Eicher Motors Ltd (EICHERMOT) Q2 FY23 Earnings Concall Transcript

Eicher Motors Ltd (NSE:EICHERMOT) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Vinod Aggarwal — Non-executive Director

Analysts:

Divya Purohit — Analyst

Basudeb Banerjee — Analyst

Gunjan Prithyani — Bank of America — Analyst

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Pramod Amthe — InCred Capital — Analyst

Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Kapil Singh — Nomura Holdings, Inc. — Analyst

Ankush Agrawal — Surge Capital — Analyst

Presentation:

Divya Purohit — Analyst

Good evening, ladies and gentlemen. I would — welcome to Eicher Motors’ Results Call. I would now like to hand over the call to my colleague, Basudeb, to make the introductions of the management. Basudeb, over to you.

Basudeb Banerjee — Analyst

Thanks, Divya. Thanks to Eicher Motors’ management for giving us the opportunity to host the conference call. We have with us Mr. B. Govindarajan, CEO, Royal Enfield; and, Mr. V. K. Aggarwal, CEO, VECV, representing the management.

Today, Mr. Govindarajan will take us through Eicher — Royal Enfield-related discussions. Over to you, sir, for your initial comments.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Thank you, Basudeb. Hi, everyone. Welcome to Eicher Motors Limited call for the second quarter financial year ’22-’23. I hope all of you are doing very well. Glad I’ve had the chance to meet some of you in the investor call very recently which we had at Chennai.

With regard to the performance of this quarter, I’m very happy to announce that we have had an exceptional quarter as we have reported our highest-ever revenue from operations and highest ever profit after tax. We are continuing to achieve our milestones both at Royal Enfield and at VE Commercial Vehicles.

At Royal Enfield, we started this quarter with the spectacular launch of the all-new Hunter 350 on our well-refined J-series engine platform. We did it at Bangkok with all the global media and it was a huge reception. And very, very recently, two days back, we also launched our Super Meteor 650 on the twin wheel platforms at EICMA in Italy. I will talk you through about these in details for the period of time.

The festive season in India has broughten a very strong sales for Royal Enfield. We are running strong and have recorded more than 50% market share in H1 for more than 155cc. In line with our broader vision for sustainability, we announced an unique and interesting partnership with UNESCO in August wherein we’ll collaborate with them to promote and safeguard the intangible cultural assets of India starting only at the Himalayas first. Our ambition is to partner with at least 100 Himalayan communities to adopt sustainable living practices by 2030. We are very proud of this partnership in the overall — as an Eicher Motors level.

At VE Commercial Vehicle, we continue to focus on strengthening our market share in the heavy duty trucks and buses segment and Mr. Vinod Aggarwal will talk us through about that at a later point of time. Overall, at the Eicher Motors level, we continue to maintain a razor-sharp focus on our future strategic growth plans, along with the robust ESG vision. Related to share debt, we have improved our proportion — position in the Dow Jones Sustainability Index. Second, in sustainability, we’re on now having the top 10 in the Emerging Markets Category. To conclude, at an Eicher Motors level, we are very confident that we are on an accelerated growth path.

Moving on to the financials. Our revenue is about INR3,519 crores for Q2, which is our highest-ever quarterly mark, up by about 56.4% from INR2,250 crores last year. Our EBITDA is about INR222 crores [Phonetic] up by 75% year-on-year against INR470 crores last year. This was marginally below our highest-ever mark reported in Q1 of this financial year. PAT stood at about INR657 crores, which is the highest ever for EML up by about 76% on Y-o-Y basis as against about INR373 crores reported last year.

Now, I’ll talk you through something about what has happened as an highlights in the Royal Enfield. Royal Enfield has an exceptional quarter in Q2 and we have accelerated our growth momentum. That’s what we briefed you when we where there in the investor meet also. The first of that particular product which has propelled our growth is the Hunter 350 launch. The consumer response and the media has been outstandingly well and everyone now start looking and the inquiries are going up, bookings are going up. That’s a very good sign.

We wanted that this has to give an additional volume to us in overall and it has exactly landed in the positioning which we wanted for the product, which gives us an additional volume. For those consumers who were looking for Royal Enfield motorcycles in a different format and Hunter answered it bang on onto that area. We have rolled out on the Hunter more than about 50,000, 55,000 motorcycles already from the — since the launch which we did in August. Our order books are very good. It is very healthy, it is growing. Hunter, we wanted it should get new consumers from the new geographies and that’s what is the initial thought, and it should not cannibalize something in our product and we’re seeing that positivism that it is not cannibalizing and it is getting us new consumers, first-time buyers, the guys who are really enjoying the motorcycles who’re looking for a Royal Enfield-apt motorcycle has got addressed through this Hunter.

We have just opened it only in India till now. In the month of November, we are opening an APAC. Subsequently, it will be to EMEA and to renowned all other the areas in the markets. It’s — the Hunter is also ramping up now, so to that extent, we will start opening up the market. But as I mentioned, it is a J-series which is the overall — it’s a Euro 5 company, it is a global product. That how it is envisaged, that’s how it has landed. So anywhere it go, we don’t need to wait for some more formal occasions and all those things. Also, these are branded and tested and it is ready so that the vehicle can be exported as of now.

On November 8 or two days back, we unveiled the all-new Super Meteor 650 at EICMA in Italy. We have seen very exciting initial feedback from the media and from the community who has been seeing this. This hall was full, everybody is now looking at and asking about details on this. The Super Meteor 650 is an authentic retro thoroughbred cruiser and — on a successful 650cc platform. We have lot of learning and legacies of the cruiser-making. 1950s, we were making cruiser and then exporting to United States.

The Meteor has actually taught us lot more in cruising. What is that it has to be? What the consumer wants? Super Meteor 650, which has been there in the thinking and making for the past three years, as — when we launched, and exactly the media came back and that’s the very accessible, simple, easy-to-handle, Royal Enfield-looking, retro-styled cruiser. So we’re looking forward for great success even in that particular product.

For the quarter, we sold about 2,03,451 motorcycles, which marks about 65% growth from 1,23,515 last year, sequentially 9% growth over the previous quarter. Domestic volume, we sold almost about 1,83,067 units during the quarter in India, reporting an increase of 73% Y-o-Y and a growth of about 16% sequentially. The festive retail feedback from the field has been very strong and we recorded our second-largest festive retails during the September-October window.

Our international market, we continue to progress on our vision of becoming a global motorcycle brand from India. On a Y-o-Y increase of more than about 14% at 20,384 units against 17,900 units in the previous year. International retail performance for H1 has been very robust. We have throughout a solid growth of almost of about 40% to 55% across the various regions. RE is now the leading midweight brand in the U.K. and I mean the top 3 in Europe. That’s — a proud moment for all of us when we were reaching that market share positions.

And market share have climbed up to 7% in Americas as of now and 9% in APAC and about almost 10% touching in EMEA region, backed by robust pipeline of new products which we are launching. This all is without the new Hunter which was there because Hunter will open the entry-level even in the international market.

As far as the retail network expansion is concerned, we have been steadily moving ahead in our domestic network expansions. We have a network of almost 2,130 retail outlets, 1,083 dealership outlet format and about 1,047 studio format. And international market, we continued expansion with an addition of another six stores — exclusive stores in the Philippines, Mongolia, Vietnam, and Thailand. We’re slowly opening up one by one in all the markets as we’re already seeing.

As a brand, we always wanted to be a pull brand, so go there, opened one showroom, made the product experienced, and people start feeding the product, and that’s how the experience will start building the brand, then we will go in for an expansion. And that’s the phase we’re are entering so the expansion phase which is taking place. As of now, totally, we have almost 710 multi-brand outlet and about 175 exclusive stores outside India and that expansion plan is continuing with the new products which are coming up. The expansion will also will go on in that sequence.

As well as the motorcycle and ride evens, we did the 11th edition of One Ride where Royal Enfield enthusiasts across the world gathered to ride One Ride on a particularly day. And we also kick-started the Royal Enfield’s Continental GT Cup. We did last year and this year also it’s been getting received very well by the young guys. There’s lot of traction which we are seeing that for this sort of racing. As it’s not a true-racing motorcycles but it gives a fun type of retro racing as a sports and that’s actually getting a traction in the GT Cup through that road.

Before I conclude, I would like to share another achievement from Royal Enfielders. In the Dealer Satisfaction survey, which was conducted by FADA, we have Royal Enfield emerge as a second runner-up, which compared to last year, it was a sea of change which is there. So the dealers also started looking that the growth is coming back and things are better, our connect is becoming better, and that overall, this quarter have been an outstanding one at an hedge fund level. It’s been a record growth for Eicher Motors and at Royal Enfield also.

Now, I’ll hand it over to Mr. Vinod Aggarwal to walk us through the VECV financials and updates. Over to you, Vinod.

Vinod Aggarwal — Non-executive Director

Thank you, Govind, and good evening to all of you. Let me first start with the — giving you an update on the commercial vehicle industry. If you look at the CV industry, as you all know, after three years of recession, the CV industry is on the growth path and it’s continuing to grow every month, and the first six months have been very good for the industry where the industry 3.5 tonne and above it has grown by 68% and even in the month of October, the growth has been 15%.

So based on this growth, of course, it is expected that this year, we will be a good progress for the overall industry. Even though we may not still touch the earlier peak of 2018, ’19 but in some of the segments, it might be new peak, like for example in 5 to 15 tonne trucks, it is likely to be new peak, even though in heavy-duty and in buses, still it will be away from the earlier peak.

But of course, the — we have also seen in the past that whenever the recovery happened after the recession, it always leads to new peak in two to three years. Therefore, this time also I am afraid. Very firm belief that we are likely to see a new peak in the company two, three years. Of course, there are headwinds which are there, which are coming from inflation and global situation as well as interest rates, but at the same time, I think the outlook for the Indian economy for the current year, as we all know, it is 7% and future also relatively is much better than the global markets because of our own situation in the Indian markets because of our dependence on the domestic consumption even though there may be impact on exports.

And we also experienced this similar impact in our export markets. Like the truck export markets, we are having many headwinds because of the global situation, especially the foreign exchange situation of some of these South-Asian markets like Bangladesh, Nepal, Sri Lanka. And as a result of that, the markets there are down because there are lot of import restrictions in those countries.

Nevertheless, as I mentioned, the growth for the industry is good and even in the month of October also, we have seen the industry growth of 15% as compared to October of last year. And as we all know, last year’s second half itself was a much, much better year and with a good base. And with the higher base also, we have seen the growth of 15% in the month of October.

Now, in line with the industry growth, we continue to also grow in VECV. And specifically, I think the highlight has been our good growth in the heavy duty truck segment where our market share in the first six months, both Eicher and Volvo put together, Eicher and Volvo trucks, it’s now 8% plus. We are at around 8.2%. And for our Eicher brand itself, it is around 7.3%. As we all know, this has been our one of the biggest objectives that we should grow in the heavy duty truck market because heavy duty truck market is very large and if we start growing in that, then, of course, the potential for VECVin heavy duty trucks is going to be much, much stronger in the coming years.

And then, we are also growing very well in buses. Buses, our market share in last six months is now reached between 24% to 25%. So that is again a very good growth as compared to the previous years. In the light and medium duty truck segment, we continue to maintain our strong position of 28% to 30% market share and our strategy is to sustain that strong position, while slowly and steadily growing in the heavy duty trucks as well as bus segments.

Now, coming to our financials. Our revenue for the quarter two this year including the other income, it is INR4,215 crores as against INR3,152 crores last year. So at 34% growth in the total income. And first six months, it is INR8,148 crores as against INR4,792 crores in last year first six months with a growth of 70% in the top line in the first six months.

As far as EBITDA is concerned, this quarter, quarter 2, our EBITDA is INR249 crores, which is 6% at net sales and — as against INR170 crores which is 5.6% of net sales in the previous year quarter 2. And first half year our EBITDA is INR467 crores at 5.9% net sales as against INR188 crores at 4.1% as — on the net sales for the first half of last year.

Our profit after tax this quarter has been INR81 crores at 2% as against INR17 crores, 1-7, at 0.6% last year quarter 2, and first half, our PAT is 1.8% as against loss in the first half of last year at 1.3%. So, therefore, in spite of very strong competitive pressures, as you can see, we have continued to show a good performance in financials and — with a good potential to grow. And relatively, we are doing better as compared to the competition as far as the margins are concerned.

And then, of course, we have also– last quarter, the another highlight has been introduction of our electric buses. We have just executed 40 buses, electric buses order for Chandigarh city, which are running very, very successfully there. We also launched new models in the buses both in the Volvo bus and Eicher bus range, sleeper coaches which are again state-of-the-art buses, and we also introduced [Technical Issues] drive trucks for the export markets and also numerous models in the export markets in the Middle East.

And another good recognition for VECV has been the second year in a row, we were rated as number 1 in Dealer Satisfaction in this survey conducted by Federation of Automotive Dealers Associations, FADA, and we continue to be number 1 this year as well as even number 1 last year as well in this survey, which puts us in a good advantageous position to create good customer satisfaction.

So, all in all, I think we are in a good position and we are doing very well as far as the volumes are concerned, and we should grow with the market and of course, the financial also should grow in line with that.

So with that, now, I think I hand over back to Govindarajan for any last remarks.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Thank you, sir. Just one point is I’m just passing on Mr. Siddhartha’s like very — he’s under weather. He’s not able to attend this. So that’s why, me and Vinod are actually handling it. And Eicher Motors I’m just reading it on behalf of him. Thanks for joining. I think it’s been a good quarter and H1 for VECV and Royal Enfield and overall for Eicher Motors Limited.

Thanks for joining this call. I think we can move to the questions and answers. Mr. Basudeb?

Questions and Answers:

Basudeb Banerjee — Analyst

Thanks, Mr. Govindarajan, and thanks, Mr. Aggarwal. [Operator Instructions] So we can start the first question from Gunjan Prithyani. I would request you to unmute and ask your question.

Gunjan Prithyani — Bank of America — Analyst

Sure. Hi. Thanks for taking my questions. Sir, in your introduction comments, you mentioned that the Hunter has seen different set of customers. Could you share a little bit of color on how the addressable market has changed either in terms of the age profile or the geography, little bit more color around that and what sort of order backlog, wait periods are going on there and is there a thought process to ramp up the capacity on the Hunter platform? That will be the first question.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Hi, Gunjan. As far as Hunter is concerned, the first-time buyers which used to be normally about 15%, that range, it has jumped to almost about 18.1% to 18.2% this year post the Hunter launch. In terms of first-time buyers, if I have to talk about the existing Royal Enfield consumers to 176% [Phonetic] First-time buyers, it’s going up and upgrades are also coming up into this.

What is Hunter doing and what is the confidence which we are having? I think during the launch also we were explaining. This is a product for those consumers who love the brand Royal Enfield, and he wanted to associate with the brand Royal Enfield, but he wanted a motorcycle which is bit more accessible, slightly lower in weight compared to the motorcycles, which we are having in us, like Classic or Bullet, and it has all the ride and handling ability for a tight situations in a traffic level. And that’s where we were looking at, and it should get new consumers and not cannibalizing with the existing theme.

Happy to share with all of you, the cannibalization is almost nil. Marginally, will it be there because of the price point? Some people can take a decision here and there, but it hasn’t been any materially different in terms of the cannibalization. In terms of age group, the Hunter in this new format, it is the 18 to 25 age group, it’s almost touching 40% in Hunter and about 26 to 30 is more under 43%. So it is more and more the younger audience who are coming into that.

So what we wanted out of the Hunter is exactly got positioned in that particular form. It’s adding volume and it is adding the new consumer set into Royal Enfield and that’s where we were looking for, which has Hunter has answered to us.

Gunjan Prithyani — Bank of America — Analyst

Sir, anything on the geography or also wait periods, order backlog, production, thought process if you can share on that?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah. Hunter, it’s a product now it is available pan India and in terms of numbers, it’s — we’ve rolled 50,000 motorcycle produced. So that extent, you can see there is — continuously is going. There is some waiting period. It is lengthy waiting period as of now, not because of anything else, we anticipated both the Retro Hunter and Metro Hunter, that’s what we launched. Retro Hunter at INR1.49 lakh and Metro Hunter at INR1.62 lakh and INR1.69 lakh. And that price point when we launched, we were assuming the Metro — the Retro one, which is INR1.49 lakh also, people will look at it. It’s good for us as a company, and the consumer was enjoying.

Now, the Retro, the percentage is very low. So the Metro is the highest. It’s actually an upgrade which is actually happening, which is a very good sign that’s what we will wanting to do, that has taken. So what has happened is the exclusive part for Metro, at an assumed level, we wanted to increase it further, the higher percentage of Metro can be given to the consumer.

We kick-started that looking at the initial responses, we kick-started the activity. From November onwards, the existing numbers in Hunter per day also will slightly going up, but it’s very good in terms of booking and it is constantly increasing the numbers for us.

Gunjan Prithyani — Bank of America — Analyst

Okay. The second question from me is on the export side. Now, everybody has been calling out lot of volatility in export markets given where the macro is. I mean is there any slowdown that you all have seen and how should we think about the exports scale up over the next 12, 18 months? So do we see there any headwinds on that part of the business?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Exports as far in — first, as far as Royal Enfield is concerned, I’ll tell you because even in the Q2, the retail have been very good for us. We have been gaining market share. In fact, in some countries wherein inflation is very high, to be honest, as the energy cost was also high in Europe and all, even in those markets, we gained the market share and we’ve almost got 10% market share in the middleweight in those countries.

Americas, both in North America and Latin America, our retail has been outstandingly good. Will there be a downward pressure point? Nobody can escape from the kind of an inflation and all those things but what is promising to see, that’s what we are at EICMA when we are meeting all the European people who are here and we are launching our P4D at that point of time, when we were discussing, the mobility — the demand has not gone off.

So to that extent, everybody are looking at what are the new products which are coming up and when we will actually be bringing out with the motorcycles and we somehow feel our motorcycles which is accepted very well can continue [Technical Issues] maybe one month because of the cold non-riding season, the retail may be lower but we are building up for the season in the coming year. So to that extent, we will start continuing the production because that’s what this — our entire dealer network is also asking for more quantities.

Gunjan Prithyani — Bank of America — Analyst

All right. Thank you so much.

Basudeb Banerjee — Analyst

Thanks. Next, we have question from Pramod Kumar.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Yeah. Thanks a lot. Hi, Govind. Hi, Vinod sir. And congratulations, Govind, on Super Meteor. Looks pretty good. My first question is on the kind of the discussion we had during the Investor Day as well that incrementally, you would like to focus on the absolute growth and the ROCE rather than kind of focus too much on the percentage margins on the EBIDA front.

So — and this quarter, we have seen a bit of a step down on the margin and also on the ASP because of Hunter, right? So how should the investor communities look at the margin profile of the organization, Govind, as you see Hunter ramping up, going forward and then leading — getting into international markets as well because on the domestic front itself, Hunter is doing very, very well and I’m pretty sure international markets also would be a big success for Hunter? So how should we look at this in the context of ASP and EBITDA vehicle compared to the portfolio what we had so far, which was much, much more premium? So if you can just help us understand that, will be great.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah. Pramod, so Hunter as a product when we wanted to launch it, it’s an — it has to be in an addressable market at what it’s coming, which is also very accessible as a motorcycle. That’s what we said. That’s what we said, we are growth focused now.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Yeah.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

That has to be rebalanced. That’s the strategy which we looked at. That should be a rebalance between the profit and the profitability.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Yes.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

When we designed and we launched Hunter, there were some headwinds also when we were launching that point of time, which is not yet baked it. One is the commodity at a point when we were launching in the current level, unitarily there’s a lot of softening, which is taking place. When you launch a new product, I always say that first three months, let’s have a pipeline of VAVE activities which are required, but we won’t because it has to reach the consumer and the value proposition, which we wanted to give it to the consumer the first three months, we have to actually look at whether it has landed to them very well.

So for us, the opportunity for the profit pool on a overall number, it will be Hunter is bringing in around the profitability equipment path which also we’ll start working on, is through the commodity softening, which is helping us as a tailwind. And as I mentioned, there is value engineering activity, which we will be doing it. And our capex is not going to be very high because as I mentioned, it’ll be implemented. For example, in the retro to a retro, ideally, in the platform, the number of component trees, which we have changed and all just about INR1 crore, INR1.2 crore additional investment here or there to debottleneck, we can actually move the whole product to a 100% Metro.

Even that is what the market requires and that’s a good sign. And we assumed our profitability also with the Retro and the Metro at a particular percentage combination. Now, the Metro booking, we’re at more, it’s also a good sign and because there is a demand which is there, we also increase the price you would’ve known in the month of November on INR3,000, which we have done in Hunter. So the pricing option is there. Commodity is going to help in new way which is there. So what we are looking at is a growth, and that should be a growth for us and that’s what this Hunter is bringing in. And let’s keep going in that. In that site, we will start looking at profitability also parallelly and what is it we have to work on.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

And, Govind, would you kind of guide from the current quarters, would you expect the percentage numbers and the EBITDA for vehicle to kind improve as the benefits of commodity kind of come in and the pricing increases also kind of help you because — and what would be the sustainable profitability, what you would be quite happy with in terms of…

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Promod, as an organization, we don’t guide forward guidance. We don’t give it.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Yeah.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

But I can only tell you as an organization, we wanted our growth focus has to come in. For our growth focus, we wanted to bring in a particular product and that’s in Hunter. It answered our requirement. It actually started giving us a higher volume and not cannibalising the existing one. Number one, that has [Technical Issues] It helped us in a way.

Second is when there is no commodity pressure now, we are all assuming the super commodities pressure that this will continue for a longer period of time. That is not there. In between, we had our semiconductors and all those things, we were actually buying it from the resellers. Therefore, its price was higher, the logistics cost was higher. All those things are behind us now, by and large.

So the Hunter value engineering, which is possible, which I’m just now kicking in the organization to say that let’s start looking on one way to understand these things. So — but new products’ launches will come. Now, there is a Super Meteor 650 which is going to come in. Initially, I thought that probably we’ll give it only in the first quarter. Now, it is coming up slightly ahead. So in the entire overall mix, I see it — there is a positive trend of this organization as a overall.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

No. That’s great to hear. And, Govind, follow up on the more of the industry terms as well. On the RDE norms, what would be because we are hearing that on the four-wheeler side, the cost implications will be big. How do you see that in terms of a cost for the two-wheeler industry for a category like 350cc and above? What should — what ideally will be the cost inflation what we’ll see on account of RDE norms or the OBD norms, sorry. Apologies, apologies. OBD for two-wheelers, sorry.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

OBD, it has two phases, Pramod, OBD II A, OBD II B. II A is only a minor thing. II B, when it comes up, that is what is the CARB deterioration monitoring, which has to commence and close. And II B, when it comes up, that is when probably there will be a bit of loading in the previous metal possibly which can happen. So every one of us has started already working on if that comes, how do we actually protect it. So, for example, when we were doing a BS6, after implementation of BS6, we started looking at optimization. Now, there’s a time which is there for OBD II B, very recently, in fact, it is in the final notification. So it reaches maybe in a day or so. Now, Vinod is the president, so it’ll come through off a medium.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Yeah.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

So once that comes in, at least we have a time for II B. It’s only 2025. So all our optimization activity, which we may have to do, that can be done, and that’s the time window which we asked for from the government and government has given. And hopefully, that will not put burden on the consumers also because of this.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

And can I take one question with Vinod sir? Yeah.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah, please go ahead.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Sir, on the on the CV demand, we have seen some bit of moderation at the start of third quarter and we got some feedback from fleet owners that they probably may be in a wait-and-watch mode at least till February before they kind of get a color on the macro situation and the interest rate scenario. So given that, what are you picking up from the market in terms of the demand in the near term, sir, on the commercial vehicle side and whether this global uncertainty and higher interest rates has resulted in some bit of a pause or rethink on large last fleet owners?

Vinod Aggarwal — Non-executive Director

I think we have to look at the overall scenario because we won’t be able to answer based on the month-on-month figures or month-wise figures. If you look at the overall scenario for Indian economy, I think everyone is having consensus that we are going to have 7% growth in the currency area, and sentiments for India, they are relatively much better as compared to the global situation. If you look at our GDP tax collections month after month, they are quite handsome, in fact, INR140,000 crores plus if there are any concerns, they are largely on the trade balance concerns. There again, I think there are lot of things which the government is doing on the ethanol mixed in tonnes already has happened and 20% really talking off. And so, therefore, I think committee is trying to address all these concerns with the respect to these global situation of the increasing crude oil prices.

At the same time, when the economy grows, there is environment for more and more trucks and — trucks to move the goods and services. And as you know, the three years have been bad years for the industry and it was at rock bottom in 2021. Therefore, since this is cyclical industry and economy can’t do without trucks, and you also need more modern trucks to take care of the demands of more tech-savvy customers or customers who focus a lot on the productivity as well as timeliness and the costs.

Like you should talk to any customer, today, they always dictate that I need delivery in so and so period, and I need discount. Now, if they have to meet these requirements, you can’t meet those requirements with the old trucks. Therefore, it is eminent that old fleet of trucks have to be replaced, and since replacements have not happened in past two to three years, these replacements are going to happen, not only because of the pent-up replacement requirement but also because of the need of more and more productivity and cost reductions which can be delivered only by the new technology trucks.

Therefore, I would say that overall, we are going to see good trends in the CV industry in the coming maybe two to three years because we are in the recovery cycle and still we are far away from the earlier peak as far as heavy duty trucks and the buses are concerned. Light and medium duty still this year itself we may touch the new peak. So, therefore, my own feel is that the — we are going to see good time for the CV industry. There may be different indications in some month or the other, but that doesn’t mean anything.

Even in the month of October, the industry has grown by 15% over a much better base of October last year, because last year, October itself, the industry had started growing and last year’s second half, the growth had started. And on — even on that base, we have seen a growth of 15%.

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

And pricing continues to get better, sir?

Vinod Aggarwal — Non-executive Director

Pricing will get better. As the industry grows, pricing — as of now it still not better, but we have seen a lot of press statements which are coming from competition that they’re also concerned about profits. How long they’ll continue to show losses?

Pramod Kumar — Goldman Sachs Group, Inc. — Analyst

Thanks a lot, sir. Thank you. Thanks, Govind. Thanks, Vinod sir. Best of luck.

Basudeb Banerjee — Analyst

Thanks. [Operator Instructions] Next, we have Pramod Amthe. Please unmute.

Pramod Amthe — InCred Capital — Analyst

Yeah. Hi. Thanks for this opportunity. Since you touched upon OBD II, wanted to check one of your products still runs — the entry-level products still runs on the OBD Indian platform. What are the plans to comply the same or all of your products can easily go for OBD II?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah. We’re going to [Technical Issues]

Vinod Aggarwal — Non-executive Director

Tell them to put on mute. There is some background noise coming.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah. So all our products as of now for OBD II A, we are ready. And II B we are working as I was just explaining for the II B, we have to be careful that it is not adding cost to the consumers and to us also. To that extent, we started working on and we have time for it. But time to come, the transition to II A, we don’t anticipate any problem. We’ll be comfortably transitioning into that.

Pramod Amthe — InCred Capital — Analyst

And second follow-up question is, if I had to look at your ASP rise, first quarter was pretty impressive and once you launch a new product, it seems to have seen a sharp Q-o-Q drop, and as a result of which first half, there’s literally a flattish ASP. And if I hear you right, you are already seeing the better product mix within the Hunter. If it goes down, do you see a further pressure on your ASP in the second half, and hence you might have to take a more pricing action to drive a top line margin expansion?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

So in the ASP turnover, once again, first, is growth focus. That is what we actually said it’s a rebalance, it has to be growth-focused, we should get more consumers into this. We look at it the business as holistic. One is about the motorcycle alone and ASP. If we actually look at the accessories, GMAs, which all get added onto that, when the Hunter was launched, in fact, our GMA penetration have been slightly lower because we also have not brought at right time, we missed out. So that is also going to come into this.

Commodity is the way we priced it at that point of time. The commodity has not shown anything substantially and that we are expecting that it’ll come down. The third which I mentioned is as it is a new product the value engineering projects has not kicked in. So it was all in the pipeline, we were envisaging, we were looking at, we have the whole host of activities which are to be looked at for the cost angle and all those things, but it’ll actually start fortifying now on.

Another one earlier which is there, for that is the international market. International market as of now, the product hasn’t come in the Hunter I’m just saying, because we are just opening into country by country. So, overall, as we wanted it as a growth, that’s what it was meant for and it has given. Now, when we look at ASPs, profitabilities, how do we work on it, and obviously there’s avenues and levers will be pulled whenever it is required and we’ll be continuing on that path.

Pramod Amthe — InCred Capital — Analyst

Sure. Thanks on the views.

Basudeb Banerjee — Analyst

Next, we have question from Raghunandhan. Please unmute.

Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst

Good evening, sir. Congratulations on the unveiling of Super Meteor. Sir, I wanted to understand that there are expectations of multiple launches ahead at the 650cc space. How would you look at the opportunity? Would export be a bigger opportunity or would you see these models as credible upgrades for domestic market? Which one would be the bigger area you would focus on?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Look, first of all, the cruiser, the entire cruiser in India, we had Lightning, City bike, Thunderbird, Thunderbird X, then we came out with Meteor. We understand long-distance ride, we understand cruising. So we came out with the 350 Meteor, the cruiser, which is a simple cruising one. The 650 platform has come over the time when we were riding and we are also talking to a riding community.

Everyone started looking at, we should also come out with one more cruiser on the twin platform. When we were contemplating and consuming the twin platform, at that point of time itself, we said the platform have to come with a cafe racer and a roadster and a cruiser. So we came with Continental GT and with the Interceptor 650. Globally, it has been an resounding success and it actually created that category and groomed the category in that particular segment.

Now, we see this is in another one product which everybody has been looking for, not a very heavy cruiser. A guy who doesn’t like cruising can also get onto the motorcycle, will enjoy cruising, and it should be so accessible and simple, not a complicated cruiser. Our is a feet-forward cruiser, but you won’t feel it is a very heavy machine. So in the cruiser space, we feel there is a good space which we are entering. That’s what our riders were looking at across the globe, and it has helping us in a right time which we are bringing in.

When I was just unveiling it two days back, and all the media when we are talking, all the European customers who are here now, and when we are generally chit-chatting, it’s coming out to be very clear is that that’s the product exactly we’re looking for and you brought in, in the fit, finish, and in all those things. And we will come with a very good price point also in an accessible way so that across the globe that will also show us a grow potential, but more products which are in pipeline for us to bring in for India are this.

As far as India is concerned, today, I think with the long roads which are coming up, and the riding culture which is gaining momentum, and post-pandemic, once again, people are out there, weekend rides are starting, consumers started looking at — I can tell you now, people started actually asking me, when is that? When are you opening the booking on the Super Meteor 650. So that’s the demand which is coming up. So hopefully, I will be seeing that both in India and outside both ways. It’ll be addressing the easy cruising for even the non-cruisers.

Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst

Got it, sir. All the best for that. Sir, my second question was on how much was the commodity impact in second quarter because cross-match in Q2 could be impacted both by mix as well as by commodity, and also commodity deflation impact do you expect from Q3?

Vinod Aggarwal — Non-executive Director

Simple way, Raghu, yes. The — in Q2, it hasn’t impacted into the P&L to that extent, so it will start slowing in Q3 onwards.

Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst

Thank you, sir. But would you be able to give some numbers, sir, how much benefit you expect or you had?

Vinod Aggarwal — Non-executive Director

Very certainly in the next call, yes.

Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst

Thank you, sir. And all the best on the 650 side. Thank you.

Basudeb Banerjee — Analyst

Thanks. Next, we have question from Jinesh Gandhi. Please unmute.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Hi, am I audible?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah, Jinesh.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Yeah. So my first question pertains to the domestic market. So, excluding Hunter, can you give some color on how that — our core portfolio is doing? If I look at the numbers on the wholesale basis, maybe we are yet to see material pick up and demand or pick up in volumes on that side from our normalized volume perspective. So, any color on that?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

If the question is towards if Hunter is coming and all the other models are not growing, Jinesh, I can tell you this is a festive season anyway. All our models also has grown. It is also a good sign. So on the booking trend, Classic, Bullet, Meteor, everything has actually gone up. What we are doing now is with an Hunter launched, every counter we are watching is it bringing additional number or it is cannibalizing. That’s what I mentioned, it is not cannibalizing at this stage. That’s a good sign for us. And the consumers even in the rural side, they’re also looking at a metro, so that is also increasing. In the process, other models are also coming.

Having said, we are ramping up our digital presence in all the products. We went for Classic, we did once again Classic refresh in the market, the digital media, and we started doing lot of track days for our Himalayan and Scram. We are doing a college connect for all of our Scram and we actually started flat school — flat track, and weekend dirt track racing. All those areas, it is actually helping at the product level also. The GT Cup, whenever the GT Cup thing comes up and there is a buzz on the social media, in fact, our even Continental GT’s requirement and inquiry is going up. So, Meteor with the lot of news on the Super Meteor, a lot more guys also started inquiring about Meteor. So the inquiry for Meteor also has gone up. So it’s a combined effect as an organization when you come out with a new products and then adjacencies and convey that to the consumer authentically, this is what we wanted to come and give it to you. Rest of the products are also growing at this stage.

But I have to give you one thing with the Hunter is this is the festive season, everything has grown, so we will have to wait and watch. But I somehow have a feel that all our products, because we also have refreshed plans, so the refreshers also will start kicking in. So to that extent, we see there will be a growth in every product which we have.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Okay. And secondly on Hunter, any sense on what proportion of demand comes from say beyond top 10 cities or top 20 cities? Primarily is it more broad-based in terms of demand? In terms of regional lengths — through regional lengths?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

In terms of — see, we don’t do it in that form. We normally look at it the categories in terms of more than 125 cc motorcycles per month in that particular region, A, A+ types. if I have to tell you the booking which is actually coming out city-wise and all those things, it’s across until it’s actually having a response. Having said, I might have to tell you in the initial fill, which we wanted to give for the test rides and all those things, we have covered only about 70%, remaining 30% in the studio stores and all, we’re yet filling up. So, we are slowly blooming. The more and more opening which will be bringing in more consumers. So it’s PAN India and it is not that any one particular area which is there, but the growth which we are seeing in all the top 10 cities which we have been watching, everywhere there is a growth for that.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Got it. And sorry, one last question on CVs to Vinodji. Sir, with respect to demand from small and single fleet owners, are we seeing them coming back? I mean, that has been one segment which has — which was yet to show any material recovery, so what are the trends you’re seeing there?

Vinod Aggarwal — Non-executive Director

If you look at the trends in the light-end maneuverability trucks or in the sub-5-ton trucks, I think the maximum growth is there in those segments. And those are the segments which have the either single truck owners or very small place. So therefore, yes, of course, for the small operators, the interest rate will be — and the sentiments they matter more. But at the same time, I think there is demand for movement of goods that has to be met, so I think it’s coming because of the economic requirements.

Jinesh Gandhi — Motilal Oswal Financial Services Limited — Analyst

Got it. Thanks. I’ll fall back in the queue. Thanks. Next, we question from Kapil Singh. Please unmute.

Kapil Singh — Nomura Holdings, Inc. — Analyst

Yeah, hi. Thanks for the opportunity. Govind sir, first the question is to you. When we look at your production, we’ve in the past been facing supply shortages. So when I look at the current volumes, are you able to supply as per market demand or you are still facing shortages and therefore you need to build out production from where you are currently?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Kapil, as of now, I’m sure we also discussed it at some point of what of time, we are almost doing about 3,100, 3,200 numbers. The production numbers — so capacity is not a constraint, number one, because we have already built capex so that’s not the constraint now. Second, we had an issues of the semiconductors availability of steel itself, all those issues, that’s not in headwind as of now, it’s by and large getting sorted out. I’m not saying it is completely gone or something like that but that’s not the top-of-the-mind issues now. But all the semiconductors or the electronic components, we also started off doing inventorization, substitutions, all those activities which are required which has also kickstarted. So, production is not a constraint, it’s a model mix, exact model mix which we have to align and give it to the consumers and that’s what it is. It’s not a concern anymore.

Kapil Singh — Nomura Holdings, Inc. — Analyst

Okay. Great to hear that. Vinod sir, one question to you, please.

Vinod Aggarwal — Non-executive Director

Yeah. Please go ahead.

Kapil Singh — Nomura Holdings, Inc. — Analyst

BS6 Phase II is coming up, and if you could help us understand what is the kind of cost increases we will — we should expect for LCV and MHCV portfolio and what are the elements that are going to get added for that?

Vinod Aggarwal — Non-executive Director

No, BS Step II is going come from 14/2/23. And basically, there are much much more stringent compliance requirements, but it means that the manufacturers are responsible for ensuring that the tail emissions, they continue to meet the standards on the road for a long period of time after the vehicles are sold. So therefore the regulators, they can pick up any truck from the road and they can see that whether it is complying or not. So I think that is the major change that your emission standards have to perform absolutely in line with the law. And if they don’t perform, then there can be major implications for the manufacturers. So, therefore, I think all the companies have to be very, very — there are some additional requirements which are there. But at the same time, as far as the costs are concerned, there will be some increasing costs but at the same time, we are also working on various other cost reduction avenues. So hopefully, let’s see how it lands. When we are closer to the date of implementation, we will take a call that how much price increased were impacted because of that.

Kapil Singh — Nomura Holdings, Inc. — Analyst

So, sir basically just wanted to understand, I know you will not have a exact estimate right now, but directionally when BS4 to BS6 happened, there was a big concern regarding this, there was a element of pre-buy also that was expected. So is it going to be that large and will there be some segmental disruptions? For example, LCVs could see much higher cost increase or something.

Vinod Aggarwal — Non-executive Director

No, no. It will not be that large.

Kapil Singh — Nomura Holdings, Inc. — Analyst

Okay, okay. All right. Thanks. That’s it from my side. Thank you so much.

Basudeb Banerjee — Analyst

Thanks. Next, we have question from Ankush Agarwal. Please unmute.

Ankush Agrawal — Surge Capital — Analyst

Yeah. Hi, sir, Thank you for taking my question. Sir, my first question is on the product portfolio. So in the recent Analyst Meet, we had highlighted a lot of products, right? But what I wanted to understand is the product portfolio expansion in terms of new categories, right? So for example, Hunter is a new category of product that brings a new set of customers to us, right? Himalayan was different set of product that brought a different set of customers to us. So, in terms of product portfolio that you’re looking to launch, so which are the products that will expand this category of customers and not just products that are expansion of existing line of products? If you can talk about that.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

So, Ankush, product portfolio per se, if you look at, so we’re a — we were only one platform company, there now we have two platforms because you see it was only platform which we had. Now we have J-series and the P. We are also working on an upgradation cycles for all these platforms because it’s just — we have just launched and we have done a transition in this.

In the product portfolio, we always look at what there is, there are some products like Classics or Meteor all of those, they’re all innovations but it is a replacement for the existing product. Adjacencies like we did in Himalayan for an adventure tourer, then we found Scram is one more variant which we can bring in, let’s see what kind of an experience the consumer is looking at.

Globally, in these sort of categorization, one have to understand it’s only an experience. So now, we had Meteor with an experience we said, okay, in the platform of twin, we can come out with gear, accessible cruises of retro cruiser style from Royal Enfield, that’s what we are doing. Similarly we did a cafe racer in 640 cc, in a sportster category is there something else which we can do, at point of time it is required, we will definitely come out with that.

A roadster category in that what is that the product adjacencies which is required, and those are all the thought process for the product line up, which we continue to evolve and we are signed up — that’s why we always said the maturity pipeline of new products on a platform base and category base have to be signed and then the organization have to start working on and our capex are also dedicated only for that.

To that extent, our pipeline is very healthy. We have lot of products which we have been working on. And now in this year, you would have seen we came out with the Scram, we came out with Classic, now we are with the P4D which we’re coming up. So like that all these products will start coming up at an interval, which is — the market is ready and we will time that and then we’ll do the launching. You will see a lot of new products which will keep coming from Royal Enfield.

Ankush Agrawal — Surge Capital — Analyst

Yeah. I can — what I was asking is, will there be product that would be category expand, right? So obviously we have now launched Meteor 650, which is an extension of existing Meteor roadmap, but something like a Hunter, like which was a new segment altogether, so do we have those kind of products which could be a new segment that would bring new set of customers to us?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Yeah, yeah. That why I said, in some the roadster as a category maybe which is very strong in a 350, there is a space for 650, right? We can look at it. So what we always look at is we are a company we don’t do too much, that is also very clear, right? We only — we do a focused approach. Whatever product which we bring in, it has to be successful because we don’t bring product and then start looking at what is an experience which we can give it to the consumer. We actually go, ride along with the consumer. We ride, we spend time, get the whole thing and then say, well, consumer is looking at this sort of an experience, so whether I can come out with a variant rather than giving a full new platform development. Full new platform development is a huge effort.

So what we are looking at is when we were doing this J and the P platform, we thought this platform should be expandable in a way that it can give adjacencies experience to the consumers and what all in that? So in the core product there is adjacencies, then variants, then color refreshers, that’s the cycle which we are normally look at for these two platforms.

That way if you look at be it in India and international market, there’s a huge potential for us to exploit these two platforms itself. And in terms of addressable thing which you were talking about is the outside India, the market potential is so much like what it is there in India, and we have just started exploiting into the international markets. So, our focus also have to be how to capture that markets outside with the platforms which are so successful now, and it is all the platform and the products are just one year, two years. So it is just getting the maturity cycle and it takes time, the product also to get to the maturity cycle then it has a huge potential. So we’ll not be doing [Technical Issues] things.

Ankush Agrawal — Surge Capital — Analyst

Right. Okay. Got it. Sir, my second question was like internally, like when we look to price and new product, so do we look at profit on per bike basis or it’s more like a cost-plus kind of approach that we look at?

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Pricing is never on a cost plus, Ankush. We normally look at it, what is the product? Who’s the consumer? What’s the kind of accessible price point which he’s looking at from Royal Enfield and who is the source of growth? Where from the growth is coming and what is his EMI? What is that we to look at it? So it has to be market focused rather than cost plus focus, Ankush.

Ankush Agrawal — Surge Capital — Analyst

Right. So, just to get a sense what you’re saying is, you are broadly looking at the profit pull that you can capture rather than per bike whatever you make like, that’s kind of you mean.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

We never approached it like that way always, Ankush. We always looked at it there is a consumer who wants an experience from Royal Enfield and he is — what’s the value proposition which he’s looking at from the Royal Enfield. Today Royal Enfield’s success is that for the price which he’s paying it for Royal Enfield, he feels its a jewel which I’m just holding on and the value proposition is very good. That’s why we always look at it from the customer in the market, what’s the value which we can deliver, which the consumer feels that yes, Royal Enfield has delivered a fantastic value for me, for the kind of money which he has given, and that has to be very authentic. So we always come from there rather than looking at the entire material cost plus add up and all those things that we don’t do, Ankush.

Ankush Agrawal — Surge Capital — Analyst

Got it. Got it.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Internally, we do the benchmark. We have to do the in case in point does any product which comes in, we always look at it, what’s the related price index? Where is the source of growth? What’s that price point for them? What does it mean in terms of EMI per month, if in case the price is like this? Most calculations we do, but we always look at the value for the consumer rather than just giving the pricing.

Ankush Agrawal — Surge Capital — Analyst

That was very helpful. I have further question. I’ll get back. Thank you.

Basudeb Banerjee — Analyst

Thanks, participants, that was the last question. Thanks to Mr. Govindarajan and Mr. Aggarwal for replying to all the queries of the investors. For any unanswered question or any other query, please feel free to reach to Investor Relations team of Eicher Motors Limited. I’ll like to hand over to Mr. Govindarajan for any closing comments if any.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

No, thank you very much. It’s been wonderful interacting with you people. As an organization, we always look at the long-term focused. Internally we say that we are long-term aggressive. Any place, anything which we do, we always look at it a long term. And that’s why even in an Investor Meet, myself and Vinod, we all came and then explained to you that it is a growth-focused organization and that’s what we will be at it. When we are growing whatever the correct things which have to be done for the organization, we’ll continue to do that.

In Royal Enfield, EV is another one space which we are now getting into that very intensely. In fact, I’m here, Siddhartha is here, we are all spending time and understanding the whole ecosystem, what’s happening, what sort of a technology which has to be looked at immediately. So those are all the things and maybe Vinod can add anything from the VECV side for this as a closing.

Vinod Aggarwal — Non-executive Director

No, I think, you’ve summarized it very well.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Thank you very much. Thanks for everyone for attending this. Thank you, Basudeb for…

Vinod Aggarwal — Non-executive Director

Thank you very much.

Basudeb Banerjee — Analyst

Thanks. That’s all from the investor conference call. We can close it now. Thanks.

B. Govindarajan — Chief Executive Officer of Royal Enfield and Wholetime Director

Thank you.

Vinod Aggarwal — Non-executive Director

Thank you very much.