Hero MotoCorp Ltd (HEROMOTOCO) Q4 FY22 Earnings Concall Transcript

Hero MotoCorp Ltd (NSE:HEROMOTOCO) Q4 FY22 Earnings Concall dated May. 04, 2022

Corporate Participants:

Umang Khurana — Head, Investor Relations

Mr. Niranjan Gupta — Chief Financial Officer

Ranjivjit Singh — Chief Growth Officer

Swadesh Srivastava — Head – Emerging Mobility Business Unit

Analysts:

Annamalai Jayaraj — Batlivala & Karani Securities India Private Limited — Analyst

Gunjan Prithyani — Bank of America — Analyst

Kapil Singh — Nomura — Analyst

Raghunandhan N. L. — Emkay Global — Analyst

Pramod Kumar — UBS — Analyst

Rohil Gandhi — PPFAS Mutual Fund — Analyst

Amyn Pirani — JPMorgan — Analyst

Ashutosh Tiwari — Equirus Securities — Analyst

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Hitesh Goel — CLSA — Analyst

Mukesh Saraf — Spark Capital — Analyst

Sabyasachi Mukerji — Centrum PMS — Analyst

Nishit Jalan — Axis Capital — Analyst

Jay Kale — Elara Securities — Analyst

Pramod Amthe — Incred Capital — Analyst

Ronak Sarda — Systematix — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to 4Q FY ’22 Results Conference Call of Hero MotoCorp Limited hosted by Batlivala and Karani Securities India Private Limited. [Operator Instructions] I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala and Karani Securities India Private Limited. Thank you, and over to you, sir.

Annamalai Jayaraj — Batlivala & Karani Securities India Private Limited — Analyst

Welcome to Hero MotoCorp Q4 and FY ’22 Earnings Conference Call. I’ll now hand over the call to Mr. Umang Khurana, Head of Investor Relations and Business Support. Over to you, sir.

Umang Khurana — Head, Investor Relations

Thank you, Mr. Jayaraj. Thanks so much. Thank you, Tanvi. Good day, everyone, and welcome to the Hero MotoCorp Quarter four and Financial Year ’22 Investor Call. Trust, you’re all keeping safe. On the call today, we have with us Niranjan Gupta, Chief Financial Officer; Ranjivjit Singh, who is our Head of Sales, After Sales and Marketing; Sanjay Bhan, who is our Head of Global Sales; and Swadesh Srivastava, who is the Head of Emerging Mobility Unit. We will begin, as usual, with opening comments from Niranjan and then open it up for your questions. Over to you, Niranjan.

Mr. Niranjan Gupta — Chief Financial Officer

Thanks, Umang. Welcome, everyone, again, to Hero MotoCorp’s Quarter four Earnings Call. Firstly, good morning, good afternoon, good evening, depending on which part of the world you are joining from. I hope you, families and your colleagues are staying healthy and doing well. These are interesting times, to say the least. It’s not just VUCA world, but it may actually be VUCA plus or super VUCA. Looks like forces of nature, are also branding and rebranding and launching variants as we do on in the industry. More on that later.

Let me first cover the key highlights of our results. You would have seen our results announced yesterday, we delivered INR7,422 crores of revenue and a profit of INR627 crores. For the full year, the revenue was INR29,245 crores with net profit of INR2,473 crores. Few highlights on that. Within domestic business, Splendor is going from strength to strength and registering all-time high market shares in its segment. As far as entry segment is concerned, we have recovered strongly in quarter four with a market share of 68.5% in that segment.

And as far as premium is concerned, we continue to build and extend the portfolio, and we have recently launched three, four months back the XPulse four Valve, which is in high demand as we see and more launches will follow. Our PAM business, which is parts, accessories and merchandise, which is a profitable business, continues to surge ahead with a growth of 10% in quarter four and actually 24% in FY ’22, which is powered by extension of range as well as our deepening of distribution systems. Coming to global business. It’s truly and firmly on fast track now, having clocked 300,000 for the full year.

We have a long way to go, of course, but we are confident of this being one of the key drivers of growth for the company in the future. We launched Vida brand in March. We are excited about that. We’ll be doing EV products unveil on first July, as announced earlier. We want to ensure that through rigorous testing that the product we put in the market is of the right quality and safety parameters as we have always done earlier. For us, customer comes first, business will follow. As you’ve seen, we have declared dividend of INR95 per share, factoring various parameters, including payout ratio, absolute dividend, our cash position, etc.

This also signals our positive outlook for FY ’23 and our strong cash flow generation as well as our strong cash position. Coming to outlook, let me talk a bit more about that for the coming year. One of the things that’s an area of concern for industries across the board is the cost inflation, which is triggered now by geopolitical situation, as we all know. Of course, this will be a watch out, but we are no stranger to commodity inflation. We’ve been seeing cycles in the past as well, in recent past as well. We will continue to navigate this space through a combination of judicious price increases, cost savings, and of course, broad-based portfolio growth, including premiumization of certain models that we have.

Coming to growth, of course, the macro indicators are really looking good. The GST collection we have all seen is all-time high in April. The E-way bills have picked up. Almost all, in fact, I would say all sectors of economy have opened up. Grain prices are high. They’re augmenting rural income, the monsoon forecast is decent and so on and so forth. It’s clearly evident also that while COVID may not have gone away, but we’ve all learned now to get on with our livelihood. And hence, the consumer confidence and spending is bouncing back easily and actually solidly.

Already, we are seeing signs in April, and we have no reasons to believe why two -wheeler industry can’t grow double digit in FY ’23. We will have multiple products and variant launches in the coming fiscals and added with all the actions already taken, we are confident of gaining market share and hence growing ahead of the industry. So with that positive outlook that we have on the industry and our market share and our growth added up industry, let me now open the floor for Q&A.

Questions and Answers:

Operator

[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

Hi, Thank you for taking my question. Two questions. Firstly, on the demand side. you did allude that April, we are seeing early signs. Could you share a little bit more color on what isthat we are seeing on the ground? And where are we in terms of channel inventory? Plus, there are a lot of these supply chain constraints that some of your peers have been calling out. So maybe give us some perspective, is there a challenge on the supply side that you all are also facing? That will be the first question.

Mr. Niranjan Gupta — Chief Financial Officer

Hi, Gunjan. That were three questions in question one, but that’s okay. Let me hand over to Ranjit to address this. over to you.

Ranjivjit Singh — Chief Growth Officer

Yes. Hi, Gunjan; and hi, everyone. This is here. I’ve — I’m the Chief Growth Officer. This is the first time I’m talking to all of you, and I look forward to catching up with you, and I’ll request Umang to set up some time so that I can get to know you guys better. I’ve worked in — just take a minute to introduce myself. I’ve worked in some of the other companies where we may have interacted, like Samsung and Unilever, etc. So here’s — April is looking good so far. We’ve had an upside, thanks to the marriage, thanks to the festivals. We set off a really good note with Gudi Padwa and many other — you can see many spacious dates. Retails have been good. dispatches have been good. As far as the inventory is concerned, we’ve actually been able to bring that down to about six to seven weeks as we speak today, which is a better situation than we were at the end of the quarter. So that’s another indication that you’ve got. And overall, the momentum is pretty strong. When you look at the entry level, we have gained market share month-on-month over January, February, March, we exited at — for the full year at 62%, but in March, we were at 74%. There were some campaigns that we did around mileage, and that really helped reinforce the key strength of Hero MotoCorp and of HF Deluxe and build confidence in the market. Splendor has done extremely well. We’re at 82% market share in March. So that’s, again, a great testimony of the momentum that we’ve got. And overall, it’s been a good start to the year.

Gunjan Prithyani — Bank of America — Analyst

Sure. Good to hear. No supply chain constraints, right?

Ranjivjit Singh — Chief Growth Officer

Yes. So supply, typically, as we are going along, there are supply on the chip side shortages that we face, which are very similar to what the industry faces, but I must say that I must complement our supply chain team for having managed the situation well. Of course, demand outstripped supply in some of our key products like XPulse. We’ve had a record month in March where we sold 5,000 retails of XPulse and that continues. Glamour XTEC is also doing great in terms of the marriage season, it’s in good demand. And as we get more suppliers of the chips, I’m sure we’ll get even better in our positions across these segments. So we’re managing the shortage. But overall, I would say it’s going pretty well start to April.

Gunjan Prithyani — Bank of America — Analyst

Sure. The second question was on the margin. Now I clearly see some gross margin expansion in this quarter. So maybe just give us some sense on what has led to it, price hikes, LEAP, mix, what is it? And why is the other expenses higher in this quarter?

Mr. Niranjan Gupta — Chief Financial Officer

A couple of things, Gunjan. One is the GM expansion is, like you yourself answered, is a combination of price hike that you’ve done as well as LEAP savings. We’ve always talked about our accelerated LEAP-II program, which has generated almost around 300 basis points of savings in this quarter as well. So that we continue to put pedal on because that’s the way to navigate the high-cost inflation era, and you’ve seen us doing that in the last two years. On the other expenses, there are some phasing things. As you can see, CSR expenses more towards quarter four. So if you take those phasing into account, I would actually advise to take a full year picture on the other expenses to get a sense of the overall annualized run rate of the other expenses.

Gunjan Prithyani — Bank of America — Analyst

Thank you.

Operator

Thank you, The next question is from the line of Kapil Singh from Nomura. Please go ahead.

Kapil Singh — Nomura — Analyst

Hi, Could you talk about what is the price increase that we have taken in the current quarter? And what is the cost inflation that we are seeing? And the overall outlook for margins for next year as well?

Mr. Niranjan Gupta — Chief Financial Officer

Hi, Kapil. As far as price is concerned, we took around INR1,000 at an ex showroom level price increase in April first week. As far as cost inflation is concerned, as I have always been saying it’s very difficult to call out what the inflation will be. But effectively, we know that all commodities are going up. And our way of managing that would be a price increase, which we have done. We’ll calibrate it moving forward in different quarters and different periods as well as the savings program, which we continue to accelerate, and we will do on overheads as well. So that’s the way to continue to manage. Obviously, at some stage, the commodities are expected to cool off, and we’ll have to wait for that for expansion, if any, on the margin side.

Kapil Singh — Nomura — Analyst

And sir, second question was on growth, particularly for ICE industry. Do you see that we have, obviously, there is a base effect. But beyond that, do you see that for the next few years, ICE industry can keep on growing. And I see that for Hero, in particular, the scooter sales which used to be around eight lakhs, has come down to nearly three lakhs. So how are you thinking about, will EVs be our growth engine now or are we fully focused on ICE as well?

Mr. Niranjan Gupta — Chief Financial Officer

Yes, Kapil. So as far as, look, industry is concerned, I mean, we have to bear — take into account the kind of shocks that the auto industry has gone through in the last three, four, five years, yes. I haven’t seen at least any industry going through such shock waves and still being resilient in terms of being at the volumes that it is, whether it was BS-VI and the cost inflation and the pandemic shutdown, and then the geopolitical things that are happening. So there is — if you — I think you have to go back fundamentally to the penetration levels, which are still underpenetrated as compared to, if you take comparable Southeast Asian countries, we are still probably at 1/3 of what they are, and therefore, there’s a huge scope. And it’s not just a base effect, it’s a long term. And if you think back, there’s also the GDP factor, and we know that our economic growth has been soft because of the pandemic and those reasons and which is going to bounce back as all the other indicators are. So I think if you combine the economic outlook along with the under-penetration, there is a solid case for industry to continue to grow for the foreseeable future. That basis doesn’t go away because of a few quarters here and there. As far as the scooters is concerned, yes, scooter partly also in quarter four that we had brought down the inventory and therefore, retails were really higher, we got a job to do. We’ve got a job to do in scooter. We are going to launch variants around Xtec, similar to what we have done in motorcycles, and we’ll continue to peg that in order to improve our market share. Apart from that, as far as EV, it’s not that by focusing on EV, we are taking pedal off the scooter. So we’ll continue to focus on scooter gain because we’ve not reached anywhere close to our same market share, which is there. So there is ample scope there. And of course, as far as EV is concerned, you know about the launch that will happen. So we’ll navigate both the spaces.

Kapil Singh — Nomura — Analyst

Okay. Thank you. So we expect the ICE industry also to have growth for next few years? That’s what you would think?

Mr. Niranjan Gupta — Chief Financial Officer

Yes, Kapil, there’s no reason to believe while the growth will get stalled

Kapil Singh — Nomura — Analyst

Ok, Thank you sir.

Operator

Thank you, The next question is from the line of Raghunandhan N. L. from Emkay Global. Please go ahead.

Raghunandhan N. L. — Emkay Global — Analyst

Thank you for the opportunity, My first question was on EVs. The production is likely to kick off in AP plant from July onwards. Can you provide some details on capacity and volume expectations? Also, the Gogoro-Hero tie-up was expected to come out with a product in CY ’22, does the time line still remain?

Mr. Niranjan Gupta — Chief Financial Officer

Raghu, let me just start off and then I’ll ask our EMBU Head, Swadesh, to actually pitch in. So as far as the capacity — and capacity is modular, so depending on what we want to do, and the cities and the plant, which will get unveiled, of course, on July first, we can always augment it. It’s not — it doesn’t require to actually create a huge mammoth capacity right now to feed anything. It more depends on our plan as to which are the cities we want to go first and the next and the next. So I think that’s where it will depend on. And of course, the volumes part as well. As we said, the primary focus will be on quality and safety, apart from, of course, giving competitive features and pricing. I think that will be our core plan, but quality, safety will be first, and that will also determine what our trajectory of launches and the expansion is. As far as Gogoro and [Indecipherable] is concerned, obviously, we want to phase out things in a manner, that once our launch comes with some safeguard comes, we’re still sticking to that in FY ’23, we should be able to put in the product on the swapping system. Swadesh you want to add anything?

Swadesh Srivastava — Head – Emerging Mobility Business Unit

Yes. Thanks, Niranjan. Hello, Mr. Raghunandhan. This is Swadesh, Head of EMBU at Hero, and hello to everyone. I think Niranjan covered good — most of the points there, but just to bring back the focus on the Gogoro product. It is well planned to be released this year. And since we’ll be coming out with our own homegrown product very soon, and I want to make sure there is enough room for both the products to gain the market. you will definitely see both these products coming out in a good period of time during this year, right? And more details on the cities and the volumes you’ll hear on July first.

Raghunandhan N. L. — Emkay Global — Analyst

All the best. My second question was on Ather. Just wanted to clarify the investment amount. So Q4 investment stands at INR1.5 billion and the total investment expected is up to INR4.2 billion, which was announced in January and this investment will happen in a staggered manner. Is that understanding correct? Also, any update you can provide on Ather valuation in the latest investment round?

Mr. Niranjan Gupta — Chief Financial Officer

Right. So Raghu, firstly, let me answer the second question, the easier one, so I’ll refrain from valuation on Ather. They can talk about it, I really refrain from that. But on the funding part of it, yes, I’ll convert into crores. I usually associate billions with dollars and crores with rupees. So allow me that. So INR150 crores is what we invested. The total contribution that we talked about is INR420 crores, like you said. And it’s likely to happen in this quarter itself, the balance, which is INR270 crores.

Raghunandhan N. L. — Emkay Global — Analyst

That’s very helpful. Can you share the spares number, if you have it handy?

Mr. Niranjan Gupta — Chief Financial Officer

Yes. I can share the spares number, if you want, which is, for the quarter, it is INR1,151 crores, the parts business revenue. And last year, the same quarter was INR1,049 crores and quarter three was INR1,186 crores. So that’s a growth of 10% year-on-year. And for the full year, we did INR3,933 crores, versus INR3,178 crores last year, which is a 24% growth. And as a contribution to revenue, for this quarter, it stands at 15.5%, but better we would look at a full year basis, which is 13.5% to revenue, well above the 10%. We used to be in single digits, if you remember, sometime back, three, four years back.

Raghunandhan N. L. — Emkay Global — Analyst

Thank you, very helpful. I’ll be 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 — Analyst

Hi, Thanks for the opportunity. This is a question on the demand recovery side. I understand that you’ve seen pretty good retails in month of April, also for May is good. But if you can just help us understand how much of this is kind marriage season demand? Because this is the first season in the last three years, right? So if you can help us understand how much of outside of the marriage season and outside of the marriage season market, how is demand faring in April and especially towards the start of May, so that we can get more confidence on the sustainability of this demand once the marriage season kind of rolls out or ends by around mid — May end or something like that? So if you can just help us understand on the demand side in more detail, please?

Mr. Niranjan Gupta — Chief Financial Officer

Right. Hi Pramod. Let me hand over this question to Ranjit. Ranjit?

Ranjivjit Singh — Chief Growth Officer

Yes, sure. So the good thing is April, May and June, right up till 15th of July have very much auspicious dates for marriage. And in fact, it keeps building. So May and June will continue to be very robust. Besides that, we’ve seen rural that being a driver as well. All of you know about the way agriculture is, the wheat procurement, the exports, all of that are positive signs that are coming through, and we are seeing that in our business. across two parameters: one is in rural; the second is semi-urban. So both of those are looking strong. And so overall, it’s a very, I would say, evened out quarter that we’re going to be seeing as we go along. So we’ve had a very good Akshaya Tritiya, that’s been a very positive. Last year was pretty truncated. This year was good. Padwa sales were positive. So we are seeing a spread across — all across. Even Ugadi was a good period that we had. So it’s very well spread out is what we’re seeing right now.

Pramod Kumar — UBS — Analyst

And just as a follow-up to that, Ranjit — Ranjivjit. How is the — what level of inventory are you comfortable with? Because you’re coming in here as a growth officer and you come from an industry, which is also pretty strong on network — on the electronic side. So if you can help understand — help us understand your perspective as to what do you think is the right inventory level at which you should kind of operate? Because — some of your other peers have much lower inventory levels than what you guys carry and because that kind of has an impact on the incremental wholesale performance, like, for example, if I picked April, there’s a good 70,000 kind of a gap between your wholesales and retails, retails being higher based on VAHAN. So if you can just help us understand your philosophy around how you see the network and also any scope of network expansion from here on?

Ranjivjit Singh — Chief Growth Officer

Sure. So look, at the scale at which we operate, we are the largest, not only in India, but also across the world. There is a certain amount of expectation that our customers have in terms of service levels of having the products, the SKUs available to them. We are pretty good with six weeks as a norm. And I’m really happy to say that today, we are around that zone. So with the upside in terms of the demand forecasting as well as better in terms of how we are matching the inventory to the demand, I believe we are well placed. In addition to that, we are investing and expanding in the secondary networks and that, again, requires the inventory to be placed in a little bit more, I would say, far-flung rural areas and that, again, is working to our advantage. So six weeks, given the complexity of our business, the number of SKUs, the geographies that we operate in, I feel is a very good position. So we’re well positioned for this quarter and as we go forward.

Pramod Kumar — UBS — Analyst

And second question is for Niranjan. Niranjan, you’ve always maintained that the medium to longer-term margin range for Hero is 14% or thereabout, I think you mentioned a band as well historically. So how should one look at that going into FY ’23 because we’re going to have volume growth coming back, which will be offsetting operating leverage after a gap of almost three years of decline for us. And exciting new launches and more premium products getting out in the marketplace and the commodity intensity. So how should one look at this as in what outplays what? And how would you like kind of — what kind of margin profile you will be comfortable as a Chief Financial Officer?

Mr. Niranjan Gupta — Chief Financial Officer

Yes. So Pramod, the margin profile comfortable as a Chief Financial Officer is a medium range guidance that we have already given, yes? Now having said that, there are always, moving forward, there are headwinds and there are tailwinds. The headwinds clearly is the cost inflation and commodity inflation. And we’ve been taking a very sensible price movements in the market because we don’t want to destroy the demand. And equally, we don’t want to hurt our margins too much. And you’ve seen that calibration happening across the quarters, and we’ve been sensible about that, and we’ll continue with that. Second plank, of course, is cost savings, which is a positive for us and a lot of programs and that will continue. And you are absolutely right. The other positive that we’ve come this year will be the operating leverage because we’ve been suffering with the operating — negative operating leverage for the last couple of years. And therefore, that will come positive. Now how much that gets translated, etc.,etc., the margin recovery will follow. But the point is that we don’t give guidance for FY ’23. But these are the factors that actually weigh in, both on the positive side and the negative side. And the other, of course, like you talked about, is premiumization. For instance, all the Xtec variants that we are launching, some of which we have launched, some more will follow across all the models, they’re all priced between 7% to 10% higher than the base variants, and they are doing well from the demand side. So I think we continue to navigate very sensibly from a portfolio perspective, from a pricing perspective, from a savings perspective. And now from a volume perspective, which will come for the industry and for us, should be well placed, but we have to navigate this space. The medium-range guidance doesn’t change.

Pramod Kumar — UBS — Analyst

Okay. And then the last one, [Indecipherable] momentum in terms of as a percentage of revenue, you’ve been holding at 15% mark for the last couple of quarters. So should you — should one expect that kind of momentum to continue going into FY ’23?

Mr. Niranjan Gupta — Chief Financial Officer

You’re talking about the parts business?

Pramod Kumar — UBS — Analyst

Yes, parts business. Yes, sorry, [Indecipherable] domestic plus exports…

Mr. Niranjan Gupta — Chief Financial Officer

Yes. Parts business, Pramod, we’ve been continuously moving it up. We used to be between 7% to 9%. We crossed 10%, 12%; now 13%, 13.5%. There are organic measures that are already in place, whether, as I said, increasing the range or the deepening of distribution. So percentage, as of now, maybe not a number to look at because, obviously, — yes, obviously, if we end up gaining huge market share on two-wheelers, that revenue will go up and percentage may seem lower. But having said that, we do expect the PAM business to continue on the growth trajectory. We have lots of opportunities there.

Pramod Kumar — UBS — Analyst

Thank you, and That’s all of it.

Operator

Thank you.

Umang Khurana — Head, Investor Relations

Hi, this is Umang. May I request everyone to please keep their questions to two at a time, do come back in the queue right after.

Operator

Thank you, We’ll move to the next question from Rohil Gandhi from PPFAS Mutual Fund. Please go ahead.

Rohil Gandhi — PPFAS Mutual Fund — Analyst

Hi, Thanks for the opportunity. I just have one question. It’s regarding the trade payables. So I just wanted to understand your payable days have significantly gone up, if you look at it from a full year basis. Can you just speak about that a little more?

Mr. Niranjan Gupta — Chief Financial Officer

Hi Rohil, payable days, you could be looking at an aggregation. Our credit periods have not gone up, nor are there any overdue payments. In fact, if you look at the trade payables and balance sheet on a year-on-year basis, which is this year’s trade payable versus the last year trade payables, the trade tables are lower because of the lower production, which has actually happened. When you convert into a number of days, sometimes at which part you are converting, the quarter or the month or the fortnight because those numbers are — would not be available in published balance sheet, so you may arrive at a certain number, which is not representative. But none of our payable days or the creditor days, nothing has gone up. Everything is actually in think offline, of course, we can get chatting and we can give you more data if you require.

Rohil Gandhi — PPFAS Mutual Fund — Analyst

Thanks so much and good luck.

Operator

Thank you. The next question is from the line of Amyn Pirani from JPMorgan. Please go ahead.

Amyn Pirani — JPMorgan — Analyst

Yes. Hi, Thanks for the opportunity. Just wanted to go back to the other expense line item. I mean you had some very attractive financing thing in 3Q and I think in 4Q as well, is the sharp increase, to some extent, to do with the kind of subvention you may have had to give? Or is it just quarter-on-quarter thing that we should not really focus too much on?

Mr. Niranjan Gupta — Chief Financial Officer

No. I mean it’s got nothing to do with the financing subvention. That’s actually a very low number. It’s not material to the overall other expenses. It is by and large, one item, of course, is the CSR spend. As you will see, most of our — because of the pandemic, we were not able to complete the projects which are completed in quarter four. So that itself would account for almost around 50 to 60 basis points of elevated spends in quarter four, making up for the full year obligation of the CSR. And there are a couple of other items as well. So overall put together, the better number to look at will be the annual number in terms of when you have to look at the trajectory and the percentage revenue.

Amyn Pirani — JPMorgan — Analyst

And what is the financing share for fourth quarter? And as you are seeing this improvement in retail, I mean is there any sharp shifts either ways? And I mean, how do you think this number could move during the year?

Mr. Niranjan Gupta — Chief Financial Officer

So I’ll first talk about the number, and then I’ll ask Ranjit to talk about more about the financing and what he sees. The number — the financing overall in quarter four was 54%. And FinCorp share, so you haven’t asked, I know the question may come up later on, is close to around 34% out of that. So it — the share is in the trajectory. FinCorp has been around 35% to 40%, give or take, here or there between the quarters. But our financing penetration has been going up. For the full year also it’s 50%-plus now. It’s almost 52%, 53% compared to 49% last year. But let me hand it over to Ranjit to talk about more about what the financing picture, what’s happening in the retail, requirement, what kind of growth. Ranjit, over to you.

Ranjivjit Singh — Chief Growth Officer

Sure, sure. Absolutely. So look, this is an inflationary economy, and we know that our customers really need that help in terms of financing. A large part, 65%, 70% of them are first-time buyers. They don’t have a credit history or a rating. And so it’s really important for us to be able to serve their needs, and that’s what we’re doing. We’re actually aggregating a lot of financiers, who are helping these customers out, and that’s how you see the numbers also growing from the 49% to the 53% as we’ve seen. And going forward, that’s going to be the name of the game and pretty much across not only urban, but also semi-urban and rural, we’re going to be holding the hands and making sure that the financing is there for the people who really need it. So that’s going to be a big growth lever for us and a big growth driver and an enabler for our customers to buy Hero products.

Amyn Pirani — JPMorgan — Analyst

Great. Ok. That’s actually good to know. I’ll back in the queue. Thank you.

Operator

Thank you.

Ranjivjit Singh — Chief Growth Officer

Thank you

Operator

The next question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.

Ashutosh Tiwari — Equirus Securities — Analyst

Hi. You said that the inventory number as of currently is around six to seven weeks. What was the number at end of March quarter?

Mr. Niranjan Gupta — Chief Financial Officer

Seven to eight weeks.

Ashutosh Tiwari — Equirus Securities — Analyst

Okay. And secondly, can you can share the absolute retail numbers in absolute retail volumes?

Mr. Niranjan Gupta — Chief Financial Officer

Ashutosh, we don’t share the retail numbers. So on that, we will not…

Ashutosh Tiwari — Equirus Securities — Analyst

Is it meaningfully higher than the wholesale or how should one look at it?

Mr. Niranjan Gupta — Chief Financial Officer

It is higher than wholesale because our inventory has gone down. So one can actually do a back calculation to see that the retail numbers are higher, and that’s what has led to inventory correction.

Ashutosh Tiwari — Equirus Securities — Analyst

Ok. That’s all for me. Thank you so much.

Operator

Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Hi, A couple of clarifications. One is on the other expenses, is there any higher expenses related to the Vida brand launch? Can you quantify the number [Indecipherable]?

Mr. Niranjan Gupta — Chief Financial Officer

Yes, Jinesh. So this also includes, like I talked about, this combined with the CSR spending, overall put together, you could say around 80 to 100 basis points overall is the impact, which is into other expenses for the quarter, which includes, of course, the CSR expenditure that I talked about as well.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Okay. So the Vida brand launch would be close to about 20, 40 basis points extra expense. And secondly, was there any impact of RM costs for commodity cost in fourth quarter or was it broadly stable on Q-o-Q basis?

Mr. Niranjan Gupta — Chief Financial Officer

No, RM costs actually got utilized also because of LEAP savings. We had accelerated LEAP savings delivery in quarter four. So that’s why you see also our — the way I think you guys also see the gross margin, though that’s not the definition of gross margin. But let’s say, the margin net of material cost has moved up because of that. So we haven’t seen that. Moving forward, of course, in any case in the industry, the commodity cost, what gets reflected in the indices and the market, comes with a lag of a quarter across the industry, that’s we generally seeing that happen. So therefore, it will come out in quarter one, quarter two.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Yes. Because many of your peers have indicated commodity costs are stable on Q-o-Q basis in the P&L. So I just wanted to understand — okay. Got it. Got it. Got it. Last clarification on the chip shortages. Is it fair to say that our core portfolio of 125 cc is not impacted by chip shortages?

Mr. Niranjan Gupta — Chief Financial Officer

I mean by and large, yes. I mean in a sense that apart from the — some of the variants that we’ve launched, which is Xtec variants and some variants which have connectivity, etc., etc. so some variants. So if you look at our overall portfolio, I mean the way to look at it is that as an overall portfolio, what percentage is impacted in terms of volume numbers because of chip shortages of supplies or what is dependent on chip shortages, that is what is immaterial. That’s actually a very low number and Ranjit also talked about how we are managing it. Ranjit, any further comments on this?

Ranjivjit Singh — Chief Growth Officer

No. It’s just that, of course, the shortage does effect at the top end, the more connected ones, those SKUs and those are in demand. And as we keep working on it to improve the supply situation, which is really something that’s happening on an everyday basis, we are seeing improvements in our supply. So we will continue to make all our efforts to make sure that we plug the gap because it’s important to serve the customer at that end as well.

Jinesh Gandhi — Motilal Oswal Securities Limited — Analyst

Got it. Thank you. I’ll go back in queue.

Operator

Thank you, The next question is from the line of Hitesh Goel from CLSA. Please go ahead.

Hitesh Goel — CLSA — Analyst

Yes. Thanks for taking my question. Just wanted to get a sense that government had said few days back that no EV launch can happen — no new EV launch can happen by any player for next one year as they’re investigating this fire issue. Is that sorted out? Because you’re talking about launch this year, right, on Gogoro and your own product.

Mr. Niranjan Gupta — Chief Financial Officer

No. There’s no — there’s been a clarification that there’s no official notification or direction from the government to that extent. All they are doing is they’re examining the scooters that have got fires and trying to understand that and then ensuring recall and safety measures, but there’s no ban by the government on EV launches. That’s very clear.

Hitesh Goel — CLSA — Analyst

Okay. And on the RM cost inflation for first quarter, can you quantify — is my understanding right that there could be around 400 bps under recovery in first quarter and you would have taken 2%, half of that motor industry is in that ball mark? Is that calculation in the ball mark or I’m totally off…

Mr. Niranjan Gupta — Chief Financial Officer

No, I won’t quantify because this commodity inflation, honestly, I have even seen most of the big experts also faltering. So I won’t venture into that area. But yes, we can all see that the commodity costs have gone up and that will impact quarter one, quarter two. And as I said, we have actions lined up. And obviously, we will endeavor to recover and recover the cost in more ways than one. That would be our target. But as it happens, we will navigate the space. The number seems very high, what we’re quoting here.

Hitesh Goel — CLSA — Analyst

Ok, Thank you sir.

Operator

Thank you, The next question is from the line of Mukesh Saraf from Spark Capital. Please go ahead.

Mukesh Saraf — Spark Capital — Analyst

Hi, Good afternoon. Thanks for the opportunity. First question is on the mix of your customers between, say, first-time buyers and replacement customers, I think in one of the comments you valued about 65%, 70% is first-time buyers. I noticed that it’s probably higher than what we had seen last year. So could you kind of give some comments on that and probably let us know what the numbers are?

Mr. Niranjan Gupta — Chief Financial Officer

Okay. I’ll hand it over to Ranjit to answer about the first-time addition and the replacement buyers.

Ranjivjit Singh — Chief Growth Officer

It’s actually pretty consistent. That’s the nature of the market. Personal mobility is a key need in this country. Again, across all parts of the country participate in this. And therefore, first-time buyers are in the region of about 65% to 70% depending on — in the commuter segment could be a little higher, in the premium segment could be a lower, but on average, that’s where it is. And then there’s the replacement and the additional which are pretty much equally split in the balance of about 30%, 35%. So that’s a very consistent thing. Our attempt as a brand, being the world’s largest and being a very inclusive brand, is to invite more and more people to get their own personal mobility solutions from Hero MotoCorp. And therefore, we have the portfolio structure that we do. And we have the ways in which we have the dealerships that are spread across the country, we have the widest network of dealerships. We also have the retail financing that enables our customers to be able to participate in that journey. So actually, I believe it’s a very consistent story that we are building on and that builds trust for this brand over a period of time in a very consistent way.

Mukesh Saraf — Spark Capital — Analyst

Sure, sure. Second question is on EV. While we do get a sense of the high-speed EV numbers, there seems to be a lot of the low-speed EVs with volumes, obviously, is something that we wouldn’t be able to track because these are not registered and it’s probably below the radar. So could you give a sense of are these even having any impact on ICE volumes, especially, say, in rural and any urban markets, which is where a lot of these low-speed EVs seem to be getting sold?

Swadesh Srivastava — Head – Emerging Mobility Business Unit

Mukesh, this is Swadesh. Yes, I think that’s a good observation. Definitely, there is more sales happening on the low-speed, low-range segment, although a lot of new products are coming out in the higher range, higher speed segment over the last few months and going forward, so you’ll see much more uptick there. But when it comes to impacting the ICE market or the ICE business, I think what you’re seeing in the low range, low speed is a lot of people who have short errands to run or people who are in an age group or the demographic that they are not able to handle other form factors, they are really going into that. Right now, it is not really eating into the ICE market. But I think given the momentum, I think the new use cases will — are coming in for those form factors. And going forward, you will see the high-speed and high-range scooters also ticking up in the EV segment.

Mukesh Saraf — Spark Capital — Analyst

Right, right. So is there a case for companies like yourself also getting into that low-speed segment to cater to that specific form factor requirements?

Swadesh Srivastava — Head – Emerging Mobility Business Unit

See, I think right now, the EV industry is actually in quite a nascent stage. So you will see different use cases coming up, right? And I think we want to definitely play to our strength. And we have both our own homegrown product and the Gogoro partnership product, both are well positioned at the heavy and prominent use cases because we want to make sure that we are catering to those customers. But over a period of time, will be not come in all the use cases and given our portfolio on the ICE side, we will do the same on the EV side as well.

Mukesh Saraf — Spark Capital — Analyst

Right. Great. Thank you for that. I’ll be back in the queue.

Operator

Thank you. The next question is from the line of Sabyasachi Mukerji from Centrum PMS. Please go ahead.

Sabyasachi Mukerji — Centrum PMS — Analyst

Hi. I just have one question. If you can comment on the income tax issue that was there in the news a month ago?

Mr. Niranjan Gupta — Chief Financial Officer

Yes, Sabyasachi. So therefore, if you read the notes of nine through [Indecipherable], we have explained our comments and our status on that. And beyond that, I would have nothing further to add at this stage.

Sabyasachi Mukerji — Centrum PMS — Analyst

Ok,Thank you.

Mr. Niranjan Gupta — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.

Nishit Jalan — Axis Capital — Analyst

Hi, Thank you for the opportunity. I have two questions. Firstly, on scooters. In the last three-odd years, we have tried to do a lot of work on that front in terms of product launches, pricing intervention. We’ve also got into 125 cc segment. We have seen bouts of market share increase. But then again, we have started to lose now. So what according to you is not going correct? What are your underground checks suggesting that despite having good products, despite having a reasonable portfolio, we are not able to scale up market share. So any feedback or anything that you think is not working? And how do you want to focus on that going ahead?

Ranjivjit Singh — Chief Growth Officer

Yes. Allow me to take that. This is Ranjit here. So look, we’ve actually had an excellent launch of Pleasure XTEC. Let me start with the 110 cc segment. And the Xtec launch, along with the campaign, Ladki Chala Rahi Hai, which was a very emphatic and powerful point of view that was expressed to consumers, and there was a lot of engagement around it, market liked not only the product but also the brand building that we did. And it’s held very solid in terms of its market share. We will further strengthen our 110 cc segment as we launch more products. As we said, we will roll out more Xtec ranges as we go along in this year, so watch out for that because that is going to increase out of play in the 110 cc segment. As far as the 125 cc segment is concerned, the Destini XTEC has already been shipped. It’s — we’ve dispatched that in March, expanding it to other markets within the country in terms of the inventory and it’s got a very positive and good response that we are getting across the board for Destini XTEC. With the chip shortage situation getting evened out, the Maestro Edge 125 cc, which is the connected series, will also become a far more powerful player. So we are very confident across our portfolio on the scooters that this year, with this lineup that we have and the Xtec series, we’re going to really make a mark. I can just reiterate that it’s a very good lineup. The consumers are responding well, and we will see us making gains in this as we go forward in the scooter segment.

Nishit Jalan — Axis Capital — Analyst

Got it, sir. So my second question would be on the exports front. That is one area where we have started to do very well in the last one year or so, and we have appointed some good distributors in important geographies. But obviously, our base is still much lower than some of the other players in the industry. So can we expect a growth which is much faster than the peers and a faster scale up on the export front so that we reach maybe 0.5 million export or plus in the next couple of years? Just wanted some color on that on the export side.

Swadesh Srivastava — Head – Emerging Mobility Business Unit

Thank you very much, Nishit. I was 45 minutes into the call, I was wondering, you guys have given up on our exports or are you still hot on it? I’m glad you asked that question. I think we’ve had a fantastic year, as you can see. You can pretty much imagine the amount of support that we’ve got from all of you all these years, inspiring us to keep going and pushing forward. We’ve just made the start. We’re getting absolutely aggressive about it. Some of the numbers that you are already talking about are quite exciting. We certainly look forward to getting somewhere close to that. Yes, of course, the growth trajectory is going to stay robust and solid going forward. We have this year itself done better than competition, our market share increase gives you that story. So — all in all, we are on the right part now. The progression is pretty much there and so is the site for a very aggressive end state position. Hopefully, things will change much faster than they have in the past, and we are pretty much on track. Thank you.

Operator

Thank you, The next question is from the line of Jay Kale from Elara Securities. Please go ahead.

Jay Kale — Elara Securities — Analyst

Hi, Thanks for taking my question. Sir, my first question is regarding the two-wheeler industry. As a market leader, how do you see this industry? Of course, we are approximately, in FY ’22 we’re around 35% below the FY ’19 volume peaks. Now in FY ’23, you mentioned about growth and we may have a double-digit or maybe close to 10% growth as well. But how — in your internal assessment, what growth level do you see would be — you would be satisfied with [Indecipherable] low base because we’ve also seen around close to 40% of price increase in the last three, four years. So would you think that a 10%, 12% growth is good enough? And what is your definition of satisfying growth rate [Indecipherable] And in continuation to that, do you think that in two to three years you will be able to scale back to the FY ’19 volume peaks of industry of 21 million or you think that is a far patch given the price increases that we’ve already seen?

Mr. Niranjan Gupta — Chief Financial Officer

Right. Good question. So very difficult to call out that what will be a satisfactory level, right? Obviously, everyone would like to go back to the FY ’19 peak as soon as possible. So that would be the definition of where the satisfaction lies. I think — again, I go back. We got to look at fundamental underlying factors which play to the long-term growth of two-wheeler industry. All those factors are intact. And I’ll repeat those, whether it is under penetration, the need for mobility, whether it is a pent-up that has happened in the last three, four years, the big pool that is developing which should actually now propel the replacement demands to be much, much, much bigger. And, of course, financing because remember, I mean, financing penetration should be nowhere less than 75% to 80%, which is what four-wheeler financing levels are. And the moment they go up, then people are actually then effectively means that you are preponing your purchases rather than saving and spending for that. So I think the fundamental growth levers remain intact. How fast it happens, we will have to see. And of course, underlying or overplaying all that is the economic growth, the consumer confidence. Rural income, for instance, has been there. It’s not that during pandemic, the rural income suffered. We all know that, that the GDP came out of rural growth. It was about willingness to spend because of having not enough confidence about future because of COVID. And second is dependency, more dependency of family members on the same rural income because of migration of labor. So I think there are those factors that played out. Now with all the sectors opening up, people have moved back to urban areas, the industries have opened up, crop prices are up, agri crops are looking good, income is looking good. So I think — but those are short-term factor again, fundamental long-term factors still remain when you have to look at the entirety of the long-term growth, and that’s how I would actually look at it. When you say double-digit, you are saying 10, we are not saying 10. But we are saying there’s no reason why industry should not grow double-digit, now double-digit could be anything. So therefore, growth is what we see based on what the indicators are very, very clearly. Early signs are very positive and let’s wait and watch this space.

Jay Kale — Elara Securities — Analyst

Ok, Great. Thanks for all the [Indecipherable] That’s all for now.

Operator

Thank you, The next question is from the line of Raghunandhan N. L. from Emkay Global. Please go ahead.

Raghunandhan N. L. — Emkay Global — Analyst

Thank you sir for the follow up opportunity. Sir, on the raw material side, just wanted to understand that the expansion which has come on a Q-o-Q basis that is helped by price increases being higher than the commodity?

Mr. Niranjan Gupta — Chief Financial Officer

Yes, Raghu, you are absolutely right because the swings in the commodity meant that the quarter four, the commodity costs were soft in the sense compared to the price hike. And the second factor, as I said, is a LEAP savings. A lot of our LEAP programs, actually, during the year, when we look at it, actually got culminated into quarter four. So actually, we got a huge savings out of those as well. So that’s around 300 basis points of savings that we got from our LEAP program. So it’s a combination of three things: there’s price, there’s costs being — quarter four was relatively soft, and of course, the LEAP savings, etc.

Operator

Thank you, We have the next question from the line of Pramod Amthe from InCred Capital. Please go ahead.

Pramod Amthe — Incred Capital — Analyst

Hi, Thanks for the opportunity. The question which I have is, you are still chasing the new capacity creation, whereas industry has been sliding for some time. What is the rationale to still keep on adding the new capacity? Is it more of a geographical balance which you’re trying to achieve? That’s the first question. Secondly, with regard to the same, how do you see the capacity creation for EVs, especially when we look at the overall two-wheeler industry, it seems to be sitting with a lot of idle capacity. And still, it is trying to chase the capacity when the [Indecipherable] to add up capacity. What is you are looking at, is it — as an industry player, how is that operating deleverage versus, say, incentive when you look at on the table, does it still make sense to change the capacity for EVs?

Mr. Niranjan Gupta — Chief Financial Officer

Right, Pramod. So firstly, on the ICE side, I don’t know where you get an impression from, but we are not adding capacity on the ICE side. What you see is, of course, a fiscal benefits which are available in Chittoor site. And we know that the [Indecipherable] benefit had expired. So therefore, it’s more a geographical balancing and a fiscal balancing based on the benefits. But net-net, we are not intending to add capacities at this point in time on ICE. As far as EV is concerned, I wouldn’t talk about industry. I mean different players have a different view on capacities and they’re creating. All I can say is that, look, no industry can have 30 or 40 players. So you are looking at EV industry, which is in nascent stage. There are players which are coming. There are more players, which may come in. There will be a period of consolidation that will happen, which is obvious and which happens in any industry. And once the consolidation happens, then obviously, the capacities will get rationalized at that point in time from an industry perspective. As far as we are concerned, as I said, we will be calibrating it based on how we want to phase out our launches by cities, by towns, etc., etc., and our capacity will be modular. So we’re not going headlong into creating huge capacity at the outset. But we also know that we can calibrate it because it will be in modular fashion. I hope that answers your question.

Operator

Thank you,We have the next question from the line of Raghunandhan N. L. from Emkay Global. Please go ahead.

Raghunandhan N. L. — Emkay Global — Analyst

Thank you sir. I got disconnected. Just a clarification what I wanted was that, has there been any deferral in providing a pass-through to the vendors in Q4, which has also supported the gross margin? The second question I had was on accessory side. The 24% growth in FY ’22 is a strong number. How do you see the potential for this business over the medium term? Thanks.

Mr. Niranjan Gupta — Chief Financial Officer

Let me take the first one. And second one, I request Ranjit to take on. There’s been no delay or deferral in the past I talked about the — It’s a combination of price increase of commodities, it being softer in quarter four and accelerated LEAP savings program, which has come in more measure in quarter four. On the parts, where we’ve grown strongly by 24%, let me ask Ranjit to talk about, overall, how does he see moving forward?

Ranjivjit Singh — Chief Growth Officer

So on the parts, accessories and merchandise business, I mean, there’s really foundational work that’s been done in terms of creating the distribution system, creating a full base demand system, increasing the width and the depth of the business and all of that engaging with the mechanics, with the — what we call as the Asli Heroes, bringing [Indecipherable] into our portfolio and getting back to contribute well, it’s a really good contributor overall to the business. Even from the merchandising part, we are conceptualizing merchandise along with when we conceptualize new vehicles so that we get the target audience right. So there are many initiatives that are in place to make this a really strong contributor to the overall top line and bottom line. So it’s evolving very well. I’m quite happy with the way it’s evolving.

Raghunandhan N. L. — Emkay Global — Analyst

Anything you can share about the premium vehicle side, how you intend to strengthen the portfolio, the product launches? And any update on the Harley tie-up?

Ranjivjit Singh — Chief Growth Officer

So I’m very happy about, for example, in our premium, the way XPulse has been accepted by the market. It’s really in demand. In fact, there’s a waiting queue for XPulse. The XPulse also, before, we got five awards very recently, including the two-wheeler of the year, etc. So it’s doing very well in that segment, and we’re defining the adventure segment. We’re expanding that adventure segment and leading it. The Xtreme is also doing well. The retails have been much better, and we’re doing a lot of just getting more and more customers to engage with the brand in various activities that we do across the nation. And Xtreme is doing well. There are a couple of launches that are planned more in the 4V area, which will come up before the festival season. And again, this is a portfolio that’s going to see a lot of action as we go forward. So we’re very pleased with the way the whole premium portfolio is shaping up. It’s really a lifestyle. It’s about image, it’s about not selling the products, but really involving consumers in the aspirations that they care about.

Mr. Niranjan Gupta — Chief Financial Officer

Let me just touch upon the Harley part of it, which you asked. So as we said — I think I’ve said it earlier in the last few calls that the work on the product is on track, which will — and we’ve talked about that, that will come out. Timing, we will not be able to disclose it right now. But we’ve started the work as soon as we’ve signed the agreement with Harley, and that product is going to be right in the core key volume and margin area of the premium segment. Yes.

Operator

Thank you, We’ll move to the next question from the line of Ronak Sarda from Systematix.Please go ahead.

Ronak Sarda — Systematix — Analyst

Hi, Thanks for the opportunity. A couple of questions on the financial side. So one, Niranjan for you. I mean what was the overall investment in, let’s say, the associates, Hero FinCorp and Ather, I think you gave the number of sales for Ather of INR125 crores. But was there any substantial investment in Hero FinCorp or any of the subsidiaries?

Mr. Niranjan Gupta — Chief Financial Officer

Ather was INR150 crores. And FinCorp in this quarter, there was no investment. We already had announced that FinCorp is raising capital. And I think that we had announced earlier that our Board had approved. So that outflow will most probably happen in this quarter, but nothing in quarter four on FinCorp.

Ronak Sarda — Systematix — Analyst

So what would be the cash on books as of March ’22, if you have that number handy?

Mr. Niranjan Gupta — Chief Financial Officer

March ’22, we have actually put in the — in our published accounts as well. Our total investment size would be close to around INR10,000 crores. And out of that, probably more than INR6,000 crore to INR7,000 crores will be in investments in various instruments, and the balance is in subsidiaries and associates and various strategic investments.

Ronak Sarda — Systematix — Analyst

Got it. And the second question is on the loss from associates, which is around INR200-odd crores for the full year. Can you help us break down this number between Hero FinCorp and Ather? And how — I mean, how do you see this number panning out, let’s say, over the next 22, 24 months?

Mr. Niranjan Gupta — Chief Financial Officer

I won’t be able to give that number out in this call. We can have some discussion — you can have some discussions with Umang. He’ll get back with the details required. But broadly speaking, this includes FinCorp also, which had losses in the first half. They did have profit in the second half, but there was a net loss. And, of course, Ather I will continue to be on cash burn for some period of time. And FinCorp had positive results in second half. So one would expect FinCorp to turn out positive, and therefore, next year, it should only leave Ather into that, some of the loss is concerned, on associates. As our subsidiary is concerned, they are performing well. There is no material losses there between the different subsidiaries and the JVs that we have.

Operator

Thank you, In the interest of time, that was the last question for today. I now hand the conference over to management for closing comments.

Umang Khurana — Head, Investor Relations

Thank you, everyone. Thank you for coming in. Keep safe and look forward to connecting in FY ’23 as well. Have a good day. Bye-bye.

Mr. Niranjan Gupta — Chief Financial Officer

Thank you. Thank you very much.

Swadesh Srivastava — Head – Emerging Mobility Business Unit

Thank you, everyone.

Operator

Thank you very much. On behalf of Batlivala & Karani Securities, [Operator Closing Remarks]