Good morning, ladies and gentlemen, and welcome to the Bajaj Auto's conference call to discuss the second quarter FY 2022 financial results. We have with us Mr. Rakesh Sharma, Executive Director, Mr. Soumen Ray, Chief Financial Officer, and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Ritisha, and I will be your coordinator. At this time, the participants are in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. If you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you, sir.
Good morning, ladies and gentlemen. This is Rakesh Sharma here. Thank you very much for joining the call. I hope everyone's keeping safe and healthy. Because our board meeting concluded only at 5:30 or so yesterday, so we announced our results, Q2 results, only in the evening. I hope by now you've had some opportunity to look into the details. I would like to divide my opening remarks in three parts. We first focus on the key highlights of Q2. I'm sure everyone is keen to know about how demand is shaping up in the festive, so a quick comment on festive and the muted outlook. Then, regarding the announcement of the captive financing unit yesterday, we conclude with some comments on that.
Let me begin, as always, by first re-emphasizing our overall approach of driving growth, market share, and financial performance through upgrading the customer to better product propositions within segments and across segments in both domestic as well as international markets. We kept to this in Q2 as well. This strategy leverages our R&D progress, product, and it continues to work well for us. The domestic motorcycles business unit, I would prefer to take an H1 view over our industry performance. We should just make a comment on Q2 just to smoothen the base of last year, because in the first six months, there were so many ups and downs that most of the festive demand realized and exhausted by end of September or so. It is better to take a look at H1 to understand how industry is behaving.
In wholesale, calling terms, the industry grew by 7% in H1 compared to the same period last year. Our growth has been higher at 13%, leading to an average, market share improvement. In market shares, I prefer a view of our market share now to be entirely led by raw data because, you know, selling data is also dictated by each company's own strategy for managing the supply chain, stock, et cetera. Raw data, which is registration, is a true reflection of retail performance. It covers only 85% of the industry. It's a good indicator. It excludes at this point of time Andhra Pradesh, Telangana, and Chhattisgarh. We closed the quarter at 20% market share, up from 17% at the end of FY 2021.
Now, this increase in market share was largely driven by advancements in entry commuter based on converting our existing kick-start customers to electric starts and by Pulsar 125 in the mid segment attracting 110 customers from 100 cc segment. We consider a very attractive proposition at a 40+ in-class performance in the 125 CC segment. We have introduced 2 new products in April for the last 2 quarters, one, the new look CT 110X and our most expensive 125 cc product, the Pulsar NS125. They all done well and sales have doubled both between quarter 1 and quarter 2. Market share grew across all states barring one, I think it was Odisha, where we need to fix some distribution issues.
Finance sales grew faster than car sales and growth was higher in medium and large towns compared to rural and metro areas. In the intercity business unit, the domestic three-wheeler business recovered very quickly after the lockdown wave. That's helped by the return of normalcy in terms of the opening up of schools and shopping areas across the country, leading to a rise in traffic. The business unit delivered a superb performance, leveraging upon its leadership to reconnect with the franchise. Market share has now improved to 66% in quarter two. We are now leaders in every single segment, in small passenger, in large passenger, and in cargo, which we have entered only recently in the last 2-3 years. Now, petrol, diesel, alternate fuels, if you cut the market by type of fuel, we're also in every segment, we are leaders.
The last two segments, which is the large passenger and cargo, we have wrested leadership for the first time in Q2. At an overall level, we hope we will cross 10,000 units retail in October, which will be a relief because the last time we did so was in March 2020. Exports business unit. Exports continues to deliver a strong performance managing significant shipping issues. An average rate of over 200,000 per month was maintained right through the quarter, despite key markets like Philippines, which is one of our top five markets, operating at just 50% levels, and Sri Lanka continues to be off limits. 90% of our revenue continues to come from markets where we are number one or number two. In rest of markets, we either increased or defended our high market shares.
We struck our highest ever sales in Latin America as well as in the Guianas. As a result, the premium part of our portfolio in export continues to stimulate demand, again reflecting our focus on upgrading and premiumization. Dominar 250 started to find itself into several markets. Along with the 400, it has made excellent progress. We believe we are on the verge of leadership in the 250 cc segment in seven key markets like Turkey and Mexico and other markets in Latin America, which again goes towards premiumization and overall enhances the luster and the brand equity of Bajaj. Our share of 40 commuters in the 150-250 cc range now stands at an overwhelming 35% across all emerging markets.
Chetak scooter bookings are now open in Chennai and Hyderabad, and we're seeing a very, very strong response there. We are now present in two cities, and we are calibrating further rollout plans with supply chain visibility, intending to reach up to 30 cities by March 2022. We have over 25 months of bookings and our priority is to serve these customers and restrain rollout in new geographies. On financials. As you know, the GST had announced the rates and the restructuring, which has resulted in INR 82 crores of earnings towards Q3 of last year and Q1 of this year. We have also received PLI benefits pertaining to previous year from central government in September, which was an additional INR 50 crores. It was significantly boosted the EBITDA performance. It is important to separate this effect and look at the underlying EBITDA.
Without this effect, the underlying EBITDA stands at 15%, which essentially is a decline from the 13.6% level of Q1. A gap of about 0.6 percentage points is entirely attributed to the underrecovery of pricing action of costs by pricing actions, which actually were carried out in the quarter. The only other significant point I would like to highlight is the impact of semiconductor chip availability. Not as severe as for four-wheelers. Almost 20% of our motorcycle portfolio, which is a premium mix, has been affected. Here we have seen gaps of up to 50% in demand and supply, causing stock outs across India and overseas markets and affecting the KTM, Dominar, and Pulsar brands. We have taken a sanguine view of this uncertainty and believe that this may
We would like to assume that this may come to carry on well into the next year or the next year fourth quarter. Hence, we are preparing for the worst and taking countermeasures to redo our portfolio as well as marketing program, particularly in overseas markets, where we have some play. In India, as you know, there is a statutory requirement of putting ABS in 150+. We will try to mitigate some of the impact of this shortage. Of course, if availability improves and we start to get better availability, we will be, we'll be more than happy. Now, a few quick comments on the current festive.
As we are now in the middle of the 35-day festive period, with the share of sales in the east and south to some extent are done with the festive. Thus far, the demand pattern has been quite lukewarm, with retail in a like-to-like comparison with last year being at negative levels. Rural demand lagged urban demand and entry segments are particularly affected. Our view is that in the next 10-15 days, there should be marked uptick as decisions come to a close, you know, towards Diwali and Dhanteras. Even taking that into account, the festive period may deliver most likely a similar performance with last year same period.
We'll be taking this into account for planning production in the November to December period, preferring to ensure stocks are brought in line with the exact retail performance. Our stock currently, on the basis of current retail, are at about 7-8 weeks, and we will be wanting to get them to under 6 weeks. The three-wheeler business is very well timed and based on the RBI, we expect Q3 to be better than Q2. Similarly, we think export should cross 200,000 per month throughout quarter two. Q2 is up very nicely to deliver a highest ever performance in export of almost 2.2-2.3 million units. With this we will also cross the $2 billion mark for exports in FY 2022. Headwinds on the cost side continue.
They're less severe than before, but we are expecting cost increases of up to 2% in the next quarter. We'll be looking at passing them on based on an evaluation of demand sensitivity and competitor moves, particularly in those segments where we are not leaders. Finally, as you all would be aware by now that Bajaj Auto in its board meeting yesterday has passed a resolution to apply for the formation of an NBFC to serve its requirements of captive auto financing. Retail financing is expected to play an even larger role in the sales of two-wheelers and three-wheelers. Along with that, a customer is clearly seeking a seamless and an integrated experience of sales, service, and finance.
To ensure that we have the flexibility and the command to deliver the experience to the customer, as well as the ability to create customized solutions for new emerging requirements like financing, subleasing of electric vehicles or say even a personal suit, we believe a captive finance unit will enhance our go-to-market capabilities. We will of course continue to engage and invest in our relationships with our current financiers, of which, as you know, Bajaj Finance Limited is the largest. Combined with their power, the specialization of the captive auto finance unit will considerably strengthen this important lever of growth. Thank you very much for listening. With this, we will open the 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 and one on the telephone keypad. 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 Binay Singh from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. My first question is on the cost increases. Did I hear it correctly? You said there should be another 2% price hike to offset all the cost pressures.
No, Binay, it's 7-year. We have said that directionally, there could be a 2% further cost increase in Q3 over the base of Q2.
How much of sort of end consumer pricing do you need to take up to offset that fully?
If it's 2% is the cost increase to the business, which is barely double digits, you need to pass the whole thing. I think the point that Rakesh mentioned is not the mathematics of it. The point that Rakesh mentioned was we are already into festive. Demand does not seem to be going up. There are competitive pressures. The practicality of taking up prices itself is a big challenge when the domestic off-take is close.
Yeah, no, in fact, that's the question I was trying to get on to t hat, you know, in the past we've seen that, sales promotion spending and, you know, advertising spend, you know, for the two-wheeler industry was contained. Do you see those sort of pressures coming back now for the industry as there is muted demand, weak pricing and also electric vehicle headwinds coming through?
Binay, certainly when demand is, you know, not booming and there is a cost pressure from relatively input side, then looking at complete costs, whether they are sales, promotions or maintenance or any other thing, it doesn't hurt the strategy of the entire company. We will continue to examine every single expense very, very thoroughly. That is our nature, and we'll continue to do that. On the headwinds from electric side, on the ICE side, I would still not think that it has started to affect us. I think it has not even started to affect the scooter demand as such. That is the drift I'm getting from colleagues in other companies which have got a much more substantive scooter business. What I'm hearing is that it could be not me.
Of course, in the future, this whole thing is open. We are a little bit distant from it, given that, you know, motorcycles is probably going to be affected much later by electric than cars.
Thanks for that, Rakesh. That brings me to the situation on the electric side. We started to see some of your peer group in the listed space announce capacities that they are ramping up on the electric side. Any plans that Bajaj would like to share about what should we expect in terms of dedicated capacity or CapEx or anything on the model cycle side on the EV side?
We've said this before, Binay, that in this phase, our objective is really to build capabilities and, you know, attack the more premium end of the market, and through that, to get good mindshare in large parts of the country. You know, our ambitions are not really only volumetric at this stage. In terms of manufacturing capability, we have indicated that we would certainly like to put in you know manufacturing capability of about half a million units. In our case, we don't need to take action for putting in the 10 million units. We find flexing capacity is very easy for us. At this stage, we are looking at half a million per annum, and we will watch how the whole transition unfolds.
We will try to drive it in the areas which we feel are going to be beneficial for us. We will let that capacity as and when required.
Binay, just to add to what Rakesh said, i t is very convenient for us, anyone, to say that INR 1,000 crore number, because the PLI needs you to invest INR 1,000 crore in five years. I think the genesis of INR 1,000 crores is the fact that PLI warrants that you need to invest INR 1,000 crores.
That's a good point. Thanks, team. I'll come back in the queue.
Thank you. The next question is from the line of Pramod Kumar from UBS. Please go ahead.
Yeah. Hi. Thanks a lot for the opportunity. Rakesh, just one question on the first question on the EV subsidiary. What are your thoughts on the capital structure for this particular entity? And given your alliance with KTM and the PIERER Mobility AG, do you see them becoming a partner in your EV subsidiary? Or, and also related to that, are you, as an organization, open to getting external investors into this particular subsidiary, given probably the fast track investments, depending on how you see the industry unfolding. If you can just share some broader thoughts on this.
Yeah. Pramod, certainly this is a very big move as we think from our side. The formation of the subsidiary and its build-up and its growth, et cetera. The one or two questions are hanging, you know, particularly there is a clarification which we have sought from the government on the PLI. Because there is a little bit of fuzziness over there, and I'm sure in general investments made in group towards EV in the group, irrespective of whether it's made in the subsidiary or the parent company, will get counted for that INR 1,000 crore hurdle rate of capital investment. There is, you know, some for example gray area. We've asked for some clarification through SIAM directly.
Once we receive those clarifications, we'll be absolutely clear as to what kind of a body and structure to be a subsidiary. Whether manufacturing should be here or in the parent company and stuff like that. That is one that also then drives you know the capital investment part of it. Irrespective of that, in the R&D, of course, front end and product development and you know many such capabilities will be invested into the EV company. We are through the EV company also looking at, you know, agile, smarter, different, very focused and dedicated way of working in EV.
Now, whether we will take in a partner, whether it's KTM or somebody else or a financial investor, these questions we have discussed. These questions will continue to be discussed, I think, for some time. It is early days for us to conclude on them. They are very much on the agenda in the boardroom.
Thanks. Thanks, Rakesh. The second question is on the electric three-wheeler, because if I recollect right, in the recent media interview, you guys have said that January to March quarter you will launch your debut electric three-wheeler, right? Just want to understand, given the cost dynamics and the use case, should we expect that, ideally it should be a cargo three-wheeler where you can tie up with online retailers like Amazon or Flipkart, where there's a different use case and volumetric data, not exactly very weight intensive data. Sorry, cargo.
You think the passenger three-wheeler market is also ready for electric three-wheeler from a commercial standpoint, in terms of having a competitive pricing and also having a quicker turnaround on the charging side and all of that? If you can just share broader thoughts on that as well.
What I said was actually that the prototypes are on the road right now, and we will be testing till January, February, March. Post that, hopefully we will be launching around the March to May period, depending on you know what kind of loop back we have to do after the test. That's on the time frame. While the case for on the personal side, which is the two-wheeler, is largely driven by you know convenience and the operating cost, where the personal customer tends to sort of ignore the operating costs, which is already been big, and they get more weighed by the monthly expenses, which of course in an EV scooter are, you know, much lower than an ICE. For that...
Of course, there is this whole thing about convenience and the women not having to go to the petrol stations or service stations, et cetera. Maybe add a few more, sort of, reasons, for the EV scooter to be bought. When you're going, flip over onto the commercial side, these are a purely commercial decision. The guy has to pay EMI, he has to earn more than the EMI, right?
Yes.
When you compare, like with like, the CNG three-wheeler, and the CNG program has been progressing extremely well, and the government has put a lot of might behind expanding the CNG network. When you compare the CNG total cost of ownership, we don't look at only operating costs, but we look at total cost of ownership. Then the case for an EV three-wheeler, whether it is cargo or passenger, is very similar or slightly weak, compared to a CNG three-wheeler. Of course, compared to LPG, it is slightly better and much better when you compare it to diesel. Therefore, the migration from ICE to lithium ion powered three-wheelers is probably going to take longer.
In this, the jack-in-the-box will be government subsidies, government support and government regulations. A government regulation mandates that you can only use electric three-wheeler, then that demand gets created. Left on its own, the case for migration in electric two-wheelers is far more strong. The case for migration in three-wheelers is weaker.
Great, Rakesh. Final question to Soumen . A quick view on the margin outlook, given where we are on the demand side in domestic and also the commodity inflation. If you can just share broader thoughts on how do you see margins evolving in the next few quarters. Also related to that is basically a new product introduction, which is the new Pulsar platform, and what the impact of that will be in terms of our profitability, because it is a big changeover, which is expected with the new Pulsar. If you can just share a thought on that as well, Soume, that would be great.
Yeah. First of all, on margin, primarily because of commodities. You see the problem that is happening is it is going yo-yo. For example, in Q3, steel seems to be stable. Some noble metals have softened. Aluminum has more than made up. On one side, because of semiconductor shortage, there should be less demand for all of these, at least from automobile sector, which should bring it down. But that is not happening because of multiple other reasons. Once the semiconductor shortage goes off, the demand for all metals will again come back with a bang, and most likely it will drive up prices again. Honestly speaking, at this point in time, the variability of auto demand because of availability of semiconductors and external reasons is making it very difficult to predict beyond possibly the next quarter.
As Rakesh mentioned, next quarter we have a cost increase of about 2%. We do not know whether there will be hikes that we can take up to pass this through and all that. I would say margins would be under pressure. Coming to the point around Pulsar, I think, you know, this is one of those rare cases, as, you know, where we are relaunching something which is already very successful. To give a oomph to the new product, you need to add things which always costs money. I would say that the upside that can happen is based the success of the launch as opposed to the intrinsic EBITDA of the product.
The intrinsic EBITDA of the product will not be very different from what we are otherwise doing, because we already have a very, very successful high volume, scaled up production of Pulsar. The new one, if it replaces some competition, gets some market share, drives volume up, then it can. Standalone, it will not make a very big difference in the EBITDA profile of the company.
Soumen, just to clarify on the pricing bit, even in exports also, given the strong momentum and where oil prices are and what it does to the underlying economy, in those markets, even export pricing is a bit of a challenge, or it's-
is a very big challenge. If you would have seen our results, we have shown a lower CV volume in exports in Q2 compared to what we normally do. That pressure, albeit very small and we have overcome it, has been because of our pricing, because unfortunately, not every player in the global market is reacting to cost increases the way we are reacting. That is creating some pressure, and there are pockets when somebody is stronger and in pockets where somebody else is stronger. Wherever we are stronger, we are taking up prices, but the competition across, whether it is from India or outside the country, has not been taking up prices as much. I do not know why. Maybe they are more efficient in purchases or maybe it is a competitive battle, which is absolutely fair.
There is a big stretch in taking up prices in export markets. The point that you said about oil is restricted to a part of Africa. It doesn't apply to large other places. For example, you know, Bangladesh, which is a very large player, or Nepal, which is a very big place, or indeed, you know, South Africa, all countries. Their economy does not depend on oil. Oil is restricted to a place where it is mostly by taxis. Yes, the economy will revise and possibly the driver will make more money. That does not really swing the overall demand so much that we can take up prices significantly.
Thanks a lot, Soumen, and wish you all the best for your new center. Thanks a lot. Take care.
You're welcome.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Hi, team. Thanks for taking my question. Sir, firstly, I was just looking for a clarification on this captive fin subsidiary that the board has approved. Is there anything that you can share in terms of you know the capital commitment that you're willing to you know put in this business? Because clearly if we start you know this becomes a key captive fin co for you know all Bajaj products, and then there'll be a significant capital infusion needed here. How do we split as to what BAF will do and what, you know, this captive fin co will do?
Within the second question first, we don't need to split. Just today, other than BAF, there are four other financiers, and there are a lot of dealer outlets where there are three of them present. It is up to the customer to choose what they want to choose, whether it is the offering and the comfort and so on and so forth. That we will leave the market to decide. I don't think that we are going to allocate the dealerships. On the first question about capital allocation, I mean, I think it would not be very heavy because first of all, it's very early. As Rakesh mentioned and also on the opening remarks, we will now form a company, go to RBI, seek approval, get the approval, and then, you know, kind of float it and do it.
It means it's not as if that initially, you know, suddenly everybody will come to me. It will take time to build up. Debt is always an option. I think at this point in time, we don't need to kind of jump into a conclusion that Bajaj Auto will put INR 10,000 crores of capital and we earn only INR 500 crores of dividends. I think it's very early days. Initially, there will be obviously some capital put in to start up. But this is how the demand evolves. We will decide the debt equity allocation, subject to obviously RBI norms and regulations. It's too early to discuss that at this point in time.
Okay, got it. The second question I have is, Rakesh, on the two-wheeler demand. Now, it's been over two years, right? That this has been so weak and, you know, you've called out affordability as being the issue given the price increases over the last two years. But is, I mean, this is essentially something pretty mass mobility, right? I mean, what is it you think, you know, is really dragging down? And what can OEM do to change this narrative? Because, you know, there's clearly a need for mobility. So is it that, you know, we need to relook at the price hikes that have been taken or we need to look at some financing schemes? You know, some thoughts as to what we can change the narrative on this demand for two-wheelers.
Yeah. The issue is, I think, you know, as people say that automotive sector is a reflection of the health of the economy. I would say that I add on to it, and the status of the two-wheeler industry is a reflection on the bottom part of the economy, you know, because two-wheelers are used by lower middle class and even lower socioeconomic groups. Like you said, it's a mass consumption. Now, our peak was of the industry was in 2018-2019. Since 2018-2019, there is almost a 30% decline in the overall industry. Now, it should have gone up. There is a big gap. Probably we are at minus 40% from where we were.
COVID has obviously aggravated the situation, but to some extent because the shock is over some of the structural issues which the segment is facing. These are arising from, you know, over-regulation. For example, ABS, even in Europe ABS is mandated not on the basis of CC, ABS is mandated on the basis of power. Here we have added costs because of ABS and taken the prices up, which has affected the demand in this fourth segment. Similarly, the insurance, the GST, which presents an opportunity actually, all these have contributed. Actually, if you see the price of a leading entry-level brand in these three years has gone up by about 50%.
Given against the backdrop of, let's say, an economy for this segment of people which is underperforming, this has created a lot of difficulty. Now it's impossible for an OEM to resolve this. This is not, you know, something which is in our hands. The Indian manufacturing, and I can say it for the industry, and of course I can say it for Bajaj, is very sharp, is very frugal. The vendor system, the way costs are managed, are very, very solid. I don't think there is any fat over there to cut out costs and reduce prices and revitalize the industry. The only silver lining over there, the first obviously as the economy improves, the pickup in demand. The silver lining over there is the advancement of retail finance.
You know, the ability now through various means and the government push in this sector, both to banks and NBFCs, fintech companies, this whole area, this is a very exciting and a very positive thing. Because hopefully it will take credit into the areas and, you know, cars enjoy 85%. In many places, we have only got 20% penetration. That is one silver lining. But overall, I don't think we can do anything. The upper half economically is performing well, better. There is better purchasing power. There is more consumer confidence in the upper half of the pyramid. We in Bajaj Auto are therefore tending to focus on this segment.
Here our approach is to punch our way out of this through putting out attractive propositions in the product side, which we did very early with 125 cc. You know, we were the first ones to make a slew of new launches in the 125, which has made us capture 23% of market share in this segment. We will continue to do that. In two hours time, we are launching our new 250 cc Pulsar, which is the biggest Pulsar yet. In an effort to excite the customer and, you know, excite them into putting their hands into their pockets and taking out that credit card and swiping it for the down payment. That's the only thing which we can do. I think costs side is pretty well covered.
At least for the upper half of the pyramid, keep punching away with attractive new propositions.
Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Hi, sir. A couple of questions. First, can you share data on export revenues and USD INR realization?
The INR realization was, if I remember correctly, 74.9 for the quarter. The overall total export sales in rupee terms is about INR 4,150 crores.
Secondly, Rakesh talked about roughly under recovery of 60 basis points in second quarter. Any sense of what was the gross impact after the price increases, prior to price increases of commodities?
Sorry, I didn't get you.
The gross impact of commodity cost inflation in second quarter.
Yeah, I can give you a number. Just hold on for a sec. Yeah. The gross cost increase Q2 over Q1 sequential is between 3.5 and 4%.
Okay. What kind of price increases were made in second quarter and in October?
Our price increases were closer to about 3%.
Any price increase in October?
No, I don't remember any. I mean, some October. Last October we have taken.
That was about 1.5%.
Oh, much less. Sub one.
Okay. Understood. Lastly from this NBFCs effect. Gradually this will be replaced or making good for any shortfalls or family debts. Just focusing on rural and two-wheeler finance, this is what the NBFC will make good for that. Is that the objective or this is also to focus on the new energy vehicles where financing still is a question mark given the emerging technology environment?
Jinesh , I think we are reading too much into it. I mean, there is no indication that there is a gap. BFL has been financing all vehicles for the last 30 years. We felt that there is, as Rakesh mentioned, there can be a very good integration on the customer side when the OEM and the finance guy is the same. There are some synergies which we have found out, which will allow us to serve the customer better. This is not meant only for EV, this is not meant to plug holes, because if holes were there, then we would have plugged long back. It is nothing of that sort. It's just another attempt to bolster because as you know, financing is a key selling tool in the overall industry. It's another attempt to bolster it by integrating the customer experience.
Right. Lastly on exports, you know, in the past you had indicated Southeast Asian markets where were not doing that great because of COVID impact. Are those markets now making a comeback, particularly in September, October, or is it still well below normalcy?
They are coming back, but they're not yet to be back. Like I said, our largest market is Philippines in Southeast Asia, where I would say we're only at 50% level. That's a welcome relief because, you know, two months back, they were at 5%-10%, so they're back to 50%. Hopefully in the next quarter or so we will see a return to at least 80%-85% kind of a level. They're coming back, but I would say it's 50% level currently.
Okay. Just to clarify, this 50% market share in emerging markets you're talking about was for 150-250 cc, right?
Correct. 150-250 cc segment. It is just only the leisure segment.
Got it. Great, sir. Thanks, and all the best.
Thank you.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Yeah, hi, sir. Thanks for the opportunity. Firstly, I wanted a clarification on electric vehicles. You know, we mentioned this half a million capacity. Can you tell us by when it will come? And does it include two-wheelers and three-wheelers?
The 500,000 capacity I had mentioned was for only two-wheelers, scooters. The reinvestment for three-wheeler will be separate and outside of it. The three-wheeler capacity will be, you know, we are still looking at the location, but mostly it will be in our existing premises in Akurdi. We have 160 acres. There's no production. There's only R&D center, so we are very well provided for space. The three-wheeler investments will take place alongside the three-wheeler plant in Waluj near Aurangabad. Kapil, what else do you need?
Very good.
Yes. We are just looking at, you know, we're just putting down all these, sort of, detailed plans and, we'll be ready to announce the timing, et cetera, in probably a quarter's time. As we speak, engineering teams are sort of, doing the layout, looking at the contracts, the cooling and all those other equipment lead times, et cetera.
Okay. I asked because we have five months waiting in tier two cities, right? Will we be able to expand in a big way only after this capacity comes in?
No, no. We already have, you know, 5,000 per month capacity already. We can. If we want, we can use it. The issue is the shortages, the supply chain shortages. This 500,000, what we are talking about is for further expansion over there. The current capacity is, you know, the current demand can be met by our current capacity from our existing plants. Here, the problem, like I said, is the component flow.
As of now, it is 5,000 per month and additional will come with this half a million whenever this comes up. This, even this 5,000 can go up if required.
You know, this 5,000 is from the existing plants in the auto premium segment. As you know, we are establishing a second plant in Chakan, which is for the premium end, you know, KTM and when Triumph comes, for Triumph, et cetera. That ground breaking has already been done and civil work has started over there. That will be the fourth plant. The electric plant will be the fifth plant. Now how this 5,000 sort of pans out, which how it gets distributed is something which the engineering guys will decide in due course. Yeah, that's the overall is that current three plants go to four with the premium and then to the fifth with the electric. You know, to the sixth with the three-wheeler investment.
Okay. Basically what I'm trying to understand, let's say, you know, demand is let's say 10,000 per month by December next year, hypothetically, a re we ready to supply that?
Let's say demand is what?
10,000 per month next year, December.
Yes, yes. Of course. I mean, if the plant comes in, definitely. There is enough sort of slack in the system to divert it to electric.
Thank you. The next question is from the line of Aditya Jhawar from Investec Capital. Please go ahead. Mr. Aditya Jhawar, please go ahead with your question. The line is unmuted.
Yeah. A couple of questions. Can you hear me now?
Yes, go ahead.
Yeah, yeah. First one on Chetak. You know, since we have localized a large part of the supply chain since because of the FAME II eligibility, N ow, do you have some kind of a visibility on the cost reduction on Chetak going into FY 2022, 2023 and 2024, since you would have tied up with suppliers over the next couple of years?
I think we will not get into specific costs in terms of Chetak and next two years and all that. Yes, your point is absolutely right. We have been able to optimize our costs significantly. No point going into specifics of how much.
Fair enough. Now, second question is on, you know, captive financing. Now, if you look at our domestic business, it has overall declined roughly about 7-odd%. In fact, the decline for three-wheelers was relatively lower, and Rakesh mentioned that the share of financing has increased. However, if you look at Bajaj Finance, they have reported a decline in their AUM by about 16%. So was there any reluctance from Bajaj Finance trying to finance three-wheelers and two-wheelers? And because what we understand is that post-COVID, the profitability of two-wheeler finances has come under some stress. Do you think that we have lost some sales because of that? And incrementally will it be a drag at the time our captive financing arm is up and running?
No, not at all. I would not say that at all. In fact, if I sort of recall correctly, there was a period in April or so, in the heat of the second wave, where you know, there was you know, uncertainty around financing that we were encountering, not from just BFL, but from all the financiers. Because all the financiers are naturally saying that, "Where is this going?" Right? I think it was an industry-wide phenomenon. Whether we have a captive finance unit or whether we are working with BFL or whether we are working with the likes of HDFC, et cetera, those questions will be addressed in a similar way by most of these companies, irrespective of the sector. I don't think we lost share on that account.
I would say, yes, the industry as a whole suffered because there was shrinkage of finance across the industry. Once LATAM started to reappear from June, July onward, financiers have come back. In fact, I believe that in the three-wheeler segment, one of the reasons for our galloping market share has been weak retail financing support to our competitors. To that extent, I would say that we have been ahead in the game.
Sure enough. Yeah. Yeah, the final question is that what is the share of financing of Bajaj Finance in 1H of 2022 versus 1H of last year or 1H of 2020, more normalized year?
That will not suffice the hypothesis that you have. Because, for example, in two-wheelers, last year the average of Q1 and Q2 was about 35%. This year it is more like 39%.
Fair enough, Soumen. Thanks, Rakesh, and all the best.
Thank you.
Thank you. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.
Thanks for the opportunity. My question is to Rakesh. Rakesh, in the past you validated that in 125 cc category, to take up the market share from current 4%, you will need more product introductions. Any more color you can add? Where are we in that thought process? When can we expect some product actions?
The NS125 was the latest introduction, and now that's already accounting for, I think, 25% of our 125 cc portfolio. With its much superior margins, that's a very, very welcome development. There are a couple of products which are in the works. I would say that nothing in the immediate term on the 125 cc. We will still have to wait a few quarters before we have an absolutely new 125 cc being introduced. Yes, it's an important playground for us and we are looking at coming out with some differentiated propositions out there, which are something very different to what is there in the market, including different from the Pulsars, the NS Pulsar 125.
Secondly, if you can help us understand how does the financing in the international market work? Because geographies have different dynamics. Any specific changes that have happened post-COVID in terms of financing in those in the international market. If you can just explain to us that little bit.
Financing, there are many different models of financing in the international market. The most mature financing models, slightly similar to us, are in the ASEAN area, where you have large banks and specialist auto financing companies. They actually run at much higher sorts of interest rates, IRRs, et cetera. The impact of COVID has been, while it has been there on the volumes, et cetera, but they are because of the sheer dint of their very high margins are able to take, you know, some of these, the NPAs far better. We have not seen in ASEAN any major fallout of this, particularly, I'm referring to, let's say, Thailand, Malaysia and Philippines, where we are majorly present.
In a weaker economy like Cambodia, we have indeed seen financing companies that have sort of gone into a shell, which has resulted in the three-wheeler business. These are financing companies operating largely out of Singapore. They've shrunk their operations. I would say apart from Cambodia, I've not seen an issue. The next region is LATAM, where the financing, a lot of the financing, happens through retail chains, you know, these are also places where they buy and they sell motorcycles. Of course, there are banks also. There I would say again, we've not seen any great impairment of financing companies or shrinkage or change in financing, big changes in financing terms.
We've also been under pressure, but they've been under pressure from a volume point of view rather than from a quality of finance point of view. In Africa, financing is very, very nascent. What we are finding is there are a few countries like Kenya, Uganda, where either cooperative financing or bank financing has started to come on the horizon and is becoming a major factor for driving growth.
This is helpful. One last question, again, CJ. On the other income side, if you can help us understand how to look at the treasury income, because this year we had a good quarter on the treasury side, on the yield side as compared to some of the other peer group companies. How should we look at that yield for the year, if you can help us understand?
Dividend from BHIL, which may be inflating your IC, which is about, if I remember correctly, was INR 35-odd crores. If you knock off the INR 35 crores, then you should be okay. Also, my cash balance for the first month was much higher because we paid out the dividend in end of July. Month of July, it was not INR 15,000 crores or INR 17,000 crores, it was INR 19,000 crores. These two should reasonably explain the other income there.
Lastly, if you can just share revenues, you generally share that. If you can share that.
Sure, yeah. I can only share if I'm asked, no? If I'm not asked, I can't say. Sales overall domestic plus export was INR 1,100 crore. Hello?
Thank you. Yeah. Thank you. Thank you very much.
Thank you. The next question is from the line of Amyn Pirani from JP Morgan. Please go ahead.
Hi, thanks for the opportunity. Most of my questions are on Chetak. One thing on the EV, you know, launches in cities, you are currently I think, you know, more, I mean, lesser than most of the other guys. Is it a function of the fact that you are not sure about, you know, component production and hence you don't want to launch in too many cities? Or you are trying to maximize, you know, initially a few number of cities and then, you know, launch in other cities?
Yeah, you know, like I was saying that, you know, there's no point. We found such a great response to Chetak that we find it not right to go and, you know, launch it in 25 cities and spread the meager butter very thinly over the entire toast. The advantage of, for example, you can check the VAHAN data and it will tell you that the market share which we enjoy with Chetak in electric is already 30% in Pune city.
Mm-hmm.
You know, we rather go the... It's a balance which we have to strike, because if we, you know, try and service the entire demand of Pune, we will also get excluded from engaging with customers in other places. If we spread ourselves too thin, then we leave a whole lot of customers dissatisfied. Because earlier we were not sure about how the reception will be. As we have now, I mean, the Nagpurs, the Aurangabad, the Bangalores, the Mysores are just absolutely stunned us and surprised us by the demand which they are putting up for Chetak. As a result, we have said that, okay, first let's get the visibility and then open the market. Don't forget, besides the customer, it's the dealers are also making an investment.
Now we can't ask the dealer to open a store and then give him one or two, you know. We want a proper store. We want all the investments to be made. Then to give that poor dealer only two or three vehicles a month, that will not be right. These are all the things which we have to strike the balance on.
Currently you're selling Chetak just through exclusive or is it mostly the KTM two-wheeler format that you're sharing for the Chetak, right?
Our distribution format in Chetak is that we like to have one. It's a hub and spoke thing. We like to have one experience center where the customer can, you know, get a very good environment and expertise and support to deal with it. Then we use all the KTM stores for retailing. There is a very substantial online consumer engagement purchase and program as well. We still, he or she still needs to come to the dealership for the final verification. Today we have the capability of doing the entire transaction if the consumer chooses completely online. Only for the final physical verification will be RTO required. If RTO doesn't want that, then the customer actually doesn't need to come to a Bajaj Chetak showroom or a KTM showroom.
We have got that. We have the KTM stores and we have the experience centers. This is the sort of distribution format for Chetak.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Anand Newar for closing comments.
Thank you everyone for joining, attending this call. In less than a couple of hours from now, we have the launch for our new Pulsar version coming up, and request all of you to please log into social media sites for more details. I can also see quite a few of you still waiting to ask questions. As always, I'm happy to take this call after a few minutes from now. Wishing each one of you a very happy Diwali going forward. Thank you.
Happy Diwali, everyone. Thank you very much.
Happy Diwali. Thank you.
Thank you. On behalf of Bajaj Auto, Bajaj Auto Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.