Bajaj Auto Limited (BAJAJAUTO) Q4 FY23 Earnings Concall Transcript

Bajaj Auto Limited (NSE:BAJAJAUTO) Q4 FY23 Earnings Concall dated Apr. 25, 2023.

Corporate Participants:

Mr. Anand Newar — Head, Investor Relations

Mr. Rakesh Sharma — Executive Director

Mr. Dinesh Thapar — Chief Financial Officer

Analysts:

Chandramouli Muthiah — Goldman Sachs. — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Pramod Kumar — UBS. — Analyst

Kapil Singh — Nomura — Analyst

Binay Singh — Morgan Stanley. — Analyst

Amyn Pirani — JP Morgan. — Analyst

Presentation:

Operator

Ladies and gentlemen, good evening and welcome to Q4 and FY2023 Results Conference Call of Bajaj Auto Limited. My name is Faizan and I will be your coordinator.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the initial remarks from the management.

[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.

Mr. Anand Newar — Head, Investor Relations

Thanks, Faizan. Good evening, everyone, and thank you for joining us for the call today. Our Board meeting continued slightly longer than what we had intended, and hence there was a short delay, but without wasting any time, let me welcome you all for the Bajaj Auto’s Q4 and 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 opening remarks from Rakesh on our business and operational performance for the quarter and then, Dinesh will take you through our financial highlights. We will then open the forum for the Q&A. Over to you, sir.

Mr. Rakesh Sharma — Executive Director

Thank you, Anand. Good evening, ladies and gentlemen, and welcome to the call. We truly appreciate your taking the time to be with us. Before we dive into the quarterly performance, I know you’ve just the press releases, but let me emphasize the highlight of the year FY ’23. It was a record year in our Company’s history, as we set new milestones for all key parameters: revenue — spares revenues, EBITDA and PAT. And the fact that these results were delivered against the backdrop of supply-chain challenges to begin with, a lot of you will recall, we had a terrible quarter one because of chip shortages and being over dependent on vendors. And then, of course, a sharp decline in exports due to major shift in the currency markets. So against this backdrop, a record-breaking performance is very satisfying for us. It once again underlines the resilience and robustness of the Company’s operations as well as the well-balanced architecture of the product market construct.

The quarterly performance was similar. We have delivered a good set of financial outcomes, with revenues growing by 12%, led by a solid performance from the domestic business, both two-wheelers and three-wheelers, growing and improving both mix and pricing. Operational profit or EBITDA increased even faster, up 26% year-on year, delivering an EBITDA margin of 19.3%. Again, demonstrating solid operational performance despite the drop in exports volumes. Of course, Dinesh will add more color once he covers the financial performance in detail.

Now, let me address the different business units. Export business unit. As anticipated, the business environment remained challenging through the quarter and volumes were down sequentially by 20% compared to the previous quarter, which is quarter three, largely because business came to a near standstill in Nigeria on account of election-related unrest, as well as demonetization. This impact really was severe in February, we have, of course, we had then zeroized our exports there to minimize exposure and stock. However, retails have bounced back post elections and the repealing of local-currency costs.

The April month too, we are seeing a general but positive upward trend compared to March, so February was a disaster, March was a return to the lower normal and April is appearing better than March.

Other markets, in summary, apart from Nigeria, all other regions demonstrated slightly better retails in Q4 compared to Q3, so this does indicate a bottoming out of the sharp fall in retail demand, which had commenced in quarter one of this year. The consumer seems to have started to accept the higher prices as the new normal and our exports have trailed retail over the last 15 months, indicating a fair bit of downsizing of channel stock. Now as retail trends improve, we will need to rebuild stocks.

Having said that, this is the second issue, which has hit exports, as you know, and that was the availability of US dollars spot trading. Central banks in most countries continue to take a cautious view. And for exports to fully resume, besides demand moving up, this not of the US dollar being more easily available needs to unravel. And it is difficult to predict when precisely this will occur. Though we are hoping that by the time we enter Q2, some relief may be expected, barring any black swan event.

Our approach for managing the export business in these turbulent times has been to stay the course, because we have seen in the past, the pendulum keep swinging. And to stay the course without compromising on the fundamentals; therefore, market-share remained protected almost across all key countries. Channel stocks will rapidly minimize to control exposure of our distribution partners and not let them be financially weakened. We did not attempt to mitigate the devaluation in the local market by price reductions, instead, we have passed on cost increases and maintained EBITDA standards.

We continue to refresh our portfolio LatAm countries received the new Pulsar. In fact, they have received them extremely well. The Pulsar N250 and N160 are both promising to reach the top spot in their respective classes across the large markets of LatAm.

New products in the Boxer range are also on their way as we speak to Africa and should set better performance standards and allow a higher share in weaker segments. The Dominar brand has had an outstanding start in Brazil, and already demand is out-stripping supply, resulting in a 90 day waiting list. As we resolve the supply-chain issues, the distribution footprint is being steadily expanded with top-class sales and service showrooms. So therefore, it would not be an overstatement to say that we are poised for a surge as soon as the currency becomes available and trading conditions improve.

Domestic motorcycles, the good news is that after several quarters, the domestic motorcycle industry is finally showing some true growth in the last two quarters. What I mean by true growth is that when you sanitize growth for the base effect, etcetera. Retail sales have been good and Vahan registrations for the industry have grown by 16% in FY ’23 over FY ’21. Largely powered by quarter one, but that was the base effect and also in the last two quarters. However, the 100cc segment is only marginally positive and almost entirely, this growth has been driven by the 125cc plus segment. The 100cc and below, and the 125cc and above, now each account for 50% of the motorcycles industry. We expect going-forward, an industry growth of 6% to 8% over the next few quarters and yet again, we think most of it will be driven by the top-half, which is the one 125cc plus segment. This is particularly good news for us.

Recall, over the last six months, we launched six new models, taking our portfolio in this segment in the 125cc plus segment, to 20 models compared to 15 of the next competitor. And there are a few which are in the pipeline as well. Never before has the customer enjoyed such choice. And I would like to single out the Pulsar N160, which has been recognized by the auto journalists as well as the outstanding new model. Then the latest and most recent upgrades of the Pulsar NS Series, which now come with an upside-down fork and a few other things, have been received very well too, breathing new life into this premium range.

Consequently, our market-share for Pulsar in the 150cc to 250cc class is back to over 50%, which if you recall, had weakened in the period of before FY’22. We will continue to introduce newer variants through the year in the Pulsar brand. In a few weeks, we will commence our media campaign to rapidly build awareness of the new Pulsar range, promising Pulsar for every type of Pulsar maniac. Our market-share in the 125cc segment has improved; and today, 60% of our domestic motorcycle sales comes from this segment. Just three years back, it was only 50%. This positively impacts margins and ASPs, as well as the competitive position, because it’s [Indecipherable] quite significantly the flagship Pulsar brand.

We acknowledge that it is not easy to build share in the 100cc segment without severely compromising our profitability standards, hence, we are attempting it based on meaningful fit-for-purpose differentiation. The Platina 110 ABS is an outcome of this approach. It was launched to significantly improve safety performance of the vehicle and is the first 110cc in the world to have an ABS braking system. This has been accompanied by a massive test ride campaign, demonstrating the breaking prowess to over three lakh users already. You may have also witnessed the [Indecipherable] Group advertising campaign, it has not been in IPL so far, but it’s — now, you’ll start to see it on IPL next week onwards. This has resulted in a steady buildup of volume. We will be persisting with this direction, and we’ll continue to chip away on the share in the 100cc class.

With a vibrant Pulsar portfolio and an emerging differentiated Platina, the domestic motorcycle business too appears well-poised to harness the improving industry trend.

The premium motorcycles business, KTM, achieved its highest-ever sales. And that too with higher displacement, Duke Adventure. There was a period when we sort of went through the 125ccs and the 200ccs, but now, the quality of the portfolio has moved to the 250s and the 390s in the Dukes and the Adventures, and even the RCs. We believe a good share of this growth has been driven by the PRO XP ride experiences being delivered by us on the track, on the trail and on the tarmac.

Recently, we launched be Adventure X at an attractive price of INR2.8 lakh. I think the Adventure 390 is at something like INR3.4 lakh, if I’m not mistaken. And hopefully, this will give us inroads into the growing touring segment.

However, the big move in the higher displacement classic bike segment will be the jointly developed Triumph products. The new lineup will be launched globally in London on 27 June, by Triumph UK and retail sales will commence sometime thereafter. The Triumph and Bajaj partnership is a non-strategic — non-equity strategic alliance to go develop new products to be sold under the Triumph badge. The jointly developed products will be made in our brand-new facility at Chakan and sold all over the world. India, and very few select overseas markets will be managed by Bajaj Auto and most of the markets will be managed by Triumph directly.

In preparation, the existing plant network in India, comprising 14 outstanding dealerships has been integrated on 1st of April by Bajaj Auto’s operations. We are very excited and expectant about this opportunity. The model’s mouthwatering appeal will surely delight a huge number of Triumph fans. We are setting up of new and exclusive network of stores, in keeping with the exacting Triumph global standard.

Domestic three-wheelers. It continues to deliver a strong and steady improvement quarter-on-quarter. This study steady performance is reflected through a recovery to pre COVID levels at 109% for Bajaj Auto, versus 45% for rest of the industry. Our leadership position in the category has strengthened even further with an all-time high market-share of 78% in March. The continuous expansion of the CNG segment and solid support by Bajaj Auto Finance has driven both market-share and profitability.

On Chetak, I’m delighted to announce substantial progress on several key initiatives, signaling a change in the approach of the business and the scale and quality of the business going-forward. The EV supply-chain has been restructured, and a number of development programs in collaboration with important vendors have made very good headway. This not only assures us the availability of modern Chetaks going-forward, from June onwards, but it also lowers cost, that will enable Chetak to be at accessible to more customers. The revision of pricing had an immediate and profound impact which may not be visible to you while the retails jumped from 3,000 to about 5,500 levels, bookings grew to almost 8,000 levels. We continue to build a smarter and elegant exclusive sales and service network and we have accelerated this exercise on the back of this renewed interest. An upgrade is in the works and will be launched in the next couple of weeks. By end April, by — right now we are in about 85 towns and by end of first-half, we should be in 120 town and 150 stores. This would cover 80% of the high-speed market in India.

Our electric three-wheelers have completed their field testing and we are doing a limited launch of both the passenger and cargo versions by end of this month, we are waiting for FAME certification, production has just commenced. And as soon as we have the certificate, this process will begin.

The dealerships have been readied and the manpower is trained. We believe that our product will provide a best-in class experience and not disappoint the loyal customers of Bajaj RE, who have waited long for us, entry. Results this quarter also marked the commencement of supply of Bajaj designed and manufactured products for Yulu, our strategic partner in the mobility-as-a-service space, three attractive products targeted at low-speed, short distance, personal, commercial and delivery segments have been launched and stay tuned to hear more on our collaboration and product launches at depth.

As we stand here at the start of FY’24, having achieved a record in FY’23, and successfully navigating a very tough year, we are optimistic about our delivery in FY’24. The motorcycle business as the strong refresh and performing portfolio in-line with market trends. The triumph brand is set to open up an absolutely new segment. The key business, three-wheeler business is already at a commanding and strong position and driving the growth of the market. Chetak’s new pricing and upgrade set us firmly into the scale of things. The electric three-wheeler, which is imminently, which is just about to be introduced, will also have the full runway of the year to scale-up. And if we see an early turnaround of the trading environment in exports, we are optimistic we will set another new record in FY’24. With this, let me hand it over to Dinesh for his commentary.

Mr. Dinesh Thapar — Chief Financial Officer

Thank you, Rakesh and good evening, everyone. And thank you for taking the time again to join us for this call. From what started out to be a constraining phase with very soft results in the first-quarter of last year, about the same time that we were talking to now, finishing the year with a record performance across both revenue and profit, you will agree that we’ve come a long way, we’ve made very significant progress, we’ve taken very decisive actions to deliver the resilience in our results that you would have seen earlier this evening. But before talking about the full-year, a few comments on the fourth-quarter.

And as is typical, let me start by giving you a sense on the operating context, that will set a frame of reference against which our financial results were delivered. It has been a quarter of continued challenge, but again, a story of two-parts. On exports, as you just heard from Rakesh, the demand situation across key overseas markets was a bit rough. I’d say progressively worsened, particularly given the situation in Nigeria and something that all of you would have already figured about from our monthly sales releases. The decline was particularly accentuated by the recent elections and demonetization in Nigeria. But we’d like to believe that we’ve now hit a bottom on that. Early days, but a key signals in March, we were quite encouraged.

The retails have started to outstrip billing, and that is visible from the most recent numbers. But I have to say that singularly on the exports front, the one piece which constrains our

Business is the availability of foreign-exchange. That’s the biggest volatile and uncertain factor. And that’s something which is hard to tell as to when that will change, but I think we’re well-positioned. As the situation unfolds, we remain steadfast in ensuring our competitiveness. Our market shares are holding steady, our pipeline inventory is comfortable for us to be able to build back as soon as the challenges on foreign-exchange across those geographies wend.

On the domestic front, there’s been a steady improvement of demand across both two-wheelers and three-wheelers. More specifically, our performance was buoyed by the strong performance of the Pulsar portfolio, as it has been for some time. Further scale-up in the volumes of the Platina 110 ABS that we launched in the last quarter. And of course, the growing preference for the Bajaj three-wheeler, which now has registered record-high market shares. Once again it’s been domestic that has allowed ourselves to be resilient and yet again, you would agree, reflects — it reflects a strong structural advantage that we now have in our operating model that enables us to deliver a solid financial performance despite the challenges on exports. And so therefore, when you look at it across two years, between FY’22 and FY’23, in FY’22, we had very buoyant exports that led the way. And in FY’23, it was the momentum of the domestic business that has helped salvage the drop that we’ve had on our exports business.

Now, the growth in the domestic business, it was broad-based. We had pretty much all our businesses, whether it’s the two — all the top-end sports motorcycles, which essentially the KTM franchise and three-wheelers, all registered double-digit growth yet again for multiple successive quarters now.

Let me turn to commodities. And commodities really, this quarter has been a mixed bag. I may have mentioned in my last call, we did observe a hardening of commodities on a few fronts, so aluminum was up, copper was up, nickel was and a few noble metals inflated in the course of this quarter. But this was offset by a softening of, let’s say, electrical, rubber polypropylene and foam. And really parts of what I would call the energy complex, or really the petroleum-linked products and therefore, the balance between inflation on some of metals was offset by this part of the portfolio, that essentially led to the quarter being a flattish quarter relative to the previous quarter in terms of overall material costs.

The currency situation in terms of the iron-ore has been relatively stable, more or less flattish for us, our realizations were at 81.5 compared to 81.7 for the previous quarter. Supply situation, which was a large part of the commentary and conversation in the early part of this financial year, now for a couple of quarters has no longer been a factor. It remained relatively stable, although slightly tight. It’s been lesser of a conversation, but that’s the most heartening piece, and you will recall that same time last year, when we were speaking, it was the top-of-mind subject. Again, a reflection of the many actions taken by the team to build supply security on the single-source components.

The tightness on the EV supply-chain is being managed through interventions, which continue to be underway and is positioning us well for a scale-up on our EV business to the 10,000 units milestone that Rakesh just spoke about.

Now, talking about our numbers. We reported revenue from operations of about INR8,900 crores, that up 12% on the back of significant volume-led revenue growth of greater than 50% you would have noticed from our monthly submissions that volumes on the domestic business grew upwards of 30%, revenue came in upwards of 50% and so therefore, when you look at it from a year-on year basis, judicious pricing, better foreign-exchange realization and a richer product mix, all three levers have contributed to this revenue growth and more than offset the decline that we’ve seen in overall volume that was aggravated by slowing exports.

On Spares, we continue to do well and continue to register to new highs. EBITDA has maintained its momentum, growing at a strong 26% year-on year in this quarter, to INR1,718 crores, with margin expansion of 220 basis-points to maintain 19.3% compared to same time last year. Now when I talk about it sequentially, last quarter, we were at 19.1%, this quarter, we moved to 19.3% and this is essentially — this improvement has essentially come from a richer product mix of higher CV and higher sports motorcycle sales which has offset the operating leverage impact, the negative operating leverage impact of a smaller revenue quarter this time compared to the previous one. But in overall terms, price realization and material cost has held flattish in this quarter relative to the previous one. So potentially marginal improvements that you’re seeing sequentially which has come in from mix, whilst material cost and price have held flattish.

Our reported profit-after-tax came in at INR1,433 crores versus INR1,469 crores in quarter four FY’22. But I want to spend a minute here to remind ourselves as to why 26% growth in EBITDA essentially translates to a flattish growth in PAT. Many of you might recall, that in Q4 of last year, when we had reported our results, we had flagged off an exceptional income of INR315 crores that we had reported as exceptional items. This was essentially towards the package scheme of incentives, approvals that we have received, we had received sanctions for the package scheme of incentives for our Waluj plant. This is the 2007 scheme and pertains to volumes generated from Waluj between 2015 and 2021, and because it pertains to prior years and we had received the sanction letter in March last year, we reported in the prior-period item as an exceptional item. So that was INR315 crores of exceptional income that we had booked into the quarter-four results of last year that you will see in the exceptional line. And so therefore, if you had to isolate the impact of the exceptionals from the base, our profit-after tax would have grown at a very healthy 16% year-on-year, as opposed to what you might be seeing as near flattish or a minus 2% on the headline numbers. So that’s the one-piece I’d like you to register because it was a significant exceptional item in the base quarter.

On balance sheet, remains very strong, very healthy. The surplus cash of INR17,500 crores nearly, at the end of March. And this you will be aware, has come on the back of last year’s dividend payout of about INR4,000 crores and a share buyback of about INR3,100 crores, which is including buyback tax that expected and concluded in October last year. And capital investments, capex of about INR1,000 crores that we spent across our two entities in Bajaj Auto and Chetak technology, which is a fairly substantial investment that has largely gone behind setting up new capacity in a new plant, which is essentially Chakan-II in Pune, that we’ve set-up for the impending rollout of Triumph and investments made behind the EV business. This is the EV two-wheeler business.

Looking ahead, I think there are many moving parts. On exports, while we are unable to really pin down as to when the dollars are going to come in, that’s fundamentally the biggest factor as to when dollar availability will improve across geographies. We’d like to believe that we are well-prepared. Our pipeline will allow us for a flush of billing to happen as soon as these constraints start to ease out.

Domestic motorcycles, we’d like to see continued momentum, especially with the large managed markets coming through in this quarter. On commercial vehicles, the sales momentum should remain active, the business is doing well, in good stead and this will be aided by the much-anticipated launch of the electric three-wheelers anytime now and you’ve heard Rakesh talk about this at length.

On electric vehicles, if FY’23 was really about putting the enablers in-place for the scale-up of Chetak, FY’24 really is the scale-up of Chetak. And that’s something to watch for. We’re currently in many more cities, many more dealerships, with many more experience centers, more than we’ve had in the past and clearly points for further expansion in the days ahead.

On the outlook for commodities, you know the cycle seems to be turning. I had hinted last-time around when had spoken that we’re starting to see traces of inflation come through on commodities and I’d like to just reinforce that. We think that the cycle is turning, particularly on steel. Who knows how how it’ll go through the rest of the quarter, but if any indications are to be gone by, we think we could be looking at some inflation in material costs, which is largely still led, in the course of the current quarter. Having said that, we’ve taken around the pricing. At the beginning of this quarter, given the inflation context to cover cost and to essentially cover costs for the OBD2-A compliance that kicked-in from the 1st of April.

Now since this is also a year end, let me spend a couple of minutes on just the comments for the year end. So a quick snapshot of our annual performance. We delivered a record, you just heard Rakesh speak about it, we’ve put it out in the press release. We’ve got a record-high now on revenues and on profits across the breadth of our financial statements. We closed the year with more than INR36,000 crores of revenue, up 10% year-on year. Notwithstanding sluggish volumes arising out of macroeconomic challenges and export markets. And EBITDA of over INR6,500 crores, up 25% year-on year on the back of very solid margin expansion of about 210 basis-points. Now getting to about 18% for the full-year, with exit margins at nearly 19.3%, as I’ve just pointed out. And finally, we closed the year with profit after tax of a new high of INR5,628 crores.

I’d like to just reinforce that this result was delivered against the backdrop of an extremely challenging operating context, and if you recall our discussion months ago, you would appreciate that our business performance and conversations were largely colored with supply constraints and challenging macros across export markets, led by a host of factors, that it was currency availability, political uncertainty, currency depreciation, high and raging inflation. But now, we’re here and we announced our best ever year on both topline and bottom-line despite those challenges.

And we also reemphasize on the strength of our brands. You would have picked it up from our press release and is was very notable to point it out, thanks to some decisive actions that we’ve taken both on innovation and execution. Our iconic motorcycle brands Pulsar, Dominar and KTM have now registered in this year their lifetime high revenues. And on three-wheelers, we clearly have registered a record-high on our market shares as well.

Also, I think as you as you reflect back on these quarter, we’ve taken a range of very decisive interventions across the portfolio, on-network and in terms of just the capabilities within the business. The upgrade of the Pulsar portfolio, the redesign, the reengineered for superior performance, the launch of the Platina 110 ABS, first in class feature that provides better stability and control, entry into one of the largest — most largest and attractive two-wheeler markets in the world, which is in Brazil, with the well-recognized and iconic Dominar brand and we’re very encouraged by the early response. Really driving supply security, which was the foremost priority for us at the start of the year, as we want multiple supply-chain partners to really reduce single-source dependency. And thankfully, that’s now a thing which is which is behind us. And we’ve made very substantial investments behind the EV business in product development and very in manufacturing and in expanding the go-to-market network.

Finally, let me conclude by announcing that the Board this evening recommended a final dividend of INR140 per share. This will essentially translate to about INR4,000 crores of a dividend payout. And then this along with the share buyback and corresponding tax that we concluded earlier in the year will add-up to almost INR7,000 crores of cash we are paying out to shareholders relating to FY’23 itself.

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

Questions and Answers:

Mr. Anand Newar — Head, Investor Relations

Thank you. We can open it for Q&A, Faizan.

Operator

Thank you very much. We will now begin the question-and-answer session.

[Operator instructions]

First question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go-ahead.

Chandramouli Muthiah — Goldman Sachs. — Analyst

Hi, good evening and thanks for taking my questions. My first question is on the profitability per unit that Bajaj sold this quarter, it seems to be at a record-high despite the 13 % lower volumes quarter-on-quarter. I think you called out mix, better three-wheeler mix, better premium motorcycles mix as being the primary visible diverger. So just trying to understand going-forward, I think we’ve almost a 25% Y-o-Y improvement in ASP profile for the company versus 4Q of last year, so do we expect further improvement on the margin profile and on the EBIT per unit from mix in the quarters ahead as well?

Mr. Dinesh Thapar — Chief Financial Officer

Yes, thanks thanks for your question. So you’re absolutely right and to call-out that the sequential margin improvement 19.1%, 19.3% was driven by a richer product mix that was partly offset by the operating leverage impact of a lower revenue quarter compared to the previous year.

Yes, looking ahead, I wanted to call-out saying that, look, there is inflation on the horizon, whether it plays out to its fullest, time will tell, but early indications are is that that cycle is turning. Our attempt will always be like any well governed company, to try and look to hold profitability, to drive modest improvement in operating margin. There are multiple moving parts to the function of where you see the currency, what happens on inflation, we’ve taken pricing earlier this quarter to cover inflationary costs as well as the OBD2 impact for compliance. As exports market comes back and large markets like Nigeria and Africa come back, there could be an element of mix that might start to hurt, but I suspect that with the overall pie growing, there could be operating leverage that comes is as well.

So many moving parts and therefore, the attempt will be to try and sustain margins while competitively invest behind the business, but recognize that, I think on commodities, we’ll have to wait-and-see how it actually plays out and whether the cycle will last-out, or is it just the short-term.

Chandramouli Muthiah — Goldman Sachs. — Analyst

Got it. That’s helpful. And my second question is on the export markets. So, I think when I do sort of rough back-of-the-envelope math on your export currencies, some of the larger market sort of Nigeria, Egypt, Bangladesh by a wide seems to be north of a 10% depreciation in these currencies, which I think you’ve also been alluding to. I think our company sort of sells in US dollar terms. So over time, where do you think sort of affordability is in these markets for maybe some of the [Indecipherable] products? Is this something that you think might take slightly longer to recover? I think earlier, we were talking about a May-June kind of recovery for export markets, so just your sort of updated thoughts on when the export market might turn in this matter?

Mr. Rakesh Sharma — Executive Director

Yes, so that is something which we constantly watch, and no doubt there has been a general inflation, we do have erosion of purchasing power, but large parts of Africa, I mean not large parts, entire Africa and parts of Asia, listen, we find counterintuitively, that when the economy struggles, the sales of these will actually improve because they — they profit from this whole surge of self employment and this is a very important avenue for employment. So, there is a shock when the prices go up, but over a period of time, these get adjusted, these are commercial vehicles, will get adjusted and they’re passed on a high-ticket prices to the commuters. Africa is almost 95% [Indecipherable] 99%. Therefore, that part sort of resolves itself over a period of time, we’ve seen it in the past. In fact, some of the best months in Nigeria have been when we’ve been hit with price increases.

The issue is really the availability of the currency for trading because the banks are taking a cautious stand, getting to open LC and all is tough, and that is what we are referring to when we saying that — hopefully, in another three months, some kind of equilibrium will set in, butt we don’t have a real basis for saying that from a demand point-of-view, I think things are — we can see some green shoots, but from a dollar availability point-of-view, we just have to wait-and-watch.

And we are more worried about the latter, which is the dollar availability than the demand, frankly speaking.

Operator

Thank you. Mr. Muthiah, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services, please go-ahead.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Hi, sir. A couple of questions from my side. One is, you alluded to the fact that export pipeline inventory and exports is quite low and there’s scope to normalize it as demand recovers. Can you talk about where we are today in terms of our pipeline inventory in exports versus the normal level?

Mr. Rakesh Sharma — Executive Director

See, it is difficult to give you numbers, because we are talking of 96 countries, out of which at least 40 are very meaningful and we monitor these. And there are some where — which are — say like Bolivia, Ecuador, etcetera, where a four, five month inventory is required and there are some like Bangladesh, where you can do with a four-week inventory. So it’s very difficult to reduce this to a certain number and give it to you because they keep changing.

My comment is based on our individual bottom of understanding. Today, we normalize the — like I said, for 15 months now largely exports has been trailing retail. So we’ve systematically downsized the stock, and it is, the covers are low. The moment trading conditions improve, we will take to build the stock, and this is making the assumption that demand will continue to improve, so gently, but it will continue to improve.

So, I would say, we don’t have a channel stock problem anywhere in the world, one odd country here and there, but would say generally, there would be an appetite for building stock almost in all countries once the grid of this inventory — the US dollars availability opens up.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Sure, and can you update on the three-wheeler ban in Egypt, where are we in terms of our working with the government to work on that. And secondly, if you can share revenues for spares and exports? Thanks.

Mr. Rakesh Sharma — Executive Director

Sorry, what were the two questions? Revenue for spares and exports, and the first one is the ban. Yes, the three-wheeler continues to be banned, we are — had good interchange of –exchange of visits to formulate the replacement of the three-wheeler going ahead, which takes into account the concerns of the Egyptian government with reference to having a better solution for places like the new Cairo, we are fully aligned with them, we have worked with different ministries and hopefully, we will start to action this in the next two-three months by key shipments, new shipments. I would not like to go beyond this because this is still a matter being discussed between the government of Egypt, our partners over there and us. But it’s looking positive.

Operator

Thank you. Mr. Gandhi, may we request that you return to the question queue for follow-up questions?

Mr. Rakesh Sharma — Executive Director

I think let me just complete. I think, Dinesh had two questions on spares. Dinesh spares revenue was in the whereabouts of about INR1,150 crores for the quarter. Your second question, I thought you asked was what was the exports revenues? And for the current quarter, the export revenues were about $370 million.

Operator

Thank you. We’ll take the next question from the line of Pramod Kumar from UBS. Please go-ahead.

Pramod Kumar — UBS. — Analyst

Yeah, thanks a lot for the opportunity. Rakesh, sorry, I’m just getting back to the export market again, because we did on the earlier call, last quarter call, we did talk about some expecting a reasonable recovery in exports from June. Now, given what you’re telling me, you’re telling us about the macro looks like the recovery is one of be probably more prolonged. So in that context, how should one look at FY’24 as a year or as far as you have visibility, like even for say six months, like how you guided on CNBC recently, on domestic market for six months. Is there anything that you can help us in terms of what could be the kind of numbers you are looking at for the next six months, because demand is clearly bottomed-out, but currency is still a problem, inventor is actually lower than where you would like to be. So given all that, should be expect that absolute — absolute trend in sequential terms may not see any big change in the foreseeable future or or am I being too pessimistic?

Mr. Rakesh Sharma — Executive Director

Frankly, Pramod, your guess is as good as mine. Because I really don’t have a line into the Fed’s office, I really can’t, we really can’t say. We can just sense from the degree of difficulty, which our partners have in establishing their key, we can make some sense, a feel based on how easily the banks are adding confirmations and stuff like that. So, today, the call-out was based on that. So we feel that based on that, there are only marginal improvements there, though there are improvements. So it will take some time. Now, it could be two months, it could be three or four months, but hopefully, things — that is the pipeline we are talking about. But again, the caveat is that I didn’t logical have a logical basis for that answer, Pramod.

Pramod Kumar — UBS. — Analyst

Fair enough, Rakesh. I think times like this, actually being hopeful is actually what has the best to be honest. So I had kind of empathize with you. And the second question is on the electric three-wheeler business. I think it’s great to hear that you’re gunning for Chetak at a 10,000 mark by June, which is good. Now in that context, how would you see the three-wheeler electric business say by the end of FY’24, what kind of run-rate would you like to be at? Because you are the market-leader, you are kind of the synonym for three-wheelers in India, so your actions on electrification has a much larger impact than beyond the company itself, so how would you look at your aspirations for electric three-wheeler business, sir and before I hand over the floor to you, just one clarification on the financing business, this is for Dinesh, any progress on the financing subsidiary? Yes. Those are my questions. Thank you.

Mr. Rakesh Sharma — Executive Director

Sure, Pramod, we are very excited about the electric three-wheeler, when we did our field testing etcetera and tried to understand why competition has enjoyed very limited success? If you can see, today, the electric three-wheeler they give very good operating cost advantage over diesel, particularly. And when we said, why is this, we sort of thought there were a few things we needed to improve in our three-wheeler. And we’ve gone and done that and then we have retested it and now we are ready to — I mean dispatches are imminent, they’re under production, as soon as we get the FAME certification, the dispatches will be through.

But in the first three-four months, we want to play very cool, Pramod, because this is a commercial user, we have 78%, these fellows, actually, when I go out and meet the market — a lot of three-wheeler drivers, I met the union in for example, Delhi, why does Delhi release 4,400 units, and only 300-odd people buy the three-wheeler from competing brands over a period of two years. And I wanted to understand what the hell is happening? Why is not everyone rushing it? And part of the explanation is, that they are waiting for better, I think that makes it very-very sort of, it’s a big responsibility on us. So therefore, what we want to do is, in the first phase, which hopefully will be, let’s say, three to four months or so, just do a limited launch. Let it roll, we will observe it closely. We will see is there are any middling issues to resolve for and then we will start to scale it up city-by-city. Our attack is going to be in markets where there are no permits for ICE three-wheelers, largely in the North and East. We’ve got a list of down which we want to invade with the electric three-wheeler, but the envision will commence after, you know, we are fully satisfied, that our customer is happy. It’s not about going there just putting some product. I’m sure we will be able to, but we want to make sure that there are no gremlins in the machine and you know, we are giving a largely satisfactory experience. So I think we will take it cool for three to four months. Maybe, the next call after the next quarter or the next to that, I would be able to give you a number, saying that this is the number which we are hoping for, but at this stage, it is premature.

Mr. Dinesh Thapar — Chief Financial Officer

Pramod, very clearly on your question — very quickly on your question on the financing, the application is with the RBI, there is an engagement process that is currently underway. There was a call for information that came to us a couple of days back, for which we’ve made a submission, which would suggest that our application is under processing and probably going through a process of diligence, but that’s where it currently stands.

Operator

Thank you. We’ll take the next question from the line of Kapil Singh from Nomura. Please go-ahead.

Kapil Singh — Nomura — Analyst

Hi, good evening, sir. Congratulations on very good performance for the quarter. My first question is on the industry’s next evolution that we think will happen, because we’ve seen a sharp drop in 100 CC segment in the last two years. So do you think as the market makes recovery, this 100cc segment could make a comeback or you think otherwise?

Mr. Rakesh Sharma — Executive Director

Well, Kapil, you know the sub-100cc customer has recovered to some extent in the sense that they’re not in the negative zone, they’re in the positive zone, but yet only so, very marginally. The –it’s actually a question for economists to answer, because mostly people have been talking about GDP growth 6%, 7%, 5.5%, but I think that is very misleading because the [Indecipherable] for at least a Company like all ours, can be a percent of those customers who earn less than INR50,000 per month. It’s about the quality of the distribution of that 6%. It was severely lopsided when the recovery began in the beginning of the year, but now we’re seeing it percolate to the bottom of the pyramid and we are seeing some optimism about continuity of service, about continuity of their income, which is resulting in better retail financing penetration. We are seeing all these things things. And this is also starting off an interest in upgrading. I think people are as soon as they see there’s certainty, they start to say that, okay, I’m going to buy one bike. Let me just a buy a better value bike and that is one of the reasons that at the 125cc level, we are seeing greater. So I feel that in the next at least one year or so, we will continue to see this lopsided distribution of the economic recovery or economic progress in favor of slightly higher salaried and those type of consuming process, which generally prefer the 125cc plus for segment. And I see a recovery, but much much lower than the sub-100cc consumers.

Kapil Singh — Nomura — Analyst

Okay. Thanks. Because you know that will have implications for how we think about the CT brands where numbers have sort of come off, which is not a bad outcome if we see the results but could have market-share implications, so. The question was just from that perspective.

Mr. Rakesh Sharma — Executive Director

Well, you are very right. It is very consciously done because as we’ve understood — you see, to some extent, that areas is quite a red ocean. You’ve got to lead if you just want to enjoy the redundancy of a number and market-share, and we expect that the only way we enter this market is through, like I said, some meaningful differentiation and not through really price. You can’t discount your way and on a sustainable business and enjoy that market, particularly in a — and we could not sort of work on the differentiation strategy till the time this whole segment was reeling under the economic impact of COVID. Now that it is emerging, it is good news for us, because when it is emerging, then people will say, ah, okay, I’ll spend a few thousand rupees more and get the ABS bike. That kind of sentiment starts to come in. So that is why we are hopeful, but very consciously, most of our innovation is targeted at the top-half of the demand pyramid. 80% of the top.

Kapil Singh — Nomura — Analyst

Yes. If I can just — on the price, if you could give us some color, how much price increase we are taking in domestic two-wheelers, three-wheelers and export markets, and whether there was higher-cost incidents in case of ecarts and fuel injection or it’s similar kind of cost and pricing.

Mr. Dinesh Thapar — Chief Financial Officer

Yes, so Kapil, when you look at the impact, like I mentioned for the current quarter, from a cost standpoint, two-parts of it. One is inflation, the other is the OBD2-A compliance, right, both put together, I would — I would say, given current outlook should be in the ballpark of anywhere between, let’s say, closer to about 1.5%, yes. Our pricing, as we started the quarter covers about 2/3rds of that cost.

Let’s see how commodities move. I think the OBD2-A impact is a crystallized impact because we have committed to it, to be compliant, but let’s see how inflation on commodities move, specifically, the metals complex, and then we’ll decide, but at the moment, that’s how it’s looking, 1.5% material inflation. And pricing, looking to be 2/3rds of that.

Operator

Thank you. Kapil, may we request that you return to the question queue for follow-up questions?

We’ll take the 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. Congratulations for good earnings in a very challenging quarter. My first question is on the FAME subsidy. How do you see life post FAME? We do understand we will get some PLI incentives, if you could quantify some of these as to how do you see, like in the electric two-wheeler space, post FAME?

Second question also, relating to electric only, is on the three-wheeler side. What are the — how do you manage the cannibalization risk? How do you ensure that as we ramp-up on the electric three-wheeler side, it’s sort of minimize has minimal cannibalization risk on your very profitable gasoline and CNG three-wheeler portfolio? So these two questions. Thanks.

Operator

Ladies and gentlemen, the lines for the management has got disconnected, request you all to please stay online while we reconnect them. Thank you.

Ladies and gentlemen, thank you for patiently waiting. The lines for the management is reconnected. Thank you, and over to you, sir.

Mr. Rakesh Sharma — Executive Director

So, Binay, did you — you asked the question. And I actually answered it, but. I think you didn’t get the answer. Do you — can you tell me where exactly you lost me or you didn’t hear the answer at all? Hi, Rakesh, actually, we did not hear anything. Oh my God. Such a passionate response I gave to you guys, anyway. I’ll have to do it again. So the first question was around FAME. And it’s very difficult at this point of time, the jury is out whether FAME will be made zero, or whether it will be continued or whether there’ll be a mid part. Now, we have obviously been sensitive to this, and that is the reason why we have been at every point of time whenever we have made backend investments along with our vendors, or front-end investments, we constantly get this at the back of our mind that what will happen if FAME goes away? Will we be able to still continue? And it is with that approach that we have expanded our frontend franchise and the back-end. The thing this — couple of things will happen even if, let’s say, we assume the first worst-case scenario of FAME going away. One is certainly that the industry will consolidate in favor of the stronger players, and of course, Bajaj Auto can be counted as a strong player and therefore, we will have a larger share, though of a smaller industry. Secondly, of course, the industry will get a shock and it will shrink, the market will shrink a little bit. Here I would like to point out that from an operating cost point-of-view, the — even without the subsidies, if I factor-in the full capital cost — I am not factoring-in 28% GST, I’m just taking the FAME subsidy, so I think the rest of the stuff, road tax, here, there, 5%GST, that will continue. Factor-in the prices without any FAME, even after factoring those in, the operating costs compare very favorably with high scooter. But of course, the consumer will have to deal with the initial shock of a high upfront payment and that will scare some of the customers and will go away, but over a period of time, people recognize the value in it and they start to return, albeit on the backdrop of economy and all is okay, so after a initial shock, the market should start to return, and the market will return in favor of the stronger player. So, I would say that it will be — if the FAME goes away, with is INR35,000 for a two-wheeler, it’ll be the eclipse of the two-wheeler industry. It will be smaller in favor of the bigger players and we to calibrate, other than this, the reason why [Indecipherable] volumes. So that was the first part. The second thing I think you had asked was about the cannibalization. So I had addressed this, so you see, if you take three-wheel mobility, we have 78% share of the auto rickshaw market. But if you take three-wheel mobility, three-wheel mobility including e-ricks and this that and the other, then these fellows are almost 45%, 50% of the market today. Just four years back they were 5%. Today, they’re 50%. And they have mushroomed because the midpoint mobility is very-high, public transport is closed, and the government for whatever the reasons, state governments have banned the auto. So how does the person, how does the lady with children, school and all that get around? That’s how the solution of E-ricks and all, suboptimal vehicles has mushroomed. Now with the E-Auto, our electric version, our hands are not tied behind our backs. We’ll just [Indecipherable] and we can go and attack this 50% of the market without any fear of any cannibalization etcetera, and it will be a new market with a very good solution which is time-tested, at least on the vehicle side, time tested over the years. So actually this is at least for some period of time, it will be adding new segment. As those mature and ourselves over there mature, then we will see how to deal with it in the next phase, but in the I would say half of the market and most of it is the Northern and Eastern town, the Saranpurs and the Azamgarhs, Dharampurs, these kind of areas, we will roll in with our e-auto.

Operator

Thank you. Ladies and gentlemen, we’ll take the last question from the line of Amyn Pirani from JP Morgan. Please go-ahead.

Amyn Pirani — JP Morgan. — Analyst

Yes, hi, thanks for the opportunity and I have to say it’s heartening to hear you in such high spirits after a long, long time. My question was actually again on the EV side and on FAME, because most of the questions have been answered. The current issue which is going on with the government with regards to the release of the money and the fact that they are trying to figure out whether be norms have been met, where do you think we are right now as an industry and even though FAME continues till March 2024 for now, I mean — I mean, do you think there is a stalemate and the government may not release the money in a hurry and are they asking for more things from you and from the industry in general?

Mr. Rakesh Sharma — Executive Director

No I don’t think it is in a stalemate. In fact, I must say there is a nice level of dialog which is happening. See, from the credit point-of-view and we have interacted obviously with a lot of people in the Ministry, they see definitely two kinds of players, there are certain kinds of players, who have usurped the system have leveraged the system and there are another set of players who’ve gone by the rule book, right. So both are facing issues, Amyn, I must clarify, we do not have any show cause or any obstruction from the government, besides just the procedural, it just takes time to recover the money. These set of conditions and rules were designed at a point of time when there was a lot of unknown and it was not clear as to how all this will move, what are the things. So I think it’s come to a point in the government, and there are different parts of the government, there is a Parliamentary Standing Committee, there is a ministry task forces, there are the outside agencies who are attempting to simplify the process. And that is very important. So there are certain — certain aspects of FAME, where for genuine reasons, we cannot meet the kind of process or the kind of demands which the government had laid down in a period when this was not understood, which is recognized by the government. And it has been thought for, but we think both take time because they have to account for both types of players, and that is where we are.

So I won’t say it is a stalemate. I don’t think that the government is using some backward means to thwart the FAME train. We have not at all picked that up. We see — we’ve seen that there is a certain step-by-step process through which to ensure these reforms and that is the period we are in actually.

Amyn Pirani — JP Morgan. — Analyst

Okay, so just to clarify, I mean so the credible players like you, the money getting released is just a matter of time and procedure, whereas for some other players, there could be a bigger issue, is that a fair way to think about it?

Mr. Rakesh Sharma — Executive Director

Oh, absolutely right. We have seen in our case it is just a process and we have in different fora, as part of an association and have individually given our contribution as to how we can simplify the process and we have — which will help all the responsible companies. But we are all aware that there are a few people who either through ignorance, neglect or willful action, [Indecipherable] the system and they will face the consequences.

Amyn Pirani — JP Morgan. — Analyst

Great, thanks a lot and all the best, sir.

Mr. Rakesh Sharma — Executive Director

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Anand Newar, head, Investor relations for closing comments.

Mr. Anand Newar — Head, Investor Relations

Thank you, Faizan. Thank you everyone for joining us for the call. I know this is quite late, but those who have some additional questions to ask, I’m happy to answer this up to half an hour from now. Thank you.

Operator

Thank you. [Operator Closing Remarks.]