Bajaj Auto Limited (NSE:BAJAJAUTO) Q3 FY22 Earnings Concall dated Jan. 19, 2022
Corporate Participants:
Rakesh Sharma — Executive Director
Kevin D’Sa — President, Retail Finance
Anand Newar — Divisional Manager, Investor Relations
Analysts:
Raghunandhan NL — Emkay Global — Analyst
Gunjan Prithyani — Bank of America — Analyst
Kapil Singh — Nomura — Analyst
Binay Singh — Morgan Stanley — Analyst
Chirag Shah — Edelweiss — Analyst
Nitij Mangal — Jefferies — Analyst
Presentation:
Operator
Good morning, ladies and gentlemen, and welcome to Bajaj Auto’s Conference Call to discuss the Third Quarter Fiscal Year 2022 financial results. We have with us, Mr. Rakesh Sharma Executive Director; Mr. Kevin D’Sa, Officiating CFO; and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Steven, and I will be your coordinator. [Operator Instructions]
I now hand the conference over to the management for their opening remarks. Thank you, and over to you.
Rakesh Sharma — Executive Director
Good morning, ladies and gentlemen, this is Rakesh Sharma here. Thank you very much for joining the call. I hope everyone is keeping safe and healthy and I hope the third wave remains an [Indecipherable] and peters out very soon. So we announced our quarter three financial results last evening, but I hope by now you’ve had some opportunity to look into the details.
Overall, quarter three was yet again a difficult quarter to navigate due to the combination of an uncertain demand environment, even during the festive [Phonetic]. Cost increases and supply chain disruptions in semiconductors, as well as in shipping. However, overseas demand recovered quite smartly, held steady, and seeing that demand in India also improved on the back of receding lockdowns.
So in this milieu, we try to keep to our strategy of strengthening our competitive position, by upgrading our propositions across and within segments, by capturing a greater share of the recovery in our leadership markets like overseas and three wheeler, and thereby improving upon our financial results quarter-on-quarter.
I now move on to the business wide comment; let me start with our exports business unit, which is now our largest business unit, accounting for over 56% of our topline. Quarter three was the highest quarter this year in exports, with average sales crossing 219,000 per month. This was also supported by a high level of retail in the market. In fact, quarter three retail, is a record for us and it’s a highest ever quarterly retail achieved in the overseas markets combined. Consequently, we have increased our global market share in both motorcycles and CV, and market shares are held or increased in every single region of the world.
By end of quarter three, we have pushed through price increases of 5%. These are in retail terms. This is higher than what our competitors — particularly competitors based out of India have done, and this performance, the record performance both in shipping and retail, have been delivered, while digesting the price increases at a retail level and navigating all the problems of shipping, as well as shortages in semiconductors.
The outlook for exports business remains steady, and stocks in most countries are in tight control and we hope to replicate this performance in quarter four as well. Though, because it’s the financial year-end, there is some spillover of business which occurred into the new financial year, so you might see some impact of that towards the end of the — of March.
Coming to motorcycle business unit, the demand scenario continues to be muted, as both billing and retail has declined by double-digits in Q3. Vahan data suggests, service stations declined by 11% for motorcycles in Q3 at an industry level. Though the auspicious days have only just begun in January, but our retail data confirms that January continues to show a similar decline in retails over January ’21. All segments, entry, mid and sports are in decline, with may be a few percentage point difference amongst them here and there, but largely, they have all declined. All geographies, rural, semi-urban, are in similar decline. Cash sales are in decline, but a bit more than finance sales. It is — financing based sales have done slightly better. This earned pervasiveness of decline suggestion in underlying issue, with both purchasing power and sentiment of the two wheeler customer.
You know, over 60% of our customers reside in socio economic classes of CD or P2 [Phonetic], where amongst other things average incomes of less than INR50,000 per month, and this segment of the demand pyramid, is yet to see restoration of purchasing power or will to purchase. Against this backdrop, our decline was lower than the industry, resulting in a gain of market share on retail basis. Vahan registrations again indicate an increase of 1.6 percentage points for us to a 20% YTD market share in FY ’22 compared to 18.4 in FY ’21. The rise in market share is driven by our upgrade strategy, 100 CC of our kickstart to electric start ratio has moved from being 25%-75% in FY ’21, to about 95% in quarter three. That means 95% of our portfolio of sales in the 100 CC, is electric start. Our effort has been to upgrade the kickstart customer into electric start.
In the mid-segment, which is the 125 CC segment, 22% of our sales now come from the Premier 125 NS. The 125 NS has been targeted at the youthful customer. It is 24% more expensive than the entry level Pulsar 125 drum. Today, Pulsar 125 NS, which was launched in April, it has established itself as the most aspirational 125 CC bike, and like I said, 22% of our sales comes from this variant. This is again another illustration of the upgrade strategy playing out in the market.
We are now going to extend the upgrade strategy in the sports segment too, which has not seen meaningful product introductions for quite some time now. As you know, a new 250 CC platform was launched by us on October 28, the 20th anniversary of launch of Pulsar in India, both the 250 S and N have been very well received by experienced as well as by mature riders. Our national rollout is unfolding in January, and we are seeing a 40% rate of increase in daily bookings every week, signaling a good level of production. We will be seeking to expand the new portfolio and will be making — we will be making new introductions at regular intervals over the next six to nine months, completely refreshing and upgrading the Pulsar portfolio.
The Dominar 400 upgrade has strengthened its position of a sports owner, and has been very well received by enthusiasts. Whilst it doesn’t add much in terms of volume, both internationally and domestic, however, expanding this segment and gaining share here and actually gaining customers here, there is a lot to the stature and to our franchise, both in India and overseas. It is something which is sort of surging ahead in all markets now.
Overall, due to the muted outlook of the industry and some uncertainty related to the third wave, we remain cautious about the environment in Q4. We expect it to be negative over Q4 FY ’21. In this situation, our objective is to maintain our performance in Q4 compared to Q4 FY ’21.
The three wheeler business unit, the domestic three wheeler business, with the significant improvement in economic activities almost return to normalcy in Q3. We sold more than 52,000 units during this quarter, which was 18% higher sequentially and 52% more than Q3 of last year. Consequently, we ended with a whopping market share of 71%. In fact in December, to 74%. The business where we are not just leading overall, but leading now in every single segment of the three-wheeler market, small passenger, large passenger and cargo. In the cargo segment, we have crossed the market share of 50%.
The rollout of the CNG network continues to proceed strongly by the government. In this year itself active CNG pumps and number of cities have increased by 50%, and this bodes very well for Bajaj Auto, we have a market share of 75% in this segment and this is also, along with retail finance support, a key driver of the expansion of market share in Q3. Going forward, our intent will be to improve the quarter three level of performance. However, we have to monitor the impact of the third wave very closely. Currently, levels of — inventory levels are very much in control, and if lockdowns do not disturb everyday traffic, we should be able to improve upon our quarter three performance in Q4.
On electric vehicles, the Urban Business unit, organized business unit, we have applied for the Champion OEM incentive scheme of auto PLI, under which we intend to invest over INR1,000 crores in the next five years. This includes the early and first investment of INR300 crores in Akurdi, which is right here in Pune, which is expected to deliver us a production capacity of five lakh electric two wheeler per annum. The first vehicles are expected to roll out by June of this year. During the quarter three, I mean, we sold over 2,000 Chetak, and have an order book of close to almost 10,000 vehicles, and this is basis a limited current footprint of being in eight cities. Now, we are seeing a better visibility in supply chain, which will allow us to roll into 12 more cities this year, and progressively in the nine months, next nine months or so, as the supply chain performance on EV components improves and we are seeing that happening, we are going to cover the entire country. We are gearing up in our dealership, salesforce etc from this rollout, based on the visibility in the supply chain.
We are working towards expanding the EV portfolio, to cover different emerging segments, and we have a three-pronged approach to really building the EV business. The first is, that despite all the frenzy which is surrounding this whole subject, we are clear that we will prioritize certainty over speed, to ensure we do not damage a nascent category and build a robust dependable brand.
But to tell you as an [Indecipherable], that when the news of competitors was hitting the market in October, November or so, we did see some cancellations in order bookings. However, with the passage of December and now in Jan, when the performance of competition is being witnessed and experience by customers, our cancellations have dropped down to a trickle. So we are able to carry very large level of bookings, at the most — at the highest most prices, for extended periods of time. Hence, we are convinced that the most important thing for us, is to establish Bajaj and Chetak as a very dependable brand.
The second part of our three pronged approach, is to continue to build R&D and supply chain capabilities for the longer term, including through partnerships like with KTM for the shared mobility investment we have in Duke. And the third piece in this approach, is to expand our portfolio aggressively, to cover different segments, standard and emerging in India and connect overseas markets, through products, which are designed and made to address specific use cases. This is what we leverage our R&D strength. We are not looking at important designs and slapping together a power trade, so that we can speedily get into the market with a half complete product. We will prefer that our products are designed, and could get to specific used cases like I said.
Finally a comment on our EBITDA performance, comparing the underlying EBITDAs of Q2 and Q3 shows a 0.6 percentage point increase in EBITDA in Q2. In Q2, we had a one-off benefit of the cumulative workplace and MEI for previous quarter, so the underlying EBITDA as per our calculations was actually 15%. Now this quarter, we delivered 15.6%. The improvement is accounted for evenly by an improved realization of the U.S. dollar and price increases in the quarter, slightly ahead of the final cost increases, which were experienced. All operating costs were tightly controlled. The outlook on cost increases were very gentle 1% or so at this point of time in quarter four, and this has already been passed on by the increases in [Indecipherable].
Thank you very much everybody for patiently listening in, and we can now open the floor for Q&A.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Raghunandhan NL from Emkay Global. Please go ahead.
Raghunandhan NL — Emkay Global — Analyst
Thank you sir for the opportunity, and thank you for the comprehensive opening remarks. My first question was company’s thought process for electric three wheeler has been to provide an ecosystem for operators, and not only a product. What all would an ecosystem include? Also competitors are focusing on battery swapping model as well, would Bajaj also focus on a swapping option?
Rakesh Sharma — Executive Director
So the three wheeler development is now nearing its final phase and we expect to be putting up three wheelers for approval by end of this fiscal, and then in the next quarter, we will launch them. We will have a comprehensive range, which covers progressively the cargo, the small passenger, and the large passenger. We will be trying to use — we will be using our current brand name and trying to flow over the normal equity which we enjoy with mechanics and drivers and fleet owners, into the electric side itself. We are gearing up our dealer network to provide all the support services, and these three wheelers will come equipped with telematics etc, which will allow fleet owners a better sort of ability to manage their fleet and utilization of the cargo vehicles.
This is what it is right now, and what was the — yeah, the battery swapping part, these three wheelers could — at this point of time, with the kind of numbers, which are going to be in the CV, in three wheelers, we feel that the battery swapping approach is going to drive up the capex, because till the time the part numbers doesn’t cross a critical side, you need to have twice the number of batteries in the system, as there are [Indecipherable] vehicles, only then the customer will be able to get the batteries, as and when then they want. As the current cost of the battery, having 2x number of batteries for each vehicle, one on the vehicle has one somewhere in the system, will drive out the capex of this system, it is that is who pays for it, but it will be recovered in one way or the other, as interest etc, or use charge, or whatever. So till the time this doesn’t cross that critical number, where the X factor comes down to 1.2x or so, like it is, let’s say, for our two-wheeler in Taiwan, or the battery cost plummets strongly, it doesn’t make sense in the three-wheeler segment, which is the commercial segment, to have a swappable approach.
However, from a technology point of view, we are investing behind this, and we will have a range of two wheelers, which will work on battery swapping, and we will see if we can do this through our dealers and other methods. This will allow us to have a net in the technology space, and depending on the commercial viability of this approach, we will play it out in — whether it is three wheeler, or in two wheelers.
Raghunandhan NL — Emkay Global — Analyst
Thank you, sir. My second question was, can you give some color on upcoming products in EVs and ICEs? In EVs, there are snapshots [Phonetic] seen and media reports for electric scooter. There is also hope that electric motorcycles will come up ahead in collaboration with KTM. And also if you can highlight the Bajaj-Triumph combined efforts for premium ICE motorcycles?
Rakesh Sharma — Executive Director
So most of our R&D effort, in terms of new platform is now focused on EV. We are focusing only on one platform, which is a new platform in the ICE range, which will hopefully expand and really bring a very differentiated proposition in the commuter segment in due course of time. Apart from that, all the new platform building is now taking place in the electric side of things. In that, we are — we feel that the traditional ways of segmentation are not relevant in electric two wheeler segment at least. This was — we were looking at commuters, we were looking at a mid-range and then we were looking at sporty commuters, like that.
But new ways of segmentation are needed, which are based more on people’s preference for — which are more on usage case. You know, one may prefer speed, somebody else may prefer range, somebody else may prefer convenience of charging, etc. So we are looking at these use cases, and our objective is through these platforms, and I’d say there are at least three platform in the R&D, which are right now being conjured up, tend to cover most of the use cases. And as and when we understand the used cases emerging, we will deploy the appropriate and the relevant platform. It is not possible to imagine all the used cases immediately. Therefore, we have looked at taking a platform approach, which will allow us to spring into development of — to address a specific use case.
I mean, to give you illustration, it could be, — there could be obviously, the emergence of the delivery segment is obvious. But within the delivery segment, there could be a sub-segment, which prefers no speed, which doesn’t require licensing, and there could be some sub-segment, which actually prefers high speed and long range, and both these require individually different and customized solutions. So therefore, our approach is to build together a business platform, which will allow us to address these new segments over a period of time.
We are collaborating with KTM, the electric styled powerchain is actually very, very suitable for some of the extreme sports motorcycle. We are looking at those. They did not find too much of an application in India. Thus, they are going [Phonetic] to give us a lot of manufacturing and development experience, and access to global markets through the KTM brand or through the Bajaj brand. So that work is going on. We are also looking at different forms, not just motorcycles, but suffice it to say, that beyond motorcycles and scooters, different forms are being evaluated. Some of them are already in play. You can go to the KTM website and have a look, that we are jointly evaluating different forms. And if they are applicable in India, we’ll present them in India, or we will present them in some other overseas markets.
With Yulu, we are getting very valuable information on how last mile and first mile requirements are there, how those speed delivery segment is shaping up, and we are working with them to develop a site, by a develop a vehicle, specifically to address this, and will — most likely it will be presented within 2022. So then we have lot of activities, I think, it will first start with the aggressive rollout now of Chetak. Progressively, I think we are seeing a better and better supply chain visibility, so we’ll — so quarter four will be much better than quarter three and quarter one will be much better than quarter four. We will roll this out, that’s our first priority and then progressively, the Chetak platform will be expanded. The KTM base platform will be expanded, and the Yulu base platform will be expanded.
Operator
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Gunjan Prithyani — Bank of America — Analyst
Yeah. Thanks team for taking my question. It’s really good to hear more about electric and your thought process. Just on this topic, you’ve mentioned many times in past, that supply chain has been a constraint. I mean, I’m just trying to understand, if you can give us more color on what are really the problem areas, is it chips, is it battery? And what are we doing to address that? Because we may have 0.5 million capacity coming onstream midyear. I mean, is it something that we are doing on the back end, that this capacity can be ramped up, when the demand — when the EV transition accelerates. So the first question on the supply side.
Rakesh Sharma — Executive Director
So we had a lot of trouble last year, once the — you see, we started in, let’s say, April, May and June — March, April, May of 2020, and then the — and COVID struck us, and our arrangement, which we had put in place, I don’t want to name the vendors, but global vendors, very reputed companies, those arrangements collapsed, between those companies and their suppliers. As a result of the blowback on us, and our arrangements got impaired. And we were primarily in the battery side, and later on, because of the independent issue of the semiconductor coming on, this created a double whammy on some of the electronic components, getting into a problem.
Over the last six to nine months, what we’ve done is, we have indigenized, and we have internalized a lot of the components. And we have put in new supply chain arrangements, which have fallen in May, and we will start to see that impact. We have also got the in-house technology based Chetak approved by ARAI, by FIIC [Phonetic] and all that and that is subject to roll out into the market, since end of December and now of course it is in full flow. Because of this, I mean debacle is a strong word, but because of this problem which we faced with our previous arrangements and the considerations were based on those arrangements, it took time to change into a new configuration and put the new arrangements. Those have now been put in place, and we see that this year, a better visibility because of that.
Having said all this, I must point out, that the supply chain environment for everyone does remain uncertain, because of this chip situation, we are now realizing again, that there is a good is a little bit of turbulence in that area once again. So we remain vulnerable as everyone does, but our specific problem, which was of base, all configuration was over the line from one vendor system. That we’ve been able to neutralize.
Gunjan Prithyani — Bank of America — Analyst
Okay, that’s good to hear. The second question again I had on the three-wheeler business now. I mean I do understand CNG, and we are gaining share in cargo. But this is something that, this is again a sector — a segment which is very, very vulnerable to a — e-transition. Now you did mention we will roll out the products, but there is also lot of new competition which is coming in this space. So maybe if you can give us your perspective as to, do you see this segment shifting very quickly to electric? And if not, what are what are the real challenges? Because you all have been speaking about CNG lot more than electric in three wheelers?
Rakesh Sharma — Executive Director
No, first of all, I think that CNG is a very, very good option, when it comes to environment and operating cost. It is a product in which the mechanics and the driver really understand well. CNG network is something that the government is very, very keenly — I mean, we just had to go into be the company’s site, and see, not our company, but the government site and see, how aggressively the government has been rolling out. And I am surprised, that the media doesn’t pick it up, but it is one of those infrastructure projects, which over the last few years, have been very successfully implemented. And even this year like I said, the number of towns and coverage is really increasing.
And the moment a CNG comes, you can see, it’s very clear that people really prefer going to CNG, because it gives a huge improvement over the current operating costs over diesel or petrol, and that’s why we support it and we have always supported. And we have always, we have found that even internationally, wherever CNG is there, it has made a good impact. And why should we not pursue an alternate fuel, because in any case, at a macro level, what we believe is that, these two issues, environment and dependency on the dollar, where the government is trying to mitigate through — transitioning to electric, is going to be so better, if we sort of move into different alternate fuels, and things like flex fuel, ethanol based fuel, etc, it’s don’t think just a move from petrol to electric is going to fully serve those twin objective.
So we are very keen. We are not going to abandon our pursuit and our expertise and our authority on alternate fuel, just because electric is there. We are going to pursue — continue to pursue that, and we will pursue electric. Now on the electric side, the issue is that, when it comes to operating costs, compared to CNG and electric vehicle is about 10% cheaper compared to LPG, it’s about 20% cheaper and compared to diesel, it’s about 30% cheaper, the operating costs. But capital costs are higher, and therefore there has to be a very strong retail finance support.
In today’s environment, stepping up retail finance beyond what it is already doing, you know, is a bit of a tall order, and it will still take some stabilization of the environment for retail finance companies, to come in and say, that we are going to now support purchase of a very expensive electric three wheeler, when the demand environment is weak. So that is one constraint. But we will keep working on that. We have BFL with us, and we are constantly exploring opportunities there.
The second is of course, the charging anxiety. We will leverage our distribution network, and we will see how the charging anxieties can be addressed. It takes three to four hours, and parking where you can charge, is an issue. These kind of things are there in the minds of people. So to unfold faster in fleet owner, then cargo and small multiload operators and those kinds of segments, but the vast market, which comprises individual owners running the three-wheeler is an issue.
And the final point in an individual driver owner’s mind, is that what will happen to the battery? What will happen to the resale value? He knows, he is very, very clear, as he buys a three wheeler, what he will be able to sell it off at the end of three years, five years, seven years. It’s a mature retail market. The electric three wheeler market is not a mature one, and the retail price understanding is an important component in the purchase decision of an individual driver-owner. But this will also get resolved over a period of time. So therefore we see, that it’s not that the transition will be dramatic and sudden, it is definitely on us, but it will unfold progressively as these things — these chips fall in place, and they will take some time to fall in place.
Operator
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Kapil Singh — Nomura — Analyst
Sir, I wanted some color on the export marketplace. Also if you could cover things like bans [Phonetic] which have taken place in markets like Egypt on three wheeler? And also a little bit of contrast in comparison to the Indian market, because we have seen these waves in export market also. But the volumes there have been doing pretty well. So, just some contrast as to what is going right in those markets compared to India, in your view? And also of course, the volume outlook, whether we can sustain the current run rate? That’s the first question.
Rakesh Sharma — Executive Director
Okay. So yeah, we — I mean, over the last few years, the outside world sees a very steady volume in exports of the three wheeler. But what is happening underlying this, is a furious pace of business development. Now, with India being a mature market, the scope for business development only comes when there is a discontinuity like we just talked about one, within the advent of the CNG three wheeler or one which will come up to, let’s say, in a few months or quarters, which is the electric side, which hopefully we will be able to cannibalize like e-ricks, which are all China based trading stuff, which comes.
Now in exports, we got a lot of learning, when suddenly we lost, out of our critical 22,000, 23,000 units per month which we used to do, we used to do 10,000 units in Sri Lanka, this is six, seven years ago, and suddenly that thing got switched off, because the Sri Lankan government came down on the three-wheeler, because of import duties, etc. And we were suddenly faced with the crushing three wheeler export phase, as we launched a furious development exercise that at that point of time, and over the last four or five years, we have developed, something like 23 or 26 brand new three wheeler markets. These countries like Iraq, Philippines had never ever seen a three wheeler. But our teams went out over there, educated, trained, supported, trialed and expanded the three wheeler market. So today, before the lockdown and now, the market is coming back, we are doing over 2,000 — almost 2,000 units of three wheeler in Philippines. Cambodia had never seen a three wheeler and we were doing 1,800 units in Cambodia per month. Iraq, we are touching 3,000 units per month. It has never ever seen three wheelers in its — and in the early days, we have developed Mexico, then Dominican Republic and I can continue, there are many-many markets.
So we are continuing this learning from that, there is a constant, there is a squad in the exports team, whose constant mission is to develop three wheelers and now we are looking at electric three wheelers very excessively. And the development of the — we are looking at that as an opportunity. So our, when we look at what is in the pipeline, we believe that there will be the consequence in terms of the countries will vary, but we think we will be able to sustain, if not improve marginally, this level of performance and export of three wheelers. Egypt banned the three wheeler, similar in October. But you would have seen in November, December and well into quarter four, we will continue our exports at the same level to Egypt, because the Egyptian government quite supposedly, had allowed existing order. So that’s why the pace of export is continuing. And while that is happening, we are in dialog through our partners there with the Egyptian government, because the Egyptian government has a requirement of CNG.
We want to shift to CNG, and until now we’ve been only exporting that. So we are in discussions to them offering the CNG option. Where also in some parts of the city, whey want a high-speed vehicle, a better looking vehicle, etc, and we are in discussion with them. And hopefully over the next couple of months, we will be able to resolve a few things. Because I must also say, that there are many territories within Egypt, as it is in many countries, including places like Mexico, where there is no other — a bus cannot go, a minibus cannot go, a car cannot go into those narrow towns. In Lima, in the favelas, etc, when a bus drops off a customer, a passenger, the passengers has to walk uphill for another two to three kilometers to reach his home through winding streets, and that is where only a three wheeler can take — and if there is a woman who has come with some shopping etc, there is only — these are the kind of people we are serving. And so, you know, it’s not easy also do shut off this type of public transport, without inconveniencing the customers.
So through this thing of engaging with the government, and secondly furious pace of — and continuous business development, we hope to sustain this level of performance in 3 wheeler exports.
Kapil Singh — Nomura — Analyst
And sir, two wheelers?
Rakesh Sharma — Executive Director
Sorry?
Kapil Singh — Nomura — Analyst
For two wheeler, export outlook?
Rakesh Sharma — Executive Director
Two wheeler export outlook? The two wheeler export output, sorry, your audio was not very clear to me. Yes, the two wheeler export outlook in the short term in this quarter four will remain steady. But what happens is that, as the year comes to a close, and there is some spillover which goes into April, May. So to that extent, we will see some reduction, last year we were building up stock. But at the retail level, it’s all going very strong, and we are hoping to conclude the financial year with 2.5 million plus of exports, almost $2.3 billion, and a very good surge in Pulsar and Dominar, and this gives us a great momentum and the stocks are not very high, this gives us a great momentum of entry into financial year ’22-’23.
Kapil Singh — Nomura — Analyst
Okay. And sir, second question was on electric. We’ve seen these bookings coming for Chetak, and we are operating at a certain price point. So I just wanted to understand, when we are looking at these customers, who are these customers? Are they people who are using a current 100 CC or 125 CC scooter, or these are some enthusiasts, who are testing out the product at this price points? The reason to ask this question is also, because we are now putting up a five lakh capacity, so I just want to understand, whether there is that much demand at this price point, or you need to straddle a much bigger price range, let’s say, some 100,000 or 80,000 onwards, if you can give some color on that as well?
Kevin D’Sa — President, Retail Finance
Sure. See, first of all you should understand, despite all the media frenzy, let’s keep our nose on the ground, and see that today the penetration of the two wheeler — electric two wheeler is only 1% of the — I mean it’s only 2% of the overall two wheeler market. So that is the play right now. Now within that, of course, that has to expand to 4%, 8%, 10%, 15%, it will have to cover a very different level of price points. There is no escaping from that. That’s staying within this current price point. Also, there are opportunities which are more geographical in nature. What we have achieved till now, is only on the basis of eight cities and we want to — the more we expand, we will be able to take the top of the pyramid of these eight cities. But for it to truly relate it to the ICE, we will have to go into different price points.
Secondly even examining who are the people that you asked, who are the people who are buying it, who have been thinking, but there is a price cross section [Phonetic]. I mean, to give you some color, if I look at Pune, which has most — high level of electric penetration, and this is where we launched our electric Chetak first, and it’s the market where you got most data, because we’ve been operating it now for almost 1.5 years. So our sales from our showroom or dealer in the center of the city, are far outstripped by sales from our dealers on the outskirts, let’s say, like in Chakan and adjoining areas of Pune. What I’m saying is, that people [Indecipherable] you would expect, maybe someone who’s environmentally conscious, economically stronger, very urban kind of a persona to be the first buyer. But what we are finding is — that person is there, but we are also finding, is that there are people who are in suburban areas, who are very attracted to the proposition of leaning [Phonetic]. When we are looking at the language, which people are preferring to choose, because now Chetak can be bought online, they are choosing vernacular language more over English, which suggests a certain socioeconomic class. We would expect like — to use English. But no, the vernacular language is being used.
You can see today, if you are just driving around in Pune, you can see women, you can see elderly men, you can see delivery boys in the morning coming and rubbing [Phonetic] new paper on a Chetak. It does, it is very, very heartwarming therefore, to see it — that electric as a concept is getting wide-reaching acceptance, and Chetak as a brand is also getting wide ranging acceptance. But for it to reach a meaningful penetration, and not yet — all this is happening within this 2% [Indecipherable] is talking about. But yes, going forward, one will have to obviously make it more accessible to different income demographic.
Operator
Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Binay Singh — Morgan Stanley — Analyst
Hi team. Thanks for the opportunity. I had two questions, firstly on the margin side, good to hear that you’ve taken around 5% price hike on the export front. So from here on, how do you see the margin trajectories for the business? The margins have expanded sequentially, but still sharply down on a Y-o-Y basis. So what’s the outlook on that? That’s the first question.
Rakesh Sharma — Executive Director
So Binay, let me invite your old trend Kevin D’Sa, who is officiating after — as the CFO after Soumen. He is with me. I invite him to talk about this.
Kevin D’Sa — President, Retail Finance
Hi Binay. Good to hear from you
Binay Singh — Morgan Stanley — Analyst
Likewise, Kevin. Good to hear from you.
Kevin D’Sa — President, Retail Finance
Binay, what I see from the margin point of view is, you have seen a sequential improvement from 15% to 15.6%. And actually, I go back a little bit as to see the margin we have closed, it’s about 19.8% in quarter three. Nearly got affected significantly by the high cost increase in materials, which given the situation of demand, and given the situation of the — situation, we really couldn’t pass on the entire cost. So I’m happy to inform you, that in quarter three, the entire costs have been passed on, and as a result of which, margin improvement has been reflected with material [Phonetic] costs coming down by about 0.4%.
In Q4, as Rakesh has mentioned earlier, we have estimated a bit of a cost increase, as we have [Indecipherable]. Primarily, the cost increase are in areas of steel, zinc and lead. There is a reduction in other metals like rhodium, etc. So — increase that is there, is not going to be too severe, but all that has been passed on to the customer. Now given the volume increase and a slight depreciation in the dollar that we hope to get, I think there should be a marginal improvement in the margins that we see from here. But this is at this particular point of time we are taking the call, but it will be stable and I very frankly say, that it will be plus or minus plus 3.5% from what we see today.
Binay Singh — Morgan Stanley — Analyst
Great. And thanks for that Kevin. And the second question is, you know, when we look at standalone minus consol, which probably is coming from KTM. We see a lot of volatility in that number, it was around I think INR300 crores in last quarter — in the September quarter, INR140 crores in this quarter. So could you talk a little bit about that, how to see this run rate going ahead?
Kevin D’Sa — President, Retail Finance
Which is this Binay, please?
Rakesh Sharma — Executive Director
Q3.
Binay Singh — Morgan Stanley — Analyst
This is consolidated profits less standalone profit, taking away the one-offs. This quarter also had a one-off. So in a way, I think it’s all coming from KTM. So, could you comment a little bit about the KTM profitability? We’ve seen a little bit volatility in that?
Kevin D’Sa — President, Retail Finance
Sure. So if I talk of the KTM and the consolidated profits, see we always take KTM one quarter in arrears is the — what we consolidate. Now the first quarter would have been a little bit affected by the COVID. So the operating profit that KTM has shown is on a steady state going forward from the last two quarters. But over the two quarters, two things have happened; one, as we have explained, there has been a bit of the restructuring of our holding in KTM, that is Bajaj Auto Indonesia Holding KTM, which is about 47.99%, got swapped to 47.56% of Pierer Bajaj AG. That in quarter two resulted in an exceptional gain of about INR502 crores. So that’s where the volatility came in, in the consolidated. Again in this quarter, what has happened is, we were left with 1.49% of KTM, which was sold in the buyback, resulting in a further gain of about INR75 crores. For the quarter, on a normal operating basis, KTM is showing a very steady profit over the last two quarters.
Now the other thing I’d like to share with you, is as of now, like I mentioned, we consolidated one quarter in arrears. So what we have consolidated in this quarter, is the profit of KTM. As we go into the next quarter, we will be consolidating the quarter off Pierer Bajaj, which will be KTM plus the other electric businesses of KTM. So you could see a bit of a bump up there as well in quarter four.
Operator
Thank you. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.
Chirag Shah — Edelweiss — Analyst
Yeah, thanks for the opportunity. Sir, first question is on the three wheeler side, if you can help us understand in domestic as well as exports, the breakup between CNG and other fuel, how much in domestic market would be CNG of the total volumes, and similarly in exports?
Rakesh Sharma — Executive Director
I think about almost about 60% in domestic is CNG, which is in passenger and in cargo combined. Exports is much less, I don’t have the number, but I can request Anand to give you that exact number.
Anand Newar — Divisional Manager, Investor Relations
Chirag, I can give you that number after the call.
Chirag Shah — Edelweiss — Analyst
Yeah. Sure. So secondly on the EV side, there were reports around few months back, that Husqvarna’s E-Pilen is likely to be manufactured in India, and it was supposed to get launch in calendar year ’22. There has been some delay because of variety of reasons. Should we assume this 500,000 capacity that you have announced, also takes into account HQs two products apart from E-Pilen there is one more product that they were looking to launch in in CY ’22? Hello.
Rakesh Sharma — Executive Director
Sorry, I didn’t — the audio was not very clear. So you were talking about Husqvarna which model?
Chirag Shah — Edelweiss — Analyst
Sir, there were two electric models that they were looking to launch in calendar year ’22, that was showcased somewhere in April ’21 and then updated in September 2021. And the indication was that, they would be manufactured by Bajaj in India for global perspective?
Rakesh Sharma — Executive Director
Yeah, yeah. So you see that finishing — that is going to be on the basis of, for a [Indecipherable] which we will supply, and that exactly how they’re going to do it, that KTM and Husqvarna will deal with. This plant is not formed from that point of view. Though over a period of time I’m not ruling out that — I’m not saying that we will not make any Husqvarna or KTM electric over here, that depends on how it unfolds. But currently what was discussed and what was — what we had briefly talked about, that KTM is making on its own, based on certain sharing of platform with Bajaj.
Chirag Shah — Edelweiss — Analyst
Okay. So this –the plant that we have announced is excluding this development? So as and when this development takes place, there could be further additions that could happen on the product side?
Rakesh Sharma — Executive Director
That’s right. This is node to serve the requirements of Chetak portfolio, and that is something can be — if needed, or needs to be accommodated, we will see at that point, but it is [Indecipherable]. It’s there for the Chetak portfolio only.
Chirag Shah — Edelweiss — Analyst
Okay. And sir, just a follow-up question on Chetak, and the EV product expansion that you indicated. Chetak is a very uniquely designed product, let me use a slightly more nostalgia kind of a design, we will — back to the history. Something like say Royal Enfield is in the motorcycle space. Do you think that there is a need for a slightly differential designing also to expand the EV portfolio of Bajaj, or Chetak type of designing is the best design that you are working with?
Rakesh Sharma — Executive Director
So our objective is to, we are seeing this as a vice captain [Phonetic] and we don’t want to paint a certain box for the Chetak bank and then become prisoners of it. Because, very high level of marketing efficiencies can be achieved, if we follow the harmonized approach of having the same name of the company, the same name of the store, and the same name on the product. This allows a lot of marketing efficiency and a very focused and strong integrated brand development.
Now in this, the downside could be, that can one brand hit various form factors and sizes? And that’s the opportunity we have with Chetak. If we take a very narrow view of it and say that okay, Chetak is only, you know that kind of a thought [Phonetic], then we will become a prisoner of it, as some other companies had become, and we don’t want to do that. We want to garner the marketing efficiencies, and you know the more vehicles are on the road — the more different types of vehicles are on the road, the brand only gets reinforced in the minds of the consumer; because having multiple brands also causes commitment confusion in the consumer’s mind.
So we are going to expand the Chetak portfolio, keeping the basic essences of Chetak ride. So people should be able to see a limit, they should not look like a zoo, you know where there is a zebra, and an elephant, and a giraffe, and all put together under one brand. Not like that, but the whole skill of the R&D will be to — for people to be able to take benefit from different form factors, and different size, but still see the unifying set of Chetak designing [Indecipherable], and that is what we are working for. I mean, obviously, I cannot fool you, but that is the kind of work which is now underway and people and R&D and marketing are sitting together and saying, that yes, when you put the entire dish [Phonetic] together, doesn’t look as it belongs — coming from the same parent or not. So we would go to work [Phonetic], having different form factors, and different styles under the Chetak brand [Phonetic].
Operator
Thank you. The next question is from the line of Nitij Mangal from Jefferies. Please go ahead.
Nitij Mangal — Jefferies — Analyst
Hi, good morning. Thanks for taking my questions. Rakesh, you made an interesting comment on how segmentation and EVs might have to be seen probably seen differently versus ICE. In context of that, how do you see a typical sports motorcycle customer today thinking about EV options? I mean, is it possible that a typical customer there might look at scooter as a form factor. So can that transition happen in a meaningful way? Thanks.
Rakesh Sharma — Executive Director
So see, in the sports motorcycle in the — in any case the motorcycle allows much less space to the designer to work with the battery systems. And the more dense a battery is, which means less space it needs. Then there are issues around heat generation, when it sort of discharges or when it charges. Then how do you dissipate the heat? And secondly, of course the cost of more intensely packed batteries, because the space available in a motorcycle is less. But having said that, so therefore, you cannot have a very [Indecipherable], unless there is a change in technology. But assuming we stay with the current technology, because there were a lot of technical developments taking place in the battery systems also, but keeping that aside.
Now, but there are certain, there are certain sports bike, like for example Enduro, offroader, which meets — where electric is very well suited, because they need very high levels of torque, and they need you know, the ability to go from zero to 60 kilometers per hour, in a matter of seconds. And that an electric motor can serve much better, than a ICE based system. So in those extreme sports areas, I think the transition to that. And secondly, what happens is when you’re using it for sports, it is imaginable that the person may not be too worried about range. These sports of offloading, Enduro, motocross, they take place in confined arenas, and they not like touring or things like that. So there are segments of the sports vehicles, which will see transition to electric, and that may happen. But in general, motorcycles, because of the reasons I described, faster in the commuter, high end commuter or low end commuter, will take — still take some more time before people move — before they move to electric.
Yes, and whether a commuter motorbike owner will start to prefer an electric, certainly that possibility is there. It is not necessary that the electric scooters will cannibalize only ICE scooters. They will cannibalize commuter motorcycles also. Ultimately the entire commuting, whether its scooter or motorcycles, but the entire commuter ICE market is open for cannibalization by electric.
Nitij Mangal — Jefferies — Analyst
Understood. So it’s a bit possible to assume that, as the market moves from ICE to EV, the share of scooters might actually rise, because that’s the form factor which is easier to have an EV?
Rakesh Sharma — Executive Director
Yeah. You can say, if you put together the EV and ICE, that there is a chance, that the scooter market will rise. And that is actually the most attractive part for Bajaj Auto. If you see these are points which are not mentioned in my opening remarks, but should have, but it is opening up a vast new segment for us. I mean for reasons which are well known, we have stayed away from the scooter market. But because the cannibalization will be faster in scooters, because when it — there are two things, one is the form factor and the second is the powertrain, and the powertrain has implications of costs etc. The scooter, the guy who is or the lady who was referring, the scooter has already overcome the decision of the form factor, that means they have already said that I’ll not take motorcycle, I will choose a scooter. And now the second decision is, whether powertrain should be EV or powertrain should be ICE. So therefore the cannibalization will be faster in scooters than others [Phonetic]. This means that, what new segments open up for us in places like India and ASEAN, where there is — we are sort of always hampered, because 90% of the market is non-motorcycle over there, and now this gives us an excellent entry into ASEAN and to the Indian scooter market.
Nitij Mangal — Jefferies — Analyst
Understood. And one more question, on the commodity cost side, I mean you have explained how you’re looking at the next quarter quite well. But when I look at precious metal price, I mean those are down very significantly. How much is that as a part of your total RM basket today, and especially rhodium, that was one of the biggest pressure points over here?
Rakesh Sharma — Executive Director
It’s not very large compared to the major cost for a motorcycle, for example, the biggest cost drivers will be steel, aluminum, and of course of rubber in the tires, etc. So this is a small part. But a fall over there would help us in the overall benefit on the material costs. It’s not very large.
Operator
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to Mr. Anand Newar for closing comments. Over to you, sir.
Anand Newar — Divisional Manager, Investor Relations
Thank you everyone for joining the call. I see quite a few participants waiting to ask questions. So I will be happy to take those calls after 12:30, and thank you and stay safe.
Rakesh Sharma — Executive Director
Thank you, everyone.
Kevin D’Sa — President, Retail Finance
Thank you, everybody.
Operator
[Operator Closing Remarks]