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. Of course, like you said, there are multiple forms of further collaboration and synergies 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 crores-INR 1,000 crores per year. Keeps on changing a bit here and bit there, depending on what the plans are. Right. Do we have an arrangement with Ather? Do we have the first right of refusal in terms of funding? Does Ather require funding as of now? I give this question a pass. Electrification, as you know, EV is a cash burn story, and Ather keeps raising capital as and when required. So far, we've been participating in all their capital rounds. This is all I can say, Vimal, at this point in time. Fair enough, sir. Thank you so much. All the very best for the rest of the 5/22. Thank you, Vimal. Thank you. The next question is from the line of Ronak Sarda from Systematix. Please go ahead. Yeah, hi. Thanks for the opportunity. Sir, a couple of questions again. One was on the demand side. Last year, given we were pretty short on inventory and pent-up demand was pretty strong. How is the inventory position now? Related to that, what would be the comfortable level of inventory going into festive season? Thanks, Ronak. 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 lockdowns. 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. We are building well towards a good festive. Our inventories are building towards that. There's no either an alarming level on the upside or there's no alarming level on the shorting side. Got it. Second question on electric vehicles again. Mr. Munjal highlighted that it would start with a pilot project. 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 EV penetration would be quicker in the top 20 cities first? Right, Ronak. 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 2022 on our product. As you know, Hero's got a huge distribution strength. Right. We've got 100 million cumulative customers. 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. 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, the exact number of cities, we will not be giving out at this point in time, Ronak. Watch this space. I'm sure when we come to it, you will get excited. Sure. My question was, given our reach, it should be much quicker than what the startups are doing over the last two, three years. Is that a fair assumption? Yeah, we would like to exceed all expectations. Let me say, at this point in time, only this much. Let's launch the product and, of course, then we can have further discussions, Ronak, on the future plans around the product. We have all the fundamentals in place, which places us in a position. Therefore, it will be up to us, honestly, to how fast we want to scale up and take it up. A combination also will be the infrastructure readiness of the country, through the OEMs and through the government. We'll have to really calibrate it moving forward as we go forward. Sure. Good. Thank you and all the best. 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. Can you please help us in what is the strategy, the broader strategy we are working with? Currently, my understanding is that there are three pieces which we are working with. One is in-house product, which you talked about will be launching by March next calendar year. Another, again, with our investment in Ather. Broadly from the product and market positioning standpoint, where these three products would be sitting. We know where Ather product is sitting, but where the other two products would be sitting. From a medium-term perspective, how are we looking at our mix from the EV and the product portfolio from the EV side coming along? 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. Let me just explain again. As far as our own product that we'll be launching in the month of March that we have said is going to be based on fast charging solutions side, while the Gogoro tie-up is on swapping battery solutions. We have two different ways to actually, in a sense, energize or charge the products. 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 amenable to charging. Therefore, basically, those are two different solutions that are going to customer. Far as Ather is concerned, as you know that we actually invested in Ather way back in 2016, in a startup. In EV, we believe that it's still early games where you need to actually play out multi-pronged strategies. Therefore, as it manifests later, there will be space for multiple brands in a category that is just evolving. Just bear in mind that, in fact, all of the EV evolution, most of it, in the first few years, will be around scooter. Scooter EV penetration, EV evolution, actually plays well to our portfolio given that we are very under indexed as far as scooter market share is concerned. Therefore, that becomes incremental and additive, and therefore, more of the brands actually they won't compete, but they actually will expand the EV category. Thanks, Niren, again for that. My second question was, recently, Mr. Munjal was quoted in a news report wherein he talked about that Hero will not shy away from cash burn and not shy away from turning net debt if that is needed to gain the leadership in the electrification. Can you just give the context in which those statements were made, and are we looking at changing our business strategy in the coming years during the transition to EV? Fundamentally, it's not a big change in the business strategy. It is about a category that may require, we all know that EV category will not be profitable from day one. It will require some bit of investments or, in other words, you can call it cash burn. It's in that context that the statement has been made, that we will do it appropriately. The other thing is that as far as we are concerned, vis-à-vis other players, it places us in a much better position on optimization of these numbers. We will be able to get more out of our investment simply because of our scale of buying, our scale of manufacturing, our existing scale of reach, which a new player will have to replicate, and therefore will have to have far more cash burn than what Hero will need to have. We are talking about it 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 motorcycles. Even if there's some cannibalization that happening, that is happening at the market level, not to our scooter portfolio. First of all, for us, we see EV to be incremental to our top line. Second, we generate enough and more cash in our traditional business. Cash burn was more for the EV category as such, and not at a Hero or an enterprise level. Okay. Noted. Only reason I asked that question is that we are sitting with almost $1.5 billion of net cash position, and willingness to go to net debt position indicates a significant amount of cash burn appetite is what we are showing. I just wanted to understand from that context that, is that aggression to lead in EV 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? It's about if there are opportunities in the M&A space or investment space which actually can generate super normal and fantastic returns, then fine. Gearing the balance sheet for a debt actually is not a problem at all. It's not about debt through cash burn or through debt through any of the acquisitions. If that makes sense, if that makes value-adding sense. 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 opportunities. We 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 Makharia from HDFC Securities. Please go ahead. Yes, sir. Just wanted to check on your premiumization. What happened? We can't hear you. Mr. Makharia, we are not able to hear your audio, sir. Mr. Makharia, you are not audible, sir. Request to please rejoin the question queue. Yeah. Mr. Makharia, are you there? Yes. Can you hear me now? Yes, we can hear you. Yes, we can hear you, Aditya. Just on the premiumization strategy, how is the market share of the Xtreme today? When does it hit up in your view? On Harley-Davidson, how are we progressing? Aditya, thanks for the question. I'll ask Naveen to answer the first part. Sure. I'll take up the second part regarding Harley-Davidson. I think the word used, premiumization, I think is the right word to be using because we are looking at the whole portfolio. It's like. You've got aspiration class sitting across the segments. How do you cater to the needs of that aspiration class across these segments? From the technical point of view, it's about 150cc and above. What we are looking at is, how do you premiumize each and every segment. If you look at right from Splendor, there is a Canvas edition which came out. In scooters, you got Platinum series which came out. All these variants, which are at the higher end of the segment in terms of pricing and features, are increasingly contributing more and more to our total sale in that segment. It's going well with the Xtec launch that we recently had in Glamour. Tremendous traction. Now, coming specifically to the premium portfolio, which is 150cc and above. I've been saying about Xpulse. It is creating waves. We 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. I think our overall strategy in the premium category is building our portfolio and gain volumes. Let me take up the Harley question. As we have said before, there are two legs to the Harley tie-up strategy. One, of course, that we are the exclusive distributors for Harley bikes in India. We have 12 dealers around 30 touchpoints, 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 1/3 of the overall premium segment. In the profit pool, I dare say that segment probably has around 60%-70% of the profit pool of the premium segment. That's the second leg of the strategy, to launch bikes in that segment. Clearly, Harley is an iconic brand. The work is going on in full swing on that. 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. Two years back in Hero World, we did talk about that over the next five years, we are going to build a full portfolio of premiums across the cc range and across the customer range, which is sports, adventure, tourer, et cetera. You've seen us staying true to that task. You've seen earlier Xtreme 200, you see Xtreme 160R, you see Xpulse, and you will keep seeing more and more action. As far 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. Therefore on a branding side, marketing side, we are doing a lot to build that up. The third element is also on the distribution side, where there is a facelift which is happening. As the portfolio builds up, you will see on the channel side, also premier channels also coming up as both the things build up. Of course, the fourth strategy is actually association and tie-up with the brand, which we have already done. I think all the enablers are in place, and you will see the results coming through. Watch this space is all I would say. We are excited about how we are going about this. 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 from the line of Shyam Sundar Sriram from Sundaram Mutual Fund. Please go ahead. Yeah. 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 cities or towns and the tier 2, tier 3 cities and towns between June to August, which is doing better than the other, and what is lacking. That is my first question. Along with that, between motorcycles and scooters, what is happening generally? Today, scooters are a bit slower. If you can share your thoughts on that. Added to that, sir, given the fuel price increases and the total cost of ownership going up, is that also denting the purchase sentiments in the overall two-wheeler purchase? Yeah. Shyam, 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. Second is any impact on customer sentiments through the price increases that have been happening, and how do we see planning it out? From Naveen over to you. Sure. Yeah. More of fuel price increase and the CC going up. Yeah. Not the price increase especially, more of the fuel price increase and the total cost of ownership going up. Yeah. Including the fuel cost. Yeah. Sure. Shyam, different part of the year see different impact on various tier of towns. Right? The time like this, wherein the sowing is happening, you would normally see tier 3 and tier 4 town contribution going down. As the sowing gets over, you start seeing that the traction in those markets start coming back. It is different part of the year playing out differently for different tiers of town. In terms of rains and sowings and everything, going in the right space, right direction with COVID impact 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. Between motorcycles and scooters. Just between the segments, how it has been, yeah? I didn't get it, sorry. Okay. We can answer more about the TCO and the total cost of ownership. Okay Maybe the chain motorcycle and scooters. Yes, we see that the prices of fuel is playing on the mind of consumers. Hero, as a brand, I think we have a 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. While it will have its impact on overall industry, but I think it is going to play out better for Hero. Let me just also add to what Naveen has said. If we look at the monsoon numbers and the water reserve numbers on the kharif crop, we already see that the sowing is 98% of the last year. 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 above 10 years average. 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 up. In fact, in some cases, what we have seen is that the resale price of vehicles have probably gone up more than actually the original price or the OEM price of the vehicle that has gone up. Honestly, the TCO, I don't think has got impacted from that perspective, if you net off the resale value. On fuel, like Naveen said, because of our bikes being more fuel efficient, actually that augurs well from a market share point of view. As, Niranjan, 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 Equitas 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 crores-INR 1,000 crores. How do we think of capital allocation between the existing product development on, specifically, we are more focused on the premium product development and the electric vehicles development per se. What is the kind of investment would one have to think about from an EV perspective over, say, two to three years? If you can share your thoughts on capital allocation, sir. Shyam Sundar Sriram, over a medium term, like we have announced, I'm not sure if it's 2-3 years or 3-5 years. If you look at over a medium term, we are talking about broadly, as we announced, Mr. Munjal also announced, that 50% of our investments to go towards EV, to go towards premium, to go towards global business. Yeah. Those are the key priorities on which we will see. Of course, that investment includes what you get classified as capital or R&D or brand. You have to see it holistically, the investments that are going in. That's the broad trajectory, while the other 50% actually feeds the core. Understood, sir. Sir, one housekeeping question. The other operating income, I don't know if you can share. Thank you. Sorry, I didn't get that question. The other operating income, sir. Okay. While it can be calculated because I did give out the past number, the other operating income for the quarter was INR 110 crores. For the quarter four was INR 200 crores, and last year, same quarter was INR 67 crores. 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 Garre 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 you're approaching the market. Right. The point is that in terms of the charging infrastructure viability, if I look at it, Ather has their own network, you will have your own network. The swapping requires a different network. In that construct, long term, doesn't it really make sense to at least have some commonality between the three 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, and otherwise you really can't work a swap network. There is a cost associated with that. Any thoughts around how that would evolve for you? Venu, good, excellent question. 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. 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 two 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. 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 a refresh on this, more on the distribution side of things. 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. Of course, Ather has a separate distribution network. I don't know how you plan to do the Gogoro distribution as well as your own EV distribution. The point is that, how does the distribution network evolve? When I actually visit your distribution outlets, then I do feel this feeling of clutter because it's like, vehicles of various varieties around. I don't know how you actually intend to sort of build that network over a period of time. I'm sure parts of this might have been discussed earlier as well, but with this electric piece coming in, I just wanted to understand how that will evolve for you. Again, Venu, watch this space is what I would say. Overall, as a strategy, which we have said already, firstly, we have to look at the reach of our network which is there. Almost 6,000, 7,000 touchpoints 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. 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 outlets, there will 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. You will see that rolling out very clearly once we launch our product. Just to add to what Niranjan Gupta just said, there is a evolution that we are seeing on products. There is 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. You would now see that there is a digital play that's going to get integrated into these outlets. There is a standalone digital distribution that will kind of start evolving, and we are seeing green shoots in that space. As was said, watch for this space, how it evolves. Thanks. Thanks a lot. That's it from me. Thanks, Venu. Thank you. The next question is from the line of Arvind Sharma from Citigroup. Please go ahead. Hello. Yes. Hi, Arvind. Go ahead. Good afternoon, sir, and thank you so much for taking my question. Sir, slightly detached from the quarter results, but since it is topical, what are the incumbent majors in two-wheelers, including you and your peers, why have they been slightly more reactive to EVs? I mean, for Hero, given a very strong legacy, a highly developed R&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. Could it have been that Hero would have been more proactive, or is it something that is more strategic in nature that maybe you are waiting for infrastructure setup or partnership? What Hero brings to the table or even other players bring to the table, that's not very easy to replicate for a new company, who probably doesn't have an access to so much R&D and parts immediately. Yeah, that's the first question, sir. Nishit, it's not about being reactive, first of all. Of course, we can see for ourselves. Our investment in Ather was in 2016. There are multiple ways of getting into a business, right? Either you do everything your own, or you actually invest and be the largest shareholder. 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. Therefore, it's far easy to get onto that path by the current OEMs than somebody who's starting from scratch and building up R&D, building up scale, building up organization. That's the time that takes. Third, remember that everyone needs to be judicious and measured in the approach. You go too fast, five years back, seven years back, you don't have infra, you don't have FAME subsidies, you didn'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. That's exactly what we are doing. That's exactly what you will see once we launch our product. I mentioned this comprehensive response to Venu as well. Right. Thanks for that. Look forward to the new model. 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 specific charging agencies? How would that function? Because suddenly, when you have an EV, this becomes an important part of the whole proliferation strategy. Do you have a partnership or a franchise model in mind, or how will it function from here on? Nishit, 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 they are the factors 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 one India, but actually India is a story of many Indias. 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 so much, sir, for taking my question. That is all from my side. Thanks again. Thank you. The next question is from the line of Basudeb Banerjee from Ambit Capital. Please go ahead. Thanks, sir, for taking question. A couple of things to understand, sir. In the initial comments, you said the scooter route where EVs are going to take in the initial years and all the launches are there, and regarding market share in that space you are discussing. 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 two-wheeler maker in India, you see a risk of substitution from executive level bikes to a e-scooter also because of limited offerings in e-bikes? Basudeb, thanks for the question. If you look at how the TCO pans out of EV scooters as of now, they will take almost 3-5 years to be actually break-even to the traditional scooters itself. When you compare with bikes, substitution of bikes into EV scooter through a 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 resale price, everything that you take into account. Also the purposes for which bikes are used, the performance levels, all are very different. That will require a very different level of battery configuration. Long story short, we do expect the EV to actually come out from ICE scooter category only, not from the bike category into the EV scooter category. 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 to Hero portfolio on top line. Sure, sir. Completely agreed. Suppose after 2-3 years with the battery localization happening, and if a e-scooter TCO is comparable to an executive bike TCO. Under such scenario, how to look at it, sir? Not in next two years, for sure. Certainly not in next 5-7 years. Beyond that, obviously, our own EV portfolio would have evolved. We'll be up in the game. As it evolves, 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, sir. Second thing, sir, when this raw material basket inflation which has been happening almost for last 3 quarters and lagged price hikes happening. At current juncture, where do you see further scope of raw material inflation? When do you see the peaking out and convergence of price hike with the raw material basket inflation? Thanks, Vasudev. I think I did kind of respond to Chirag earlier on this, let me just reiterate. We do think that the commodities where they are, whether steel, aluminum or otherwise, it's very difficult to predict commodities. Given the range it's gone up to 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. 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 judicious price increases, very measured steps every quarter, as you have seen. Moving forward, I think by and large, as I said, we should be able to neutralize and then next two, three quarters recover back the under-recovered portion through a combination of savings and price increases. Sure. Can I chip in with the last question, sir? I think, Basudeb Banerjee, you can come back in the queue. Sure. Thanks. Question is from the line of Hitesh Goyal from Kotak Securities. Please go ahead. Yeah. Thanks for taking my question. Junaid, my question is on the investment that you made in Ather, right? You said company invested in Ather at that time because company 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 Hero standpoint. Just wanted to understand what has changed, because you'll be now running a parallel portfolio. Ather will have his own portfolio, and you guys will have your own portfolio. This can lead to cannibalization also in the market. 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 with Ather? Hitesh, as we said, EV is a category which is evolving. Our view is that a multi-pronged strategy works better from that perspective. It's not a 1-on-1 cannibalization that happens, because there are multiple brands that get to play in a category. A category, especially when it's nascent, will have space for more brands. We're not really concerned about that. Of course, with a closer collaboration with Ather, there's always exchange of knowledge, thinking, leadership, and that benefits both companies. Moving forward, like we said, there are multiple opportunities, whether it'll be charging side, whether it's on the back-end side. Off the capital efficiency, there are multiple opportunities of collaborating. We see that as a strategic investment. And- That's how we've been participating on their every capital round. Sure. Just to follow up on the EV side, 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 Activa runs for 1 lakh kilometers or so, right? 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. Would there be a product differentiation there, from Hero versus the regular scooters? What do you think about that, Madan? These are 2 key problems, right? Right. Hitesh, obviously, all the product specs and all will be disclosed when we launch the product. Let me give a very general view of this. You rightly picked up. There are multiple factors that need to be addressed as an industry. Yeah. 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 customer's point of view. I think we'll have to address both as an industry. Of course, that will take time as it evolves. I'm sure more and more solutions will emerge and come, some through collaboration, and sometimes it happens through competition itself. 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. Which are the markets that are doing well for you, and what are the things that are going right? How are the order books looking like? Is the current run rate sustainable? Kapil, thanks for the question. I was just waiting for someone to ask a question on export. As you rightly picked up, the trajectory is looking good. 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. 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 seven out of the eight key markets. Of course, our current market shares are small. As we pick up, the trajectory is right. As you know, we tied up with distributor in Mexico. The retails have started in Mexico. As far as Nigeria is concerned, we launched our renewed product, which appeals to the taxi segment, which is the biggest segment, in Nigeria, where we've actually in fact, trained more than 6,000 mechanics across Nigeria along with 360-degree campaign. 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. Therefore, we remain extremely positive about the trajectory of our exports or the global business, as we call it, volume. We are seeing those happening in our numbers as well. 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 this too? Kapil, I think I did cover that the price increase we took from 1st April was around INR 600 per vehicle. We took from 1st July, which was close to around INR 1,200 per vehicle, which we have taken. The commodity cost had gone up in Quarter One by close to around INR 2,000 per vehicle. A large part of that, along with the INR 600 price increase, was also offset by Leap savings, and the balance you see is the impact that has come in the P&L. Moving forward, as we said, we have taken INR 1,200 price increase. Along with the combination of savings, we do expect the forward cost to get neutralized. Then thereafter, of course, the recovery of margin in second half, through the staggered price increases as the commodities drop off. Okay, sir. Thank you, and wish you all the best. Thank you, Kapil. Thank you. Thank you. This is the Hero management. Thank you everyone for coming in. Pleasure to connect. Happy to take your questions offline now. 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. Yeah. Thank you. All right. Thank you. Thank you. Thanks, everyone. Bye, Junaid. Thank you so much for hosting us. Good job. Thanks, bye. Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.