TVS Motor Company Ltd (TVSMOTOR) Q3 FY23 Earnings Concall Transcript

TVS Motor Company Ltd (NSE: TVSMOTOR) Q3 FY23 Earnings Concall dated Jan. 24, 2023

Corporate Participants:

Annamalai Jayaraj — Director

K. N. Radhakrishnan — Director and Chief Executive Officer

K. Gopala Desikan — Chief Financial Officer

Analysts:

Pramod Kumar — UBS — Analyst

Chandramouli Muthiah — Goldman Sachs — Analyst

Kumar Rakesh — BNP Paribas — Analyst

Gunjan Prithyani — Bank of America — Analyst

Nitin Arora — Axis Mutual Fund — Analyst

Kapil Singh — Nomura — Analyst

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Hitesh Goel — CLSA India — Analyst

Amyn Pirani — JPMorgan — Analyst

Raghunandhan NL — Emkay Global Financial Services — Analyst

Pramod Amthe — InCred Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to TVS Motors Limited 3Q FY ’23 Post Result Conference Call, hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala and Karani Securities India Private Limited. Thank you, and over to you sir.

Annamalai Jayaraj — Director

Thanks, Vivien. Good evening, everyone. On behalf of B&K Securities, welcome to 3Q FY ’23 post result conference call of TVS Motors Limited. I also take this opportunity to welcome the senior management team of TVS Motors Limited. We have with us today, Mr. K. N. Radhakrishnan, Director and Chief Executive Officer; and Mr. K. Gopala Desikan, Chief Financial Officer.

I will now invite Mr. K. N. Radhakrishnan for the opening remarks, to be followed by a question-and-answer session. Over to you, sir.

K. N. Radhakrishnan — Director and Chief Executive Officer

Good evening, and thanks for joining us today. Season’s greetings to all of you and to your family, Happy New Year 2023. We are delighted to share company’s profit after tax, this is the first time we crossed INR1,000 crores, and for the nine months, it is at INR1,081 crores. This quarter company continued to deliver consistent EBITDA margins despite temporary challenges in the international markets.

Quarter-after-quarter company is significantly growing in the EV sales volume. During Q1 of this financial year, we sold 8,000 numbers and improved it to 16,000 numbers in Q2, and further we have improved to 29,000, and every quarter we have been practically doubling. We will continue this momentum in Q4, thanks to supply chain and thanks to all our customers, the demand is ahead of supplies, and we hope to continue this momentum in Q4. Financial year ’23-’24 will set a tone for the EV transformation with expanded all-India coverage of IQ and exciting new product launches from us.

Now let me go through the Q3 in detail. On sales during this quarter, the company’s operating revenue grew by 15% at INR6,545 crores as against INR5,706 crores during last year third quarter. Domestic market, company sold 6 lakh units of ICE, as against 5.79 lakhs during last year third quarter. Our domestic sales increased by 4% in line with almost the industry growth. And the international market, and all of you know that we did 29,000 of EV during this quarter. International market, company sold 2.07 lakhs of two-wheelers as against 2.53 lakhs. Our international market volume declined by 18%. Industry decline was 23% during the same time.

Total volume was 8.07 lakhs during this quarter as against 8.32 lakhs during last quarter — last year third quarter. Total sales of three-wheelers were at the same level of last year, almost 43,000 numbers. On profit, during this quarter, the company registered an EBITDA of INR659 crores, grew by 16% as against EBITDA of INR560 crores — INR568 crores of Q3 last year. Company posted an operating EBITDA margin of 10.1% as against 10% during Q3 of last year.

Despite the demand challenges in the international market, the company was able to improve the material cost as a percentage of sales this quarter from 76.3% to 75.5%. This was primarily through the product mix optimization, sustained cost reduction, and of course, commodity softening, and measured price increases whatever we have taken.

We registered a profit before tax of INR475 crores as against INR391 crores of Q3, delivering a growth of 21%. PAT for the quarter is at INR353 crores, a 22% growth over last year’s INR288 crores. Year-to-date, company has reported a PBT before exceptional item of INR1,457 crores as against INR879 crores — INR871 crores of last year nine months up to December 2021. During the nine month ended ’22, the profit after tax is INR1,081 crores as against last year’s INR619 crores. The Board meeting declared today the dividend, an interim dividend of INR5 per share, absorbing some of INR238 crores for the financial year ’22-’23.

Now on TVS Credit Services, we are extremely happy that the book size is growing and it is around INR20,000 crores now. TVS Credit Services portfolio is well diversified covering tractors, used vehicles, consumer durables, MSME besides two-wheelers of TVS. The collections are robust, warranting minimum provision. The PBT for this quarter grew by 75% and it is at INR131 crores as against INR75 crores of Q3 last year. Profit after tax also grew by 75% at INR98 crores as against INR56 crores of Q3 last year.

As you know, during this quarter, the company launched TVS Raider SmartXonnect TFT variant with first-in-class features such as TFT display, SmartXonnect, voice assist, Bluetooth connectivity, navigation, ride reports and multiple ride modes. TVS Raider continues to do very well in the market. We also expanded the global footprint by launching the TVS Experience Centre in Singapore. The new TVS Experience Centre will offer a range of TVS Motor’s premium motorcycles including flagship model, TVS Apache RR310 for the racing enthusiast and other RTR range of products for the performance seekers.

On EV, we delivered 29,000 resulting in a Vahan share improvement in quarter-on-quarter, achieving now 14.5% market share in December ’22. We will continue this momentum with further improved ramp-up of production. In Q4 — month of ’23, we are focusing on achieving 25,000 numbers with the supply of all supply chain partners. Thanks to all the supply chain partners, and most importantly, our customers who have put good faith in our product and it continues to do extremely well.

During this quarter, 10% of the domestic scooters have come from — volume has come from electric vehicles. We expect this will further go up in the coming quarters. Our order funnel of EV is close to 30,000 numbers. As of now as I speak, we are confident of crossing more than 1 lakh EV sale in the domestic market during this financial year. Currently, TVS iQube is available around 200 touchpoints in India. We’ll be expanding that with a better availability. We’ll be — I promise, we will be launching a series of new products on EV on different customer segments with a complete portfolio of offering between 5 kilowatts to 25 kilowatts in the next 12 to 18 months.

As promised, electric three-wheeler will be coming shortly. During the quarter, we entered into a strategic engagement with Amazon India to strengthen electric mobility, electric infrastructure and connected services. As a part of this collaboration, a fleet of electric two-wheelers and three-wheelers from TVS Motor will be deployed for Amazon’s Last Mile Deliveries. In addition, both the companies will work in tandem to examine EV use cases for various Amazon business groups and its network and logistic requirement. I’m pretty confident that we will leverage this engagement between the companies and collaborate in many areas going forward.

On Q4, the rabi crop sowing is up. The trend is better in terms of the MSP. I am very sure that the rural economy will start growing. With improved availability of semiconductors, we are expecting further improvement in our premium products production. On international market, the external risks have peaked in Q3. We are seeing small improvements in this Q4. We expect a relatively better economic conditions and recovery of major operating geographies for us. And as you know, we are significantly focused on improving the retails in the international markets, while our billing has been much lower, primarily to ease out the working capital in many of the international markets considering the decline in the industry.

We are pretty confident that in this quarter, you will see much better results than Q3 in Q4 in IB markets. As promised, there will be new product launches from the company, both on ICE and EV space in the coming quarters. As highlighted, despite very high headwinds during Q3, we were able to deliver EBITDA 10.1%, and as you know, we have doubled our EV during this quarter.

We are poised to grow ahead of the industry both in domestic and international market with strong portfolios of our brands, starting from Apache, Raider, Jupiter, NTORQ, and HLX series, and Radeon and TVS King, and EV, TVS iQube. We are pretty confident that Q4, you will see very good revenue growth, and this will help us for better operating leverage and the increased premiumization with better supplies of semiconductors are expected during this quarter, and our continued focus on cost reduction will lead a sustained EBITDA improvement in the coming quarters. Thank you.

Operator

Sir, would you like to start the question-and-answer session?

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes, please.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Pramod Kumar from UBS. Kindly proceed.

Pramod Kumar — UBS — Analyst

Yes. Thanks a lot for the opportunity, Sir, my first question is before — sorry, before the question, just want to clarify the EV guidance what you gave for 4Q, sir. Can you just remind me — remind, I kind of missed that part, the numbers what you’ve shared on the EV volumes for 4Q?

K. N. Radhakrishnan — Director and Chief Executive Officer

See 3Q, we did 29,000, and we have been practically doubling, okay. We are looking at a similar kind of a situation in Q4 because we have a very good booking and we are also expanding the touch points in India. So — and the ramp-up also has been pretty good, so January, February, March, we are setting a target of almost doubling from Q3.

Pramod Kumar — UBS — Analyst

Okay. No, that’s good to hear. Thanks a lot, sir. Sir, the first question is on the gross margin side. We have seen gross margins improve, our raw material’s sales as a ratio get better by almost 70 bps quarter-on-quarter. I do understand there is a bit of a — there would be headwind from the EV side here. But if you can help us understand how much of the commodity benefit which is accrued to the company this year, sir? Or rather if you can split the gross margin expansion between say pricing mix and commodity if you can help us understand? And mix being negative here because of the EV ramp-up, so just help us understand the breakdowns there.

K. N. Radhakrishnan — Director and Chief Executive Officer

The commodity between Q2 to Q3 is about 0.3.

Pramod Kumar — UBS — Analyst

0.3, okay.

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes. And our material cost reduction also helped and price increases also helped, and all this has helped. EV is positive margin, but it is not at the company level, so overall, very clear action plans looking at the cost reduction, a higher focus on wherever we were able to appropriately increase the prices, all this has helped us move from 75.5% to 76.2%.

Pramod Kumar — UBS — Analyst

And would you expect commodity benefits to accrue — to continue to come in for 4Q foreseeable future, given the way the steel prices and other pressure — other commodity price have moved?

K. N. Radhakrishnan — Director and Chief Executive Officer

I think commodity is likely to soften only. We are not seeing commodity to go up in Q4.

Pramod Kumar — UBS — Analyst

Okay, that’s good to hear. And sir, the second question is on the financing arm. Any update there, sir, in terms of as to what will be the timeline there for monetization, because you did talk about last quarter call that you were in the advanced stage on both EV and even — financing arm and even the EV side? If you could just help us understand a bit more on the — where are we and — on that front?

And finally for Desikan sir. Any update on the cash flow situation for the quarter as how did you perform on the cash flow side? Thank you.

K. Gopala Desikan — Chief Financial Officer

No, currently, the fundraise is a concerned group decision taken on that, we are still working. We will come back to you as and when we decide on that. With regard to the cash flow, as we have gone back two years back to the cash and carry, and therefore the free cash flow is positive from the operation side.

Pramod Kumar — UBS — Analyst

Sir, any quantification there, or would you like to wait for the full year balance sheet? Hello? Yes.

K. Gopala Desikan — Chief Financial Officer

I’ll have to come back on the details Pramod on that. But I can only assure you from the operations we have generated — we continue to generate positive cash flows.

Pramod Kumar — UBS — Analyst

Thanks a lot, sir, and best of luck. I’ll come back in the queue. Thank you.

K. N. Radhakrishnan — Director and Chief Executive Officer

And most importantly, TVS CS has done extremely well. I think, I highlighted the performance of TVS CS, I think it is very well run. So overall the PBT has been extremely good and book size is growing. It is almost now INR20,000 crores, and their portfolio is also very well diversed.

Operator

Thank you. The next question is from the line of Chandramouli Muthiah from Goldman Sachs. Kindly proceed.

Chandramouli Muthiah — Goldman Sachs — Analyst

Hi. Good evening, and thank you for taking my questions. First question is on the ASP improvement quarter-on-quarter, it seems like there has been a 5% Q-o-Q increase in ASP from about INR71,000 to about INR74,000 this quarter, may be higher than what most analysts were estimating. So just trying to understand what were the drivers of the higher ASP Q-o-Q, just in terms of quantification of price hikes, maybe the EV mix, domestic versus export, etc.

K. N. Radhakrishnan — Director and Chief Executive Officer

The primary reason is, there is a price increase, also the product mix. Thanks to better supplies of semi-conductor, we were able to deliver Apache, we were able to deliver Raider almost to the demand, while there were some challenges in terms of Apache in the month of September. But overall, we were able to do much better than Q2. That is one reason. Second, as you know, we have done better in terms of the EV. So EV, you know it’s significantly higher priced from almost INR16,000 it has gone to almost INR30,000. So overall, these are the two important reasons.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s helpful. Just as a follow-up, if you could just quantify how much price hike you’ve taken in 3Q, that’ll be really helpful. And just also on the Ronin numbers, we don’t see that in the FAME data yet. If you could quantify sort of what was the Ronin numbers this quarter, and if they are being reported as part of Apache or as part of some other product at this point?

K. N. Radhakrishnan — Director and Chief Executive Officer

Ronin is doing extremely well. It has already come to now close to 3,000 per month, and it will slowly and steadily grow, because this is a brand which is getting built. So I think it is a good thing, and in Q4 also, it will do much, much better. So that is a broad indication on Ronin. And on the price increase for the quarter Q3, just give me a minute. We have taken about 0.7% price increase.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s very helpful, sir. My second question is on the FAME II subsidies. So potentially maybe eight to 10 months out, maybe the industry runs out of FAME II subsidies from the government. So just trying to understand how you are thinking about strategy in terms of would you maybe take a bit of a margin hit if the subsidies were not to be extended, or would you be looking to pass on price hikes in case of subsidies are not being extended?

K. N. Radhakrishnan — Director and Chief Executive Officer

I think I have highlighted it in my last call also. I think what is most important and what is delighting for us is the customer acceptance of IQ. I think you need to have a very good product, and customer acceptance has to be pretty good. When the customer acceptance is good and the volume goes up, please understand the volume can help us to look at the cost, okay. What government has [Indecipherable] to have the initial benefit to all the people, and it is the government to decide what the decisions on the FAME and other benefits, what the customer — the government is doing.

As far as we are concerned, I think we have to focus on the customer’s goal, and making sure that we delight the customer. So that is exactly what we are trying to do. And going forward, volumes will go up. Once we get the volumes, I am very confident that over a period of time, there will be a transformation in cell prices, cell cost, cell chemistry, other cost — once the top line comes, every other line we can improve. So that is the way we look at it.

Chandramouli Muthiah — Goldman Sachs — Analyst

That’s helpful, sir. Thank you. And just lastly, a couple of housekeeping questions. Just trying to understand what is the export revenue and the spares revenue will be?

K. N. Radhakrishnan — Director and Chief Executive Officer

You have to give me a minute. Export revenue is about INR1,770 crores, and spare parts is about INR683 crores.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. Yes. Thank you very much, sir, and all the best.

K. N. Radhakrishnan — Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Kindly proceed.

Kumar Rakesh — BNP Paribas — Analyst

Hi. Thank you team for taking my question. Good evening. My first question was around EV target which we have set for the fourth quarter, you’re doubling and reaching close to 25,000 monthly run rate. So can you help us understand that how this would be driven? Will this be largely driven by supply side easing and network expansion? Or we should be expecting some model launches and entry into more price points that also leading into higher volume?

K. N. Radhakrishnan — Director and Chief Executive Officer

We have already set three variants of iQube, that will come, plus we want to also expand the network. Equally, we don’t want to — because today, the booking is more than 25,000. I think we have to cut down make it available for most of the consumer. And according to me, the biggest important thing is to get the supply chain aligned to deliver this 25,000, because this is the first time we are doing, also the supply chain is also supporting us.

So it is a combination of — let me put it, this is an integrated effort. The first thing I would like to thank the customers for the demand and the faith they have put on iQube, that is excellent. I think now, we have to look at keeping the network ready, keeping the variants ready, and also the supply chain in an integrated way, both the company, the plant integration, as well as the supply chain integration and delivering that.

Kumar Rakesh — BNP Paribas — Analyst

Okay. Thanks. That’s very helpful. My second question was around the investment that we have done in this quarter in TVS Credit and the Singapore subsidiary. So can you just give us some sense on how these two subsidiaries are doing in terms of say TVS Credit? Last year its credit cost had increased, so how it is going on the credit cost side? And the Singapore subsidiary has been reporting losses for last several years. So how — what’s the path to improving the financials of that and business?

K. N. Radhakrishnan — Director and Chief Executive Officer

TVS Credit, I already highlighted to you, it is doing extremely well, and this quarter also have done extremely well. And as a year as a whole also it’s going to deliver excellent results. So TVS Credit, just a minute give me, the investments what we have made in this quarter on TVS Credit…

K. Gopala Desikan — Chief Financial Officer

INR150 crores.

K. N. Radhakrishnan — Director and Chief Executive Officer

INR150 crores, sorry. INR150 crores, okay. And we will definitely continue to invest, because this is something which is doing extremely well for us. And the other investment on Singapore, as you know, these are all investments which will definitely start yielding significant results in the future, okay. So that is where we are and we are not really worried about the losses, whatever it is making today, because we see huge potential from these investments in the future.

Kumar Rakesh — BNP Paribas — Analyst

So these investments in Singapore entity would be going into the startups and different investments which we have made.

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes.

Kumar Rakesh — BNP Paribas — Analyst

Understood. Okay. Thank you. I’ll fall back in the queue.

Operator

Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Kindly proceed.

Gunjan Prithyani — Bank of America — Analyst

Yes. Hi. Thanks team for taking my questions. Just a quick follow-up before I get to my question. This INR90 crore investment that you mentioned in the Singapore entity, is this — is there any — is this pertaining to Norton, or is it some other investments altogether?

K. Gopala Desikan — Chief Financial Officer

Not relating to Norton. One is on the start-up and we have also acquired some assets relating to the technology which was invented during this quarter through a German subsidiary, this is one of the reasons.

K. N. Radhakrishnan — Director and Chief Executive Officer

These are all part of electric. Electric and electric sub-systems.

Gunjan Prithyani — Bank of America — Analyst

Okay. And the loss that we have between consol minus standalone of about I think INR50 crores this quarter. This is largely explained by Norton and the Singapore entity, right? Because, I mean credit business is, of course, you mentioned the numbers are looking good. So, do we expect this sort of run rate of INR50 crore loss to continue on the subsidiary?

K. N. Radhakrishnan — Director and Chief Executive Officer

We can’t give you a guidance, but all that what we can do is, these are all investments which are going to definitely yield results, because we — these are investments in e-cycles, these are investments in super-premium products. And definitely with the product launches and the market becoming better, we are pretty confident that we have invested in the right segment, right business, and we will start delivering good performance and returns in the future.

Gunjan Prithyani — Bank of America — Analyst

Okay, got it. Okay. Moving to my questions, I think the one thing which has been widely spoken about in the press is this whole tightening of regulations on the EV side. One is the subsidies being withdrawn or not being given to few OEMs and the battery standards being tightened. So could you just help us as to where the iQube stands? Are we getting the subsidies? Or these are being accrued, and once it is validated, we’ll get? And on the battery standard, does it mean any cost — meaningful cost impact for the iQube?

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes. We are — all these new standards we are adhering as a company and we proactively work on these areas. And on the subsidy, I already highlighted that we want the customers get delighted and the iQube is doing exactly that. And we have launched three variants and these three variants are doing extremely well in the market, and we want now to leverage the supply chain and also the network to ramp it up to next higher level, that is exactly the focus, of course, once we start ramping up and giving it, we would like to also enter into international market.

And there is a series of product launches, which we have planned in the next four to six quarters, all that will come, because iQube is only in one segment, and iQube has got three variants now. There are many more product launches planned in the next four to six quarters

Gunjan Prithyani — Bank of America — Analyst

Okay. Sir, I’m just asking about currently, because I know FAME II will anyways finish F ’24 end. But at this juncture, are we getting the subsidies or we are not getting?

K. N. Radhakrishnan — Director and Chief Executive Officer

We are.

Gunjan Prithyani — Bank of America — Analyst

Okay. All right. The second question is on the demand outlook on the domestic business now. You did sound optimistic on the rural side, but if I just go back to December quarter, we had a pretty strong October and the festive season. But when we look at the trends towards the end of the quarter, it just seemed very weak. So if you could give us some color as to why the market was so weak, and how are we seeing on the ground, the sentiment from — just trying to gauge how should we think about the outlook, because it’s been very patchy, we see good festive and then sudden collapse in the demand.

K. N. Radhakrishnan — Director and Chief Executive Officer

See, the Diwali and pooja are two important festivals in Q3. This year, all happened between October and practically, it got ended by the first week of November, okay. And maximum sales happen during that period. And you know the domestic market looks at the auspicious dates and Dhanteras and all that happened. And this we have seen not only this year, every year. Many years what happens is the Diwali comes end of November, so you will see a better November and a better October. This year, everything happened together. And November and December, December is always slow from the point of view of the market, and every year, we have seen that.

But what is most important is, when you look at the overall market sentiment and the rural, I think we are able to see slowly things picking up, okay, and with now the broad availability of the semiconductors, because now you know with BS VI and OBD2, the electronic components and semiconductors are there in every vehicle and the proportion is very high. So any kind of disruption also affects the supply.

So I am confident that Q4, you will see improvement January, February, March, okay, but we should all appreciate and be peaceful and little bit careful that the prices which I have highlighted last 12 quarters with all these regulations and changes, the prices have gone up by almost 40%, and the income has not gone up by 40%. So we have to be a little bit — little bit be patient with now no lockdowns, when I say no lockdowns, I think the current COVID situations in China and [Phonetic] other parts of Asia is a little worrisome, but so far, we are positive that the vaccination drive and the other areas, we are not feeling that you will see any more lockdowns in India, but we have to be cautious.

So overall, these changes are going to help India, and Indian investments in the infrastructure has gone up substantially. The rural — especially the agriculture economy is looking good, the MSPs are increasing. So — and the self-employed group is slowly started earning money. They have started investing and looking at two-wheelers. So all these are going to help going forward. I think we have to be a little patient in terms of the recovery. But I am positive because what we have to look at is quarter-on-quarter, how are we likely to see, I am positive. And I always believe in keeping lean stocks with the dealers and which we have continued to do. So we always keep that lean stocks and we are cash-and-carry even in the domestic market, so we are pretty confident.

Gunjan Prithyani — Bank of America — Analyst

Okay, got it. Just last question if I can pitch in is, on the scooter side, you clearly mentioned 10% of the market is now EVs and we’ll continue to see this moving up. I’m just trying to understand, the customer profile I was looking at electric scooter, is this like completely new set of customer who probably was looking at even bikes and is now starting to look at e-scooter, because there’s a lot more excitement, it is more future-ready? Is that sort of customer base you’re seeing that they compare it with bikes as well? And is it fair to assume that the shift that you’re seeing towards e-scooters is more coming from 125cc scooters rather than the lower cc ones?

K. N. Radhakrishnan — Director and Chief Executive Officer

These are too early analysis we can do, because whatever we have seen is, we are present in almost many key cities and the observation is all about urban. And what we see is initially a set of customers who are techie and they want this to be taken as a major change. But going forward, when we start supplying the 25,000 month-after-month for about six months, nine months, we can do this analysis and really find out where are they coming from, what type of shift is happening in the industry, okay?

Today, they want to experience new technology, they want to experience connected, they want to look at the experience of EV. So analysis and coming to inferences using the current data may not be in my opinion logical, we have to give some more time.

Gunjan Prithyani — Bank of America — Analyst

Okay, got it. Thank you so much.

K. N. Radhakrishnan — Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Kindly proceed.

Nitin Arora — Axis Mutual Fund — Analyst

Hi. Sorry, my questions have been answered. Thank you.

Operator

Thank you. The next question is from the line of Kapil Singh from Nomura. Kindly proceed.

Kapil Singh — Nomura — Analyst

Hi. Good evening, sir. Could you talk about geography-wise exports outlook, how is it looking like? And also what is — because you mentioned that there is some inventory correction we have undertaken, if you could help us get an idea of how much inventory corrections we have undertaken, or what is the steady state run rate that you’re seeing currently on export volumes? And also…

K. N. Radhakrishnan — Director and Chief Executive Officer

See, when I say inventory correction, we always believe in a lean inventory even in international. So when the industry is coming down beyond our planned numbers, we have to correct the dispatches. But retails, as I said, are much ahead of our dispatch. So, see — if I look at it, in Q3, the industry declined by almost 23% and we declined by almost 18%. So from the market share point of view, we are pretty — doing very well. The major reason we see is, there is an inflationary trend in Africa, and we have seen that some portion of it coming from — most of the African markets primarily because of what you have seen because of the war and the depreciation in the currency — local currency, and also affecting a little bit of disposable income.

Now this Q3 was a little challenging, so we made sure that whatever working capital improvement we do, we also help our distributors to do that. And equally, customer gets the fresh vehicle, that is exactly what we have done. I don’t want to give you exact guidance on how much we have reduced stock, etc., etc., because we always believe in the transit time plus about 30 days, 35 days of stock. And depending upon the season, we decide, okay, and we — slowly this is easing out, okay. Predominant market is Africa, then of course, we have seen markets like Bangladesh having some challenges, okay. All of you know about Sri Lanka not yet opened up, okay. We have seen Nepal going through some challenges, okay.

So overall, there is a bit of industry decline primarily because of macroeconomic factors. And I am seeing some changes, slow improvement is seen in Q4 — expected to see in Q4, and progressively going up next year, you will see a better and better numbers.

Kapil Singh — Nomura — Analyst

Okay. Maybe you can — if you can tell us the inventory correction phase, is it over, or we still need to do that in the coming months?

K. N. Radhakrishnan — Director and Chief Executive Officer

Inventory. It is not an inventory correction, that’s why I said. See, when you expect certain industry performance and vis-a-vis your stock levels, it is a constant journey, okay. We keep looking at it, and we keep looking at it what is the retail required, exactly like what we do in — even in India. You look at the inventory, if the industry does as per plan, then fine. If the industry doesn’t do as per plan, you have to correct it according to the industry decline. So this is a constant journey.

Kapil Singh — Nomura — Analyst

Understood. And sir, second question is on mopeds. We have seen sort of a very low numbers, maybe I think closer to 15 year low kind of numbers going on currently. So is this industry in a structural decline? Or how are you thinking about it?

K. N. Radhakrishnan — Director and Chief Executive Officer

First, I want to tell you that two-wheeler industry itself is 10 years back numbers, okay, because you made a comment about moped being the lowest number. So overall, please understand the industry is trying to come back. Now coming back to moped, moped is slow, equally the entry-level motorcycles are slow. Actually, moped is doing better than the entry-level motorcycles, okay.

So there is a problem in the affordability of the entry-level products primarily because slowly now the agriculture is starting to do well, the worries about COVID is slowly going away, self-employed has started earning money. But please understand, everybody has increased prices by 40%. The cost has gone up by 40%. Now the income has not gone up by 40%. That is exactly the reason I think we should all show a little bit more patience, because India has got — while the infrastructure has improved, India has got still a long, long way to go on the public transportation. So two-wheeler is the only way.

So I’m pretty confident that if we give some more time, I think things will change because we are coming out of this two year lockdown and huge challenges on these cost increases, okay? And allowing a little bit more patience will help us, you will see everything will come back because two-wheelers are here to stay.

Kapil Singh — Nomura — Analyst

Okay, sir. And if you could just give us a comment on the EV fundraise as well. We’ve been hearing about it and you’ve also talked about that we are very close to doing that deal. So it’s been almost I guess a year or more than that since we’ve been hearing about that from you. So what exactly are the factors that are leading to do below [Speech Overlap]

K. Gopala Desikan — Chief Financial Officer

Just want to record here, we have not said that we are close to finalization. Never we have said. We only — we are only evaluating various options, that’s all we commented. [Technical Issues]

Kapil Singh — Nomura — Analyst

I’m sorry, the line was not very clear. Could you repeat that?

K. N. Radhakrishnan — Director and Chief Executive Officer

The point highlighted was, we never said that we are close to closing the deal. We said we are evaluating various options, and we will let you know once we are close to the finalization stage. That is what we have said, okay. And that status continues, and once we are closer to the finalization, we will let you know.

Kapil Singh — Nomura — Analyst

Okay, sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Kindly proceed.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Hi, sir. Can you first give details about the USD and realization in the quarter and operating other income?

K. N. Radhakrishnan — Director and Chief Executive Officer

Tell me what exactly you want.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Dollar realization.

K. N. Radhakrishnan — Director and Chief Executive Officer

Dollar, One second. Dollar realization during this quarter is about INR80. [Phonetic]

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay. And operating other income?

K. N. Radhakrishnan — Director and Chief Executive Officer

Other operating income is about INR90 crores.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

INR90 crores, okay. Second question pertains to the export part. You indicated we declined about 18% on wholesale basis in third quarter. Any indication on how did our retails performed in 3Q just to understand how is the trend? Are we seeing retail decline getting arrested in 3Q, and now we are seeing some recovery? Is that the way to look at?

K. N. Radhakrishnan — Director and Chief Executive Officer

Our retails are much ahead of our dispatches, because we believe in keeping the right stock. So we look at the industry [Speech Overlap]

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Sure, sir. I understand that.

K. N. Radhakrishnan — Director and Chief Executive Officer

[Technical Issues] exact number country-by-country, I can’t give you. I can give you an overall picture saying that the retails have been much higher than the dispatch.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay. And retails have grown in 3Q, can you confirm that?

K. N. Radhakrishnan — Director and Chief Executive Officer

Retails are better than our dispatch.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Better than dispatch. Okay. And third question pertains to the finance penetration. So are we seeing further increase in finance penetration from where we were, say six months back? Are we seeing the financing enabling some bit of absorption of sticker shock?

K. N. Radhakrishnan — Director and Chief Executive Officer

See, finance penetration, slightly better, primarily because I think you know season, always people tend to use it more effectively, it has gone up vis-a-vis last year Q3.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay. Where are we currently?

K. N. Radhakrishnan — Director and Chief Executive Officer

We are around 60%.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

60%. Okay, that’s a fairly healthy. Last year, I believe it was about 53%, 54%.

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes, 54%, 55% last year.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay, great. And lastly, if you can talk about retail Indonesia, how it has been doing, the recovery trend continuing there.

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes, PT TVS is doing very well in terms of both — in terms of the profit, the EBITDA, just give me a minute. We registered a PBT of almost INR2 million [Phonetic] against last year’s INR0.5 million [Phonetic] in Q3.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay. EBITDA is INR0.5 million [Phonetic] in 3Q.

K. N. Radhakrishnan — Director and Chief Executive Officer

EBITDA is about — EBITDA, just a minute. EBITDA is about INR5.8 million. [Phonetic] Sorry.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

INR5.3 million. [Phonetic]

K. N. Radhakrishnan — Director and Chief Executive Officer

You’re asking for the quarter, right? It is about INR2.6 million. [Phonetic]

Jinesh Gandhi — Motilal Oswal Securities — Analyst

INR2.6 million, okay.

K. N. Radhakrishnan — Director and Chief Executive Officer

Last year was about INR1 million. [Phonetic]

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay. And lastly, can you clarify this 200 touch points which we have per EVs represent how many city coverage we have? How many cities do we still…

K. N. Radhakrishnan — Director and Chief Executive Officer

I think about 110 — 100 and 110. Around 100…

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay. Got it. Great, sir. Thanks and all the best.

K. N. Radhakrishnan — Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Hitesh [Phonetic] from CLSA. Kindly proceed.

Hitesh Goel — CLSA India — Analyst

Yes. Thank you, sir, for taking my question. Sir, just wanted to understand more of this realization increase, because if we factor in the price increase also the shift in electric volumes from 1.6% of sales volumes in ’23 to 3.5% in 3Q ’23. I believe we can explain only 2%, and by export will be another 0.5% or 0.6%. So this 6% Q-on-Q, if you can please tell us how is achieved, because in the mix also Apache has gone down, if you look at on a Q-on-Q basis. So just wanted to understand what is — actually happened on the realization front.

K. N. Radhakrishnan — Director and Chief Executive Officer

Realization, I explained to you. I think EV volumes are much higher and price increases we have taken. Last year to this year if you compare, the price increases are much higher, because there were commodity price increases between last year Q3 to this year Q3, almost 3.7% last year, if you’re comparing Q3 to Q3, okay. And…

Hitesh Goel — CLSA India — Analyst

No, sir. I’m comparing Q-on-Q. Yes, I’m comparing Q-on-Q.

K. N. Radhakrishnan — Director and Chief Executive Officer

I’m answering Q3 — you said Q3 — to last year Q3 to this year Q3. So if you look at last year Q3 to this year Q3, that is almost close to 4% increase in the commodity increase, and mostly we have passed it on.

Hitesh Goel — CLSA India — Analyst

Yes. No, sir. I was talking about Q-on-Q because there a 6% Q-on-Q increase, and I can only explain maybe 3%. So within the portfolio basically, is there premiumization within the portfolio also which is helping us on a Q-on-Q basis?

K. N. Radhakrishnan — Director and Chief Executive Officer

Hitesh, if you look at the proportion of Apache, it’s much better, the Raider is much better, Jupiter 125 is much better, NTORQ is much better, okay, and this trend will continue. And I already highlighted about entry-level, entry-level because the rural is a bit slow, entry-level is slow. That is because of the industry issues. But, I think what we need to look at is how do we improve overall numbers and overall this one, so that you will get not only the gross margin improvement, but you will also get a much higher amortized fixed cost.

Hitesh Goel — CLSA India — Analyst

Yes. Sir, my another question is on EV volume. Did I hear it right that you sold 29,000 in this quarter and you’re doubling that in the fourth quarter from 29,000 to [Speech Overlap]

K. N. Radhakrishnan — Director and Chief Executive Officer

Yes. Our plan is to look at how do we double it.

Hitesh Goel — CLSA India — Analyst

So in one quarter’s time or over a period of time?

K. N. Radhakrishnan — Director and Chief Executive Officer

In one quarter’s time.

Hitesh Goel — CLSA India — Analyst

Okay. Thank you, sir. Thank you very much.

Operator

Thank you. The next question is from the line of Amyn Pirani from JPMorgan. Kindly proceed.

Amyn Pirani — JPMorgan — Analyst

Yes. Hi, sir. Thanks for the opportunity. Sir, my question — first question is on the EV launches that you talked about. So can you give us some color as to when we are thinking of these launches, would it continue to be fixed battery, or are you also looking at removable battery and battery swapping kind of products? And since you mentioned 5 kilowatt to 25 kilowatt hour, does it mean that we will only be getting into more premium EV two-wheelers, because the smaller two-wheeler on the EV side have a smaller battery pack?

K. N. Radhakrishnan — Director and Chief Executive Officer

Closer to launch, you will get more information. But I can promise you one thing, we will come up with products which delight the customer, okay. We focus on the customer usage and the type of partnerships we are now trying to build up. So we will be for the customer and we will be designing and developing products for the customer. And closer to launch, I can give you all the details whatever you have.

Amyn Pirani — JPMorgan — Analyst

Okay, that’s helpful. And secondly, on the EV entity that you’re planning to form in anticipation of a potential capital infusion externally. My question is that, say, even if this capital infusion happens now or later, would you still be transferring the business to that entity? Or that is only pre-determined on some kind of a capital infusion happening?

K. N. Radhakrishnan — Director and Chief Executive Officer

I think these are all strategies and these are all discussions which are going on. I think once we close it, we will share more details with you.

Amyn Pirani — JPMorgan — Analyst

Okay, sir. Okay. Thank you, sir. I’ll come back in the queue.

Operator

Thank you. The next question is from the line of Raghunandhan NL from Emkay Global. Kindly proceed.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Thank you, sir, for the opportunity. Sir, on the EV side, we are seeing strong acceptance and that is leading to better volumes. You alluded in your remarks that EVs are profitable. So just wanted to understand at what level of volumes would the margin gap notably narrow with that of ICE. I mean, I’m alluding to the fact that as the scale increases, localization work happens and PLI benefits come in, margins should keep improving, so your thoughts on that.

K. N. Radhakrishnan — Director and Chief Executive Officer

Absolutely. I want to only borrow whatever you said, because the volume is the key. For the volume to happen, I think customer should like the product and there should be a pull. And we are extremely thankful to all our customers about iQube and the variants whatever we have launched and the opening booking what we have. I think what is most important is we want to ramp up and deliver this to these customers. And already, you have seen three variants in three price points. And with new products the new segments there will be different price points, I think that is one.

Second, the volume when it goes up, you will have scale and you will be able to better look at — better scale benefits and platforms. And also going forward, I am very sure that new technologies will come on the cell, new chemistries will come. I think overall — and we will have an opportunity to use these EV products into the international market as well.

Today, we are not able to get into the international market, primarily because we are not able to deliver to the domestic market and the booking. So the moment you are able to get into the international market, you can also look at what kind of appropriate pricing you can do in this product. So overall it will be a strategy of volume growth, premiumization, varianting, supply chain side, cell cost and the chemistry benefit and scale, so — and international markets.

So this will be the overall strategy. How each one is going to play, of course, we are working out internally, how is it going to play and how is it going to work on. I think as we progress every quarter, I will update you. But we are in the right direction. From negative contribution, we have come to positive contribution. And the customer acceptance is extremely good, that is very positive. And we are able to come with the three variants, now we want to launch our new product.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Got it, sir. And just a clarification here. Excluding battery, what would be the localization level?

K. N. Radhakrishnan — Director and Chief Executive Officer

Localization levels are pretty good. Even in this one, we make the battery management system. Only cell is what we are getting it from outside, otherwise entire battery management system is ours.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Got it, sir. My second question was on OBD transition. So some of your peers have started launching products which are OBD2 compliant, how do you see the change happening for TVS over the next two months? And…

K. N. Radhakrishnan — Director and Chief Executive Officer

We have almost started and we have started supplies, and well ahead of the time, we will be available with OBD2 compliant vehicles in the market.

Raghunandhan NL — Emkay Global Financial Services — Analyst

And price change will be approximately INR1,500?

K. N. Radhakrishnan — Director and Chief Executive Officer

We will see. We will see how much is the cost increase and we will take the decision appropriately.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Got it, sir. And because we are getting the benefit of — this is — this relates to export market, because we are getting the benefit of USD, INR moment. Any steps we are taking to help demand recovery in exports, any pass-through of benefits in export markets?

K. N. Radhakrishnan — Director and Chief Executive Officer

See, these — see, market-by-market, you have to understand we have excellent product range in the international market, and as you know, we believe in exciting the customers with excellent range, excellent attractive quality features, that is what we always believe in, and that is what is going to help this market. Of course, we will invest in marketing, we will invest in — looking at which countries there is retail finance availability, but this is the time where we have to support the dealer and the distributors at the right level of inventory, that’s why you have to constantly look at and recalibrate. But I’m pretty confident these kind of headwinds we have seen in the past also. So these headwinds, we are very confident that we will be able to get over and you will see the numbers growing.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Got it, sir. And to Desikan sir, would you have the net debt number which if you have, is it possible to share? Can you share the net debt number, sir?

K. N. Radhakrishnan — Director and Chief Executive Officer

Net debt.

K. Gopala Desikan — Chief Financial Officer

Our net debt is around INR1,200 crores.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Sir, as of December for the standalone business.

K. Gopala Desikan — Chief Financial Officer

Yes. End of December ’22 for the standalone is around INR1,200 crores.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Thank you, sir. Thank you so much. I’ll come back in the queue.

K. N. Radhakrishnan — Director and Chief Executive Officer

Can we take the last question, please?

Operator

Sure, sir. The last question will be from the line of Pramod Amthe from InCred Capital. Kindly proceed.

Pramod Amthe — InCred Capital — Analyst

Yes. Thanks for taking my question. Sir, this is with regard to the — one of the follow-up for the FAME incentive. So EV industry is talking about 100 plus days of receivables. What are you receivables on the FAME incentive side?

K. N. Radhakrishnan — Director and Chief Executive Officer

See, this — we — first of all, we are getting FAME incentive and we are extremely thankful to the government, okay. And in my opinion, I think we have to focus on ramping up and giving it to the customers. I think I’m very sure that this will be — we will be securing it from the government.

Pramod Amthe — InCred Capital — Analyst

So you mean you don’t have any receivables from government?

K. N. Radhakrishnan — Director and Chief Executive Officer

We will be secured. There will be some receivables and this is a journey, because every month, when we are trying to increase from INR10,000 to INR12,000 to INR15,000 to INR20,000, it will keep growing, and there will be cycles of — we will get it from the government. But what is most important at this point of time is to look at how we are generating more and more demand and supply into the market. And we are able to see government honoring their commitments.

Pramod Amthe — InCred Capital — Analyst

The reason to ask the question is, if this prolongs, even if you also in the same basket 100 plus days, do you see the industry moving to a phenomenon where the incentive will be directly credited to the consumer instead of companies taking it on the balance sheet?

K. N. Radhakrishnan — Director and Chief Executive Officer

I wanted to only commit one thing, government is supporting and we are very happy the way it is done, okay. What is most important is for us to grow the business, and month-after-month, this is like a revolving benefit which comes to the company.

Pramod Amthe — InCred Capital — Analyst

Okay. And the second one is with regard to the AIS norms of battery. If I heard you right, you comply — it’s good to hear that you are ahead of the industry on that. What is — considering that some of the entry-level two-wheelers are supposed to take a big jump into this new norm. In that context, do you see an opportunity for you to launch a product at the entry-level scooters and hence grab this opportunity similar to one of your competitor Ola has done there? Or you feel that superior [Speech Overlap]

K. N. Radhakrishnan — Director and Chief Executive Officer

First of all, I don’t look at competition at all. Competition is only a reference. I always look at customer, customer, customer. And we have a very clear product pipeline plan based on the customer segments and opportunities where we are, and closer to launch, we will share with you what are our plans.

Pramod Amthe — InCred Capital — Analyst

Sure, sir. Thanks a lot.

K. N. Radhakrishnan — Director and Chief Executive Officer

Thank you, Thank you very much.

Operator

Thank you. I now hand the conference over to the management for closing comments.

K. N. Radhakrishnan — Director and Chief Executive Officer

We look at — the most important is we are extremely happy and thankful to the EV customers, and we are confident that this quarter, we will be able to ramp up and we will be able to double our volumes whatever we have seen in Q3. What is most important for us is, we are seeing the retails becoming better and better in the international market. However, we will very closely monitor, because it may require some time to recover in Q4. But we are positive, the direction is positive.

We are in the domestic market and the international market with the kind of a range of products what we have, we are very confident that we will do much better than the industry. The robust revenue growth and better and better premiumization, better mix and the cost reduction initiatives, and the positive improvement in overall — the fixed cost. We are definitely confident of leading a sustained EBITDA improvement in Q4. Thank you. Thank you very much.

Operator

[Operator Closing Remarks]