Ladies and gentlemen, good day, and welcome to the Q2 FY22 earnings conference call of TVS Motor Company Limited, hosted by Batlivala & Karani Securities India Private Limited. As a reminder, all participant lines will be in 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 star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Thank you, Steven. Welcome to TVS Motor Company Q2 FY22 post-result conference call. From TVS Motors management, we have with us today Mr. K. N. Radhakrishnan, Director and Chief Executive Officer, and Mr. K. Gopala Desikan, Chief Financial Officer. I'll now hand over the call to Mr. K. N. Radhakrishnan for the opening remarks, to be followed by question and answer session. Over to you, sir.
Good evening. Good evening, everyone, and thanks for joining us today. First, let me take this opportunity to wish you all a very happy Navratri. Advance wishes for Diwali. Trust all of you, your family members are safe. I request each one of you to continue to be careful, maintain the COVID appropriate behavior of masking, sanitization, social distancing. I'm very sure everyone would have completed the second vaccination as well. May God bless all of you with great health, lots of happiness, peace and prosperity. During this quarter, company posted highest ever revenue of INR 5,619 crore and highest ever EBITDA of INR 562 crore, despite various challenges in terms of increase in commodity cost, scarcity of containers for international business, and shortage of semiconductors. Achievement of these results were aided through significant cost reduction initiatives and growth in revenue.
We are happy to inform that the company's premium scooter brand, TVS Ntorq 125, achieved new milestone by crossing 1 million mark. Thanks to all the customers of TVS Ntorq 125. BMW 310 Series motorcycle crossed INR 1 lakh mark in less than five years. I think, again, thanks to all the customers globally, BMW G 310 R and G 310 GS. This is now available in 120 countries. During the last three months, we launched two new products, 125cc segment TVS Raider and TVS Jupiter 125. Excellent feedback received from the market for both TVS Raider and TVS Jupiter 125. TVS Raider is a naked street design motorcycle globally for the Gen Z, equipped with best-in-class acceleration, first-in-segment ride modes, reverse LCD cluster, and outstanding mileage through powerful advanced 3V engine, TVS intelliGO and ETFi technologies. An upcoming TVS SmartXonnect variant will offer TFT cluster, Bluetooth connectivity, and voice assist.
We launched TVS Jupiter 125 this month, packed with [Non-English content ] industry's first-in-class features. New 125cc engine with ETFi, TVS intelliGO, best-in-segment acceleration and mileage, industry-best 33 L under seat storage, which stores two full-face helmets for the customers, longest seat, unique progressive styling, LED headlamp, front external fuel filling, and so on, MetalMax body, again, I can keep elaborating the attractive features in this product. Coming to sales during Q2. Company operating revenue grew by 22%, clocking INR 5,619 crore, which is the highest. We have reached the last year same quarter of INR 4,605 crore. Domestic market, we sold INR 5.99 lakh units of two-wheelers as against last year, INR 6.5 lakh units. Better than the industry growth. International market, company sold INR 2.7 lakh two-wheelers unit with a growth of 46%, as against INR 1.85 lakh last year during the same quarter.
Again, here, we have grown ahead of the industry. Total two-wheeler sales for the quarter is INR 8.7 lakh units, against last year's INR 8.34 lakh units. Wholesale also, we are better than the industry growth. The mix of premium products Apache, Ntorq, Jupiter Classic, Grande overall grew to almost 34%. We lost Apache because of semiconductor availability almost 25,000 during this quarter. Else, the premium product proportion would have been much higher. Total sales of three-wheelers is at INR 0.47 lakh units against INR 0.33 lakh units during last year same quarter. Profit EBITDA during the quarter is INR 562 crore against is the highest. Last year, similar period EBITDA INR 430 crore. Company registered an EBITDA of 10% as against last year's 9.3%. This includes 0.4% benefit of RoDTEP relating to the earlier two quarters.
As I said, during the same quarter, semiconductor availability, we lost more than 25,000 of Apache, where we had an extremely good demand. During the quarter, Company faced significant headwinds due to commodity price increases. With the focus on product mix premiumization, sustained cost reduction initiatives, and price increases, we could manage the material cost vis-à-vis last quarter and last year. PBT for the quarter is INR 377 crore as against INR 267 crore. Profit after tax is INR 278 crore as against last year's INR 196 crore. During the quarter, focused working capital management helped in improved operating performance and helped the Company to generate a free cash flow of INR 1,090 crore. For the first half, PBT before the exceptional item is INR 479 crore. We incurred about INR 30 crore towards the COVID-19 expenses during H1. The profit after tax is INR 331 crore as against last year's INR 57 crore.
Indonesia, PT TVS, we sold 28,500 units of two-wheelers against last year's 14,700 units, despite a huge challenge of wave two in Indonesia. PT TVS registered three-wheeler sales of 2,400 as against last year's 1,250. PT TVS posted an operating PBT of $0.9 million as against $0.05 million last year. H1, PT TVS posted a PBT of $1.3 million as against a loss of $1.3 million during last year first half. I already highlighted the two product launches of TVS Raider and Jupiter 125. Excellent feedback from the market. Thanks to every customer who have received it well. In addition, we have also launched for the season advanced range of TVS Apache RTR 160 4V series. With new headlamp assembly, signature daytime running lamps, three ride modes, urban, sport, rain. Top variant will be equipped with the TVS SmartXonnect.
We have also launched TVS Jupiter, now equipped with various additional features which includes engine kill switch, mobile charger, lockable glove box, et cetera. TVS Radeon now comes with black and red and black and blue dual tone color options. We have introduced the coral silk colors and satin matte finish TVS XL. TVS Ntorq 125 Race XP, new era of connectivity, power and style. It has got SmartXonnect and ride modes, and this is the only scooter in the 125cc segment to have more than 10PS power. We also launched build to order platform in RR310, making its foray into factory customization and personalization. The TVS Apache RR 310 customers can now select preset kits, graphic options, rim color options, personalized race numbers. There are dynamic race offers an array of features that further accentuate performance and styling as per customer usage and needs.
This platform will be introduced across other product portfolios from a stable of TVS Motor Company in a phased manner. During last quarter, we acquired majority stake in the European e-bike, EGO Movement, through subsidiary in TVS Singapore to build an aspirational product portfolio while nurturing sustainable and scalable brands. This is part of our overall strategy to expand global presence in developed markets commencing with Europe. It's a Swiss technology company providing innovative mobility solutions through portfolio of e-bike, e-cargo bike, e-scooters. In terms of EV, excellent positive response again from TVS iQube Electric. It continues to draw very good interest from the EV intenders and very healthy pipeline booking. Biggest challenge we are facing here is the EBOM material availability on time. That is affecting our production. iQube currently launched in 33 cities. We are planning to reach across the country by end of this financial year.
The company is progressing as per plan to invest INR 1,000 crore in building the portfolio, next level of capacities and market development and product portfolio. We are creating a capacity of 10,000 per month in last quarter of this year. We are also planning for aggressive capacity plans. They are being worked out for 2022-2023 financial year. We are committed to lead the technology development in EV and green fuel towards electrification of our product portfolio is in plan for catering to segments in two-wheelers and three-wheelers. We entered into a strategic partnership with Tata Power to set up electric vehicle charging infrastructure across the country. In our vision of electrification, we envisage a wide and reliable charging infrastructure for EV customers across India. Our partnerships with widespread and reliable charging network partners like Tata Power, CESL, will substantially enhance the customer convenience.
During the meeting held today, the board approved for establishing a separate subsidiary under TVS Motor to operate its EV business. The subsidiary will give us freedom, better focus and flexibility to create scale in the EV business globally. When we look at H2, the government vaccination drive and the COVID appropriate behavior adherence seems to be helping in reduced positivity ratio and severity of COVID-19. Normal monsoon is definitely helping agriculture. A bit worried that little bit of flooding, especially in the rural area during this Navratri season. Hopefully, for Dhanteras, we are expecting this should come down. Navratri festival season was a bit subdued this year. Because there was no pent-up demand compared to last year.
However, during this Navratri season, we have gained almost 2% market share in Warren, with the monsoon settling down and the rural market likely to do better for the Diwali season, we are expecting to do very well. New product of 125cc segment, TVS Raider, TVS Jupiter 125, and all the other product refreshes and upgrades, whatever we have delivered in XL or TVS Radeon, TVS Jupiter and TVS Ntorq, Apache 4V, 160 4V, all are definitely going to excite the customers, and we are confident of growing much better than the industry during the season going forward. Exports continue to do well, two-wheelers and three-wheelers. This is likely to be fueled by the stable economic and political situation in all the TVS operating geographies. Crude oil prices are stable, and it is positive. Bangladesh, where we had COVID challenges, is opening out.
Sri Lanka is also relaxing its restrictions on the import of vehicles. All this will help improve our sales in international markets. Though container availability continues to be a challenge, some of the Southeast Asian markets are yet to come out from COVID-19-related pandemic. We are confident that thanks to our customers and the product range, what we have, we will do extremely well. Better than the industry, surely. Three-wheeler demand is robust, and we will continue to grow ahead of the industry. We are continuing to witness the trend of premiumization in all markets. We are confident that our premium products such as Apache, now Raider and Ntorq, Jupiter ZX and above will continue to do well in the domestic and international markets. With appropriate countermeasures, we were able to improve the premium product production from September.
Along with long-term relationship with semiconductor suppliers and tying up with additional sources, we are able to now minimize the shortages in semiconductors. The company has taken up prices in October, about 1.1%. There is a commodity cost pressure because of the aluminum increases. I think we will, going forward, mitigate this with cost increases with the product mix maximization, sustained cost reduction initiative, and the growth better than the industry growth in both domestic and industry will help us on the EBITDA growth trajectory. In terms of our product portfolio, we are very strong portfolio of brands like Apache, Jupiter, Ntorq, Star City Plus, XL, Radeon, TVS King, along with our new products like Raider and Jupiter 125. I'm very confident that the revenue growth, increased premiumization, continued cost reduction initiatives, we will lead to have sustained EBITDA improvement.
I'm very sure despite various headwinds in Q2 2021/2022, with Q2 we were able to achieve EBITDA of 10% and the best both revenue and EBITDA absolute values. With expected demand improvement in Diwali season, good response for the new product, and the entire product range and the cost reduction, we are very confident we'll go ahead of the industry and we will continue our EBITDA growth journey. Thank you.
Can we open for Q&A?
Yes.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi, sir. Congrats on good performance. First of all, can you share data on export revenues, spare revenues, and U.S. dollar realization?
Export revenue for the quarter, just give me a minute. It's about INR 1,834 crore.
Okay. Spares and USD realization.
Basic and USD. Just a minute.
Sure.
It's around INR 74.40, INR 74.40.
Great. Spares revenues?
Spares revenues. INR 984.
INR 984 crore. Okay. Secondly, clarification on this road tax benefit in this quarter. You said 40 basis points benefit is there for previous quarters. What would be it for current quarter?
Current quarter is about.. Sorry, your question is not clear. What is your question, please?
What's the benefit of RoDTEP scheme for second quarter?
No. See, on money terms, it's around INR 15 crore for this quarter.
Okay. Got it. Sir, lastly, when you look at your expectations for industry on the festive season sales, I believe Navratras have been down in double digits for the industry. Do you expect overall festive season to be flattish, or what are your expectations for the industry as a whole?
Far it was little bit subdued. I told you there are two reasons. One is the pent-up like last year is not there. This time the rural unusual rains has a little bit affected definitely the harvesting. Now the rains are little bit settling down, so I am hoping that the Diwali season should be good.
Okay. You expect some catch-up to happen during Diwali?
Before that, there's one correction I think on the spares. What we have indicated, INR 984 is for the first half.
Okay.
What is for Q2 is not INR 984. It is INR 640.
Sorry.
Got it. Okay. Lastly on this, you talked about some stability in semiconductor supply. We expect Q3 onwards some normalcy to restore, particularly for Apache volumes?
Apache, we were able to take some internal countermeasures. That has helped. In the area of iQube, we are still having some challenges. We are having some very good discussions with some other suppliers, and I'm very sure they will also try to support us.
Okay, got it. Thanks. I'll come back in case few more questions. Thanks.
Thank you. The next question is from the line of Pramod Kumar from UBS. Please go ahead.
I thank for the opportunity. Sir, a couple of questions. First one is on the EV plan. I see that you have mentioned that it's EV mobility business globally. Just wanted to understand what all will it house in addition to the India EV business and EGO Movement. Is there something else which will move in terms of your investments in lot of these internet startups or IoT companies? What all will this EV mobility subsidiary house there in itself?
As of now, it's a part of our strategy, Pramod. First of all, we are investing, as I told you, more than INR 1,000 crore to create a product portfolio of EV products from the company in addition to iQube, which you will see very shortly. Some of the products will be coming in the forthcoming quarters. In addition, you have seen the EGO as a very good investment because in the European market, this is the trend we have seen. This subsidiary will definitely give us, as I said, freedom, better focus and flexibility to create the scale in this area. We are looking at, like I said last time itself, this product portfolio you can look at global markets as an opportunity, both developing and developed markets.
Fair enough, sir. On the India EV ramp up, understanding the near-term headwinds on the semiconductor side, if you can help us understand where is the demand for you, say for example in this 30 odd cities. I understand even in all these cities you won't have the product available with all the dealers. There'll be only a handful of dealers who will have the product in those cities as well. If you can just help us understand what would demand look like if capacity was not a constraint. By when do you expect to cross, say a certain milestone, like say 5,000 or 10,000 which then it starts becoming a more reasonable volume number. Currently it's around 700 units. It doesn't kind of fully reflect the demand on the ground. If you can help us understand where the demand could be.
The iQube is very well appreciated by the customers as a real good quality, exactly like an ICE scooter. It has got all the features of EV and it has got all the benefits of the normal scooter. At this point of time, we are targeting 10,000 per month from January. Okay? We have created internal capacities. Work is going on. I wish we are able to get little bit better on the EGO, the EBOM material. There are genuine challenges in terms of COVID wave two affecting many parts of Malaysia, Taiwan, especially this part of the world. That has definitely affected in the last 1.5, two months. We are in discussion with many of our partners, and they will definitely support us.
Sir, just a clarification. You said 10,000 per month. That's the assembly capacity, but the semi capacity is what will decide throughput. Just want to understand what could be like.
We have to at this point of time work on the overall capacity and drive, and every supplier will align. Everybody wants to sell more.
Okay, fair enough. Sir, last question from me on the container shortage side because we see that export numbers have been kind of stable at a particular level for the last few months. I just want to understand how much is of a bottleneck currently you're facing on the container side, and what could be the kind of order backlog which you have on exports and which could result in step-up in export numbers from the current level once this container issue sorts itself out?
It is a daily challenge. According to me, we have been struggling with this for the last few months, both availability and also the time taken for delivering. The retails are extremely good in most of the markets. Quantification is going to be really challenging. We are now looking at how do we further enhance and work with many of the freight forwarders and how do we deliver that? That is what we are working out. It is a continued challenge, but we are pretty confident that we will see some improvement possibly in this quarter and going forward.
Fair enough, sir. Thanks a lot, and have a super. Thank you.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Hi, sir. Congrats on a great set of results. Firstly, I wanted to check on the industry. We have not been seeing positive growth for last few months. Do you expect industry to end on a positive note this year in FY 2022?
Year as a whole, it is too early to commit because the COVID third wave, I think, thanks to the vaccination drive and the appropriate behavior, I think the feeling is the positivity ratio is reduced, severity seems to be settling down. That is a good news. Another good news is the agricultural sector should do well, even though this Navratri season, we have heavy rains and some issues related to harvesting. We should look at it. The challenge is the price increase is what every manufacturer has taken in the market.
The ability of the customers to buy is continuing to be a little bit of challenge, but I'm pretty confident that once the fear of this COVID settles down, you will see definitely two-wheeler started picking up, because I always believe that today the demand what you're seeing is because of the last maybe 12 quarters or 15 quarters of lot of changes, from demonetization to BS3, to BS4, to BS6, and all safety standard, all got bunched up and 30%, 40%, almost 40% increase in the cost and the price in a very short span is what we are seeing. If you look at in terms of the GDP penetration, the mobility, the kind of infrastructure, what the government has created, there is a huge demand for two-wheeler. It should come back.
It's a question of time that once the fear goes away and the kind of income generation starts coming into the industry, I think it should come back. We have to be cautiously watchful in terms of wave three, but I'm getting a bit positive on the COVID-19 wave three situation and should look some improvement in the market going forward.
Okay, good to hear that.
We can't be able to say what will be cumulatively because whatever Q1 and Q2 numbers we know, okay. Q1 and Q2 are not comparable also because it is on last year, it is COVID, and this year partial COVID wave two, and practically, Q2 was okay. This year was okay. Q3 last year, we had pent-up demand and a good growth, primarily which belong to Q1 and Q2 according to me last year. That is the way we have to look at it, because many a times we have a tendency to look at Q3 over Q3. What has gone before last year, Q1 was completely washed out and Q2 was lot of anxiety. All that got into the benefit of Q3. That way, looking at goalie may not be the right approach is my feeling.
Understood. Sir, on the spare side, we see that there is a big ramp up that we have seen this quarter. Should it be looked on a half yearly basis or is there something more to call out here?
I think Desikan corrected it. Sorry for that. INR 984 is for the half, first half.
No, I got that. Still, I mean, when I see the numbers, they are much higher than the run rate that we have been doing. I just wanted to understand.
Similar numbers we were doing. We were doing similar numbers even in the past.
Okay, what I have is run rate of more in the range of INR 500 crore odd, and this quarter we have done INR 600+ crore . It looks like almost, if I'm correct, it's a 40% growth.
No, average, we have done similar range as a total revenue. If you look at spare parts, this has been the range.
Average, you mean we should look at H1 numbers basically?
Yeah.
Got it. Lastly, on electric vehicles, we've formed a subsidiary and also on the CapEx plans, if you can talk about because we have seen INR 250 crore of CapEx and also some INR 300 crore of investments. What is the full year plan and what are the areas in which those investments or CapEx can go? Does TVS also need to look at external funding or do you think there is no such requirement that you see at this stage?
I think CapEx for the year, I think last time also I indicated with the EV coming in, it will be about INR 750 crore. About this new subsidiary that gives us a lot of flexibility, we will come back to you with more details.
Okay. On the investment plan? For the full year, what should we look at?
Investments, I think TVS CS will be about INR 200 crore for this year, for the year?
Yeah. It will be around INR 200 crore for the year. See, overall, the first half we have invested around INR 500 crore. Probably another INR 250 crore-INR 300 crore will be the second half related investments, which includes this TVS CS related.
Okay. Thank you, sir. Thank you and all the best.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah. Hi. Thanks for taking my question. I just had this follow-up on the CapEx only, if you can give some color on what has this INR 500 crore investment gone towards in the first half. In bulk of this, I see INR 330 crore in this quarter. If you can just give us some more information on what this investment is for.
EV and products.
Sir, EGO is already included in this investment.
Investments is predominantly EGO, right, Desikan?
EGO Movement is around INR 140 crore we have invested. In this TVS Credit Services is another INR 100 crore gone there. We had also invested in Norton Motorcycles in the beginning of the year, close to INR 120 crore. That's what it is overall.
Okay, got it. When you talk about this INR 1,000 crore EV investment, I'm guessing the EGO and some of the global investments that you're making are not part of this INR 1,000 crore CapEx plan.
CapEx plan, this INR 1,000 crore, it is on investment. We are not saying this is basically for building the portfolio, next levels of capacities and market development.
Okay.
Product portfolio, we have a very structured program on the product portfolio in addition to iQube, which you will see in the forthcoming quarters, both the two-wheeler and the three-wheeler.
Okay, got it. Sir, can you just give us directionally some sense on how we should think about the commodity inflation? Because you mentioned that there are incremental cost pressures as well. Does the October price kind of cover up the incremental inflation we are seeing?
We have taken a price almost 1.1%. There may be an uncovered portion of about 0.5%, 0.6%. We are looking at in terms of both product mix, premiumization, cost reduction, overall revenue growth. I think we have to constantly look at it and keep moving.
Okay, got it. Last question on this subsidiary. I know this is very early stages, given you've just announced the formation for this structure. Does it in any way, is there an openness to look at, let's say, alliances or look at other partnerships, given we are trying to put this business separate from the parent business? I'm just trying to get the thought process because we had called out this INR 1,000 crore investment last quarter itself. The subsidiary is a follow-on decision, but just the thought process behind it.
This subsidiary, as I told you, gives us a lot of freedom, better focus, flexibility, and it will help us create a huge scale in the EV area globally.
Okay. Any partnerships we are open to or we are comfortable with this INR 1,000 crore funding that we have called out?
Again, it gives us freedom, better focus, and flexibility.
Got it. All right. I'll join back with you.
Thank you. The next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Hi, sir. Thank you for the opportunity and congratulations on very good set of numbers. Sir, I have two questions. Firstly, on the export side, can you give some more regional color as to how demand is shaping up across different regions? The context why I'm asking this is, we have recently seen that Naira has depreciated quite significantly against US dollar in parallel markets, gone to as high as NGN 550- NGN 570 against official rate of NGN 400. Are you seeing any major deflation because of this and any impact on demand? Second question is on, sir, you have invested about INR 130 crore in a company called EV Supply Chain. Just wanted to understand, is this a new subsidiary, what kind of stake we have, and where are these investments going on? Thank you so much.
In terms of the international market, like I said, vis-à-vis what kind of instability or kind of currency fluctuation we have seen in the past. In comparison to that, now it is much, much better. Again, the reasonably stable economic and political situation in most of the countries. Crude oil prices are stable. These are all positive, whether it is Africa, South and Central America, all these countries can definitely boost the exports. Fortunately, the COVID situation is far better. Bangladesh is also easing out. Overall, if I look at it, our growth opportunity and the demand is robust in international market, and we are pretty confident that both in two-wheeler and three-wheeler, we will grow ahead of the industry. Industry will do well, and we will grow ahead of the industry.
Sir, my question was actually more specific on Nigeria, because from NGN 400-NGN 550 movement against U.S. dollar, that's a very sharp movement. Have you seen any impact or this impact will come with a lag? Even the Nigerian central government is looking to, I think, devalue the currency to kind of bring it in more relationship with the parallel rate. Basically, you are indicating so far you have not seen any negative impact and you don't foresee anything as well in the demand.
We have seen similar instances in some of these countries in the past also. I think what we need to look at is the consumer sentiments, the demand requirement, and the need for the customers using it. As you know, the demand in these markets, it's like the taxi segment in a big way, and this is the key employment opportunity for them. I don't think it will have a serious impact at this point of time.
Got it, sir. Thank you. The second question on TVS Supply Chain.
TVS Supply Chain is a strategic investment.
The percentage is around just 2%. It's a very small stake, 2%-3%.
Basically, you're saying you have taken 2%-3% stake in TVS Supply Chain for INR 130 crore. Is that correct?
Yeah.
Hello?
Yeah. Yes.
Okay. Because then it puts the valuation of TVS Supply Chain at a very big number, right? Almost a $1 billion kind of a number.
That's why I said this is a strategic investment.
Okay, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my question. Sir, just a question on the electric. You said that the focus is to start selling 10,000 a month. In such situation, because we are seeing the penetration eventually going up for the electric, how would you try to tackle the challenges of your base business? There is everyone who's launching, whether it's the people funded by private equity, whether it's you guys. Somebody don't have a base business, so he doesn't need to, for him, it's a fresh market. Does that become so easy that whatever the EV will come out, will actually come out from the ICE part only. Will that be easy to continue and start taking price hikes because the way you are taking price hikes, it looks like the EV pricing and your ICE pricing will converge one day.
Can you throw some light, what's the strategy here to minimize the impact on the ICE part?
One correction, this raw material is applicable even for EV.
Right.
There is a frame, there is a chassis, there is a seat, there are many parts. Only engine is not there. Okay? The price increase is applicable whether it is steel, plastic or whatever material. That is one correction on your query. If I look at it, these are technologies which are likely to happen. We started the EV technology and designing our own product and sub-assembly, subsystems four, five years back, and this investment has gone in terms of today what you are seeing iQube is that rigorous investment in R&D. That is the strength of TVS, and that is why we are also coming up with a product portfolio. Coming to scooter category. Scooter in India used to be 70%-75% at some point of time. When EV becomes more and more in the scooters, the category will expand.
There is a great opportunity, seize this opportunity. This is one. Number two, you know the numbers and the product range, what we have in the international markets. ICE will coexist and also EV. EV, we have a great opportunity to go to both the developed markets as well as developing markets. I see it is a great opportunity, and we have to concurrently run. The strength of TVS is a very strong R&D, design and development, and the most important-
Request all the participants to please stay connected while we reconnect the management. Ladies and gentlemen, we have the line for the management reconnected. Thank you.
Sorry, the line got cut. The most important, the strength of TVS is ability to design, develop, and create the local supply chain. This really, Atmanirbhar Bharat. It is not just producing something. It is designing and developing in India with Indian engineers and capable global partnerships. That is the capacity of TVS.
Okay. You're right, sir. The cost of raw material is going up for the EV, we are not seeing the EV prices going up. Maybe the battery prices must be falling. The question was more from that side.
See, these are all technologies which are very early stages.
Okay.
Most importantly, why we are very happy is today every customer, we have almost now 5,000 customers, iQube, they are delighted. We have a huge order book. Okay, I think I wish I'm able to get even better supplies. What you need to get is the customer delight, and that we have got it in iQube.
Perfect. Got it, sir. Thank you. Thank you very much.
Thank you. The next question is from the line of Satyam Thakur from Credit Suisse. Please go ahead.
Hi. Good evening, sir. Thank you for the opportunity. For our first question on EVs again, the EV market has seen the launch by certain startups who seemingly have products with good specs and lower price point than us as well. In that context, in that environment, how do you see the TVS strategy evolving here? I mean, would we also have to match that level of competitive intensity and especially now when our volumes will start going up from January onwards? Do you think we will maintain the current level of margin profile that we have on this?
Can you a little bit louder because I was not able to clearly hear you.
Sorry. I'll just repeat it. The EV market has seen launches by certain startups who seem to have products with better specs than us, probably, at least on paper, and lower price points as well. How will TVS strategy evolve in response to this? Will you see TVS also having to match that level of competitive intensity? Do you think we are okay with the current level of profitability that we have and even with higher volumes from January onwards?
See, as a company, we are focused on the customer. Okay. For me, competition is a reverence and I always respect all the competitors. Okay. We have a very clear strategic plan of coming up with product portfolio very clearly for the customer segment. This is number one. Number two, any EV kind of a product, we treat it as an investment. Once the customer is delighted, then sky is the limit. You can always take it, and in the case of EV, global market is available for you. Okay. That is going to be our strategy, very clear strategy.
Just a follow-up, currently our margin on the iQube would that be, I mean, in the negative at the EBITDA level or are we breaking even already?
EBITDA margins all will get better when you are able to meet up the demand. Once the volume comes, we will get a better partnership with the supply chain. We will be able to reduce the cost of sales. It's a journey. First you have to invest and customers, once they get delighted, it's a question of another four quarters, six quarters, where we will work with the suppliers and our own design ability, and also partnership with cell manufacturers, how do we cut down the cost? What is most important, you have to get right. A big tick is the customer liking your product and once they get it right, then scale benefits will flow in. That is exactly what we have done. Even in TVS Motor strategy, first we focused on JD Power number one.
Once we got all the JD Power number one for four years, five years, both in product as well as in customer satisfaction, we started putting the right products and we started gaining market share. Concurrently, we have started now EBITDA journey. Now we are always double-digit margin. It's a concurrent journey. We have to take it up very systematically. Okay? Look at our Indonesia's journey. First, we got the product right. We started now, it is almost now 10,000 per month. Once you get the revenue up, it is beneficial for everybody, the entire supply chain. Without top line, there is no line. First you get the top line right. Concurrently, first you get your customer delight first, top line right, grow ahead of the industry, then you can get every other cost right and you will be profitable.
Thank you for that. The second question, again, on margins on the other side, ICE side of the portfolio, we have had great discipline on passing through the cost increases in the last few quarters. Like in the first season also, one gathers that the price increases is one of the key factors why demand seems to be soft. How do you see that shaping up from here? Especially if commodity will start going down, do you see this as net pricing kind of going down given the competitive intensity in ICE? If not, how long would it take in your view for this to be absorbed, the price increase impact?
India have got great opportunity in two-wheelers. I always believe that we have seen 10% plus CAGR in two-wheelers. That will come back. I think what, 12-15 quarters. We are best in class. We are the best two-wheelers globally now in terms of all the technology, safety, and emission. All this has happened in the last few years. You know the GST at 28%. Smartphone is at 18%. There are many things we have to look at when we look at. Government has invested in infrastructure. The public transport is not so great in India. There is a huge opportunity. People love the two-wheelers, and that is the biggest mobility need. You will see the 10% coming back. Okay? The technology portion, how much will be ICE, how much will be what you call the EV.
The penetration, and I'm pretty confident that it's a question of time. I think the last 24 months or 18 months or 19 months, this COVID-19 has created a huge uncertainty. If COVID-19 wave three, it is going to be mitigated, that will bring a lot of confidence. Rural is likely to do well going forward. With all that, I'm pretty confident. If you ask me medium to long term about two-wheeler, it will do very well in terms of even CAGR.
Great. Thank you, sir, for all the answers.
The next question is from the line of Prateek Poddar from Nippon India. Please go ahead.
Yeah. Hi, Sir. Congrats on a great set of numbers. Just your thoughts on this PLI scheme which has been announced. Would you look to apply for it? You have a very aggressive plan of INR 1,000 crore of CapEx. That's question number one. Second question was just on TVS iQube, which you say your customers are delighted. Just what is the customer profile of iQube who's buying? Is it a new category of customers for us, or is it someone who was buying a Jupiter who has gone on to buy an iQube? Last question is, I'm still not clear on the semiconductor issue. Are you seeing mean reversion or the issues getting ironed out in the next two months? By Q4, can we expect a normalized production? Is that what you are trying to guide for?
See, semiconductor, I'll start from the last. Semiconductor is a combination of Texas deep freeze plus fire accident in Renesas, Japan, and COVID happening in the last three months, plus consumer durables doing extremely well, and Malaysia shipment. Four or five factors all coming together. Suddenly, you are seeing this challenge of chips not available, semiconductors not available. I think we have to little bit. When you have little bit of arrears, it takes time. You have to engage with the suppliers and with the manufacturers. I think everyone wants to succeed because the last thing anybody wants to miss is the sale opportunity.
Correct.
That is the reason I'm saying, whether it is the deep freeze or the fire accident or COVID situation in Malaysia, where predominantly all these semiconductors are made, and sudden, in the COVID situation, first three months lockout and then again pickup, then consumer durables doing extremely well. It's a sudden hike in many things and some stoppages of capacities. All put together, this has created a huge issue on the supplies. I think now, like I am saying, COVID wave three, little bit vaccination settling down. See, this settling down of this COVID anxiety itself globally will start creating some kind of production capacity, availability, all that. Okay? That is the point. We have to constantly engage with every supplier in this category so that we are able to ramp up. Okay? That is one. PLI scheme we are eligible. I think.
Yeah.
PLI scheme is we are eligible both with regard to the overall turnover criteria and also the fixed asset base.
Correct.
Being in the electric vehicles, we will be entitled to only the twin conditions to be satisfied, both will be satisfied with regard to the investment afresh to be made and also the turnover minimum criteria to be met. The percentage ranges, whatever it has been now prescribed, up to INR 2,000 crore and above INR 4,000 crore. It depends on how much we do it. On the primacy to answer, yes, we are entitled to, we are fulfilling the criteria.
Customer profile, TVS iQube.
Customer profile. See, any customer profile when we started Bangalore, initially, we got mostly the innovators. I call them. In any product, I have always seen the innovators first coming.
Got it.
Okay. The innovators. Now we are getting people, the more and more they feel, there are many assurance customers coming and say, "Oh, this is a good scooter, so I would like to have it." What is most important is the usage. Okay. The difference between, in a scooter, typical usage in India is the entire family, 2+2 . They should be able to carry whatever bags or whatever. They should be able to go in any road condition. It should go in any flyover.
These conditions, once you meet, in addition, it has got all the connectivity, digital, every element of technology in iQube.
Correct. Sir, when you say assurance customer, I didn't understand. I'm assuming that the product is reliable and you've got that right, with whatever reviews I've seen.
That is a set of customers who will give you volume going forward. When we talk about, I told you about product portfolio, I can give you, for example, we have a Scooty, we have Zest, then we have Jupiter Basic, then we have a ZX version, then there is a Classic version, there is a Grande version, then Ntorq. Even in Ntorq, we have a race version. You imagine the profile of the customer segment. Okay?
Sorry, if I may ask it the other way, does this cannibalize Jupiter sales in the cities which you have launched? Or are you seeing a cannibalization or it is not?
Sure. See, the more and more EV starts, I think again, I answered you will see scooter category expanding.
Got it. This will build on to top of your base business with the iQube, this will not cannibalize, right?
Absolutely.
Best wishes for the future. Thanks.
Can we have this as the last question, please?
Thank you. We'll take the last question from the line of Amyn Pirani from JP Morgan. Please go ahead.
Hi, sir. Thanks for the opportunity, and congratulations on a good set of numbers. Most of my questions have been answered. Just few clarifications. You said that you are already in 33 cities for the iQube?
Yes.
Okay. In terms of the new launches that you're talking about, will we see new scooters or three-wheelers, say, in the next one to two quarters, or is it more like in the next four to five quarters? If broad timelines you can help us.
Close to the launch, I'll reveal more details. Be excited with now Raider and enjoy with Jupiter 125.
Okay.
Of course, the BTO and Apache RTR 160 4V with urban, sporty, and rain modes and SmartXonnect. I think for each of the customer segment, we have a special feast for Diwali.
Sure, sir. Thank you.
Before I close, once again.
One update, K.N., on the performance of TVS Credit Services.
Yeah.
I just want to add that the company's book size have grown. We are at INR 11,420 crore today. The profit for the quarter PBT is INR 35.10 crore as against last year's INR 14.3 crore. The net worth stands at INR 1,658 crore. All other norms of capital adequacy, all are fully met, very comfortably placed. Liquidity is not an issue. Business-wise, completely tied up funds as well as for the debt-related obligations. Just want to give a heads-up about the good performance of TVS Credit Services, where the collections have been extremely good for the Q2, is around INR 2,400 crore as against the comparable quarter of around INR 1,800 crore. Just want to give an update on this.
Before we close, I just wanted to once again highlight, even though we got a 0.4% RoDTEP benefit in Q2, what we lost due to Apache loss of INR 25,000 is huge. Okay? Despite all these headwinds and increase in cost, we achieved 10% in Q2 EBITDA. Wish all of you a Happy Diwali. I am pretty confident that the kind of product range what we have, whether it is Apache, Jupiter, Ntorq, Star City Plus, XL, Radeon, TVS King, and the new Raider and Jupiter 125, we will grow ahead of the industry. Our robust revenue growth, increased premiumization, better mix, and continued cost reduction initiatives will definitely help us to have sustained EBITDA trajectory growth going forward. Thank you.
Thank you. Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.