Eicher Motors Ltd (EICHERMOT) Q3 FY22 Earnings Concall Transcript

Eicher Motors Ltd  (NSE:EICHERMOT) Q3 FY22 Earnings Concall dated Feb. 14, 2022

Corporate Participants:

Siddhartha Lal — Managing Director and Chief Executive Officer

B. Govindarajan — Executive Director, Royal Enfield

Raghunandan — Investor Relations

Kaleeswaran Arunachalam — Chief Financial Officer

Analysts:

Pramod Kumar — Goldman Sachs — Analyst

Jinesh Gandhi — Motilal Oswal — Analyst

Nitin Arora — Axis MF — Analyst

Amyn Pirani — — Analyst

Chirag Shah — — Analyst

Pramod Apte — — Analyst

Kapil Singh — — Analyst

Ronak Sarda — — Analyst

Joseph George — — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen, we welcome you to the Eicher Motors Results Earnings Call on behalf of Emkay Global Financial Services Financial Services. We are pleased to invite you all. From the management team we have Mr.. Siddhartha Lal, MD and CEO, Eicher Motors; and soon we will have Mr. B. Govindarajan, Executive Director Royal Enfield; and Mr. Mr. Kaleeswaran Arunachalam, CFO of Eicher Motors Ltd.

We would request management for opening remarks and then we will open the floor for Q&A session.

Over to you, Siddharth.

Siddhartha Lal — Managing Director and Chief Executive Officer

Thank you, Raghu, and thank you Emkay for hosting this. Hello, everyone, and welcome to the Quarter three earnings for Eiche Motors Limited for FY 2021-22. I wish you all a very happy and as we all recover from this third wave, I do hope that all of you and your families are doing well.

This quarter saw us strengthening our commitment to becoming a truly global company at Eicher Motors and a truly global brand from India. Both Royal Enfield and VECV continued the strong momentum in international markets. Even amidst a challenging backdrop owing to the global semiconductor shortage and the onset of Omicron, we still registered at 28.1% sequential increase in Q3 revenues. The benefits of operating leverage and alternate sourcing were also visible in the sequential margin improvement.

During quarter three, not only did we commence operations at Royal Enfield CKD facility in Thailand, which is a really promising market for us. We also registered stellar growth in international volumes during this quarter. With this, Royal Enfield has now three assembly unit outside of India, one in Argentina, another in Colombia, and the third in Thailand now. Our continued focus on aligning the next [Indecipherable] of growth with renewed ESG Vision at Eicher Motors Limited, so Dow Jones position us as one amongst only 10 global automotive companies to feature in its Elite list of Dow Jones Sustainability Indices 2021 in the emerging markets category.

Our manufacturing prowess has also — was also recognized by Frost and Sullivan as Royal Enfield Vallam Vadagal received the Frost Sullivan Gold Award for manufacturing excellence. With the CV industry continues its recovery, VECV, delivered strong growth in all parts of the business, including a 25% growth in topline and in volumes that is — and a market share of over 30% in light and medium-duty segment. We also continue to strengthen our product range [Technical Issues] an industry-leading Eicher heavy duty coach and sleeper bus range during this quarter. So these are the intercity buses. At an overall level, this initially continued turbulence with the ongoing supply chain challenges and inflation. However, we expect this situation to gradually start improving over the next many quarters. To give you an update on our consolidated financials for Eicher Motors Limited, our revenue was at INR2,881 crores, which was a sequential growth of 28% versus INR2,250 crores in Q2, and up 1.9% from last year. Our EBITDA was at INR582 crores, a sequential growth of more than 35% and around13.4% lower than Q3 last year, and our EBITDA margin was at 20.2%, up 1.1% quarter-on-quarter and 3.6% lower than the same quarter last year. And our profit after tax was at INR456 [Phonetic] crores, up 22% quarter-on-quarter and lower by 14.4% compared to last year. So that’s the overall financials for Eicher Motors Limited. Now over to Govindarajan, Executive Director and in charge of Royal Enfield to give us an update on Q3 2021-22.

Over to you, Govindarajan.

B. Govindarajan — Executive Director, Royal Enfield

Yeah, thank you, Sid. Hi, everyone, and Happy New Year. Hope you’re all safe, along the family is also save. Let me just take you through Q3 of Royal Enfield updates. At Royal Enfield, we continue to remain steadfast in our strategic vision of becoming the premium global consumer brand from India. Coming specifically to this quarter, let me share with you the updates and the highlights for Q3 financial year ’21, ’22.

Totally, we sold about 167,664 motorcycles with a sequential growth of 35.7% against 1,23,515 motorcycles in Q2 financial year ’22. Ongoing shortages of the semiconductor chips has impacted our performance in this quarter, we are down by about minus 15.6% YoY. We are working towards developing alternate suppliers ecosystem to minimize the effect of the shortage. In fact, we have onboarded one more supplier and the third supplier is also in pipeline, thereby the supply situation will be easing out.

Demand continues to stay very resilient, added by the launch of the new products and the festive season. Our market share in the Motorcycle segment, more than 125 cc engine size increased by about 2% to 27% in this quarter as compared to 25% in the last year same quarter. Royal Enfield had a market share of 9% in the overall Motorcycle segment for the December ’21, is volume for December ’21.

As far as the network is concerned, we are continuing with our path of increasing, optimizing the network and we have added about 12 large former dealerships and the total footprint as of now it stands about 2,118, of which 1,065 is the dealership formats and about from 1,053 is a studio formats. You already would have seen the international success has been outstanding for us. We have continued to have a growth and the momentum is very good. Our exports during this quarter stood at about 17,036 units as against 10,833 units during the same period last year. This is having a growth of 57.3% and more than 2 times increase in compared to Q3 of FY ’20.

Robust performance in EU and Americas, with a market share in mid-size segments hitting about 7.1% and 5% respectively. Consistent growth in the market share from approximately less than 2% in financial year ’18 prior to the launch of 650 Twins. The product which we have launched has a very good traction in international markets, strengthened our international presence with the commencement of operations of a CKD unit in Thailand. Overall, we have added seven exclusive stores, France, Philippines, Argentina, and Germany and 11 multi-brand outlets during the quarter. We now have 150 exclusive stores and 660 multi-brand outside in India.

Non-motorcycling business, apparel, accessories and spares and soft products, altogether we continue to grow consistently. We have witnessed a sequential growth of almost about 8.2% on a year-on-year growth, up more than 29.2% in the quarter. Total non-motorcycle revenue for the business currently stands at around 15% of overall revenue. Our constant endeavor to deepen the riders engagement with his or her motorcycle have resulted in GMA and spares verticals growing consistently month-on-month.

Launched in India in September last year, the all-new classic 350 has a witnessed very enthusiastic reception from all our consumers. Since then, it has been unveiled at EICMA 2021 for Euro and launched in countries across Asia-Pacific region. During this time, we have rolled out more than 100,000 units of the new classic 350 motorcycles, which continued to receive an overwhelmingly positive response across the market. The global motorcycle show EICMA 2021 showcases the best from Royal Enfield’s 120 years journey. A major center piece of the show was unwilling of Project Origin, a working replica of the first motorcycle — motor-bicycle from 1901, the mission that represent yet another seminal chapter of Royal Enfield’s illustrious history. We also showcased 12 iconic motorcycles from our history, one for each decade of our history in the unique showcase called The Ages.

Also celebrating our history was the 120th year anniversary edition of the brand’s flagship 650 Twin motorcycle, the Interceptor 650 and the Continental GT 650. These were very premium, limited run, special edition motorcycles, looking stunning, and 120 of these units were sold in a record time of 120 seconds in India on an online sale. The SG650 concept motorcycle that we showcased created a lot of excitement. It’s a futuristic concept that demonstrates our product design and development capabilities. Also celebrating 120 years of exploration and add Ventures was 90-degree South, a quest for the south pole. Our team successfully completed a 28-day 310 kilometers first of its kind motorcycle expedition to the geographic south pole. It was a moment of inspiration and pride for all of us as we saw two Royal Enfield Himalayan at the very end of the earth.

Exciting initiatives in motorcycling apparels, we have collaborated with prestigious British heritage brand Belstaff to introduce an exclusive range of riding apparel. We commenced the second season art of motorcycling, our marquee creative campaign, which sees a huge participation from artists and creating community and motorcycling enthusiasts. With a focus on enhancing awareness on the road safety and increasing adoption of helmets when we’re riding, Royal Enfield partnered with helmets of India, a nonprofit organization, creative initiative aimed at bringing about the positive changes in the mass perception of wearing a helmet in India. We have partnered with renowned global artists to create the unique evocative expressions of helmets, which will then be auctioned to raise funds for the causes.

To conclude, consumer preferences for the personal mobility and premiumization continues to drive demand for the segment and for our products. Our supply chain constraints are gradually easing out. We expect production to scale further soon with a slew of new launches planned in the near and mid-term future. We are excited about what’s in store for enthusiasts of pure motorcycling in India and in the global markets.

Now I will hand over to Siddhartha to take us through the VECV performance and updates. Over to you Siddhartha.

Siddhartha Lal — Managing Director and Chief Executive Officer

So this is the update for VE commercial vehicle [Indecipherable] our joint venture partnership with Volvo. So in VECV, we had a revenue see INR3,626 crores, which is up 35% from last year. The EBITDA was INR242 crores, which is up 7% and an EBITDA margin of 6.7% versus 8.4% last year. The lower EBITDA margin was largely due to higher discounting and input cost pressures in the commercial vehicle industry. All of this resulting in a PAT of INR66 crores. Overall, there has been strong industry growth, so we’re witnessing a quarter-on-quarter growth in the CV industry, and VECV continues to perform better than the industry, backed by higher demand for CNG trucks and a solid response in our new export markets where we’ve been working on for the last many years, so that’s paying good dividend.

VECV sold 16,044 vehicles in the quarter ending December 2021, and is a single growth of 25% against 12,805 units in the same quarter last year. And LME segment consistently performed well, maintaining a 30% plus market share and over 50% market share in LNG CNG segment. So, and that’s a — that’s the segment that’s actually growing a lot in these days. So there we’ve been able to get very good market share. Our heavy-duty market share grew to 8%, which includes Eicher and and Volvo trucks, but that’s a very substantial increase in market share. Exports have grown by 72%, and we’ve added new markets in South Africa — in Southern Africa, in Latin America and the Middle East, so there’s been a lot of progress on that as well. And we’ve had some very good new product introductions with the leading intercity coach and sleep of buses that we’ve — that are built in our — in our Volvo bus India facility in Hoskote, on Eicher chassis. So that’s the we’d, as you know we recently acquired the Volvo buss business from Volvo into VECV. So the plant that was part of this deal, we’ve now built the Eicher intercity bus, which is we believe has enormous potential in the coming years.

And Volvo bus launched India’s first 13.5-meter and 15-meter chassis for intercity sleeper application. In addition to that, we launched the My Eicher app. Within the My Eicher app, we launched a gateway for connected vehicles based services to give on. So that’s been also a very interesting addition to our services. We’ve added 27 new touch points in commercial vehicles this year and focus on improving presence in very large industry volume markets. So as a result, we had a — our growth — our market share continuing in VECV. There are some concerns on industry-wide issues on profitability. Having said that, we’re still ahead of others, while some of the other much larger CV players are making losses we are still in profitability. And that’s reflected with the high discounts that others are making, we’ll have to, we have to also match up to some of them to maintain our shares, so that’s the industry outlook. Having said that, we’re still doing very well. We’re growing in market shares and generally as a brand also performing very well in customer satisfaction and brand salience. We’ve done studies recently, where we’re now number 2 in a lot of markets for brand salience as well. So that’s it for now for. And thank you very much for joining — thank you very much. I mean this is our, let’s say the management section. Now over to Raghu to you for connecting the question-and-answers. Thank you.

Questions and Answers:

Raghunandan — Investor Relations

Thank you, Siddhartha, for the opening remarks. As we go to the question-and-answer session. Couple of questions from my end. Firstly, exports have been robust. Can you provide some color on which markets hold strong potential ahead over the medium term? And what portion of sales would you will be targeting from exports over the medium term?

B. Govindarajan — Executive Director, Royal Enfield

Talking about Royal Enfield Royal Enfield?

Raghunandan — Investor Relations

Royal Enfield Royal Enfield.

B. Govindarajan — Executive Director, Royal Enfield

Raghu, exports market, especially RENA, Royal Enfield Royal Enfield North America, Thailand, LatAm, EU markets, in all markets Royal Enfield Royal Enfield is doing outstandingly well. Primarily, but two years back when we are talking about when the new products come in and we prepare the market and we went in for the brand pull [Indecipherable] strategy. So when we actually gone in for one store, one location, the brand gets accepted, then we will improve. And today it is actually the success story which we have created in India is what is the successfully which we can create in international markets.

First, with the — the global product first which we launched, which is the 650 Interceptor and Continental GT which got accepted very well, and now with the Meteor launch and the classic 350 the launch, we see our growth in the international market is going to be very good and this is the starting point.

Kaleeswaran Arunachalam — Chief Financial Officer

Raghu, on the forward guidance we don’t provide any color as you would know. So allow us to discuss this as we move forward in the respective quarter for the respective quarter numbers.

Raghunandan — Investor Relations

Thank you, BGR. Thank you, Kalees. Just the a second question from my end. Dealers indicate good waiting period for classic and Meteor models, especially for the ABS vehicles. Considering the healthy order book, how do you see the production ramp up in coming months? By when do you see production consistently being over 70,000 units, now that you’re adding multiple vendors?

B. Govindarajan — Executive Director, Royal Enfield

Yes, Raghu, you are right. So we had only one vendor and subsequently we started adding the second vendor and now we are looking for another vendors also. For understanding purpose, it is slowly ramping up [Technical Issues] I’m sure with all the automotive industry you would have seen, it’s not that it is completely behind us, no issues direct, but it won’t be the situation which was earlier. It is going to continuously improve, the ramp-up will be happening. Yes, as you mentioned, we have a very good healthy order book. Month-on-month we see now with sources addition, our production will be ramping up.

Raghunandan — Investor Relations

Thank you, BGR. Wishing you all the best. Now, starting with the question-and-answer session. We have the first question is from Pramod. Can you go ahead. Pramod, you can unmute and go ahead.

Pramod Kumar — Goldman Sachs — Analyst

Thanks a lot, Raghu, and thank the management for the opportunity. My first question is on the quarterly result. I normally don’t like to discuss the margin, but there seems to be a sequential drop in ASP and also a drop in the gross margins quarter-on-quarter, I’m talking about September quarter versus the current quarter. So if you can help us understand because the volume run rate did improve and they were pricing actions which were there and you did talk about our very strong non-vehicle revenues as well. So just trying to understand is it just a numerator the denominator effect because of larger volumes and non-vehicle revenues numerator which is hurting ASP? And related to that is the gross margin, is it also because of lower percentage non-vehicle revenue in the quarter compared to September quarter? Because gross margins have slipped quarter-on-quarter.

Kaleeswaran Arunachalam — Chief Financial Officer

Thanks. Pramod. I think, to start with, look at what we delivered in Q2. It’s about a 1, 25,000 plus volume on which our export was about 18,000. If we look at this quarter, export revenue continues to be strong at about 18,000 on a base of 1,68,000. Yeah, business has gone up, where the ASPs are lower compared to our international business. So that’s why you’ll see it’s more to do with the percentage of international business on the overall business, leading to the ASP drop.

Now, second point in terms of the GC, 80%, 90% percentage of that is also more on account of the mix that we talked about, but at the same amount of time there was no large pricing actions in Q3. The pricing actions happened effective January 1st. But there was aluminum inflation that we factored in Q3.

Now coming onto the overall somebody financials, we do see an operating leverage kicking in already [Technical Issues] the financials compared to last quarter and after adding in the investments that we have done in marketing, the EBITDA margins have already started moving up. Last quarter we had the [Technical Issues] and that’s at 19.1%, this quarter we are at 20.2% [Technical Issues]

Pramod Kumar — Goldman Sachs — Analyst

And on the export side, I understand the ASPs are higher, but I think you made a mention that it’s not still accretive because I think you need some more scale benefits on the export side. Is the understanding right? And that 10,000 or closer to 8,000, 9,000 per month, will exports to be accretive. On the EBITDA margin front?

Kaleeswaran Arunachalam — Chief Financial Officer

It is Pramod. I think different markets are at different levels of maturity. So some of the markets have already hit the accretive numbers and some of the market is still in growth phase where you will see margins further getting added t as we look at the forward quarters.

Pramod Kumar — Goldman Sachs — Analyst

Sounds great. Second question on the demand side, and I think be Siddhartha, BGR, both of you can chip in. If you can help us understand because if Vahan data, your retail market share 4.6, 4.7 [Phonetic] which is one of the highest ever, speaks a lot of demand for your brand and premium segment. It’s in the backdrop of a very weak industry demand environment. So I just want to understand from — from our perspective on demand tracking as to where do we see the demand in terms of monthly bookings and other activities which you track, like customer inquiries, conversion everything. How is the tracking over the last few months, especially given Omicron in January and if there’s any recovery in February? And looking forward, what could be the impact of new launches and also some color on the new launch pipeline, is it getting delayed or you’ll have backlog, just any color on the product action as well? Thank you.

B. Govindarajan — Executive Director, Royal Enfield

Of course, from the demand side, Pramod, it it slowly inching up. When the dealership openings are taking place even in as good as last month, there were some dealers which were not open fundamentally because of the local restrictions and all those things. I think the booking rates are slightly going up. I would say rather and in a week-on-week basis, I’m just seeing its a positive sign.

Second, it is also supported by what? It supported by, I think our new launch classic 350, which we have launched it in September, October. It has been a fantastic reception and the booking for those numbers are also growing very, very steadily, across month-on-month I’m seeing the booking numbers are going up.

Pramod Kumar — Goldman Sachs — Analyst

And on the new launch pipeline, Govind, as — do we still stick to a quarter per launch kind of one launch every quarter that kind of a timeline.

B. Govindarajan — Executive Director, Royal Enfield

We have a very good pipeline of new products, which are lined up. So every, every — at a particular interval where we have to launch those motorcycles into the market, we will be doing it. Siddhartha you want to add something, you we’re saying something.

Siddhartha Lal — Managing Director and Chief Executive Officer

I’ll just add that we do have a very strong pipeline. We normally don’t tell you any further details at this point, but yeah it’s, it’s a very strong pipeline, we are very excited about, and it’s all out there. It’s all ready. We are ready with our products. So now it’s just a matter of sequencing stuff over the course of the next year or 18 months of that.

Pramod Kumar — Goldman Sachs — Analyst

Thanks a lot and wish you guys best of luck. Thank you.

Siddhartha Lal — Managing Director and Chief Executive Officer

Thank you, Pramod.

B. Govindarajan — Executive Director, Royal Enfield

Thanks, Pramod.

Raghunandan — Investor Relations

Next we have a question from f Jinesh Gandhi. Jinesh, please go ahead.

Jinesh Gandhi — Motilal Oswal — Analyst

Yeah, hi, thanks. So my first question is on the supply side. So you indicated we are seeing recovery. Would it be fair to say that the month of December was a profit of friction of normalization of supply chain where we did 70,000 plus or that was primarily roughly between single versus dual channel?

B. Govindarajan — Executive Director, Royal Enfield

Look, I think — no it is what’s in available, the combination of dual channel and single channel ABS. As I mentioned, earlier we had only one source. We actually inducted one more source. There is an initial ramp-up which we’re just coming up and now the second source have to actually source the subcomponents across. So over a period of time, as I mentioned, between the last quarter, this quarter there is substantial growth and I see that month-on-month it will be ramping up. So that’s the confidence which we are seeing it in the supply chain as of now.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, okay. And secondly with respect to the distribution network expansion, so are we largely done with our studio network expansion considering that we have added substantial amount of stores in last two years in distributions.

B. Govindarajan — Executive Director, Royal Enfield

As of now, as I mentioned the studio stores, it is almost about some 1,100 numbers right. So that’s the [Speech Overlap] which are already there. Apart from that what we are looking at this, we keep on looking at where is the cluster, what’s the kind of a growth which is available, how can we move closer to the consumer, that’s the endeavor. So it is not just a number, but we can say the growth which is taking place, especially in the rural economy which is just getting opened up now, there’s is going to be more clusters and where we are not presenting, which we have to be present and then keep moving on. So as a strategy, studio stores is here to continue, but it is not blindly going behind some numbers, it is to see where exactly it has to be there, the quality of this place has to be very, very carefully chosen and installed.

Siddhartha Lal — Managing Director and Chief Executive Officer

Yeah, so to add to Govind, the huge addition that we’ve done there’s not a huge addition ahead of us. Of course, in strategic locations we’ll continue to add and continue to work with the dealers. Also last two years had been very tough for our distribution for all dealers everywhere because sales have been down, service has been down to service revenue has been down. So our job and what we’re doing is to ensure that our dealers are doing well, that their profitability is secured. We don’t want to add a lot more channel before we ensure that all our existing dealers are doing well.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, great. And couple of clarification for Kalees. So, one is on the commodity side, what kind of inflation we saw in third quarter versus second quarter? And the second question is on the staff side, staff cost. Was there any one-off in this quarter as well?

Kaleeswaran Arunachalam — Chief Financial Officer

There is no one-off in staff cost origination and from a commodity perspective roughly it’s about INR2,000 per bike that we saw for Q3. Its just on the add spends we had larger spends of about INR60 crores towards launch of classic and the south pole and GT club that Govind talked about, that was also incurred in this quarter.

Jinesh Gandhi — Motilal Oswal — Analyst

Thanks. I’ll fall back in queue.

Raghunandan — Investor Relations

Thank you. Next, Nitin Arora [Phonetic] from Axis.

Nitin Arora — Axis MF — Analyst

Hi, sir. Thank you so much for taking my question. Just on the demand side, is it possible to share the waiting period across all new model, well I think the way you can share because when we call the channels they tell us that there are, the bikes are available and especially the single channel ABS are available in abundant. So is it some specific models, wanted to know whether periods are low because we are getting everything when we speak to the channel as there is the new classic available, whether it’s Meteor its available. If you can sir throw some light on this fast moving borders that will be helpful. Thank you, Sir.

B. Govindarajan — Executive Director, Royal Enfield

Yeah, Nitin. Nitin, fundamentally it is like this. What has happened is when we added the second source their capability was in the single-channel supply. So that’s when the single channel numbers were slightly better. But it is only a question of some 30, 40 days in which they have to come up and then prime their line for the dual channel. Now what is happening is the other source is also priming for a for a second dual channel. So in the combinations and all these things which homologated, we are quickly doing the home homologations and all those things and we will be ready soon for the dual dual channels, which will come in more. So you saw the single channel slightly more in the pipeline only because of that.

Nitin Arora — Axis MF — Analyst

So waiting period are actually, I can take that the bikes are available. I mean, if one wants to buy despite the strong order book you have the availability at the stores. Is that right?

B. Govindarajan — Executive Director, Royal Enfield

No, no, Nithin, that’s not. I think single channels were available fundamentally because of the single supply due to this. Whereas all other models, we are still in a very healthy waiting period, or very healthy order book, thereby there is a period there.

Nitin Arora — Axis MF — Analyst

Why I’m asking this is, when we look at your production data and when I see your retail, there is a big mismatch. Mismatch in the sense your retailers are not crossing your wholesale despite the strong order backlog. Is it because of corona that means in the third wave without any impact Technical Issues] just need your comments on that. Thank you.

B. Govindarajan — Executive Director, Royal Enfield

Retailers are healthy. I don’t think there is a huge mismatch there.

Kaleeswaran Arunachalam — Chief Financial Officer

That’ s right. So let me add to what Govind said. The first point that you said, Nitin, is I think in terms of single-channel, that is one model and the contri that’s in classic, the contribution of single-channel within classic for the overall portfolio is limited. There is a waiting period that is across Meteor and all the other brands in the portfolio and within classic the rest of the models within outside single channel continues to have a strong waiting period at this point of time, and that is largely on account of the supply constraints that we’ve talked, which we think will get evened out as we move into Q4, Q1 onwards.

Now from a consumer demand perspective, we can look at in two parts. What — December is more a transition period that you see and therefore there is a year end transition that you also see. That’s where you’ll see a little bit of slowdown in terms of retails compared to December to other months onwards. So we don’t see that as a major concern at this point of time. The demand and the overall booking trend continues to be positive.

Nitin Arora — Axis MF — Analyst

Thank you, sir. Thank you, sir.

Raghunandan — Investor Relations

And next we have a question from Hitesh Goyal. So I’m taking the question from the chat. Yeah, first question is what are the outstanding bookings of Royal Enfield? Can you share this number for past three quarters? Second question is, can you tell us about your plans for electric motorcycle segment?

Kaleeswaran Arunachalam — Chief Financial Officer

Hitesh, as the process as we called out few quarters before, we don’t comment on the actual booking number that is available. But at the same point of time, the booking is extremely healthy what we hold in hand and we talked about the booking. Let me hand it over to Sid and Govind to talk more on EV.

Siddhartha Lal — Managing Director and Chief Executive Officer

On EV, as we’ve said in the past, we have a strong team –internal team. We have built a team capability, the infrastructure, the product roadmap. There’s a lot of work going around in the background that we did a lot of prototyping, a lot of work on new ideas and models and there’s models in the pipeline. But as we said in the past, at Royal Enfield, we are — while we are working very hard on EV, we’re not in — we’re not coming out in the very near future at all or in the near future also with any product. It’s all in the works. We think that it requires a lot more thought than what’s being given currently to electric driveline into an existing type of vehicle, it’s much more complex than that.

And we are — as you’ve seen in our new products from the last five years, every single new product at Royal Enfield has come out with has been successful, and has done what it was supposed to do in the market. We’re talking about the twins, we’re are talking about Himalayan, we’re talking about Meteor, and our classic. So our concept is that we put a large amount of time, effort, energy, capability behind the product that we’ve chosen to go after or the range of products that we’ve chosen to go after and we put, we we make them extremely ready for market rather than just putting something and hoping for the best. So that’s our approach. It’s a deliberate approach. It’s a long-term approach. We may not have, let’s say immediate product in the market, like some competitors perhaps. And that doesn’t worry us. We think it’s a long game for EV and that’s how we are playing it out.

Raghunandan — Investor Relations

Thank you, sir. Next we have a question from Amyn Pirani.

Amyn Pirani — — Analyst

Yes, hi, thanks for the opportunity. My question is for Kalees. Clarification you mentioned that there was a INR60 crore extra cost in this quarter. But in general, if I look at the other expenses and if I look at 2Q and 3Q combined and if I compare it to last year 2Q, 3Q because 1Q last year and 1Q this year both were impacted by COVID. Despite volumes being down, the other expenses are materially higher. So is there some new kind of marketing expenses that you’re doing right now? Is there some activity that you’re doing or should we assume that this is the kind of expense levels that will be there going forward?

Kaleeswaran Arunachalam — Chief Financial Officer

So, Amyn, two parts to it. One, we talked about the marketing spend of INR60 crores. These are specific towards launches that happened in the quarter and investment that we did into activities as part of our 120-year celebration, which is the south pole ride and GT. So I don’t think so this is a recurring one that we need to look at. Now sequential quarter, the other increase is also on account of the production ramp up that happened last quarter to this quarter, we had incurred — we have move up from 1.25 to almost 1.7 in Q3. The second thing that has happened.

And third is we have to incur about extra warehousing charges of about INR7 cores, INR8 crores, more to store the vehicles and keep it ready for classic. We talked about in last quarter where we planned for launch in such a manner that the vehicle was available to the customer on day one, rather than having a large amount of waiting period and retailing of 25,000 was done almost in early October and September. So these were the three major things of which I do see the INR60 crores is something not a recurring one.

Amyn Pirani — — Analyst

Understood, understood. Thank you. And just to go back to the production thing. So we saw a significant recovery in November-December. In December, in fact you did hit that 70,000 number and in Jan the number was again lower. So is this the volatility from the supplier or which is just a matter of time as the new suppliers ramp up or is there something else happening at your end because after December the expectation was that at least it will remain in that range of November, December, but then January was even lower than November in terms of production.

Kaleeswaran Arunachalam — Chief Financial Officer

It is a supply situation only. So what we — as I mentioned, when the new suppliers were onboarded, at that month they were also having the back end, because it was — it is being developed. So, they also thought it will take some time. But when they could able to quickly come back and then give it, now they also have the ramp-up. So they are also ramping up. So, it is only a question of the supply situation. As I mentioned, from here on it will be actually a ramp-up, which we will see.

Having said, for everybody’s clarity, not that the situation, but everyone is completely cleared off, not that globally the chipset availability is not, has come, there is no extra capacity which is added. So mostly it will be the disruptions which were there. Some plants up in fire there, there were sandstorm and dust storm which has happened in some other places and Malaysia flooding, all those disruptions which actually caused issues in the supply chain of that, that will not be there hopefully and that will have a linear supply situation. And that’s why I’m saying that it will be a ramp-up from here on.

Amyn Pirani — — Analyst

Understood. Thank you. Thanks.

Raghunandan — Investor Relations

Next we have question from Chirag Shah. Can you please unmute and go ahead.

Chirag Shah — — Analyst

Hello, I’m go inaudible.

Raghunandan — Investor Relations

Yes, you are.

Chirag Shah — — Analyst

So I have a question. I have a follow-up question on the single channel and dual channel. So which specific product wise at company level, how do you look at the contribution of single and dual channel? How should we look at because it will have an impact ESG, it will have an impact on how consumers are viewing those two offerings. It would be interesting to share some thoughts for that?

Siddhartha Lal — Managing Director and Chief Executive Officer

Govind, let me try and do that. Look, I think the main thought is that we will have dual and single channel for — we will have dual and single-channel available for our classic and Meteor and bullet, and we will let the market decide. Currently, the supply side is deciding. So it’s slightly more bent towards what is available and therefore we putting that in the market and sort of the market is pulling whatever is available really as such. Overtime, as the availability is not the issue, it is really for market to decide. We’re not here trying to make decisions for the market in terms of what they should buy. And it will fall into a normal pattern. We don’t know that pattern yet because it’s controlled by supply side right now. It will eventually fall into a normal pattern. So that’s what we are seeing and once supply there, it doesn’t matter to us. So, then it’s really up to the consumer to see what they want.

Chirag Shah — — Analyst

And second is for Kalees. Just, Kalees, a clarification. So there are no more under recoveries left on the commodities, right?

Kaleeswaran Arunachalam — Chief Financial Officer

Roughly, it would be about the Q3 inflation that we talked about, which anyway we have taken up a price increase in Q4 also, so we’ll take it forward as it goes from now onwards.

Chirag Shah — — Analyst

And what was the price hike? I missed that number.

Kaleeswaran Arunachalam — Chief Financial Officer

About 1.5% on an average, Chirag, in Q4.

Chirag Shah — — Analyst

In Q4, Okay, thank you. Thanks a lot.

Raghunandan — Investor Relations

Thank you. Next, can be have Pramod Apte. Please unmute yeah.

Pramod Apte — — Analyst

Hi, a couple of questions on the export side. Seems to me like it’s stabilizing at a particular number on monthly basis. Would you be able to give the geography mix for your export either for last quarter or the nine months, how it is mixing up in terms of regions? One. Second, how do you work on the export side because for us it looks difficult to predict what export momentum considering that you are you — you already you might be having a demand pool. Do you work with monthly order book, quarterly order book which we tried to full skill or a yearly order book. Can you give a color how the actual execution of it happens?

Kaleeswaran Arunachalam — Chief Financial Officer

On first part the Pramod, while we don’t give a specific number [Technical Issues] at this point of time revenue was led by the entire [Technical Issues] Perfect. It starts with the EMEA and UK. And then we have LatAm markets leading for us, followed by APAC and North America. Now in terms of demand, I think it starts with the same way that we work with the Indian market, it starts with creating the aspiration for the product, which is what we have been working for over a period of time. It started with the launch of twins, that was a very, very big success for us in the international market and then we started the trend moving towards Himalayan and now Meteor media has also been very well accepted in the international market. So it is not about chasing a particular demand number or a order book for a particular month, it’s more about having a longer term view, how do we invest in in these markets, how do we look at creating the aspiration level for those markets and then fulfil the demand out of that.

B. Govindarajan — Executive Director, Royal Enfield

And just to add Kalees was just mentioning about an aspiration. At, Europe, we actually started what is called as a riders club. Within about a month’s time 8,000 odd consumers actually they signed up to that. That’s how we wanted to create the market. That’s so people have to become a community, there is a pull, that’s what we are doing it in India, and that’s what is happening in this. So as even in APAC region there are raise, people are coming in. So primarily what is happening it is an aspirational pull rather than push. So that we will would like to continue even in international markets.

Pramod Apte — — Analyst

Thanks. And maybe this is to Siddhartha. Considering that Harley has separated EV division and has been able to create [Indecipherable] do you see, and also you guys are now more closer to the couple of markets, which might be right for the EV on the — in this segment. Are you advancing your timelines for EVs considering the way the market is shaping up or are you getting more confidence now that the ecosystem is developing and hence you can plunge in much earlier than what you thought?

Siddhartha Lal — Managing Director and Chief Executive Officer

I hope you heard earlier, we don’t plunge in, that’s not our approach for anything, we don’t plunge in. We are very deliberate, we take — we do a lot of understanding of market consumer and huge depth on those I guess before coming in with the right product hopefully at the right time, right. So the market is certainly evolving, competitors are also doing a lot of things, some more visibly, some a lot in the background. in any case, we are — I don’t think there is a case for enormously advancing anything as far as we’re concerned. We are working on certain projects for the market. We have a new product introduction process. We are improving it. We’re making it a bit. We’re adapting it, of course for EV, but it is a very genuinely amazing process as all of you have seen the kind of product which has come out, which is truly world-class I’m talking about the new product introduction process, which includes the product strategy, the program management, the engineering, the supply side, the manufacturing, the quality, all of that. It’s absolutely tremendous and world-class, and we’re not short cutting that in any form or manner for EV, especially not for which is an unknown commodity in the market.

If you look at motorcycles, there is no EV success story right now in motorcycles. Scooters, there is some trickle of scooters happening certainly, it’s not yet mainstream, its not yet established as, but the traction there will probably happen a bit earlier. Motorcycles, it’s still a way out. The technology is not fully ready yet, it will be in a few years and we’re working towards that. And like I said, even while they have been so many players in international [Indecipherable] there is no successful story of motorcycle two wheeler. Not to say that we’re not doing anything, we’re doing a lot. But, but it’s not that that the market is available or is there already. We have our take on it. We are working hard towards that, that thinking that we have in mind what will be successful in the market commercially, what will be successful for the long term. And that’s how we’re going about it. We’re not plunging in any market quickly just to either from a visibility perspective or from any other perspective, that’s not our approach to business anymore.

Pramod Apte — — Analyst

Thanks.

Raghunandan — Investor Relations

Next, I’m taking up the question from Binay Singh of Morgan Stanley. It’s on the chat. Other two wheeler OEMs are seeing weak demand. How is demand for Royal Enfield? How is the demand in top end cities? How are the monthly bookings? Secondly, other expenses are up 35% Y-o-Y, while volumes are down 15% Y-o-Y. What is driving the other expenses?

B. Govindarajan — Executive Director, Royal Enfield

First is about the other two wheelers demand situation. If you actually look at what is happening in the entire two wheeler industry, even though the 125 cc and and below, which normally say it is a very highest number is, there the traction is slightly lower, whereas the higher cc premium motorcycles in a way, so that particular area it is constantly growing. To that extent where we are playing we don’t see it to be a tough situation for the demand. What’s the second call.

Raghunandan — Investor Relations

On the other expenses.

Kaleeswaran Arunachalam — Chief Financial Officer

I’ll take that Govind. So, Binay, as we discussed earlier, that includes the spends that we talked on marketing of about INR60 crores. If I adjust for that, the overall EBIT from 20.2 moves to 22.2 percentage. And we also talked about the sequential quarter performance and the operating leverage kicking in.

Raghunandan — Investor Relations

Next we have a question from Kapil Singh. Kapil, please unmute and go ahead.

Kapil Singh — — Analyst

Yeah, hi, sir. I just wanted to understand how you’re thinking about pricing right now. Do you think it’s at the right level more or less or do you think you need to take it up significantly? And also how do you think of the trade-off between volumes and pricing? Do you think there has been an impact on demand because of the price increases that we have seen or in your segment its not really significant?

Kaleeswaran Arunachalam — Chief Financial Officer

Yeah, I think too early to look at from a demand perspective, Kapil. You know the industry, we have been supply constrained and therefore we need to see as to at what fully blown supplies, where does this stand in terms of a demand impact. Now coming back to the other question on how do we go about this, are these — the price increases that we wanted to take it as such. These are cost pressures and not that we could give any consumer benefit to it, but largely the cost pressure that is on table that needs to be passed on. If you look at the industry as a whole, the amount of price increase that has been taken across all players, we are in line. It’s not that we had too off from that perspective and the methodology that we use is a

— it’s a proper structured manner where we look at what’s the relative price index to the competition and where is the source of growth coming from. How do we benchmark and then we’ll take a holistic call on pricing as such.

B. Govindarajan — Executive Director, Royal Enfield

Just to add as Kalees is talking about on the pricing. What we have to look at [Technical Issues] actually help the consumer to navigate through this is about making finance availability at the locations where it is required at right interest rates and that’s what and how do we support and that’s what we are all working on constantly in every outlet of ours.

Kapil Singh — — Analyst

Okay, thank you.

Raghunandan — Investor Relations

Next we have a question from Ronak Sarda please unmute and go ahead.

Ronak Sarda — — Analyst

Hi. Thanks for the opportunity. Am I audible.

Raghunandan — Investor Relations

Yes, please.

Ronak Sarda — — Analyst

Yeah. The first question is on setting up the assembly lines beyond India. So one, can you help us understand what’s the cost benefit framework here? Why I’m asking is because; one, we have a — we have capacities in India, one is that. I understand the duty structure, but is purely from the capacities. And second, do we have to set up a dedicated supplier or a vendor base as well. So how does that shape the profitability for exports?

B. Govindarajan — Executive Director, Royal Enfield

Ronak, any facilities are not building any capacities, primarily what is happening is every country has what is called as a minimum work content, which has to be there and there is a share of business, which I mean, they have to force some components to some percentage and you have to manufacture some [Technical Issues] and you have employee so many people, that’s the duty structure have to come in and that’s the reason which we are doing it.

As far as the dedicated lines which you are talking about, probably it depends on the depth of manufacturing, it varies company to company. I’m sorry country to country. So what we have done is all of it excusive sub-assembly stations which are required only for our products, there we have put dedicated where we can actually share it. For example, a conveyor line in which we don’t need to invest or something like that or nor the partner need to invest, in those areas we have used the common lines. Testing, anyway it has to be different. So to that extent it is dedicated. So product specific which are to be specific, that has been made as separate dedicated lines. Wherever possible common lines which can be used to be used, we have used the common line.

Ronak Sarda — — Analyst

Okay. Second question for Siddhartha on VECV. One we have seen the LCV segment doing very well in the last last few quarters. And again the CNG portfolio has done very well there, which has helped actually gain market share. One, how do you see Eicher’s market share Moving ahead, especially with the competition launching that product. And how does Eicher differentiate in terms of, you know the product portfolio, especially in the CNG segment.

Siddhartha Lal — Managing Director and Chief Executive Officer

In the CNG segment, of course, we have advantage on product and how we position ourselves and how we’ve been relative early mover in that market, so we’ve [Technical Issues] to do well in CNG market. Like I said in, light and medium-duty we have around 50% share versus 30% for diesel. So we are doing exceptionally well there.

In the larger scheme of things, as you are asking about the positioning and market share evolution, obviously the big for us from last many years has been on the heavy duty part to get to a particular level on the heavy duty and we’re really getting there also. So our view is always been that at 10% heavy-duty market share, we’re a very substantial, let’s say player from many different perspective. That’s what starts a very strong virtual cycle in the market for us, and we’re very much heading towards that. Our entire product portfolio is renewed or let’s say ground up, not renewed. So our 2000 series is ground up new, light and medium-duty, doing exceptionally well in the market. I mean, even the people I talk to on the road in India, juts the look of the truck also people stop, it’s like that level of interest that people have in its. And of course that at the skill level. The performance is absolutely outstanding.

The 3,000 has really set its mark as the ICV type of product, medium and heavy, perhaps low heavy duty product, doing exceptionally well as well. And same Pro 6,000, Pro 8,000, I’m talking about truck segments. So we’ve got all that under our belt. We’ve taken the advantage of BS VI, which others were struggling a bit more than we were able to make more headway. We’re getting the foot in the door or number of — the number of times we get invited now to customers to work with them on to when they’re bidding for trucks or whatever it is very high. We’ve got a head into, we’ve got a place in most of the deals that are happening now.

Obviously, as someone who’s growing and doing so well in the market, some of the, let’s call it the incumbents are not delighted about it as you can imagine. They’re throwing money at deals. I mean, at ridiculous levels that you can see their profit margin. I mean, a company which is 4 times the size should not be making losses at this point while we are making profits, right. And that’s because they are throwing money at deals at ridiculously low levels, which is and we take some deals, but we have to leave a lot of deals with them. They know we are there. They know we are a better product. They know we have a better offerings. Uptime of vehicles is what we really consider the biggest selling point, which is the highest uptime in the market for heavy duty. So that’s what’s happening. We are actually doing so well against the competition that they they have only one tactic left, which is to throw money on the table and to get deals at very good prices, right. So if they can sustain that forever that’s unfortunate to their shareholders. But from our perspective, you can see that one can see that we are making headway because we’re able to actually be successful and still grow our share even though we make it profitable compared to the others. So that’s really the outlook, which gives me a lot of, let’s say hope for the future that we doing the right things and our competitors are left with only one solution, which is I guess for the long term not the ideal solution for them right now.

Raghunandan — Investor Relations

Thank you. We have time for one last question from Joseph George.

Joseph George — — Analyst

Hi, thank you. Am I audible.

Raghunandan — Investor Relations

Yes, please.

Joseph George — — Analyst

Yeah, so I just had a couple of questions, one is you mentioned that you increased prices by 1.5% in Jan. I wanted to understand whether in 4Q over the December quarter, are you seeing incremental raw material pressure or is this 1.5% or something that will flow through to the gross margins?

Siddhartha Lal — Managing Director and Chief Executive Officer

Joseph, we will discuss about the 4Q [Technical Issues]

Joseph George — — Analyst

Sorry, did you mean that in 4Q there is incremental RM pressure, now forget the gross margin expansion part. Is there incremental [Technical Issues]

Siddhartha Lal — Managing Director and Chief Executive Officer

Sorry, Joseph, report about the Q3 the inflation. Raw material pressure [Indecipherable]

Joseph George — — Analyst

Understood. Thank you. The second question that I had was on this INR60 crores of lumpy marketing spend that you mentioned in the third quarter, but isn’t marketing spend something that will continue because even in the future you’ll have one new launch every quarter. So wouldn’t this continue every quarter, maybe to a lower extent, but something that will be recurring going forward or should we look at about INR300 crores as the right opex number for the level of production that we had in 3Q?

Siddhartha Lal — Managing Director and Chief Executive Officer

I think, Joseph there are two ways to look it [Technical Issues] marketing spend goes [Technical Issues]

Joseph George — — Analyst

Thank you.

Raghunandan — Investor Relations

Thank you. That brings us to the end of concession. Participants who has questions were unanswered please reach out to the IR team. Handing over back to management for closing remarks. Over to you, sir.

Siddhartha Lal — Managing Director and Chief Executive Officer

Thank you very much for joining us for this session and look forward to talking to you in a few months. Thank you. Thank you very much. Be safe.

B. Govindarajan — Executive Director, Royal Enfield

Thank you, everyone, good evening.

Kaleeswaran Arunachalam — Chief Financial Officer

Bye, bye, bye.