Bajaj Auto Limited (BAJAJAUTO) Q3 FY23 Earnings Concall Transcript

Bajaj Auto Limited (NSE:BAJAJAUTO) Q3 FY23 Earnings Concall dated Jan. 25, 2023.

Corporate Participants:

Anand Newar — Divisional Manager, Investor Relations

Rakesh Sharma — Executive Director

Dinesh Thapar — Chief Financial Officer

Analysts:

Kapil Singh — Nomura — Analyst

Binay Singh — Morgan Stanley — Analyst

Pramod Kumar — UBS — Analyst

Mumuksh Mandlesha — Emkay Global — Analyst

Anand Venugopal — BMSPL — Analyst

Presentation:

Operator

Ladies and gentlemen, good evening and welcome to Q3 FY 2023 Results Conference Call of Bajaj Auto Limited. My name is Yashashri and I will be your coordinator. [Operator Instructions]

I now hand the conference over to Mr. Anand Newar, Head, Investor Relations from Bajaj Auto Limited. Thank you, and over to you, sir.

Anand Newar — Divisional Manager, Investor Relations

Thanks, Yashashri. Good evening, everyone and a very Happy New Year to each one of you on the call today. Welcome to Bajaj Auto’s Q3 FY ’23 earnings conference call. On today’s call, we have with us, Mr. Rakesh Sharma, Executive Director; and Mr. Dinesh Thapar, Chief Financial Officer. We will begin our call with the opening remarks from Rakesh on the business and operational performance of the quarter and Dinesh will take you through our financial highlights. We will then open the forum for the Q&A. Over to you, sir.

Rakesh Sharma — Executive Director

Thank you, Anand. Good evening, ladies and gentlemen and a very Happy New Year to everyone. We are very conscious that there is a long weekend shaping up, if you take 27th off. And so we really appreciate you’re taking the time out this evening to join the call. We did want to have this conversation close to the announcement of our results which happened couple of hours ago, but I hope you’ve been able to go through them.

So let me begin with the highlights of our performance of quarter three. This quarter, yet again, we surpassed our previous highs, recording an all-time high EBITDA, as you know, for the second time in a row through margin expansion of almost 400 basis points. Now, this performance is particularly delightful for us, because it has been delivered against the backdrop of very difficult trading conditions in overseas markets, which as you know account for almost 50% of our sales. So indeed this resilience is the result of a strong and diversified product market portfolio with leading competitive positions in key segment as well as robust operational management.

Exports continues to face strong headwinds due to the difficult macroeconomic environment in most emerging markets. Industry retails in Southasia, Africa and LatAm were down by almost 30% in quarter three compared to the previous year quarter three. ASEAN markets were in exception and debugged [Phonetic] the trend, recording a double-digit growth, which is largely the release of pent-up demand from COVID, because they’ve taken longer time to deal with the COVID situation.

Devaluation driven price increases and erosion of purchasing power due to across-the-board inflation in emerging markets has impaired demand and that’s why it’s at the minus 30% level. While for the last three months also the retails have now bottomed down and holding steady at these lower levels. The availability of U.S. dollar for trading and the cautionary time taken by most central banks to convert foreign exchange continues to make operations quite difficult.

In this scenario, our prime objective has been to hold on to our competitive position, in fact, expand on our competitive position by not relenting on new product introductions, etc. And also to minimize the exposure of our channel partner to currency volatility. So we continue to keep the sort of business trends going.

Our market share therefore in key territories remained strong and steady. And our stocks on the ground are well-matched to the lower level of retail. Indeed, in some markets, we are facing a stock-out situation, because forex has not been readily available to allow for shipments to take the stocks up to the levels which are now needed to service the demand, even though they’re at lower levels.

Looking forward in export, while we see the retails improving as customers digest new prices, we are sanguine about the availability of forex, particularly in Southasia and Africa. Our largest market, Nigeria will continue to be depressed and volatile till the elections get over in Feb and a peaceful transaction — transition to the new government takes place and also the effects of the recent demonetization settled.

Therefore, at an overall level, we estimate that it will take perhaps till May or June for normalcy to start returning, first in Latin America, then followed by Africa. And thereafter, we can start to rebuild the stocks and address high demands. But we hope we will then see a release of some pent-up demand which is getting created as we talk and which will get released once the foreign exchange starts to flow.

On the positive side, ASEAN industry continues to do well and we continue to improve our market share there led by Philippines. And Philippines, I must just tell you that we are now market leaders and our products are commanding a premium over Japanese competition as well. In December, we launched the Dominar brand in Brazil, good outstanding reception. I invite you to check out the comments on Bajaj Instagram Handle [Phonetic], as you will witness firsthand the excitement for Bajaj and Dominar out there in Brazil.

We have launched only in the Sao Paulo region through top-class exclusive store and I’m now encouraged by the tremendous response both from the trade and the customer. We’re now accelerating our distribution footprint and upping shipments there, but the idea will be to go slow and steady, build an outstanding network and the brand, which gives a very good retail experience and ensure that supply chain is very, very — is predictable. Further, on the positive side, the rupee realization for the quarter was above INR82 per dollar, which is a 3% improvement sequentially and 9% improvement year-on-year, thereby providing more juice to our top-line as well as our bottom-line.

Coming to the domestic motorcycles business. The industry recorded a 14% growth in retail terms, though December itself was negative, but October was hugely positive. Our estimate is that at an underlying level, sanitizing for base effects from the previous year, the industry is probably growing at about a 3% and an optimistic level 5% and should remain on this trajectory year onwards, really the turnaround in the fate of the industry happened during the festive as you will recall before the festive the industry was in negative territory — festive was good, post-festive slight negative, but that’s because December was too close to the festive. And we now — we’re getting a sense that it’s a low-single digit.

But this growth is largely driven by the top, which is the 125cc plus segment, it has grown by almost 28% as an industry in Q3, in retail terms, taking its segment share up by 5 percentage points now to 50, so the market is now really evenly divided between below what 125cc and above 125cc and it’s quite a dichotomy that both these are behaving quite differently. The entry-level 100cc segment continues to suffer and rural demand continues to remain soft.

Against this backdrop, we have maintained for quite a few quarters now our firm focus on profitable growth, driving market share up by selectively focusing on key segments and enriching our mix in each sub-segment at the same time. There has been a new product launch in each of the three months, in October, we launched the Carbon Fibre Edition of the Pulsar 125, adding a fourth year appeal to the product. It has been very well-received at 85% of our 125cc sales now come from the Carbon Fibre Edition, which has improved volumes, bumped up the ASPs and obviously improved margins.

In November, we launched the new Pulsar 150, the most agile and stylistic commuter in the150cc segment. Combined with it bigger sibling, the dual channel Pulsar N160 ABS, the portfolio is growing separately, the 150, 160 portfolio, the heart of the sporty commuter segment, it’s growing rapidly. We are up 28% in December and this has allowed us to move to a 40% level of market share in this segment. The new Pulsar 150 launched in November itself account for 25% of the portfolio already.

And the N160 — the dual channel Pulsar N160, which is launched somewhere I think in July, is now broadened almost 10 percentage points of market share. And may I remind you that this is just one SKU which just [Indecipherable] and done outstandingly well. These statistics signal widespread acceptance of the new platform. These are obviously concerned because Pulsar is our flagship brand and after almost 10 years, we were rejigging the platform and it is absolutely new one and obviously, we were concerned about it, acceptance which has gone up extremely well.

Our early research suggests the stylistic and nimble Pulsars are also attracting newer and more youthful customers. One of the issues which we had started to get serious about in the last couple of years, we are finding that the demographic in Pulsar, which sort of moved up in age and we wanted to get back to the youthful customers, which both these, the N160 and the Pulsar 150 are delivering which is therefore expanding our Pulsar franchise. We will be fully leveraging these two successful launches, three successful launches in the next few months to above-the-line and below-the-line high-intensity campaign.

And finally in December, we launched the Platina 110cc, with the first in segment ABS feature and added safety feature, which we believe will delight the customers in the executive 100cc segment. The ABS [Indecipherable] provides precise braking shorter braking distance, as well as better control and stability. It is early days, but our report suggests that the ABS [Indecipherable] gone, proposition is being very well received. We hope to mount a test challenge to the existing players by creating persuasion through the very topical and important attribute of safety.

Overall, we have gained about 2% market shares in the 125cc plus segment at the retail level, sequential basis. We have increased our ASP by almost 17% and positively impacted EBITDA. The 125cc plus segment now accounts for 66% of our sales and with our portfolio of 20 models between the 125cc and the 400cc, 20 models, compared to, let’s say, 13 or 14 of the next competitor, we straddle the top half of the motorcycle industry with the Pulsar for every maniac. Now as this segment continues to drive growth for the industry, we believe we’re very well-positioned to grow faster than competition. In addition to that, the Platina 110 ABS, which is growing week-on-week, will hopefully add new volume to the 125cc plus volumes which we are getting.

Domestic three-wheelers, it has delivered a spectacular performance notching up a market-share of 76% in Q3. The industry — the three-wheeler industry has recovered to 75% of pre-COVID levels, while we are now at almost pre-COVID levels. So our performance is driven by the success of our product in the expanding CNG segment. With 80 CNG pumps being added every month, almost 45% of our country is covered by CNG network and almost 65% of today’s three-wheeler industry is now driven by CNG. Our market share in CNG is an overwhelming 86% and 72% of our portfolio is CNG, which is very good for our ASPs, they are 15% higher than petrol.

And also even better for our margins, which reflects the pricing power enjoyed by our products, which have made a great position as the most reliable CNG products in the Indian market. Our three-wheelers, electric three-wheelers are in field testing, round two of field testing, if you recall I had mentioned to you all that after round one of field testing, while the — we discovered that the customer — the commercial drivers were needing a few more things, we went back, we’ve adjusted it and we have now confirmation that we are delivering best-in-class range.

Basically, they were dissatisfied with the range, the new three-wheelers delivery and in fact that we had to go back, make the range [Phonetic] delivery longer and more certain. This is a key requirement. We expect to launch in selected markets by end of March. Our objective is that we will be taking it slow and steady. We think we’ve now got the product, those changes will be made during February and March and we should start dispatching in end of March.

On Chetak, we crossed the 10,000 vehicles mark in the quarter, with clarity on supply chain. We have launched an expansion drive into new cities. And encouraged by the rate of adoption of EVs in the scooter segment, we have decided to set up an independent network of Chetak store. Of course, we — while Chetak was earlier being sold through our pro biking stores along with KTM and Husky brands, we have decided that Chetak should now deliver an exclusive retail experience to customers to stand-alone Chetak stores.

Of course, we have the option of using the pro biking stores, we’re using our 800-odd store in motorcycles. But we believe that customers will be looking for a differentiated retail experience, differentiated ownership experience, so we have taken the call to now set up these Chetak exclusive retail stores as well as service stores.

We consider our EV initiative as I’ve been saying to you, akin to a marathon, so we need to be ready for the long run. And also for different scenarios of exacting quality standards, as you know that the government is mandating a new quality standard from 1st of April. And also we prepared for possibly a lower subsidy scenario in the next two, three, four years. With this framework, we remain focused on our triple objective. The first one, build strong R&D and supply chain, progress on that, I can confirm that supply chain constraints have been totally removed. We have options now. We have the confidence of sustain higher level of supply chain performance. R&D has reconfigured products, brought down costs and having much better shape to build newer products.

Our second objective has been to expand the portfolio to adequately cover emerging segments. The EVs are now large enough for people to start to have different preferences and those different preferences to actually become sub-segments. So financial year ’24 will see a slew of launches which will address different demographics, lower pricing and personal as well as delivery use cases.

Third objective was to build Chetak to be a premium and preferred choice in top 100 cities. Chetak already enjoys a very differentiated and a premium image of a new communication just launched based on the likability of Chetak which we have heard through from customer feedback. And the communication campaign is now centered around the theme of handle without care. We believe we will deepen this premium position by giving a superior retail experience in our exclusive Chetak stores and dedicated service centers. As we speak, we have from previous I think quarter two of being present in about 37, 38 cities are already in 50 cities, we should be in 85 by end of March and 100 by April.

In this quarter, we will also commence supplies of Bajaj designed and manufactured products to YULU, who is our strategic partner in the micro mobility space. So you will see that in the space of the next month or so, we will have a portfolio, which will span from the low-speed, low-weight, low-range delivery and personal mobility product to the top-of-the-line personal mobility, top priced in personal mobility, scooter and other products in the middle, being sold through about 100, 150 stores across the country.

Finally, a word — I must put in a word about our space business, we don’t get — we don’t talk about it too much. But our space business is reported its highest-ever revenue of INR1,100 crores this quarter. This is driven through our conscious drive to improve customer interactions, processes and interface to implementation of first in the industry initiatives, such as TPM and NPS resulting into improved fill rates, introduction of annual maintenance contracts, extended warranties, etc. We will be deepening our engagement with the retail side of the business and we hope to continue this trajectory of growth in the highly profitable space business area.

With this now, I would like to hand over the floor to Dinesh for his commentary.

Dinesh Thapar — Chief Financial Officer

Thank you, Rakesh, and good evening, everyone. Given that this is the first time that we speak in the year, let me wish all of you a very Happy New Year and thanks once again for joining us first [Phonetic] place in the evening. We just wanted to get the call done as soon as our results were announced are to get a sense of what’s gone behind them.

Now, let me start, as is typical by giving you a sense of the operating context, though this helps, set a frame of reference, against which our financial results were delivered. The quarter saw continued weaknesses in overseas markets, you just heard from Rakesh, macroeconomic challenges, inflation, dollar unavailability and local currency devaluation across markets have continued to subdue industry volumes across overseas geographies. And that’s really led to a decline of anywhere between 25% to 35% in market volumes relative to last year.

In some of the geographies and countries, particularly in South Asia and Africa, this drop has been even more pronounced and it’s only in the recent quarter, that we’re starting to see some pressures build-up in Latin America as well.

Now on the domestic front, festive period sales have been pretty steady and the 125cc plus segment has led the broader market as indeed our own sales. The market seems to have slowed down post the festive period. It is quite normal for that to happen each year, but this year we’ve seen a little bit of market come off in the period following festive.

As for commodities, the broader purchase basket excluding specific EV comments — I’m keeping EV components aside but across the broader purchase basket, we’ve seen them soften. And this is in line with what I had called out in the preceding quarter and that’s clearly provided some respites to our bottom line.

And finally, the semiconductor supply situation has now stabilized, relatively speaking, fewer conversations on it. Although it still remains very tight across players and we’ve continued with our very definitive actions on securing our supplies and have added even further alternate sources to navigate the situation. So we have many more suppliers today then we did six months back. Overall, our financial performance this quarter has yet again reflected a well-diversified business. With the strong position across — we have a strong position across domestic and exports market and this time around, it’s again domestic, which has led the way and that has enabled the resilience of our performance.

The drag on exports and the challenges in overseas markets has been alleviated by relative buoyancy in our domestic performance. Our revenue from operations was up 3% year on year at INR9,315 crores with robust double-digit revenue growth across both domestic two-wheelers and three-wheelers. This revenue performance is despite a 17% decline in volumes which you are very familiar with, because we report our numbers each month and that’s really led out of the weaker export volumes that you’d be aware of.

The overall improvement in revenue was primarily led by three factors and I’m not talking year on year for a bit, better foreign exchange realization, our dollar realization, rupee to dollar realization for this quarter was at 81.7 as against 75.1 same time last year and 79.8 for the last quarter so that’s helped. Price increases, now we’re talking year-on-year, recognize at for the first half of this year, the early part of the year, we had commodity inflation, so I’m now talking year-on-year numbers. Price increases were about 5% in the last 12 months. However, for the last quarter, so when you look at between quarter two and quarter three, we’ve not really taken any price increases, so that’s been flattish quarter on quarter.

And thirdly, richer mix which you would have guessed from our commentary, in terms of what is leading the growth. Through a higher share of domestic three-wheelers and the sports segment and a lower mix of domestic and export entry-level bikes. Further, you just heard Rakesh and I’d like to reiterate that it’s not always that we report an all-time high on space, but that has been notable and contributed to both top line and bottom line performance.

Now, speaking of our profits, we surpassed our peak. You will recall that we had registered a record-high the last quarter, which was quarter two FY ’23 and we’ve surpassed this time around and made a new record with our highest-ever EBITDA of INR1,777 crores with an underlying margin expansion of 390 basis points year-on-year and 190 basis points over the last quarter.

Again, to explain the strong year-on-year improvement, this was primarily driven by improved dollar realization and judicious pricing to cover costs that’s the Y-on-Y basis. However, when looked at from a quarter-on-quarter perspective and now this is quarter two to quarter three, the improvement has primarily come from softer material costs as we had indicated in the previous quarter. And of course better dollar realization has continued to aid the margin story. Notably, this record EBITDA performance comes at a time when both our export and domestic volumes are way lower from their peaks and therefore, the way I see it, it offers the prospect of significant [Technical Issues] growth as volume levels trend back towards the respective highs.

Let me spend a minute in talking about commodity costs considering over the last couple of quarters, it has softened and therefore has been a contributor to the overall margin recovery. In this last quarter, which is essentially quarter three FY ’23, we have seen softer costs across the broader commodity basket whether it’s steal, aluminum, noble metals, all of them have come off.

The exceptions have been rubber and plastics, which has shown marginal inflation. Conversion costs have continued to remain rather tight as you would imagine, given the impact arising from utilities and energy cost. Now as we look ahead, this was more 4Q of the next quarter. We’re starting to see some uptick on aluminum, nickel and copper in particular. But on balance, as things currently stand, I expect the upcoming quarter to be by and large flattish or possibly a newer marginal uptick compared to this previous quarter unless, of course, there are events which are over to this cost.

As is typical, I want to make a quick comment on cash given how integral it is in measuring the health of our business. We continue to maintain a very strong track record of cash generation. Our surplus cash stood at near about INR15,000 crores, a very healthy level, so after paying out the INR3,100 crores towards buyback and its tax [Phonetic] which we have completed in the last quarter. I’m not going to go into the details of the buyback, we’ve put out enough communication on it and you’re well aware. But the point I’d like to leave with you is that, we’re still sitting on a [Indecipherable] healthy balance sheet that offers us enough muscle and flexibility to invest sufficiently and capability for growth opportunities.

Let me end by saying that as we look ahead, it continues to remain our priority to step up our revenue momentum and drive our market shares. In the domestic motorcycle business, we will look to engage with all customer segments through sharp execution and activation of the Platina 110 ABS, you heard Rakesh talk about this at length, for the entry-level commuters. And with the footnote [Phonetic] of the Pulsar portfolio to drive the fast-growing 125cc plus segment. On domestic three-wheelers, we’re looking to sustain a strong market leadership position, recognize we have an all-time high in this quarter on market share and we’re looking to drive for fuller recovery towards the pre-COVID levels.

That’s for exports, given the outlook for some of the overseas markets, it does appear that it could remain soft and challenging in the very near-term. And it’s against this context what we’re looking to do is to take a few actions to salvage volumes wherever we can. And while volumes might still be a little lower than the peaks that you might have seen in the past, what we will certainly look to do is to secure unflinching our competitive positions, which have held steady so far through this challenging situation.

And alongside, we will stay the course on the agenda to build up our EV business with Chetak and look at the potential launch of the EV three-wheelers in a couple of months. And in doing all of this, of course, let me add, we will continue to dynamically manage this business for a very healthy profit delivery.

With this, let me hand the session back to Anand and we can then open it up for Q&A. Anand, over to you.

Anand Newar — Divisional Manager, Investor Relations

Thank you, Dinesh. Yashashri, with this, we can open the forum for the Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Kapil Singh from Nomura. Please go ahead.

Kapil Singh — Nomura — Analyst

Yeah, hi, good evening, sir. I just wanted to understand on the gross margins, we’ve seen almost 300 bps improvement. How much of that has come from commodities? And also if I heard you correctly, you mentioned that as the volumes grow through the next year, you would expect to build on margins from here on, is that the right way to think about it?

Rakesh Sharma — Executive Director

Okay. So, Kapil, you’re right. I think quarter on quarter, I did make a mention that the biggest driver of margin improvement has been the lower raw material costs and because we’ve seen cost coming off across the breadth of both the metals and the energy portfolio with the exception of plastics and rubber as I’ve mentioned. Let me say that almost 70% of the margin improvement that you’re seeing quarter-over-quarter has come from softening commodity costs.

Kapil Singh — Nomura — Analyst

Okay. And going ahead, as volumes go up, you would say that this forms the base and we should see a further improvement, because there could be some adverse impact from lower entry segment mix also, so that’s why this question is there.

Rakesh Sharma — Executive Director

So, Kapil, let me answer that by saying that at least a big driver of commodity costs which is what contributed to the margin accretion in quarter three over two, the outlook for that when I see quarter four versus quarter three is flattish to marginal inflation because clearly in some parts of the commodity basket, whether it’s aluminum, it’s nickel, it’s copper, we are talking to see an uptick in those cycles. And so therefore the big contributor of commodity costs, quarter four over quarter three, I do not expect to be there — to the measure that we’ve just seen. Mix could take a bit of a hit, if we are executing some of the plans that we have as a function of where exports also plays out. But equally, there will be opportunities in operating leverage as well. So it’s a bit hard to forecast where that will come out at the moment. But our intention very clearly will be to plan hold margin at these levels, just recognize that a large chunk of the commodity cost piece is reflected in the Q3 numbers.

Kapil Singh — Nomura — Analyst

Okay, that’s extremely helpful. And also if you could talk about pricing changes in Q4 so far in the domestic and export markets, have we done anything there?

Rakesh Sharma — Executive Director

There’s really been no pricing between quarter three and as of now, very marginal uptick that we had in domestic which was offset by some actions that we took to drive competitiveness in the export markets. So on balance, absolutely flattish for quarter three and up to now.

Kapil Singh — Nomura — Analyst

Okay. And just one question if I can —

Operator

Mr. Kapil, may I request you to come back in the queue, sir?

Kapil Singh — Nomura — Analyst

Okay, sure.

Operator

Thank you. We have a next question from the line of Binay Singh from Morgan Stanley. Please go ahead.

Binay Singh — Morgan Stanley — Analyst

Hi, team. Thanks for the opportunity and congratulation for very strong numbers in a challenging quarter. Two questions, firstly, good to see Bajaj-KTM partnership hitting almost 1 million units. How do you see the Bajaj-Triumph partnership playing out? Do you think the opportunity size is that big as what you do on the KTM side, any update on that?

Secondly, on the Chetak having exclusive stores, could you share a little bit more about that? Because, it seems like, will these stores be viable because you have Bajaj stores, then KTM pro biking, then Chetak stores and then there are also reports that Triumph will also have its own dealership network. So, will all there be on a standalone basis viable fix, if you could talk a little bit about how you think about that? Thanks.

Rakesh Sharma — Executive Director

Sure. So the Bajaj-Triumph partnership, we are hoping to replicate the success of the Bajaj-KTM partnership. Frankly speaking, at a global level from the inputs which we have received from Triumph and of course what we see as being the potential in India. When we put these two things together, we believe that the scale of the opportunity is bigger than the scale of the opportunity which we witnessed in the Bajaj-KTM partnership.

So it’s just that the segment we are covering are much larger in — through this partnership. So their products are now developed, they are under field testing, both in the U.K., few other countries and in India. And in due course of time, I cannot precisely tell you, while we know when precisely we are watching it, but I cannot reveal the date as of now, but we will shortly be announcing our plans in the market very soon. They are now very, very firm, we have got into the countdown mode and we are sort of working to on an operation — front-end operation basis also.

Dinesh Thapar — Chief Financial Officer

This was a decision about the Chetak exclusive stores. It was, I mean, we had to sort of think through this a little bit, keeping in mind the adoption rate of the EVs, it’s a bit forward-looking. Because we must say that the — we must agree that the rate of adoption of EV in the last six months or so has been very good.

I mean, today, forget the low-speed ones, but if I just take the high-speed scooter, they are already in December talking 20% of the scooter market. And in some cities, it is more. Now, that gives you a very, very decent volume on which to build a network. And we of course have got an aggressive market share assumption over there, not immediately, but over a period of time.

The idea is that, you know, parking a scooter in one corner of the — largely ICE offering in a motorcycle store is very sub-optimal solution. So we said now that the business viability is seeming sort of attainable. We should — and we are having no problems getting request. In fact, we have — a lot of our network is very, very happy to put the standalone stores.

So we feel that, we should take this opportunity to not just put the standalone stores, but the manner of the standalone stores. We should be more digitally-enabled, which will give a much better customer experience and particularly on the service side, where they should be much better equipped to ally its service anxieties and it is correct that even in trant [Phonetic] we will attempt to do this. This will put us in a very good state as the market unfolds over the next two, three, four years. This will put us in a very good state to manage the customers, to manage the customer experience well.

Binay Singh — Morgan Stanley — Analyst

Thanks team. Both are white space opportunities for Bajaj. Best wishes for the future. Thanks for that.

Operator

Thank you. We have our next question from the line of Pramod Kumar from UBS. Please go ahead.

Pramod Kumar — UBS — Analyst

Yeah, thanks a lot for the opportunity and I think congratulations on a excellent set of operational numbers. My questions are related to market share, first on the EV side and then on the ICE side here. And on the EV side to begin with, what we’ve seen in the last few months is a massive churn in the Tier 2 categories, right? And what you’re seeing is some of the Tier 1 brands are racing away with market share, be it, Ola or Ather or TVS, right. But in that context, Bajaj kind of stands out with a pretty flattish market share in the last few months and not being able to kind of capitalize on this opportunity, where customers are looking beyond the Tier 2 brands, as they get challenge on either battery quality or subsidies getting challenge or whatever reason, right?

So what explains this quite what you say on — not so aggressive ramp-up, given the fact that we’ve got everything to gain and nothing to lose from the EV transition. So Rakesh, if you can help us understand why — what is holding us back on the EV side? Because for context, Ather has market share which is like 13% as we speak with the reasonably high price point and a very limited reach.

Rakesh Sharma — Executive Director

Yeah, so, Pramod, first of all, I disagree that market share is the metric to evaluate an emerging business. We have said earlier that we are not looking at — we don’t have a volumetric ambition at this point of time. We are first driven by building capability, this is going to be a marathon like I said. So I mean, we have got 800 stores, I can park a Chetak in each one of those stores, drop the price, it will not even affect my deep pockets compared to other competitors even though we don’t have private equity dollars to burn, we can drop the price and capture whichever market share we want. But is this the right way or are we building the capability, what are we building the capability. We are building the capability for being able to launch a portfolio of products, we are building the capability to bring the cost down, to prepare for a scenario where subsidy is less.

Today, you know that we have got — I mean, there is a INR45,000 subsidy just on frame, that is PLI, that is GST. This in one way of the artificial support to the industry. What happens if the subsidiary is halved? What will we do at that time? What will we say to our vendors? What will we say to our dealers? We want to make our business foolproof it from subsidy. I am seeing, there is a little bit of deja vu here. I am seeing a parallel. If you rewind 10 years back when we were launching the export, offensive in Bajaj at that point of time, the export incentives were 15%. And we said, we are building a business, dream and there is already noise in the system, the government was saying that we want to reduce the export incentive.

We had started to take our prices up in export markets even before the incentives were withdrawn and we had started to look at product configuration, preparing for a scenario that is why — and of course, foreign exchange devaluation helped us. But the point everyone forgets is, that 15% or in some markets it was 17% incentives got reduced to 2%. But still the export business, even if I net off the foreign exchange gains, the export business has maintained its EBITDA percentage and it’s helped. A similar situation is bound to unfold over two to three year period. The way to mitigate that is not too act at that point of time when it occur, but to start preparing for it now and that is the work which R&D and all have been doing and we feel that we are in a very good position now to start, to expand our portfolio.

There was no reason for us to go helter skelter and just grab some market share. In fact, the investment in the store. There is a possibility, investment in setting up these stores, both in terms of management time, effort, dealer time, dealer investment, our own investment, etc. So we are dropped studies it, you will see in FY ’24, the outcome of all that preparatory work which has been going on for the last 12 months, the expansion of the R&D manpower, the infrastructure, the discussions with vendors, supply chain, etc, which on a sustainable basis will allow us to expand the portfolio.

Therefore I’m not bothered about this market share bit. I think the idea going forward would be — since it’s a marathon, we don’t want to be sprinting right ahead and exhaust ourselves before the industry really shapes up, we don’t want to be a straggler. So, there when the Marathon is reaching an equilibrium, we have a lot of catching up to do. We are happy to stay somewhere in the front, middle, make sure we build our capability and spring into action at the right point of time, which will — which is not very far off by the way, which will start to — you will start to see that happen next year, next financial year, I mean.

Pramod Kumar — UBS — Analyst

Thanks a lot [Indecipherable] response. The second question Rakesh is on the export side, it’s actually good to hear that you — both you and TVS hinting that export retails have kind of started to bottom out and inventory corrections have been taking place of industry level. So by when can one expect exports trajectory to start improving in a reasonable way, not exactly kind of being flat for a time being, but when do you see meaningful pickup in export wholesales the way given your extensive experience on the international market?

Rakesh Sharma — Executive Director

I think it’s going to take May or June that time. And then, I think the pendulum will really shrink, because we have been through this cycle before and that is why the learning inside the team is that, forget about the numbers, just go put in the new products, put in the — keep continuing with the channel work, etc. So when the pendulum swing, we’ll be in a very, very good position to capitalize on the resurgence.

The — see the demand side, though it has got severely impaired, but over a period of time, people digest new prices and they start to move on, because at the end of the day, the key drivers of the demand are intact. The demographic is young in Africa, road network is increasing, urbanization is increasing, people — the public transport network is very poor, all those drivers which point to doubling of the penetration in the next five to seven years are very much present. We have got a great market position.

So after this introduction, hopefully people will digest the new prices. And like you also mentioned that phenomena has already — we have already started to witness it that is bottoming out and the strides climbing up. Like I said, we are facing stocks-out in one or two — in a few countries. However, the availability of dollars is still a concern. The Central Bank is being very cautious in many countries and conserving foreign exchange is still a concern. These things will take time hopefully and I really can’t — I don’t have any way of saying that when the — if the Fed goes under something and which again stabilizes the market wants to know.

Then there is the special event in Nigeria, which is the elections, etc, which I already mentioned, it’s a very large market for us, so that’s on [Indecipherable] hopefully that will settle in by March end or so. And if the dollar position sort of lot of the banks are seeing, but you know, we will now see a sort of reversal when it comes to the strength of dollar, if the dollar position starts to ease off a bit, we will see suddenly demand coming back, but I’m sort of taking a view that probably be May, June.

Pramod Kumar — UBS — Analyst

Okay. And Rakesh, just a follow-up on the Nigeria election, is there going to be any change in the government stance, given which political alliance comes into the government, is there anything which can materially make a difference to the Okada market in Nigeria based on the election outcome?

Rakesh Sharma — Executive Director

No, I don’t think so. I think Okada is a very strong vote bank and that is not going to make a material difference. It is just a peaceful transition of power, which is very important. And right now, there is always, we can’t get out on the street, because there is a lot of civil unrest. So there’s no traffic. And of course there is the demonetization all that is swirling around.

Pramod Kumar — UBS — Analyst

Thanks a lot and best of luck. Thank you.

Rakesh Sharma — Executive Director

Thank you.

Operator

Thank you. We have a next question from the line of Mumuksh Mandlesha from Emkay Global. Please go ahead.

Mumuksh Mandlesha — Emkay Global — Analyst

Thank you so much for the opportunity, sir. Sir if possible, can you share the Chetak EV subsidy financials for the quarter? And so from when will you get the PLI scheme benefit, sir? And has the accounting started for this incentive, sir?

Rakesh Sharma — Executive Director

Okay. So let me take the first question, Chetak financials will be available to you at the end of the this financial year, which is when we typically [Indecipherable]. We’ve now migrated a fair amount of a volume in this last quarter from Bajaj Auto which is where we are producing it to Chetak technology. So there is some work that we are doing on that front. The materiality of the results will start to get reflected from the next quarter onwards, reflected in the results that we put out at the end of the financial year, which is when subsidiary seem to be reported.

To your question on PLI, PLI — the claims will be made at the end of the financial year [Technical Issues] PLI incentive of 13% is contingent upon the OEM being able to deliver a threshold investment, net investment for us is INR150 crores this year. That determination of the investment will happen on 31st of March, post which the claims will be raised. So the accounting for the PLI will happen in the next quarter when we have finality on the investment numbers.

Mumuksh Mandlesha — Emkay Global — Analyst

Right sir. Thank you for this. Sir, export revenues for Q3, sir?

Rakesh Sharma — Executive Director

Export revenues for Q3 is in the range of $415 million.

Mumuksh Mandlesha — Emkay Global — Analyst

Thank you so much for the opportunity, sir.

Operator

Thank you. We have a next question from the line of Anand Venugopal from BMSPL. Please go ahead.

Anand Venugopal — BMSPL — Analyst

Yeah, thanks for the opportunity. So my question is, there is lot of premiumization — basically there is a lot of pessimism in three-wheeler industry in India and we realize, it’s essential part of transport system. So do you think the market is underestimating the power of next upcycle in three-wheeler industry? Can we see basically higher volumes in the next upcycle versus the previous upcycle?

Rakesh Sharma — Executive Director

Yeah, I think so. I think the three-wheeler industry is set to grow, it is recovering pretty smartly. And it’s not reached 100% like I said, probably 76% of pre-COVID level. But we are seeing [Technical Issues] not just from Bajaj Auto Finance, but we are seeing that retail financiers are coming back and their willingness and the kind of schemes which they are putting out for the purchase of new three-wheelers is also indicated, we are seeing public sector banks coming in and giving schemes. So we are — these are also good signs. But like I mentioned in my opening remarks, even better thing is the qualitative improvement in the three-wheeler business, which is now moving from diesel to CNG, the CNG product is better from an operating expense point of view for the driver, which again is very helpful at the retail finance level. And it is better for the OEs like us, where our margins are far superior to the diesel products, which — and of course it’s a cleaner fuel. So, yes, the three-wheeler business is working in a very good direction now.

Anand Venugopal — BMSPL — Analyst

All good, thanks.

Operator

Thank you. I now hand the conference over to Mr. Anand Newar, Head of Investor Relations for closing remarks. Over to you, sir.

Anand Newar — Divisional Manager, Investor Relations

Thank you, Yashashri. Thank you, everyone for joining the call. Have a great weekend. Thank you.

Rakesh Sharma — Executive Director

Thank you.

Dinesh Thapar — Chief Financial Officer

Thank you, everyone.

Operator

[Operator Closing Remarks]