Hero MotoCorp Ltd (NSE:HEROMOTOCO) Q3 FY22 Earnings Concall dated Feb. 11, 2022
Corporate Participants:
Umang Khurana — Head of Investor Relations and Business Support
Niranjan Gupta — Chief Financial Officer
Naveen Chauhan — Head – Sales & After Sales
Analysts:
Basudeb Banerjee — Analyst
Gunjan Prithyani — Bank of America — Analyst
Vimal Gohil — Union Mutual Fund — Analyst
Binay Singh — Morgan Stanley — Analyst
Amyn Pirani — J.P. Morgan — Analyst
Pramod Kumar — UBS Securities — Analyst
Rajesh Kumar — ITI Limited — Analyst
Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst
Kapil Singh — Nomura — Analyst
Chirag Shah — Edelweiss Capital — Analyst
Nishit Jalan — Axis Capital Ltd. — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Hero MotoCorp Q3 FY2022 Results Conference Call hosted by ICICI Securities. [Operator Instructions]. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. I now hand the conference over to Mr. Basudeb Banerjee. Thank you and over to you, sir.
Basudeb Banerjee — Analyst
Thanks Tanvi. Thanks to Hero MotoCorp management for giving us the opportunity to host the 3Q FY22 post result conference call. I would like to hand over the call to Mr. Umang Khurana, Head of Investor Relations and Business Support, Hero MotoCorp. Over to you, Umang.
Umang Khurana — Head of Investor Relations and Business Support
Thank you, Basu. Thank you for hosting us. Lovely to see all of you. Lovely to speak to all of you again. I trust you’re having a good day, keeping safe and healthy. To discuss the quarter and our performance and future outlook, we have today for the quarter three FY22 call, Niranjan Gupta, Chief Financial Officer and Naveen Chauhan, Head of Sales & After Sales.
What — we’ll begin with an opening statement from Niranjan and then open it up for questions. We’ll now pass this baton on to Niranjan. Niranjan, over to you.
Niranjan Gupta — Chief Financial Officer
Thanks Umang. Good morning, good afternoon depending on where you’re joining from and welcome again to Hero MotoCorp’s earnings call. As you would have seen, our financial results announced yesterday evening. We declared revenue of INR7,883 crores and EBITDA of INR960 crores and a INR686 crores of profit after tax. In terms of our topline performances, our domestic market share have grown sequentially by more than 100 basis point, our global business has been consistently doing well over the last few quarters and is on track to close at around 300,000 units by the fiscal year 2022 which would almost be 50% higher than our historical run rates over the last four, five years.
Additionally, as you would have seen from our results, consistently over the last seven, eight quarters, we’ve been focusing on non two-wheeler product revenues as well and therefore our PAM business which is Parts, Accessories and Merchandise business clocked a solid revenue of INR1,186 crores in quarter three, registering a growth of 15% year-on-year basis. And consistently, we’ve been now clocking over INR1,000 crores quarterly basis on our PAM business. And we expect that to continue to grow in future as our activities on this front are giving us handsome rewards.
Coming to the outlook of the industry, fiscal year ’23, as we know, fiscal year ’22 was impacted across the industry by two pandemic waves and also the second challenge as we have said of the commodity cost inflation. As we move forward, let me talk about the demand side, we have seen the GST collections at their almost highest ever at INR1.4 lakh crores. We are seeing now pandemic wave, Omicron actually heading out, phasing out, rapidly dropping. Also recognizing this, all the other sectors which were either stop-start or not opened fully are now opening as you can see from various announcement by state government especially the opening of colleges, opening of the hospitality sector, the entertainment sector, all that augurs very well as far as the income and rural demand is concerned.
So therefore we do expect a much broader economic recovery, rather than a shallow recovery as we move forward to fiscal year ’23. We’ve also seen the budget which is rightly focusing on capex expenditure up by 25% over the actuals of the last year and that would trigger a cycle, not only of employment and income, but also actually trigger a private capex cycle. So, I think combined, all of this should have a significant positive impact on economy in general and two-wheeler sector in particular.
As far as cost and margin squeeze is concerned, we have seen a lot of commodities now peaking out, we’ve seen precious metals, we have seen steel peaking out. And obviously, as we move forward, we do expect the commodities to have peaked out and therefore the cost pressures to be far less and we’ll keep — continue to take calls on judicious price increases along with the accelerated LEAP savings that we continue to do in order to manage the impact on customers as well as on margins.
So overall, when we look at the outlook, the outlook for fiscal year ’23, we expect strong rebound in the two-wheeler sector and we do expect the cost pressures to ease off as industry as such. We are — we continue to launch more and more products in the premium portfolio to boost our market share. And that should help us moving forward apart from the premiumization and obviously the scale up of global business that we continue to do.
On the EV front, as we have announced earlier itself, we will be doing our launch in the month of March, and we continue to invest strongly behind our current investments like Ather and Gogoro. You’ve seen the announcements already. Apart from that we are forging collaboration and partnerships with as many players in the ecosystem. And therefore, we are addressing EV as more as an ecosystem rather than a product or a stream of revenue.
With that, let me now hand it over back to you, Umang, and to the floor for questions. And we’ll be happy to elaborate, explain and clarify and answer all your queries.
Umang Khurana — Head of Investor Relations and Business Support
Thank you for that. We’ll now take questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Gunjan Prithyani — Bank of America — Analyst
Yeah, hi, thanks for taking my questions. Two questions from my side. Firstly on the investments that we’ve made in the associate companies, that is Ather and the Hero Fincorp, could you just talk a little bit more on both of these? Firstly on Ather, as to how do we see this association progressing over time? Is it — does it go beyond the stake that we have in terms of alliances on the business front as well?
And secondly on the Hero Fincorp, now this is a pretty large capital infusion that we’re doing when the industry is not growing. So maybe give us more color around what’s the thought process behind this, or is there some asset quality risk that we’re anticipating in the business?
Niranjan Gupta — Chief Financial Officer
Thanks Gunjan for the question. As far as Ather is concerned, as you’ve seen consistently every round we’ve been participating in the capital raise. And over a period, we’ve been increasing our shareholding as well. Beyond that, you are absolutely right, we are — both the companies are exploring collaboration in the spaces where they can be synergy. We strongly believe that EV currently is more about partnerships and collaborations rather than competition, because it’s the category that has to be built, and then built under different streams of revenue and with optimization, of course.
So whether it is, let’s say, charging, whether it is maybe global business, whether it is a front-end, so there are multiple collaborations being explored between the two companies. Already there’s a lot of learning which gets cross pollinated between the two companies which will help both the companies and our JV [Phonetic] investments moving forward as well.
As far as Fincorp is concerned, you would have seen that announcement. They’ve closed capital round of INR2,000 crores, which is a capital raise. This will help them almost double their AUM from their current level of around INR26,000 crores to almost close to around INR50,000 crores. The liquidity remains strong, their gearing ratios are at around 4.5% against the allowed 6%. So it’s providing them headroom. First two quarters, like most other NBFCs because of the pandemic and the others they had the challenge like across the NBFC sector as you would have seen on the GNPAs. But quarter three, they have turned back again and they have delivered a profit of INR130 crores for the quarter.
So we don’t see underlying or continuing issues as far as the asset quality is concerned. Those are all one-offs, which is the GNPAs — which is across the industry, which happen. So this capital will actually help Fincorp grow, because as we come out of pandemic and which we have, I do believe, it will be back to growth of NBFCs. India’s credit to GDP ratio is very low. And therefore, it augurs well for well-funded NBFCs which have strong parentage, and actually offers now a renewed opportunity to grow given that the finance penetration in India is still very low.
So it actually builds them towards a much stronger business as smaller NBFCs start to consolidate in future.
Gunjan Prithyani — Bank of America — Analyst
Okay, got it. Thank you. And second question is on the margin. You kind of touched on the mix improvement we are seeing, but if you could also give us some sense on what kind of price hikes that were taken during the quarter. And if anything after that, and are we pretty much covered up for the commodity inflation now?
Niranjan Gupta — Chief Financial Officer
So Gunjan, as you would have seen our EBITDA margin, which we — which we declared for the quarter is 12.2%. Obviously there is some bit of recovery yet to be made. In terms of price increase what we did, we did from around 1st of October, last week of September close to around INR1,000 extra room price. And from 1st January, we took close to around INR500 extra room price. So we’ll continue to calibrate that.
Moving forward, as we see these gradual price adjustments combined with commodity softening, that should help us actually in terms of margin recovery. So that’s how we expect it to be played out. But as you would have seen, we continue to take a balanced view between what price we have to pass on, blending it with the savings of course, sourcing it in an effective manner. And obviously we need to cater to growth as well.
Gunjan Prithyani — Bank of America — Analyst
All right. Thank you. I’ll join back the queue.
Operator
Thank you. The next question is from the line of Vimal Gohil from Union AMC. Please go ahead.
Vimal Gohil — Union Mutual Fund — Analyst
Yes, sir. Thank you for the opportunity. Sir my question on gross margins has been answered. The second one what I had was on electric vehicles. What would be your distribution strategy? Are we setting up a new distribution channel or will we leverage on our already strong existing distributor network?
Niranjan Gupta — Chief Financial Officer
Good question. So first of all, let me take a bit of a broader view. There are certain inherent strengths that incumbent players like us have which is whether you call it manufacturing scale logistics, distribution scale, I touched upon in the last earnings call as well, whether sourcing scale, all of these actually help us in terms of reducing the cost of acquisition of customer and reducing the investment which is required to achieve a certain scale in EV.
Equally on the distribution side, the reach that we have at the nooks and corner of the country, certainly it will be helpful. So what we are working out is a strategy where of course there will be certain exclusive stores as well, but obviously in more ways than one, we will be looking to leverage our existing strengths as incumbent, including with manufacturing sourcing, R&D, logistics or our network.
Vimal Gohil — Union Mutual Fund — Analyst
Sir, the existing stores are well equipped to in order to service the customer in terms of — because electric vehicles will require a separate skill levels in terms of servicing, etc. So do you think we are prepared for that particular angle or how should we think about that issue?
Niranjan Gupta — Chief Financial Officer
The servicing essentially is of the two elements. If you talk of the software part of it, it is mostly over the air. So it doesn’t make a difference where you sell from. And the other are physical parts which would be no different in terms of servicing whether you do the servicing from x place or y place or ICE or EV.
Now, please, we also need to remember that there’s different profiles of the customers. So the customers at the city or the metros would expect a certain experience, certain environment. As you go to Tier 2, Tier 3, Tier 4 and you’re trying to attract those customers, the environment need not be very different. So we are blending in all these learnings which are there from our knowledge of the customer base as well as from what has been the EV player’s experience, and blending that to suit the channel and the strategy and the modification that we will ultimately deploy.
You will hear more about this, when we launch our — when we do our launch.
Vimal Gohil — Union Mutual Fund — Analyst
Fair enough, sir. And sir, we are also baking in some dealer profitability because if the software is going to be taken care of over the year, then — and servicing is a large portion of the dealer profitability. How are we taking care of that? That would be my one question. And lastly, just if you can just highlight your capex for FY23 and what are the investments that you’ve planned for Ather and Hero Fincorp would be sir? That’s all.
Niranjan Gupta — Chief Financial Officer
So as far as dealer profitability is concerned, again, while I’ll not get into granular details, but that’s again another area where as incumbent, we will be much better off. Because, remember EV is coming on top of our big base of ICE. So it’s not that every dealer will have to be exclusively profitable on EV, of course for the exclusive stores, they will need to be.
So all those economics, all those viabilities, whatever it is for the industry, all I can say is that we will be much better off vis-a-vis the industry dynamics. And eventually, whoever comes into EV space will play for the long term and not profitability in the short term, any part of the eco chain.
What was your second question?
Vimal Gohil — Union Mutual Fund — Analyst
Sir, capex requirement and investments in Ather and Hero Fincorp.
Niranjan Gupta — Chief Financial Officer
Yeah. So as you know, we don’t give guidance on the capex requirement of Fincorp and Ather. All I can say is Fincorp is now fully funded to almost doubling their AUM. So we don’t see any requirement coming up probably even in the next couple of years and obviously at some stage they will also have to plan for their listing and their IPO.
As far as Ather is concerned, we’ll continue to evaluate how the — the company will continue to evaluate the EV landscape and the EV path. Of course the current round also they need to close the capital round, they haven’t closed the capital round and after that only they will be able to assess when the next requirement will be.
Vimal Gohil — Union Mutual Fund — Analyst
And sir, your own capex?
Niranjan Gupta — Chief Financial Officer
Our own capex, we will talk about it in our quarter four earnings call.
Vimal Gohil — Union Mutual Fund — Analyst
Fair enough, sir. Thank you so much and all the very best sir.
Niranjan Gupta — Chief Financial Officer
Welcome.
Operator
Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Binay Singh — Morgan Stanley — Analyst
Hi team. Thanks for the opportunity. Sir quickly, just on Gogoro, is our tie-up with Gogoro exclusive or others will also be allowed to use their battery swapping stations?
Niranjan Gupta — Chief Financial Officer
Hi, Binay. The JV that will be formed which will have the — have the swapping network that will have exclusivity in terms of the swapping tie-up with Gogoro. Now whether that JV operates to serve only Hero product or later on together, we both decided to expand it to others, that’s something is for the JV to take a call once the JV is formed. And it can very well form a different stream of revenue as well apart from just catering to Hero branded products. But those are things that once the JV comes into being will get decided.
Binay Singh — Morgan Stanley — Analyst
Okay. Noted. And sir, secondly you know, when we look at electric vehicle launch of your peers, they’ve launched models for more than a year, yet we see limited city launch, volumes still around 1,000 unit or so, hampered either by production issues or supply chain issues. As you are looking into your electric launch, how are you looking at resolving these issues? Are you going for a similar limited city sort of a slow ramp up or planning to go for a pan-India launch?
Niranjan Gupta — Chief Financial Officer
So at this stage all I would say is wait for further announcement, so when we do the launch at that time, we will actually come out and actually share what our overall plan is. Eventually, I mean it’s not — honestly it’s not start that matters. But eventually as you know, as Hero Motocorp, we would cover all segments, whether it is a premium, mid or mass segment on EV, because our objective is to enable electrification for everyone and not just for exclusive set of people or exclusive set of geographies. So that’s the endeavor that we will have to actually straddle across the segments. And accordingly, obviously, straddle across the geographies as well.
Now what pace, what speed, what scale up, that’s something that we will share closer to the time.
Binay Singh — Morgan Stanley — Analyst
Thanks for that Niranjan. Just lastly one question on the consumer trend everybody has been waiting for replacement demand in the two-wheeler industry to come. Have you seen any change in consumer trend as in replacement as a percentage of share rising or so in the last few months? Anything on first time buyer versus replacement trends at the consumer level, if you could share? Thanks.
Niranjan Gupta — Chief Financial Officer
Yeah. So let me hand over this question to Naveen.
Naveen Chauhan — Head – Sales & After Sales
Yeah. [Foreign Speech] to everyone who’s on the call. On the replacement buyer, we’ve seen that since the time the pandemic has hit in, in fact [Phonetic] the consumer has actually not come back to the level that they were before pandemic. However, in the recent two months, I would say more in January, that we have seen the replacement buyer coming in. And I think one of the proxy that we also look at for the replacement buyer, not coming in is also the increase in the base service lower in a dealership workshop. So that’s a proxy that we take. In January, we have seen in some of the market of UP, Bihar, Rajasthan, there’s a bit increase in terms of contribution of replacement buyer. Thank you.
Binay Singh — Morgan Stanley — Analyst
Thanks for that, Naveen. Any percentage number like what percentage would roughly replacement be?
Naveen Chauhan — Head – Sales & After Sales
Okay. So it will be around 20% or so. That’s where it operate. It was far higher during pre-pandemic times.
Binay Singh — Morgan Stanley — Analyst
Okay, great. Thanks so much.
Operator
Thank you. The next question is from the line of Amyn Pirani from J.P. Morgan. Please go ahead.
Amyn Pirani — J.P. Morgan — Analyst
Yes, hi, thanks for the opportunity. First question was just a clarification, you mentioned in the release that you’ve invested INR150 crores in Ather post-December, is this part of the INR420 crores full round that you have announced? If you can just help us understand.
Niranjan Gupta — Chief Financial Officer
Yeah, it’s part of the full round of INR420 crores, you’re absolutely right.
Amyn Pirani — J.P. Morgan — Analyst
Okay. Okay, thank you. And secondly, just on the core business. We’ve discussed this for several quarters now as to how you and potentially the two-wheeler industry has actually managed to maintain pricing and even profitability during three years of downturn now. So, you know, just wanted to get a sense from you is that given that financing share continues to be quite low, how should we look at profitability going forward? Because we are hitting peak profitability in terms of EBITDA per vehicle at a time when the market is 30% lower. So how should we think about this? Because this is not something that we have seen in the past.
Niranjan Gupta — Chief Financial Officer
So, let me just give some example in terms of the pricing. So even as you see it today, I mean one normally draws a very direct correlation between pricing and demand, but actually it’s not so. What we’ve seen is that demand is more impacted by other factors than essentially price as long as you’re able to provide value to the customer. So for instance, if you see even in these times, let’s say Glamour, when we have launched Glamour XTEC, which is almost at INR4,000 to INR5,000 per vehicle, higher than the base Glamour, people are lapping that up and Glamour XTEC has become more than 30%, 35%, 40% of our overall Glamour.
Now therefore even within those segments, if we are providing the right features and value add to the customers, the customers are taking the variant which is actually priced higher, provided they see value in it. So I think it’s that equation which as long as you keep getting it right then fundamentally one doesn’t see pricing as a big issue and pricing pass on as a big issue. Obviously, it has to be calibrated based on the different segments.
So moving forward as we see, look, the last two, three years, as you rightly said has been years of commodity challenge as well as on the underlying demand because of the pandemic, what I’ve seen multiple waves and of course there was a BS6 transition as well. As we move forward, we see that a lot of these — these big shocks are behind us. And obviously, the commodities also can’t keep going forever. Nothing keeps going up forever, nothing keeps going down forever.
So when you look forward, then you see actually these things coming nicely together as a sweet spot, which is people’s income coming back, people wanting to spend more. And also it’s about — it’s about, once you decide it’s not a — it’s not a consumption spend. It’s a spend that you’ve decided you need to and obviously because of the consumer confidence and lot of stuff which was held back is likely to then come back.
So we don’t see actually this as a conundrum or an issue. And I think we’ve been very sensible in not passing the entire cost, as you would have seen. Probably we would have taken price increase which is close to maybe 50% of the cost increases that have happened, and another 25% made up to LEAP savings, and the balance 25% broadly absorbed in the margin. Very, very broadly. That’s the configuration that we have done.
So we’ve been very, very sensible and mindful of the impact on customer as well. Let me just also ask Naveen to add on this front, anything you want to add Naveen, or…?
Naveen Chauhan — Head – Sales & After Sales
No, I firmly agree with you. And in fact consumer especially in BS6 trend if you look at across the segment, not just one or two or maybe premium. We’ve seen this is happening even in the commuter Splendor wherein the premium variant is introduced and that gets slapped, because consumers are dramatically looking at value and also we’ve raised also there’s a point of the financing being low. I think that’s also we’ve seen that is very innovative, financing models appearing OEMs, working with the finances to evaluate and evolve those models and offer this to customer. And we’ve seen the result of that in terms of the finance penetration that has gone up in the last one year.
Niranjan Gupta — Chief Financial Officer
In fact just to add on financing point Naveen, the other thing as you would have seen in the budget also, the more and more financial inclusion happening which is even post offices coming into the space. So I think as it happens more and more, and gets more and more into hinterland and rural, the financing has a beauty of cushioning the one-time or immediate impact of the outflow that the customer faces. So actually as it increases, this should augur well for the industry as such itself.
Amyn Pirani — J.P. Morgan — Analyst
Thanks a lot for the detailed explanation. Just one last thing, what is the financing penetration right now? And if you can share Hero FinCorp’s share in that?
Niranjan Gupta — Chief Financial Officer
So quarter three, our financing penetration was 58% and Hero FinCorp continues to be in the band of 35% to 40%. So it was 35% in quarter three FY’22.
Amyn Pirani — J.P. Morgan — Analyst
Okay. And on a full-company basis it was 58%. So there has been a recovery here in the financing?
Niranjan Gupta — Chief Financial Officer
Yeah. Across the segment, I mean this is an overall number. But the growth in retail financing has been seen across the segment across the geographies.
Amyn Pirani — J.P. Morgan — Analyst
Fair enough. Fair enough. Thanks a lot. I’ll come back in the queue.
Operator
Thank you. The next question is from the line of Pramod Kumar from UBS. Please go ahead.
Pramod Kumar — UBS Securities — Analyst
Thanks a lot for the opportunity. Before the question, just one clarification on the EV schedule. March you go commercially live or it’s going to be unveiled followed by a launch at a later date? Just wanted to clarify that.
Niranjan Gupta — Chief Financial Officer
Hi, Pramod. Thanks for the question. So, you will get to know the entire details in the month of March itself. So we will be announcing the entire plan of when the ordering will start, when the commercial dispatches will start, the veils [Phonetic] will start all of that will get announced in the month of March along with that launch.
Pramod Kumar — UBS Securities — Analyst
Fair enough. And the first question is to Naveen on the market situation because we’ve heard capable [Phonetic] companies to even tractor companies complaining about rural inflation on the Agri side which is hurting farm income. And generally demand has been very weak and even our market share trends kind of suggest at around 31% in January as for Vahan. That — the rural segments are definitely suffering more. So what is the confidence — based on which data you’re getting this confidence that FY23 is going to be a good year for the industry in terms of recovery outside of the base effect of course of the first quarter? Because, most of the other companies are warning about how incomes has taken a knock for bulk of India in the disruption from Delta variant and savings being wiped out and the prices being moved heavily right, both vehicle prices and the fuel price. So what are the data points which are giving you that confidence on demand recovery?
Naveen Chauhan — Head – Sales & After Sales
All right. So, you’re right, that if we look at what has happened over a period of time last year, especially the second wave, which was far more lethal than what was expected. And in fact it was far more deep in the country. And it actually hit the rural sentiment far more deeper. Post that, you had delayed monsoon, right? And which also had a major impact on the rural crops. And hence that continued till as late as December and part of January.
What gives me confidence is the recent footfalls that I see in markets like UP, Bihar particularly Eastern UP and the Central UP part that I see more and more footfalls are coming into my secondary network, which is more of the rural-based. I also firmly believe that the bottoming out has actually happened, right? It’s only a way forward.
Also, if you look at consumer confidence index, that’s — which has little bit dipped in the month of January because of the third wave. We’re also seeing the signs are going up. Now, while there has been an impact on the Kharif crop, the Rabi sowing has been pretty good and there is lot of focus that the government has in terms of investing in rural and getting that segment back, and it’s very, very critical for the country.
In terms of the double-digit number that Niranjan shared in his opening comment, I think if you look at base effect of Q1 and then subsequent to that if we get on to the long-term averages, I think we’ll get that kind of a number from — for the industry perspective.
Pramod Kumar — UBS Securities — Analyst
But sorry, Niranjan, but given the cost inflation, the long-term averages do they really matter? Because, our long-term average on inflation is 1% or 2%, but the vehicle price have shot up by 35%, 40%, fuel prices are up 50%, income levels are down. So is it like — is the industry being a bit too optimistic in terms of making that inflection [Phonetic]?
And also related to that, how are you reading the marriage season demand? Because, last two years we didn’t have the marriage season in the summer, unfortunately, which is the second largest buying season. So because it’s very critical that you have a good start to the year with the marriage season. So if you can make comments on that as well, sir.
Niranjan Gupta — Chief Financial Officer
Let me probably supplement what Naveen said [Phonetic], so first of all, you know what happens in the times of euphoria we get too euphoric and in the times when there are — things are down, then we get too pessimistic. I think we shouldn’t forget that the base impact has been severe and as we have come out — even in today, the consumer confidence index is the highest in the last two years, sitting at 60.
Second thing is, when you look at in the last two years, it’s only now with this wave three that some of the sectors which had not even opened up are now opening up, colleges are opening now after a gap of two years. You can see the entire sector of the economy actually opening up. Now that provides confidence. Otherwise people keep thinking in rural, which was rightly so where after the wave two that maybe I need to save for xyz, we don’t know what else is coming.
Now that confidence is returning back that may be life is coming back to normal. So that’s one part of the whole thing. Naveen did explain about the delayed monsoon etc, etc, all that factors. And third, of course, you see the large expenditure in the Union Budget, the confidence of the overall ecosystem on the private industry which is coming back on the capex cycle. So I think all of this actually really auger well.
And finally industries are cyclical, so after three years of negative growth, the whole cumulative pent up that gets accumulated or has got deferred is bound to come back. So actually, we are — therefore, we are extremely positive about this. I mean, we don’t see a Delta-like impact again coming into play. I mean, those are once in a 100 year kind of event. And therefore, we should not take those as underlying reflection of demand.
Naveen you want to.. [Speech Overlap]
Naveen Chauhan — Head – Sales & After Sales
And also, I think, I mean if the experience with Omicron, subsequent to that both the administration as well as people by and large also adopted to the stage of life. The question was also about what’s happening in the marriage market. We’ve seen there is a retail uptick in the core marriage markets in the month of February. And another factor that I also look at not just the retail growth that we’re expecting — that we’re experiencing in the current month. It’s also about these purchases are normally cash purchases. And hence the trend that we were observing in terms of retail finance penetration for last four, five months, we’ve seen that also dipping a little on account of the cash purchases that happened in marriage markets. So core marriage markets, there is a positive tick.
Pramod Kumar — UBS Securities — Analyst
Great. And I mean, where’s the system inventory now? Dealers plus sub-dealers?
Niranjan Gupta — Chief Financial Officer
In terms of forward-looking that we look at on our retails, we are at seven to eight weeks kind of inventory right now at a dealer.
Pramod Kumar — UBS Securities — Analyst
Thanks a lot. And wish you guys best of luck. Thank you.
Niranjan Gupta — Chief Financial Officer
Thank you very much. Welcome.
Operator
Thank you. The next question is from the line of Rajesh from ITI Limited. Please go ahead.
Rajesh Kumar — ITI Limited — Analyst
Hello?
Niranjan Gupta — Chief Financial Officer
Hello, Rajesh. Go ahead.
Rajesh Kumar — ITI Limited — Analyst
Yeah, good afternoon sir. Sir, if I look at let’s say Hero Motors, we are in a very sweet spot industry as far as the EV challenge is there, because you’re also an incumbent as well as you know we have [Indecipherable] one of the, I would say successful startup entity.
My question was, if I look at, of course there may not be any list of clear answers at this stage, but if I look at next three to five years when we know that EV penetration would have happened and there’d be a certain substantial percentage of some segments will be EV. Whom do you think will be you know — or who does — who has the right to win in this? Because why I’m asking is if we talk to startups, their distribution of strategy is let’s say targeting top four metros in the first three months then go to next ten cities, as you know, likewise go on funneling so that you capture more area.
Products and everybody’s announcing large capacities. But nobody has seen so far — they haven’t seen deliveries. So we don’t know what are the challenges. And these are the areas where we are — third is of course brand, I mean, there’ll be at least 40-50 new guys who are coming up with electric scooters, not all of them are as formidable or buyers may not be as confident on all of them.
And these are the areas where we are all the incumbents are very, very — at an advantageous point. So just want to hear your thoughts because — and incumbents are also spending a lot of capital as well as effort in the background, which is — which may or may not be visible. So three years down the line who you think would have the right to win? How many players would the market have? Or will it be a very, very dispersed and fragmented market with everybody there?
So just wanted to hear your thoughts on how you look at it, you may have studied some other geographies where you guys have already penetrated. So what are your thoughts on this?
Niranjan Gupta — Chief Financial Officer
Right. Lots of questions in one question, Rajesh, but let me attempt. So first of all, look as far as EV is concerned, in no country in the world it has reached the majority stage. And therefore there’s no inferences that can be drawn from that. Having said that, any industry that you look at, right, which goes through a lot of entry of new players because of the attractiveness of the segment or ease of entry or whatever is seen on the valuation side eventually has to go through consolidation. We have seen it industry after industry and that’s the truth globally.
So yes, next three to five years, you’re absolutely right, whether it is 20 players, 30 players, 40 players, 50 players we don’t know but there will be many players. Yeah, there are already many, there may be more. But eventually after that, team has to run out and consolidation has to happen. Now who will win, if you ask me, I will say we will win. If you ask anybody else, they’ll also say they will win. So let me also talk about maybe the factors that will determine who will win.
It’s the — it’s the understanding of the customer, because the EV customer fortunately or unfortunately whichever way we look at it is also part of the planet earth, and that’s what I keep saying that it’s not coming from some other planet. So I think it’s the understanding of the customer whoever has the most, that is one very important. Focus on giving customers what they need and maybe giving what they may not have even imagined. So focus on the C, which is the customer is important.
The second which will be important is cost competitiveness. Today that’s not being stressed enough. Today cash burn is fancy. But moving forward, cash burn has to give way to cash earn. And that is where cost competitiveness is extremely important. So players who can establish long-term cost competitiveness whether it is a BOM cost or the capex cost or cost of operating or distribution etc, etc, that will determine winning. And third is of course a long-term view of the entire business per se.
So these are the factors — key factors. There may be many others of course, but there are capabilities that can be acquired, there are investments that can be made capital is no longer the barrier. So I think these are the factors that will determine who will win. But of course we as Hero MotoCorp — we have said it earlier, we invested in startup five years back when nobody was actually taking probably EV segments seriously.
And we have gone ahead with tie-up with Gogoro, which is on swapping network, understanding that different customers may require different solution at the front end for charging and equally obviously, we will be coming out with our own product as well. So we’ll continue to work very strongly on this as far as EV segment is concerned.
Finally, I also want to just amplify what you actually rightly said, that for us we are very low market share in scooters. So EV segment, EV penetration actually is a sweet spot for us because it helps us because we’re very under-indexed in scooters. So it gives us a chance to actually build our penetration in that segment. Motorcycle, which is almost 70% is not going to get electrified in a hurry. And we all know the reasons for that. So for the first few years, it will be above scooter which actually works well from our own portfolio shape and where we are.
Operator
Thank you. The next question is from the line of Raghunandhan NL from Emkay Global. Please go ahead.
Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst
Thank you, sir for the opportunity. Two questions, firstly, being one of the early movers towards swappable battery technology in terms of the efforts with Hero Gogoro, is the launch on track for the CY22 timeline any details you can share on JV investments?
Niranjan Gupta — Chief Financial Officer
Hi. At this point in time, I wouldn’t be able to share any further versus what we have shared earlier. But as we move forward and closer to the time we’ll keep updating you with more and more. But the teams are working very fast on actually both the solutions, the charging solution as well as swapping solution.
Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst
Understood. Sir secondly, would you be able to share at what valuation you have invested for INR20 crores in Ather in recent round of funding or would that announcement happen [Phonetic] once the funding round is finished?
Niranjan Gupta — Chief Financial Officer
Yeah. So your second part actually answers that, so I won’t be able to give any valuation at this stage. The rounds still has to be closed. And obviously the company then Ather, which is raising the capital will make the appropriate disclosure as may be required.
Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst
One clarification on the replacement share which has now fallen to 20% in the earlier years say FY18, FY19 was the replacement share closer to 45%-50% — to Naveen sir?
Naveen Chauhan — Head – Sales & After Sales
No. So now what it is currently it’s as I said around 20%. So you might look at the plus, minus 2%. I think it was as high as nearing 30% at one point of time.
Raghunandhan NL — Emkay Global Financial Services Ltd — Analyst
Got it sir. Thank you. Thank you very much.
Operator
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Kapil Singh — Nomura — Analyst
Hi, good afternoon, sir. A very interesting point you made on the scooter business. I had a similar question. So let me just also try and understand, from a swapping perspective, do you think swapping would be a mainstream product or it would work in certain segments like delivery? What are your thoughts, because it requires slightly more investment on a system basis, right, because you need to invest in that let’s say, 1.5 or whatever that number is, number of batteries.
So what — just what are your thoughts around that? And are you also focused on increasing the ICE scooter market share because it seems struggling a bit in last few months. So, just some thoughts on that.
Niranjan Gupta — Chief Financial Officer
So let me talk about the swapping first Kapil. So Kapil, we’ll have to see how the customers evolve, yeah? Obviously the B2B segment which is the delivery business and all that is clearly a commercial segment, it’s obviously amenable to swapping. As far as the personal vehicle segment is concerned, Taiwan has shown that even there, segments of customers actually prefer that, because they can’t afford to wait for an hour at the charging station and in the queue. And therefore this two minutes, three minutes swapping works. Now how it evolves in India, how it evolves in different geographies, honestly, we will have to put it in and then see. Because this is a new animal and it can behave differently in different geographies, in different classes of customers, basis their job profile or business profile. So all of that we will be able to know only once the product is out as to what share it will occupy vis-a-vis normal charging.
As far as the ICE scooter is concerned, let me hand it over to Naveen to address that.
Naveen Chauhan — Head – Sales & After Sales
So, ICE — the question got preceded with the scooters on EV and maybe the — with [Phonetic] action he was doing on EV is actually causing that to come as a supplementary, but just to give you a flavor on scooters, while we know that EV is going to grow, but then the ICE would still hold significant share in the scooter segment for some time to come. There’s lot of actions on the product side, on the geography side, which are being in place.
Pleasure, if we look at, there is lot of action in terms of premiumization of the product we launched XTEC, within two months, the contribution of XTEC has gone more than 20%. And I think Pleasure is the only scooter in 110 category, which has gained market share on a YTD level. The change that has happened in this industry, which is kind of something which is happening for last three years is that 125 CC segment in the scooter segment is actually growing very rapidly. We are coming up with a very strong product, value prop, Destini, XTEC in 125 CC and that’s going to be playing in the core value of that segment.
So efforts are on. Pleasure if it was a limited geography product, it’s going to go getting into the Pan India basis and we are quite positive that with Pleasure there, Destini, XTEC coming in, Maestro 125 playing, and we have subsequent plans in terms of interesting product for the next year to come to gain market share to our desired levels.
Kapil Singh — Nomura — Analyst
Okay, thank you for that. The second question is, sir, on — you mentioned that one of the important metrics for success in EVs will also be in cost leadership. Now two important elements there are the battery cost as well as the distribution cost. So some of the players have taken this approach not only in India, but I mean globally also we have seen where they are into the direct distribution model. And also, some players are investing in battery.
So to address those, how are we thinking about these two elements?
Niranjan Gupta — Chief Financial Officer
Right. So as we said and you’re absolutely right, cost leadership will define the long-term winners and that’s extremely important. It’s not just battery and distribution, actually they’re all aspects of the cost lever, which is there. So let me talk for instance swapping, which you just touched upon. In swapping and you talked about the 1.5 factor, etc, etc. Now this road to rack ratio, which is what it is called, actually that gets improved on the knowledge of your peak time on diminishment [Phonetic] a lot of knowledge that happens and how do you improve that, therefore the density coverage that you want to have at what distances you want to have the stations, which places. Now which is where again, if you have an existing knowledge, it helps, and which is where our partnership with Gogoro, because Gogoro has got four, five, six years of that experience in improving the road to rack ratio in Taiwan. All of that comes handy. And therefore, that actually can benefit in terms of the cost leadership very, very clearly, vis-a-vis a new player in swapping who would not have the existing knowledge of that.
So the knowledge becomes an important part and parcel of how you achieve cost leadership, apart from the physicality of what you do as a business model on battery and distribution. On battery, of course there are people who have tied up, there are people who are sourcing. But our view is that given there are so many players going to come in cell manufacturing, this will be a place where globally or locally given the PLI or advanced cell chemistry, there will be multiple players coming with big capexes on that, and therefore the optionality of sourcing from the best source on quality and cost is probably a better way forward as we see it now.
Of course, one keeps evaluating these, but this is the upfront this one [Phonetic]. On distribution, honestly, the direct to customer is potentially more because the start ups do not have the existing distribution channel, and therefore setting that up would require long time and huge investments. And obviously for that, therefore the direct to customer becomes the obvious model to go in fast. And therefore eventually if you look at it, I mean the cost leadership in a distributed model, which is with network will always be cheaper than direct distribution or direct to customer given the number of customers that you’re servicing and just sheer physicality of the equipment that you are talking about.
So underlying economics of actually direct to customer will always be costlier inherently compared to a distributed network. But I think these things will evolve. And one will have to see with scale how it pans out. So too early to take a call on that. But focus on cost leadership is extremely important like you said from a long-term winning point of view.
Kapil Singh — Nomura — Analyst
Thank you very much for the detailed answer.
Operator
Thank you. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.
Chirag Shah — Edelweiss Capital — Analyst
Yeah, thanks for the opportunity. Firstly some housekeeping questions, [Technical Issues] sir spare parts revenue you indicated what was the number for the quarter?
Niranjan Gupta — Chief Financial Officer
Sorry, I didn’t get the — I didn’t get the question, can you repeat it again?
Chirag Shah — Edelweiss Capital — Analyst
Sir, spare parts revenue.
Niranjan Gupta — Chief Financial Officer
Okay. Spare parts revenue for the quarter was INR1,186 crores as I’ve said, which is 15% growth year-on-year basis. Last year, quarter three was INR1,033 crores, and if you’re interested in just preceding quarter, which was the quarter two was INR1,141 crores. So we’ve been consistently clocking more than INR1,000 crores, every quarter. And as we have said, there are big plans to actually take it forward. Naveen, why don’t you spend couple of minutes talking about our PAM business and our plan?
Naveen Chauhan — Head – Sales & After Sales
Sure, Niranjan. I think you’ve been helping me there. So I think this is something that we’ve discussed in the last earning calls also. The focus, if I put it broadly is how do we enhance the non-product revenue bucket, spare parts being the major contributor to that space. Lot of work in terms of the core spare parts that we sell in dealerships and across — lot of work at the dealerships in terms of growing and focus is not just about growing revenue of spare parts, but also about dealership profitability that emanates from the workshop and also aftermarket the deep distribution approach that we’ve taken.
We’re also looking at what are the adjacent revenue streams which are available in non-product revenue when we’re talking about and how do we work on that. We’ve worked on oil last year, and we’ve seen significant growth in the oil revenues and oil business, and also it helps us continue to remain in touch with our consumers who are going in aftermarket with the brand. And hence, I mean that’s one line. So there is organic way of going deeper and then looking at other revenue streams in that [Phonetic].
Chirag Shah — Edelweiss Capital — Analyst
Sir, any more products, how should one look at the product that you’re looking to use in the replacement market or after-sales market? Are the options available for you on which you are looking to expand over next two, three years?
Niranjan Gupta — Chief Financial Officer
All right. So I’ll give you an example, as I said, if I look at go back four years, we were — 99% was spare parts. Started working on accessories, then we introduced merchandise, which is still a small baby, then oil business and you’ve got batteries, tires, so there are lot of lines for the consumers which consumers normally get replaced in aftermarket. And we having very strong connect with consumers, I think those are the revenues lines which are available.
Also within the core spare parts, if I look at like you have products model, you also have product lines which may be brake lines or maybe cables, ABS parts. So there are multiple lines. And we continue to monitor what’s our market share of these components in different geographies and in overall level. And there is when you bring about your approach, we’ve got 120,000 technicians which are independent technicians, which are connected with us and month-on-month there are 60,000 technicians who interact and deal with us. We’ve seen our revenue to technicians going three times in last five years. I mean, so it’s plus INR100 crores, basically. So that’s the number, which is — So those are our growth levers that we use for a continual growth that you’re seeing over a period of time and quarter-on-quarter we see that positive impact.
Chirag Shah — Edelweiss Capital — Analyst
Just two more clarifications, you say inventory level you maintained seven to eight weeks. Did I hear it right, or?
Niranjan Gupta — Chief Financial Officer
Yeah. And that’s from the forward-looking perspective in terms of the way we look at how the retail forecast that we have for the month of Feb and March.
Chirag Shah — Edelweiss Capital — Analyst
So this has more to do with delay in the festive or marriage season and that’s why the inventory number is — generally at this time inventory is slightly lower, right? So it is because of largely because of that?
Niranjan Gupta — Chief Financial Officer
Yeah, you’re absolutely right, it’s largely because of that as industry-wide, we have seen that the festive was not — not as good as what one expected. And therefore that’s the carryover. Otherwise you are right, six weeks is the top-up that one has as the inventory levels.
Chirag Shah — Edelweiss Capital — Analyst
And sir, last year’s pre-COVID what was the finance penetration, you mentioned 58% for the quarter. So have we crossed that number, it used to be lower, if I recollect.
Niranjan Gupta — Chief Financial Officer
Yeah, I don’t think it was more than 40% to 45%, Naveen?
Naveen Chauhan — Head – Sales & After Sales
Yeah. There’s significant shift in the retail finance penetration that we’ve seen in this year and this is continuing as I said till now.
Niranjan Gupta — Chief Financial Officer
It’s a combination of the two things, one, of course, like we’ve been mentioning a lot of work that we’ve been doing in terms of finance penetration and you see quarter after quarter, we’ve been talking about that. Our trust on that we see that under penetrated. Second of course is as the COVID has impacted people also then both try to go for more financing solution because obviously like someone asked that how to counter inflation. Now one of the ways to counter inflation is actually financing penetration. And therefore people themselves go for financing solutions. I think combination of both the factors have led to the financing penetration increasing.
Naveen Chauhan — Head – Sales & After Sales
Yeah. And I think the industry both OEMs, as I said in the financials have been innovative in terms of understanding the consumer needs. [Technical Issues].
Operator
This is the operator. We have lost the connection for the management line please hold while we reconnect them. Ladies and gentlemen, we have the management line connected again. Sir, please go ahead.
Niranjan Gupta — Chief Financial Officer
Yeah. So we just explained that there’s a combination of the two factors that has led to the financing penetration. I’m sorry for the call drop, beyond a point as you can see on technology, you don’t have control. Technology becomes supreme over human beings. All right.
Chirag Shah — Edelweiss Capital — Analyst
The last clarification, sir, sequentially, there is a significant improvement in gross profit margin, 130 bps-odd. Now I’d presume this is more driven by mix rather than commodity benefits coming in. Would be a right assessment?
Niranjan Gupta — Chief Financial Officer
I think it’s a combination. It’s a combination of, I would say mix, as well as when you see the savings programs that we have been running. So I wouldn’t say commodity benefits I think commodity benefits are yet to flow through, because while they have stabilized, it’s not that they have dropped to give that benefit. But yeah, it’s a combination of mix and the savings that you’re talking about.
Chirag Shah — Edelweiss Capital — Analyst
Okay, thank you very much and all the best.
Operator
Thank you. The next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Nishit Jalan — Axis Capital Ltd. — Analyst
Hi, sir. I have just one question left. What would be the share of two-wheelers which are sold in schools, colleges and all in general? You may not have exact numbers, any rough number would be helpful, in a normal year, not the last two, three years. And secondly, would it be too different between motorcycles and scooters?
Niranjan Gupta — Chief Financial Officer
Yeah, I mean we do track in terms of the end usage of our products. So may not have a breakup at a scooter and a motorcycle level, but I mean I can share the data that we have close to 8% to 10% is what is getting sold to the students.
Nishit Jalan — Axis Capital Ltd. — Analyst
Okay, sir. Thanks so much.
Niranjan Gupta — Chief Financial Officer
All right. Thank you.
Operator
Thank you. In interest of time, this was the last question. I would now like to hand the conference over to management for closing comments.
Umang Khurana — Head of Investor Relations and Business Support
Thank you everyone for coming in. It’s a pleasure. Please keep safe and we look forward to speaking to all of you after in quarter four as well. Have a good day.
Niranjan Gupta — Chief Financial Officer
Thank you. Thank you for attending the call.
Naveen Chauhan — Head – Sales & After Sales
Thank you very much.
Operator
[Operator Closing Remarks].