Good morning, ladies and gentlemen, and welcome to Bajaj Auto's conference call to discuss the third quarter fiscal year 2022 financial results. We have with us Mr. Rakesh Sharma, Executive Director, Mr. Kevin D'Sa, Officiating CFO, and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Steven and I will be your coordinator. 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 the management for the opening remarks. Thank you and over to you.
Well, good morning, ladies and gentlemen. This is Rakesh Sharma here. Thank you very much for joining the call. I hope everyone is keeping safe and healthy, and I hope the third wave remains in our course and peters out very soon. We announced our quarter three financial results last evening, but I hope by now you've had some opportunity to look into the details. Overall, quarter three was yet again a difficult quarter to navigate due to the combination of an uncertain demand environment even during the festive, cost increases and supply chain disruptions in semiconductors as well as in shipping.
However, overseas demand recovered quite smartly and steady and three-wheeler demand in India also improved on the back of receding lockdowns.
In this milieu, we try to keep to our strategy of strengthening our competitive position by upgrading our propositions across and within segments, by capturing a greater share of the recovery in our leadership markets like overseas and in three-wheelers, and thereby improving upon our financial results quarter on quarter. I now move on to the business-wide comments. Let me start with our exports business unit, which is now our largest business unit, accounting for over 56% of our top line.
Quarter three was the highest quarter this year in exports with average sales crossing 219,000 per month. This was also supported by a high level of retails in the market. In fact, quarter three retails is a record for us, and it's the highest ever quarterly retail achieved in all the overseas markets combined.
Consequently, we have increased our global market share in both motorcycles and TV, and market shares were held or increased in every single region of the world. By end of quarter three, we have pushed through price increases of 5%. These are in retail terms. This is higher than what our competitors, particularly competitors based out of India have done. This performance, the record performance both in shipping and retail, has been delivered whilst digesting the price increases at a retail level and navigating all the problems of shipping as well as shortages in semiconductors.
The outlook for exports business remains steady and stocks in most countries are in tight control, and we hope to replicate this performance in quarter four as well.
Though, because it's the financial year end, there is some spillover of business which occurs into the new financial year. You might see some impact of that towards the end of March. Coming to motorcycle business unit, the demand scenario continues to be muted as both billing and retails declined by double digits in Q3. VAHAN data suggests registrations declined by 11% for motorcycles in Q3 at an industry level.
Though the auspicious days have only just begun in January, but our retail data confirms that January continues to show a similar decline in retails over January 2021. All segments, fancy, mid, and sports are in decline. There may be a few percentage point difference among them here and there, but largely they are all in decline. Across geographies, rural, semi-urban are in similar decline.
Cash sales are in decline, but a bit more than finance sales. Retail financing-based sales have done slightly better. This all pervasiveness of decline suggests an underlying issue with both purchasing power and sentiment of the two-wheeler customer. You know, over 60% of our customers reside in socioeconomic classes of C, D, or B2, right, where amongst other things, average incomes are less than INR 50,000 per month.
This segment of the demand pyramid is yet to see restoration of purchasing power or will to purchase. Against this backdrop, our decline was lower than the industry, resulting in a gain of market share on retail basis. VAHAN registrations again indicate an increase of 1.6 percentage points for us to a 20% YTD market share in FY 2022 compared to 18.4 in FY 2021.
The rise in market share is driven by our upgrade strategy. In 100 cc our kick start to electric start ratio has moved from being 25%, 75% in FY 2021 to about 95% in quarter three. That means 95% of our portfolio are sold in the 100 cc is electric start. Our effort has been to upgrade the kick start customer into electric start. In the next segment, which is the 125 cc segment, 22% of our sales now comes from the Pulsar NS125. The NS125 has been targeted at the youthful customer. It is 24% more expensive than the entry-level Pulsar 125.
Today, Pulsar NS125, which was launched in April, it has established itself as the most aspirational 125 cc bike and like I said, 22% of our sales comes from this variant. This is again another illustration of the upgrade strategy playing out in the market. We are now going to extend the upgrade strategy in the sports segment too, which has not seen meaningful product introductions for quite some time now.
As you know, a new 250 cc platform was launched by us on October 28th, the 20th anniversary of the launch of Pulsar in India. Both the Pulsar F250 and N250 have been very well received by experienced as well as amateur riders. Our national rollout is unfolding in January, and we are seeing a 40% rate of increase in daily bookings every week, signaling a good level of adoption.
We'll be seeking to expand the new portfolio and we'll be making new introductions at regular intervals over the next six to nine months, completely refreshing and upgrading the Pulsar portfolio. The Dominar 400 upgrade has strengthened the position of the sports tourer and has been very well received by enthusiasts. While it doesn't add much in terms of volume, both internationally and domestically.
However, expanding this segment and gaining share here and actually gaining customers here does a lot to the stature and to our franchise both in India and overseas, which is something which is sort of surging ahead in all markets now. Overall, due to the muted outlook of the industry and some uncertainty related to the third wave, we remain cautious about the environment in Q4.
We expect it to be negative over Q4 FY 2021. In this situation, our objective is to maintain our performance in Q4 compared to Q4 FY 2021. The three-wheeler business unit. The domestic three-wheeler business witnessed significant improvement as economic activities almost returned to normalcy in Q3. We sold more than 52,000 units during this quarter, which was 18% higher sequentially and 52% more than Q3 of last year.
Consequently, we ended with a whopping market share of 71%. In fact, in December it was 74%. The business unit is not just leading overall, but leading now in every single segment of the three-wheeler market. Small passenger, large passenger and cargo. In the cargo segment, we have crossed a market share of 50%. The rollout of the CNG network continues to proceed strongly by the government.
In this year itself, active CNG pumps and number of cities have increased by 50%. This bodes very well for Bajaj Auto. We have a market share of 75% in this segment. This is also, along with retail finance support, a key driver of the expansion of market share in Q3. Going forward, our attempt will be to improve the quarterly level of performance. However, we have to monitor the impact of the third wave very closely.
Currently, inventory levels are very much in control. If lockdowns do not disturb everyday traffic, we should be able to improve upon our quarterly performance in Q4. On electric vehicles, the Urbanite business unit.
We applied for the Champion OEM Incentive Scheme of Auto PLI, under which we intend to invest over INR 1,000 crore in the next five years, which includes the early and first investment of INR 300 crore in Akurdi, which is right here in Pune, which is expected to deliver us a production capacity of 5 lakh electric two-wheelers per annum. The first vehicles are expected to roll out by June of this year.
During this quarter, during quarter three I mean, we sold over 2,000 Chetak and have an order book of close to almost 10,000 vehicles. This is based on limited current footprint of being in eight cities.
Now, we are seeing a better visibility in supply chain, which will allow us to roll into 12 more cities this year and progressively next nine months or so, as the supply chain performance on EV components improve, and we are seeing that happening, we are going to cover the entire country. We are gearing up in our dealership, sales force, et cetera, for this rollout based on the visibility in the supply chain. We are working towards expanding the EV portfolio to cover different emerging segments, and we have a three-pronged approach to really building the EV business.
The first is that despite all the frenzy which is surrounding this whole subject, we are clear that we will prioritize certainty over speed to ensure we do not damage our nascent category and build a robust, dependable brand.
Let me tell you as an aside that when the news of competitors was hitting the market in October, November or so, we did see some cancellations in order bookings. However, with the passage of December and now in January, when the performance of competition is being witnessed and experienced by customers, our cancellations have dropped down to a trickle.
We are able to carry very large level of bookings at the highest prices for extended periods of time. Hence, we are convinced that the most important thing for us is to establish Bajaj and Chetak as a very dependable brand.
The second part of our three-pronged approach is to continue to build R&D and supply chain capabilities for the longer term, including through partnerships like with KTM or with the shared mobility investment we have in Yulu. The third piece in this approach is to expand our portfolio aggressively to cover different segments, standard and emerging, in India and select overseas markets through products which are designed and made to address specific use cases.
This is what will leverage our R&D strength. We are not looking at importing designs and slapping together a powertrain so that we can speedily get into a market with a half-complete product. We would prefer that our products are designed to address the specific use cases, like I said. Finally, a comment on our EBITDA performance.
Comparing the underlying EBITDA of Q2 and Q3 shows a 0.6% increase in EBITDA over Q2. In Q2, we had a one-off benefit of accumulated gross pay and MEIS for previous quarters, so the underlying EBITDA as per our calculation was actually 15%. Now, this quarter we delivered 15.6%. The improvement is accounted for evenly by an improved realization of the U.S. dollar and price increases in the quarter slightly ahead of the final cost increases which were experienced.
All operating costs are tightly controlled. The outlook on cost increases is a very gentle 1% or so at this point of time in quarter four, and this has already been passed on by the increases in the coming January. Thank you very much, everybody, for patiently listening in, and we can now 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 their touchtone 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. A reminder to the participants, please limit your questions to two per participant. Should you have any follow-up, we may request you to rejoin the queue.
The first question is from the line of Raghunandhan NL from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity, and thank you for the comprehensive opening remarks. My first question was, the company's thought process for electric three-wheeler has been to provide an ecosystem for operators and not only a product. What all would an ecosystem include? Also, competitors are focusing on battery swapping model as well. Would Bajaj also focus on a swapping option?
The three-wheeler development is now nearing its final phase, and we expect to be putting up the three-wheeler for approvals by end of this fiscal. In the next quarter, we will launch them. We will have a comprehensive range which covers progressively the cargo, the small passenger, and the large passenger. We will be using our current brand name and trying to flow over the enormous equity which we enjoy with mechanics and drivers and fleet owners into the electric side as well. We are gearing up our dealer network to, you know, provide all the support services.
These three-wheelers will come equipped with telematics, et cetera, which will allow fleet owners a better sort of ability to manage their fleet and utilization of the cargo vehicles. This is what it is right now. What is the
Battery swapping.
Yeah, the battery swapping part. These three-wheelers, at this point of time, with the kind of numbers which are going to be in the field, in three-wheelers, we feel that the battery swapping approach is going to drive up the CapEx. Because till the time the park number doesn't cross a critical size, you need to have twice the number of batteries in the system as there are vehicles.
Only then the customer will be able to get new batteries as and when they want. At the current cost of the batteries, having two X number of batteries for each vehicle, one on the vehicle and one wherein the system, will drive up the CapEx of the system.
It doesn't matter who pays for it, but it will be recovered in one way or the other, increased et cetera or new charge or whatever. Till the time this doesn't cross that critical number where the x factor comes down to 1.2x or so, like it is, let's say, for a two-wheeler in Taiwan, or the battery cost plummets strongly, it doesn't make sense in the three-wheeler segment, which is a commercial segment, to have a swappable approach.
However, from a technology point of view, we are investing behind this, and we will have a range of two-wheelers which will work on battery swapping, and we will see if we can do this through our dealers and other methods.
This will allow us to have a niche in the technology space, and depending on the commercial viability of this approach, we will play it out in whether it's three-wheeler or two-wheelers.
Thank you, sir.
My second question was, can you give some color on upcoming products in EVs and ICEs? In EVs there are spy shots seen in media reports for electric scooter. There is also hope that electric motorcycles will come up ahead in collaboration with KTM. Also if you can highlight the Bajaj Triumph combined efforts for premium ICE motorcycles.
Most of our R&D efforts in terms of new platform is now focused on EV. We are focusing only on one platform, which is a new platform in the ICE range, which will hopefully expand and really bring a very differentiated proposition in the commuter segment in due course of time. Apart from that, all the new platform building is now taking place in the electric side of things. In that, we feel that the traditional ways of segmentation are not relevant in electric two-wheeler segment at least, which was, you know, we were looking at commuters, we were looking at a mid-range, and then we were looking at sporty commuters and like that. New ways of segmentation are needed, which are more on use case.
You know, one may prefer speed, somebody else may prefer range, somebody else may prefer convenience of charging, et cetera. We are looking at these use cases, and our objective is through these platforms, and I'd say there are at least three platforms in the R&D which are right now being conjured up. We expect to cover most of the use cases. As and when we understand a use case is emerging, we will deploy the appropriate and the relevant platform.
It is not possible to imagine all the use cases immediately. Therefore, we have looked at taking a platform approach, which will allow us to spring into development to address a specific use case. I mean, to give you illustration, it could be, there could be.
Obviously, the emergence of the delivery segment is obvious. Within the delivery segment, there could be a sub-segment which prefers low speed, which doesn't require licensing, and there could be some sub-segment which actually prefers high speed and long range. Both these require individually different customized solutions. Therefore, our approach is to build these platforms which will allow us to address these new segments over a period of time.
We are collaborating with KTM. They you know the electric style powertrain is actually very, very suitable for some of the extreme sport motorcycles. We are looking at those.
They may not find too much of an application in India, but they again give us a lot of manufacturing and development experience and, you know, access to global markets through the KTM brand or through the Bajaj brand. That work is going on. We are also looking at different forms, not just motorcycles. Suffice it to say that beyond motorcycles and scooters, different forms are being evaluated.
Some of them are already in play. You can go to the KTM website and have a look. But we're jointly evaluating different forms. If they are applicable in India, we will present them in India or we will present them in some other overseas markets.
With Yulu, we are getting very valuable information on how last mile and first mile requirements are there, how the low-speed delivery segment is shaping up, and we are working with them to develop a bike and develop a vehicle specifically to address this. We will most likely present it within 2022. There'll be a lot of activities, I think. It will first start with the aggressive rollout now of Chetak.
Progressively, I think, we are seeing a better and better supply chain visibility. Quarter four will be much better than quarter three, and quarter one will be much better than quarter four. We will roll this out. That's our first priority.
Progressively, the Chetak platform will be expanded, the KTM-based platform will be expanded, and the Yulu-based platform will be expanded.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah, thanks, team for taking my question.
It's really good to hear more about electric, and you know, hear your thought process. I just, you know, on this topic, you mentioned you know, many times in past that supply chain has been a constraint. I mean, I'm just trying to understand if you know, you can give us more color on what are really the problem areas. Is it chips? Is it battery? What are we doing to address that?
Because we may have half a million capacity coming on stream midyear. I mean, is it something that we're doing on the back end that this capacity can be ramped up when the demand you know, when the EV transition accelerates? You know, the first question on the supply side.
We had a lot of trouble last year. We started in, let's say, April, May, June or March, April, May of 2020. The COVID struck us and our arrangements which we had put in place. I don't want to name the vendors, but global vendors, when the previous company, those arrangements collapsed between those companies and their suppliers. As a result of it, there was a blowback on us and our arrangements got impaired.
We were primarily in the battery side. Later on, because of the independent issue of the semiconductors coming on, we faced a double whammy of some of the electronic components getting into a problem.
We, over the last six-nine months, what we have done is we have indigenized, and we have internalized a lot of the components. We've put in new supply chain arrangements which have fallen in place, and we will start to see that impact. We have also got, you know, the in-house, you know, technology-based Chetak approved by ARAI, by CMVR and all that. That has started to roll out into the market since end of December. Now, of course, it is in full flow.
Because of this, I mean, debacle is a strong word, but because of this problem which we faced with our previous arrangements and the configurations were based on those arrangements, it took time to change into a new configuration and put the new arrangements. Those have now been put in place, and we see a better visibility because of that. Having said all this, I must point out that the supply chain environment for everyone does remain uncertain because the chip situation, we are now realizing again that there is a little bit of turbulence in that area once again.
We remain vulnerable as everyone does, but our specific problem, which was of this old configuration, was over-reliant on one vendor system that we have actually been able to neutralize.
Okay, that's good to hear.
The second question again I had on the three-wheeler business. Now, I mean, I do understand, you know, CNG and, you know, we are gaining share in cargo. But this is something that, you know, this is again a sector, a segment which is very vulnerable to a speedy transition. Now, you know, you did mention we'll roll out the products, but there is also a lot of new competition which is coming in this space. So maybe, you know, if you can give us your perspective as to do you see this segment shifting very quickly to electric?
And if not, you know, what are the real challenges? Because you all have been speaking about CNG a lot more than electric and three-wheelers.
First of all, I think that the CNG is a very, very good option when it comes to you know environment and operating costs. It is a product which the mechanics and the drivers really understand well. CNG network is something which the government is very, very keen to. I mean, you just have to go into the company's site and see, not our company, but the government site and see how aggressively the government has been rolling out.
You know, I'm surprised that the media doesn't pick it up, but it is one of those infrastructure projects which over the last two years has been very successfully implemented. Even this year, like I said, the number of towns and coverage is really increasing.
The moment the CNG comes, you can see, it's very clear that people really prefer going to CNG because it gives a huge improvement over the current operating cost over diesel or petrol. That's why we support it, and we have always supported it. We have found that even internationally, wherever CNG is there, it has made a good impact.
Why should we not pursue an alternate fuel? Because in any case, at a macro level, what we believe is that the two issues of environment and dependency on the dollar, which the government is trying to mitigate through transition into electric, is going to be served better if we sort of move into different alternate fuels and even things like flex fuels, ethanol-based fuels, et cetera.
I don't think just a move from petrol to electric is going to fully serve those twin objectives. We are very keen. We are not going to abandon our pursuit and our expertise and our authority on alternate fuels just because electric is there. We're going to pursue, continue to pursue that, and we'll pursue electric. Now, on the electric side, the issue is that there is, when it comes to operating costs, certainly, compared to CNG, an electric vehicle is about 10% cheaper.
Compared to LPG, it's about 20% cheaper, and compared to diesel, it's about 30% cheaper, the operating costs. Capital costs are higher, and therefore, there has to be a very strong retail finance support.
In today's environment, stepping up retail finance beyond what it is already doing, you know, is a bit of a tall order. It will still take some stabilization of the environment for retail finance company to come in and say that we are going to now support purchase of a very expensive electric three-wheeler when the demand environment is weak. That is one constraint, but we'll keep working on that.
We have BFL with us, and we are constantly exploring opportunities there. The second is, of course, the charging anxiety. We'll leverage our distribution network, and we will see how the charging anxiety can be addressed. It takes three to four hours, and parking where you can charge is an issue. These kind of things are there in the minds of people.
Things may unfold faster in fleet owners and cargo and small multi-load operators and those kind of segments. The vast market which comprises, you know, individual owners running a three-wheeler is an issue. The final point in an individual driver owner's mind is that what will happen to the battery?
What will happen to the resale value? Today, he knows, he's very, very clear when he buys a three-wheeler, what he will be able to sell it off at the end of three years, five years, seven years. It's a mature resale market. The electric three-wheeler market is not a mature one, and the resale price understanding is an important component in the purchase decision of a individual driver owner. These will also get resolved over a period of time.
We feel that it's not that the transition will be dramatic and sudden. It is definitely on us, but it will unfold progressively as these things, these chips fall in place, and they will take some time to fall in place.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Sir, I wanted some color on the export market, please. Also if you could cover, you know, things like, plans which have taken place in, markets like Egypt on three-wheelers. Also a little bit of contrast in comparison to the Indian market, because we have seen these, you know, waves in export markets also. You know, the volumes there have been doing pretty well. You know, just some contrast as to what is doing right in those markets, compared to India, in your view. Also, of course, the volume outlook, whether we can sustain the current run rate. That's the first question.
I think over the last few years, the outside world sees a very steady volume in exports of a three-wheeler. But what is happening underlying this is a furious pace of business development. Now, in India being a mature market, the scope for business development only comes when there is a discontinuity, like you just talked about one, which is the advent of the CNG three-wheeler, or one which will come up to, let's say in a few months or quarters, which is the electric side.
Which hopefully we will be able to cannibalize the e-rickshaws, which are all these China-based crappy stuff which comes. Now, in the exports, we got a lot of learning when suddenly we lost out of our 22,000-23,000 units per month which we used to do.
We used to do 10,000 units in Sri Lanka. This is six-seven years ago. When suddenly that thing got switched off because the Sri Lankan government came down on the three-wheeler because of import duties, et cetera. We were suddenly faced with a crashing three-wheeler export base. We lost a furious development exercise at that point of time. Over the last four or five years, we have developed something like 23 or 26 brand new three-wheeler markets. These countries like Iraq, Philippines, had never, ever seen a three-wheeler.
Our teams went out over there, educated, trained, supported, trialed and expanded the three-wheeler market. Today, as of before the lockdown and now this market is coming back, we're doing over 2,000, almost 2,000 units in of three-wheeler in Philippines.
Cambodia had never seen a three-wheeler, and we were doing 1,800 units in Cambodia per month. Iraq, we are touching 3,000 units per month. It had never, ever seen three-wheeler units, you know. In the early days, we have developed Mexico then Dominican Republic, and I can continue. There are many, many markets. We are continuing this learning from that. There is a constant squad in the exports team whose constant mission is to develop three-wheelers. Now we are looking at electric three-wheelers very aggressively. The development of the, we are looking at that as an opportunity.
When we look at what is in the pipeline, we believe that there will be the consequence in terms of the countries will vary, but we think we will be able to sustain, if not improve marginally, this level of performance in export of three-wheelers. Egypt banned the three-wheeler in October, but you would have seen in November, December and well into quarter four, we will continue our export at the same level to Egypt because the Egyptian government, quite supportively has allowed existing orders.
That's why the pace of export is continuing. While that is happening, we are in dialogue through our partners there with the Egyptian government, because the Egyptian government has a requirement of CNG. They want to shift to CNG. Until now, we've been only exporting gasoline.
We are in discussion to them offering the CNG option. They're also, in some parts of the city, they want a high-speed vehicle, a better looking vehicle, et cetera. We are in discussion with them. Hopefully over the next couple of months we will be able to resolve a few things. Because I must also say that there are many territories within Egypt, as it is within many countries, including places like Mexico, where there is no other means.
A bus cannot go, a minibus cannot go, a car cannot go into those narrow towns or in Lima, you know, in the favelas, et cetera. When a bus drops off a customer, a passenger, the passenger has to walk uphill for another 2-3 km to reach his home through winding streets.
That is where only a three-wheeler can take, you know. If there is a woman who's come shopping, et cetera, there is only these kind of people we are serving. You know, it's not easy also to shut off this type of public transport without inconveniencing the customers. Through the twin this thing of engaging with the government and secondly, furious pace of and continuous business development, we hope to sustain this level of performance in three-wheeler exports.
Sir, two-wheelers?
Sorry.
for two-wheeler export outlook.
Two-wheeler export outlook. Sorry, your audio was not very clear to me. Yes. The two-wheeler export outlook in the short term, which is quarter four, will remain steady. You know what happens is that the year comes to a close, and there is some spillover which goes into April, May. To that extent, we will see some reduction. Last year we were building up stock, but at the retail level it's all going very strong.
We are hoping to conclude the financial year with 2.5 million+ of exports, almost $2.3 billion and a very good surge in KTM and Dominar. This gives us a great momentum. The stock are not very high.
This gives us a great momentum of entry into financial year 2022-2023, I mean.
Okay. Sir, second question was on electric. We've seen these bookings coming for Chetak and, you know, we are operating at a certain price point. I just wanted to understand when we are looking at these customers, you know, who are these customers?
Are they people who are using a current 100 or 125 cc scooter or these are some enthusiasts who are testing out the products at this price point. The reason to ask this question is also because we are now putting up a 5 lakh capacity. I just want to understand whether there is that much demand at this price point or you need to straddle a much bigger price range, you know, let's say from INR 100,000 or INR 80,000 onwards. If you can give some color on that as well.
Yeah, sure. See, first of all, we should understand, despite all the media frenzy, let's keep our nose on the ground and see that today the penetration of the electric two-wheeler is, I mean, only 2% of the overall two-wheeler market. That is the play right now. Now, given that, of course, that has to expand to 4%, 8%, 10%, 15%. It will have to cover a very different level of price points. There is no escaping from that. Staying within the current price points also, there are opportunities which are more geographic in nature. What we have achieved till now is only on the basis of eight cities.
We want to, the more we expand, we will be able to take the top of the pyramid in all these cities. But for it to truly replace the two-wheeler ICE, we will have to go into different price points. Secondly, even examining who are the people that you ask, who are the people who have joined us, we often think it that there is a wide cross-section.
I mean, to give you some color, if I look at Pune, which has got most high level of electric penetration, and this is where we launched our electric Chetak first, and it's the market where we've got most data because we've been operating it now for almost one and a half years.
Our sales from our showroom or dealer in the center of the city are far outstripped by sales from our dealers on the outskirts, let's say like in Chakan and adjoining areas of Pune. What I'm saying is that people, you would expect maybe someone who is environmentally conscious, economically stronger, very urban kind of a persona to be the first buyer. What we are finding is that person is there, but we are also finding is that there are people who are, you know, in suburban areas who are very attracted to the proposition of convenience.
When we are looking at the language which people are preferring to choose, because now Chetak cues can be bought online. We're choosing vernacular language more over English, which suggests a certain socioeconomic class.
We would expect people like to use English, but no, the vernacular language is being used. You can see today, if you're just driving around in Pune, you can see women, you can see elderly men, you can see delivery boys in the morning coming and dropping the paper on a Chetak. It is very heartwarming, therefore, to see at one level that electric as a concept is getting wide-ranging acceptance.
Chetak as a brand is also getting wide-ranging acceptance. For it to reach a meaningful penetration and not be a. All this is happening within this 2% which one is talking about. Yes, going forward, one will have to obviously make it more accessible to different income demographics.
Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Hi, team, and thanks for the opportunity. I had two questions. Firstly, on the margin side, you know, good to hear that you've taken around a 5% price hike on the export front. From here on, how do you see the margin trajectory for the business?
The margin side is expanded sequentially, but still sharply down on a YOY basis. What's the outlook on that? That's the first question.
Binay, let me invite your old friend, Kevin D'Sa, who is officiating as the CFO after Naman, to talk about this.
Hi, Binay. Good to hear from you.
Yeah. Likewise, Kevin, good to hear from you.
Binay, what I see from the margin point of view is you're seeing a sequential improvement from 15%-15.6%. Actually, I go back a little bit, and if you see the margin was just at about 19.8% in Q3. Nearly got affected significantly by the high cost increase in materials, which given the situation of demand and given the situation of the security situation, we really couldn't pass on the entire cost. I'm happy to inform you that in Q3, the entire cost has been passed on, and as a result of which margin improvement has been reflected with the material cost coming down by about 0.4%. In Q4, as Rakesh has mentioned earlier, we have estimated a bit of cost increase that will come in.
Primarily, it's a cost increase on areas of steel, zinc and lead. There's a reduction in other metals like rhodium, et cetera. The cost increase that is there is not going to be too severe, but all that has been passed on to the customer. Now, given the volume increase and a slight appreciation in the US dollar that we hope to get, I think there should be a marginal improvement in the margins as we see from here.
This is at this particular point of time we are taking the call. It could be stable, and I very frankly say that could be plus or minus 0.3, 0.5% from what we see today.
Great. Thanks for that, Kevin. The second question is, you know, when we look at standalone minus Consol, which probably is coming from KTM, we see a lot of volatility in that number. It was around, I think INR 300 crore in last quarter, in the September quarter, INR 140 crore in this quarter. Could you talk a little bit about that, how to see this run rate going ahead?
Which is it, Binay, please? Excuse me.
This is consolidated profits less standalone profits, taking away the one-offs. You know, this quarter also has one-offs. In a way, I think it's all coming from KTM. Could you comment a little bit about the KTM profitability? We've seen a little bit volatility in that.
Sure. If I talk of the KTM and the consolidated profits, you see, we always take KTM one quarter in arrears is the more of what we consolidate. The first quarter would have been a little bit affected by the COVID. The operating profit that KTM has shown is on a steady state, going forward from the last two quarters.
Over the two quarters, two things have happened. One, as we have explained, there has been a bit of the restructuring of our holding in KTM, that is Bajaj Auto Indonesia holding in KTM, which was about 47.99%, got swapped to 47.56% of Pierer Bajaj AG. That in quarter two resulted in an exceptional gain of about INR 502 crores. That's where the volatility came in in the consolidated.
Again, in this quarter, what has happened is we were left with 1.49% of KTM, which was sold in the buyback, resulting in a further gain of about INR 75 crore. On a normal operating basis, KTM is showing a very steady profit over the last two quarters. Now, the other thing I'd like to share with you is, as of now, like I mentioned, we consolidated one quarter in arrears. What we have consolidated in this quarter is the profit of KTM.
As we go into the next quarter, we will be consolidating the quarter of Pierer Bajaj, which will be KTM plus the other electric businesses of KTM. You could see a bit of a bump up there as well in quarter four.
Thanks for that.
Thank you. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.
Yeah, thanks for the opportunity. So first question is on the three-wheeler side. If you can help us understand in domestic as well as export, the breakup between CNG and other fuel. You know, how much domestic market would be CNG of the total volume and similarly in exports?
I think about almost 60% in domestic is CNG, which is in passenger and in cargo combined. Export is much less. I don't have the number, but I can request Anand to give you the precise number.
Chirag, I can give you that number after the call.
Secondly, on the EV side, there were reports around a few months back that Husqvarna's S-line is likely to be manufactured in India, and it was supposed to get launched in calendar year 2022. There has been some delay because of a variety of reasons. Should we assume this 500,000 capacity that you have announced also takes into account these two products. Apart from KTM, there is one more product that they were looking to launch in CY 2022.
One minute.
Hello?
Sorry, the audio was not very clear. You were talking about Husqvarna, which models?
There are two electric models that they were looking to launch in calendar year 2022. That was showcased somewhere in April 2021 and then updated in September 2021. The indication was that they will be manufactured by Bajaj in India for global perspective.
I get it. Yeah.
Now-
You see that finishing that is going to be on the basis of sort of kits which we will supply. That's exactly how they are going to do it is that KTM and Husqvarna will do that. This plant is not for, from that point of view. Over a period of time, I'm not ruling out that I'm not saying that we will not make any Husqvarna or KTM electric over here. That depends on how it unfolds. Currently, what's discussed and what we have briefly talked about, that KTM is making on its own based on certain sharing of platform with Bajaj.
Okay. This, the plant that you have announced is excluding this development. As and when this development takes shape, there could be further additions that could happen on the product side.
That's it.
Okay.
This is more to serve the requirements of Chetak portfolio.
In that way, something needs to be accommodated. We will see at that point. It has been configured for the Chetak portfolio only.
Okay. Just a follow-up question on Chetak and the EV product expansion that you indicated. Chetak is a very uniquely designed product. You know, let me use a slightly more nostalgia kind of a design, you know, dating back to the history. Something like, say, Royal Enfield in the motorcycle space. Do you think that there is a need for a slightly differential designing also to expand the EV portfolio for Bajaj? Or Chetak type of designing is the design that you are working with?
We are seeing this as a white canvas, and we don't want to paint ourselves into a certain box for the Chetak brand and then become prisoners of it. Because a very high level of marketing efficiencies can be achieved if we follow the harmonized approach of having the same name of the company, the same name of the store, and the same name on the product. This allows a lot of marketing efficiencies and a very focused and strong integrated brand development. Now, in this, the downside could be that, can one brand fit various form factors and sizes? That's the opportunity we have with Chetak.
If we take a very narrow view of it and say that, okay, Chetak is only, you know, that kind of a form, then, we become a prisoner of it, as some other companies have become, and we don't want to do that. We want to garner the marketing efficiency. You know, the more vehicles are on the road, the more different types of vehicles are on the road, the brand only gets reinforced in the minds of the consumer. Because you know, having multiple brands also causes choices, causes cognitive confusion in the consumer's mind.
We are going to expand the Chetak portfolio, keeping the basic essences of Chetak design. People should be able to see elements.
They should not look like, you know, a zoo where there is a zebra and an elephant and a giraffe and all put together in, under one brand. Not like that. But the whole skill of the R&D will be to, for people to be able to take benefit from different form factors and different styles, but still see the unifying thread of Chetak design in there. That is what we are working for. I mean, obviously, I cannot show you, but that is the kind of work which is now underway.
People in R&D and marketing are sitting together and saying that, "Yes, when you put the entire range together, does it look, you know, like it belongs, coming from the same parent or not?" We would go towards having different form factors and different styles under the Chetak name.
Thank you. The next question is from the line of Nitij Mangal from Jefferies.
Please go ahead. Hi. Good morning.
Thanks for taking my questions. Rajiv, you made an interesting comment on how segmentation in EVs might have to be seen differently versus the ICE. Now, in context of that, how you see a typical sports motorcycle customer today thinking about EV options? I mean, is it possible that a typical customer there might look at scooter as a form factor? So can that transition happen in a meaningful way? Thanks.
In motorcycle.
For motorcycles and scooters.
People moving from-
Sports motorcycle.
Yeah.
Look at.
See, in any case, a motorcycle allows much less space to the designer to work with the battery systems. The more dense the battery is, which means less space it needs, then there are issues around heat generation when it sort of discharges or when it charges. How do you dissipate the heat? Secondly, of course, the cost of more intensely packed battery. Because the space available in a motorcycle is less.
Having said that, therefore, you cannot have a very odd provision unless there is a change in technology. Assuming we stay with the current technology, because there is a lot of technical development taking place in the battery systems also. Keeping that aside.
There are certain sports bikes, like for example enduro or off-roaders, which need where electric is very well suited because they need very high levels of torque and they need, you know, the ability to go from 0 to 60 km/h in a matter of seconds. That an electric motor can serve much better than a ICE based system. In those extreme sports areas, I think the transition to electric. Secondly, what happens is when you're using it for sports, it is imaginable that the person may not be too worried about range.
These sports of off-roading, enduro, motocross, they take place in confined arenas, and they're not like touring or things like that. There are segments of the sports vehicles which will see transition to electric.
that may happen. In general, motorcycles, because of the reasons I described faster in the commuter, high-end commuter or low-end commuter, will take some more time before, you know, people move, before they move to electric. Yes. Whether a commuter motorbike owner will start to prefer electric, certainly that possibility is there. It is not necessary that the electric scooter will cannibalize only ICE scooter.
They will cannibalize commuter motorcycles also. Ultimately, the entire commuting, whether it's scooter or motorcycle, but the entire commuter ICE market is open for cannibalization by electric.
Understood. It's a bit possible to assume that as the market moves from ICE to EV, the share of scooters might actually rise because that's the form factor which is easier to have an EV.
Yeah. You can say if you put together the EV and the ICE, that there is a chance that the scooter market will rise. That is actually the most attractive part for Bajaj Auto. If you see, there is a point which I have not mentioned in my opening remarks as should have, but it is opening up a vast new segment for us. I mean, for reasons which are well known, we have stayed away from the scooter market.
The cannibalization will be faster in scooters. There are two things. One is the form factor and the second is the powertrain, and the powertrain has implications of cost, et cetera. The scooter, the guy who's or the lady who's preferring a scooter has already overcome the decision of the form factor.
That means they've already said, "I'll not take a motorcycle, I'll choose a scooter." Now the second decision is whether powertrain should be EV or powertrain should be ICE. Therefore, the cannibalization will be faster in scooters and slower in the other. Which means that vast new segments open up for us in places like India and ASEAN, where we are sort of always hampered because 90% of the market is non-motorcycle over there. Now this gives us an excellent entry into ASEAN and to the Indian scooter market.
Understood. One more question. On the commodity cost side, I mean, you have explained how you're looking at the next quarter quite well. When I look at precious metal prices, those are down very significantly. How much is that as a part of your total RM basket and especially rhodium, which was one of the biggest pressure points earlier?
It's not very large compared to the major cost over a motorcycle. For example, the biggest cost drivers will be steel, aluminum and of course rubber and the tires, et cetera. This is a small part, but the fall over there would help us in the overall benefit on the material cost. It's not very large.
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to Mr. Anand Newar for closing comments. Over to you, sir.
Thank you everyone for joining the call. I see quite a few participants waiting to ask the question. I will be happy to take those calls after 12:30 P.M. Thank you and stay safe.
Thank you.
Thank you, everybody.
Ladies and gentlemen, on behalf of Bajaj Auto Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.