U.S. markets closed
  • S&P 500

    3,380.80
    +17.80 (+0.53%)
     
  • Dow 30

    27,816.90
    +35.20 (+0.13%)
     
  • Nasdaq

    11,326.51
    +159.00 (+1.42%)
     
  • Russell 2000

    1,531.20
    +23.51 (+1.56%)
     
  • Crude Oil

    38.60
    -0.12 (-0.31%)
     
  • Gold

    1,911.50
    -4.80 (-0.25%)
     
  • Silver

    23.95
    -0.30 (-1.25%)
     
  • EUR/USD

    1.1748
    -0.0001 (-0.01%)
     
  • 10-Yr Bond

    0.6770
    0.0000 (0.00%)
     
  • GBP/USD

    1.2887
    +0.0005 (+0.04%)
     
  • USD/JPY

    105.5630
    +0.0320 (+0.03%)
     
  • BTC-USD

    10,620.71
    -175.32 (-1.62%)
     
  • CMC Crypto 200

    218.76
    -4.94 (-2.21%)
     
  • FTSE 100

    5,879.45
    +13.35 (+0.23%)
     
  • Nikkei 225

    23,185.12
    0.00 (0.00%)
     

Edited Transcript of BAJA.NS earnings conference call or presentation 22-Jul-20 11:00am GMT

Q1 2021 Bajaj Auto Ltd Earnings Call

Pune Aug 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Bajaj Auto Ltd earnings conference call or presentation Wednesday, July 22, 2020 at 11:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Rakesh Sharma

Bajaj Auto Limited - Chief Commercial Officer & Executive Director

* Soumen Ray

Bajaj Auto Limited - CFO & President of Finance

================================================================================

Conference Call Participants

================================================================================

* Aditya Jhawar

Investec Bank plc, Research Division - Analyst

* Binay Singh

Morgan Stanley, Research Division - Executive Director

* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Gunjan Prithyani

JPMorgan Chase & Co, Research Division - Analyst

* Hitesh Goel

Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst

* Jinesh K. Gandhi

Motilal Oswal Securities Limited, Research Division - SVP of Equity Research

* Kapil R. Singh

Nomura Securities Co. Ltd., Research Division - Executive Director & India Auto and Auto Parts Research Analyst

* Pramod Amthe

CIMB Research - Head of India Research

* Pramod Kumar

Goldman Sachs Group, Inc., Research Division - Executive Director

* Raghunandhan N. L.

Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

* Venugopal Garre

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good evening, ladies and gentlemen, and welcome to Bajaj Auto's conference call to discuss the first quarter fiscal year 2021 financial results.

We have with us today Mr. Rakesh Sharma, Executive Director; Mr. Soumen Ray, Chief Financial Officer; Mr. Sanjeev Garg, Divisional Manager, Treasury, IR and FP&A; Mr. Anand Newar, Divisional Manager, Investor Relations.

My name is Neerav, and I'll be your coordinator. (Operator Instructions) Please note that this conference is being recorded. We'll now begin the question-and-answer session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) First question is from the line of Aditya Jhawar from Investec Capital.

--------------------------------------------------------------------------------

Aditya Jhawar, Investec Bank plc, Research Division - Analyst [2]

--------------------------------------------------------------------------------

My first question is with regard to our gross margin. So there could be some benefit of ForEx [has approved]. But beyond that, if you can highlight what could be the commodity benefit that you [view] in this quarter?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [3]

--------------------------------------------------------------------------------

As a matter of fact, commodity has been adverse because as you would know, [noble] metal prices have gone through the roof.

--------------------------------------------------------------------------------

Aditya Jhawar, Investec Bank plc, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Okay. Okay. So, yes, actually, I did not get (inaudible) join back. Just a second question. On exports, Rakesh, if you can highlight what is the outlook of individual market. Especially it seems that Africa, despite devaluation of naira is doing relatively better as compared to other market. So post-COVID, what is the outlook of individual market -- key markets for our export?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [5]

--------------------------------------------------------------------------------

So Aditya, the behavior of the international markets, the 40%, 50% which we track very closely is very similar to India. Though I must say that the restoration of demand is -- was in June at about -- in motorcycles at about 75% level. And in already first half of June, when we are monitoring retails, it's about almost 80%, 85% of, let's say, previous July first half. In this, South Asia, Middle East and LatAm are ahead, whereas ASEAN and Africa are slightly behind. We expect the trend to continue. The CV retails are about 10 percentage points lower than this. So they're trailing the motorcycles. And so that's region wise.

As far as some of the key countries go, Nigeria is at about -- it's made good progress from a level of 50%, it's gone to 75% of the normal, let's say, first half July; Philippines from 50% has gone to 80%; Bangladesh is above normal; Egypt is above normal; Uganda is -- okay, Uganda is below normal; Columbia is fast going towards normal, already reached 80%. So I would say that barring the odd things here and there, like Uganda, or even Peru has opened up, so most of the markets are now lying between 75% and 100% in motorcycles and about 10 percentage points or so lower in commercial vehicles.

--------------------------------------------------------------------------------

Aditya Jhawar, Investec Bank plc, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Okay. That's quite helpful. My final question is how is the feedback of the electronic injection that we launched. And it's now almost like been a few months, people would have used the product for CT and Platina. And is there a thought process of extending to other mode -- other brands as well?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [7]

--------------------------------------------------------------------------------

Well, the thing -- the best thing is that there is no great feedback in the sense that we have managed to, at least based on the retail ownership and consumption of the last few months, we have -- the transition has been extremely smooth and people have not experienced any disruption, change or noticing of any great negative, whether it is in terms of mileage or in terms of smooth deliveries of power. So it's gone up pretty well. And we will use it or we will deploy it as required. So it's not as if we were waiting or looking for something -- some milestone to be achieved before we take it any further. We have already deployed it wherever we wanted to put it.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Next question is from Binay Singh from Morgan Stanley.

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [9]

--------------------------------------------------------------------------------

Is it fair to assume that the gross margin that we saw in the quarter was largely driven by exports? And linked to that, how would you see the gross margin going ahead? Question -- one part is that do you think the currency benefit that you've seen, will you be able to retain it?

And secondly, on the domestic motorcycle side, we have seen the company taking some price hikes. So taking that into account also, could you share how much price hikes have you taken? And how do you see these 2 factors playing on gross margin in the coming quarters?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [10]

--------------------------------------------------------------------------------

So it's a little difficult to answer that question, but I'll try. So first on ForEx. On ForEx, we are in the market. So the kind of contracts that we do on our ForEx realizations are range forwards. So we are currently in market. Rupee is tending to -- the tendency of rupee is to strengthen from here. We are seeing a steep resistance at INR 75. As a matter of fact, the common consensus is if RBI would have not intervened, with a lot of FDI inward remittances, rupee would have further strengthened. So I do not see the average that we achieved of INR 75.6 being continuing in Q2 and Q3, barring obviously some event risks like the U.S. presidential elections. So most likely, this will not be there and we will have a headwind where our realizations will be lower than what we got in Q1. Now, yes, we have taken some price increases. And directionally, at least in Q2, we do not see any major cost increase, which is going to come and hit us barring some weighted average of noble metals. So yes, to that extent, you are right, the motorcycle gross margin should marginally improve the domestic motorcycle growth.

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [11]

--------------------------------------------------------------------------------

Could you share what is the price hike on blended basis that you would have taken?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [12]

--------------------------------------------------------------------------------

You can pick it up from Anand because I can't give you a blended price. There has been multiple rounds in various parts -- of the portfolio in various rounds. The last one we took was on 7th of July, which was in only 3 or 4 models. If you have to push me to a number, then I would say it is below -- the impact of that on the overall portfolio will be in really first place decimals.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Next question is from Gunjan from JPMorgan.

--------------------------------------------------------------------------------

Gunjan Prithyani, JPMorgan Chase & Co, Research Division - Analyst [14]

--------------------------------------------------------------------------------

Just two questions from my side. On -- firstly, on the three-wheeler business. This is something which is less spoken about given we don't get much insights on it. Could you just talk about how do you see the normalization here? Because this has been very adversely affected. And clearly, shared mobility, I mean, everybody is calling out is, is kind of being avoided. So if you can talk about three-wheelers. And secondly, on the supply side challenges, how are we coping with these lockdowns? If you can cover this as well.

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [15]

--------------------------------------------------------------------------------

So you're right, the three-wheeler business has been relatively impacted much more strongly than motorcycle, and restoration of demand in three-wheelers is happening -- occurring at a much lower pace. The lockdowns directly affect the road traffic, ride-hailing. And till the time normal life is resumed in entirety, when people start commuting to office or to schools or to -- mothers start going to pick up the kids from schools and all those things don't restore themselves completely, the three-wheelers business will continue to see -- the three-wheeler owner will continue to see a much lower business. And today, the owner is making -- a three-wheeler owner is making 30%, 40% of his daily earnings. So that is -- and this has a cascading impact also on the financiers because the financiers see there is an impairment in the ability of a three-wheeler owner to pay the EMIs and they become more cautious and -- with down payments and EMIs and tenures, et cetera, which further complicates the matter because financing is an important part of the three-wheeler purchase. So certainly, we see the three-wheeler business taking longer to return to normalcy.

Your second question was on the supply side?

--------------------------------------------------------------------------------

Gunjan Prithyani, JPMorgan Chase & Co, Research Division - Analyst [16]

--------------------------------------------------------------------------------

The cargo side also you can cover. Within three-wheelers on the cargo side, is there any trend different?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [17]

--------------------------------------------------------------------------------

Yes. I must call out the cargo side, the trend is different. In fact, on cargo side, we see demand getting restored swiftly. And I -- because there is a renewed demand for intra-city movement of small cargo, which is where our three-wheeler business is aimed, and I must also call out that within this, do we outlook for the three-wheeler business, there are pockets which are better, like really very small towns where migration has taken place and people are not going back and they're looking at sources of employment. And these towns where demand -- where normal life is -- didn't get hit in the first place so hard, but is also coming back faster, and -- so we see -- we will definitely see these pockets emerging ahead of the conventional large tracks of demand.

--------------------------------------------------------------------------------

Gunjan Prithyani, JPMorgan Chase & Co, Research Division - Analyst [18]

--------------------------------------------------------------------------------

Sure. On the supply side, if you can give some...

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [19]

--------------------------------------------------------------------------------

Well, on the supply side, it is pretty evident that -- you know that the supply chain in the auto side is pretty deep. We've got 2, 3 levels of vendors, and there is a lot of interdependency, not just between the OE and the vendor, but between vendors and vendors. And these -- and they are present not in clusters, but they are also present all over the country, also internationally. So it's a pretty widespread, deep supply chain. And any dislocation in one part of the supply chain immediately has an impact right through. So there has been a lot of dexterity. There has been a lot of agility in managing these interruptions in the flow, by creating alternate capacities, by collaboration amongst vendors and us, and we are trying to deal and manage with the situation. And a lot of the sort of restoration of supply, which you see -- I mean restoration of business which you see in June is, of course, partly because the demand has come sort of almost rolling back, but also because we have been able to manage the supply chain pretty well.

--------------------------------------------------------------------------------

Gunjan Prithyani, JPMorgan Chase & Co, Research Division - Analyst [20]

--------------------------------------------------------------------------------

Okay. So just finishing with this question. On -- you said the demand is about 80%, 85% in the initial half of the July. So where would the supply side be? If you can put a number to it. And also, what is the inventory in the market? Is there a case that we'll have to really ramp up the production over the next couple of months to feed into it? This is last one from me, and I'll join back in the queue.

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [21]

--------------------------------------------------------------------------------

Yes. So on the balance, I mean there are days, which are very bad and there are days where you have to scramble to cover up what we have missed. For example, there was a lockdown in Aurangabad imposed by the administration for all the industries, and we were locked down for 8, 9 days. So obviously, we have got hit by that on the supply side. But now in the final tenders, we are all scrambling to make sure that our exports and domestic requirements are taken care of. So I would say there is a lot of struggle during the month. But on the balance, I would say that at this point of time, the demand and supply are sort of balanced, if one takes a long view of things.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Next question is from Kapil Singh from Nomura.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director & India Auto and Auto Parts Research Analyst [23]

--------------------------------------------------------------------------------

Just one clarification. When you mentioned 85% of normal demand, did you mention for domestic market or for exports?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [24]

--------------------------------------------------------------------------------

Well, they're both very similar. The -- in July, we are seeing definitely 80%, 85% in motorcycles, which is returned. In fact, I would say that first 10 days of July, they're pretty good. And in domestic, we were seeing almost 90%, 95% levels of previous July being reached till the time some lockdowns were announced in Bangalore and Bihar, Orissa, Guwahati, which impacted the retail number, and we are back at 80%, 85%. Internationally, also, like I've said, the key markets, they're all running between 75% and 100% and at an average of about 85% in motorcycles.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director & India Auto and Auto Parts Research Analyst [25]

--------------------------------------------------------------------------------

Okay. Okay. And sir, inventory levels, where are they in the domestic two-wheeler markets? And also three-wheeler demand, where is it as a percentage of normal July?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [26]

--------------------------------------------------------------------------------

So the motorcycle inventory now is running much below -- I would say, below 30 days. And certainly, we would need to start building up inventory from next month onwards. And hopefully, smooth supply chains will allow us to do that. The three-wheeler demand, it has, in July, reached only a level of 20%, in the domestic market. But like I said, in the international market, it has reached a level of about 75% in retail. Having said that, I must just point out one thing when it comes to international markets. It is a -- because of the larger in-transit stock which is there, retail demand doesn't immediately mean billing or shipment for us because there is a lag of generally 30 to 45 days. So whenever there's an uptick in retail, we will see its impact on our shipments about -- in about 4 to 6 weeks' time. Whereas in domestic, you can almost immediately realize it.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director & India Auto and Auto Parts Research Analyst [27]

--------------------------------------------------------------------------------

Okay. And sir, one question was on, like we've always talked about the fact that our margins are an interplay of how much we sell in each of the segments. But just from directionally, when we look at -- because there were concerns that after BS VI, there could be some margin impact. So directionally, if you could talk about across segments, have we been able to fully pass on cost? And whether we are getting a margin also on that cost? How are we thinking about that?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [28]

--------------------------------------------------------------------------------

As of now, I would like to believe that we have been able to pass on costs, because the cost itself has been spiraling, primarily because by the time any one of us, certainly us, started manufacturing BS VI vehicles. Till now, the noble prices -- noble metal prices have been yo-yoing a lot. And if you were to read today's article on the Economic Times, it again says that it is again going to go up. And with the norms becoming stricter, the catalytic converters, which uses these noble metals, the consumption of noble metals has gone much higher. So I would say, yes, we have recovered the costs.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director & India Auto and Auto Parts Research Analyst [29]

--------------------------------------------------------------------------------

Okay. And sir, this inventory that we mentioned below 30 days, what is the -- just one clarification. What is the base level that we used to calculate? Is it last year's retails?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [30]

--------------------------------------------------------------------------------

No, no. We look at the retails of the following month. I answered to you on the basis of current retails, not last year's retails.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

(Operator Instructions) Next question is from the line of Hitesh Goel from Kotak Securities.

--------------------------------------------------------------------------------

Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [32]

--------------------------------------------------------------------------------

And congratulations on a very good profitability number. Sir, I was seeing -- actually I was doing -- can you hear me?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [33]

--------------------------------------------------------------------------------

I told you thanks a lot because you are the first guy who's told that.

--------------------------------------------------------------------------------

Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [34]

--------------------------------------------------------------------------------

No sir, a brilliant number, I would say. I was actually comparing the gross profit per vehicle. It has gone up quite substantially on a Y-o-Y basis. Now I understand that you have been able to retain the currency benefits in the export market. So can you just tell us how your export profitability is moving around? So I mean -- I think this is not due to domestic because we are seeing the BS VI transition also. So I would really doubt that the domestic margins are going up. So this is definitely happening because of exports in my view. Can you just shed some color if my reasoning is right on this?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [35]

--------------------------------------------------------------------------------

INR 77 crores. You multiply -- in the press release, if you go to Page 3, you will find I have told you how much of dollars I have done. And I've told what was the rates between Q1 of this year versus Q1 -- Q4 of last year. So if you work that delta, it comes to INR 77 crores.

--------------------------------------------------------------------------------

Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [36]

--------------------------------------------------------------------------------

So it is purely currency, but it's also heartening, right, sir, that you have been able to maintain -- keep that currency benefit in an environment where demand has been [chartered], right?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [37]

--------------------------------------------------------------------------------

Yes. I think a lot of credit goes to the business -- the international business operating team because it is always easy to pass that benefit on to FOB. But I think across the last 1 year, where we have seen rupee depreciating, I think there hasn't been too much of case of passing on, on FOB unless there has been a competitive pressure. So I would say we are doing a pretty decent job of retaining the secular depreciation of the rupee, whilst deploying certain ammunition in very competitive markets. And that is overall improving the profitability of exports business.

--------------------------------------------------------------------------------

Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [38]

--------------------------------------------------------------------------------

So sir -- so if the -- everything remains (inaudible), at least we should see this INR 20,000, INR 21,000 gross profit per vehicle number sustaining in my view.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [39]

--------------------------------------------------------------------------------

No, you won't. No, no, you won't. Because the performance of exports has been significantly better than domestic. So if you were to cut my margin profile, there are 3, 4 parts. As I keep on saying, domestic two-wheeler, domestic three-wheeler, exports and spares. Now this time because exports have done significantly better compared to all others, and my export EBITDA is certainly more than my weighted average, I have a tailwind of mix, which will not remain once the domestic market completely recovers. Also, please note, as Rakesh mentioned, that three-wheeler will take more time to recover than two-wheeler. So I will go adverse, going forward, in a scenario compared to this quarter where two-wheeler is recovering faster, three-wheeler domestic is not recovering and export is losing percentage contribution.

--------------------------------------------------------------------------------

Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Senior Analyst [40]

--------------------------------------------------------------------------------

Okay, sir, understood. And final question on the other expenses, sir. How should we look at advertising and publicity post COVID? So basically, what I'm trying to understand, will we move back to our original advertising levels in FY '22, say for example, everything becomes normal in FY '22? Or you are going to see some cost of interest building up there as well?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [41]

--------------------------------------------------------------------------------

See. Obviously, we rightsized the advertising and marketing expense to the immediate outlook. One of the first things we did when the impact and the enormity of COVID stuck us, was to move -- was to really shorten our operating horizon. And instead of -- apart from things like product development, which obviously have a longer time horizon of management, we shortened our time horizon of management and said, it's not about managing 6 months or 1 year, it's about managing April, it's about managing May, it's about managing June. And we are not going to dip into our balance sheet. We're going to manage through our P&L account. And what do we do now to manage the P&L account? And we rightsized the advertising to the kind of top line, which we were looming. And as we see restoration of demand, we are very encouraged -- I mean other things remaining the same, I -- we think that, at least, in motorcycles, the recovery -- complete recovery to normal levels is right around the corner. And it is the time to again rightsize the advertising expense. In fact, I would say it would serve us well to be slightly ahead in loosening the purse strings on advertising ahead of the demand curve. That's what would be our approach.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Next question is from Pramod Amthe from CGS-CIMB.

--------------------------------------------------------------------------------

Pramod Amthe, CIMB Research - Head of India Research [43]

--------------------------------------------------------------------------------

Two questions. First one is with regard to the launch of electric injection on your bikes. Do you think, structurally, you have been able to address domestic motorcycle margin profile upwards to move it up?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [44]

--------------------------------------------------------------------------------

So I would -- we will have to wait for a little while because what you were telling me is, essentially if I were to replace the question, was I smart enough to introduce electric injection as opposed to fuel injection in my commuter motorcycles? Is that your question?

--------------------------------------------------------------------------------

Pramod Amthe, CIMB Research - Head of India Research [45]

--------------------------------------------------------------------------------

Yes. True.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [46]

--------------------------------------------------------------------------------

So I will tell you, I think, as a finance guy, I am delighted that Bajaj Auto has taken this stand, primarily because I would not like to be dependent on bought-out proprietary technology for such a large part of my cost base. A typical fuel injection system would cost anywhere between INR 5,500 to INR 6,000, sometimes even INR 7,000. Even if you don't buy it from the best guy in the world, it will be upwards of INR 5,500, I mean, including the catalytic converter. The pure fuel injection will be about INR 4,000, INR 4,200. That's almost 15% of the cost of the vehicle. I would not like to be dependent on somebody who has a proprietary technology and can take me for a ride. So yes, I'm delighted that we have gone with the EI and not the FI in the models with where cost and price are both very sensitive.

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [47]

--------------------------------------------------------------------------------

In fact, I want to just add one more point, which I wanted to mention when the previous person had asked about electronic injection. As we explained, a little bit more about the factors which went into the decision-making. Besides all what Soumen said, the other issue is really also about the service and the ownership cycle of a motorcycle is anywhere between 3 to 5 years, some people also own it for 7 years, and coupled that is the fact that more than 50%, almost 60% of the bikes are serviced by roadside mechanics and they don't come back, whether it's for us or competition, it's just that behavior which is there in the Indian consumer. They go to the most convenient location. And to that extent, electronic injection is far easier to service and maintain than fuel injection. And this will be apparent only over a period of time.

--------------------------------------------------------------------------------

Pramod Amthe, CIMB Research - Head of India Research [48]

--------------------------------------------------------------------------------

And the second question is with regard to the import content. How has import content changed for you post BS VI? And what is the key reason for -- to still run a large import content considering that there were some border tensions and the government was pushing for [localites], just the discounts which you avail because of the global sourcing? Or has it been scale of availability of products? Or what is the key criteria to still be on the large import content, for whatever reason?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [49]

--------------------------------------------------------------------------------

So our import content is in very low single digits, very, very low single digits. And they are bought because currently in India they are not available. We are beefing up our vendors. And very soon, it will even come down below what it is, which is already very, very low. So import is not so much of a problem for us. Yes, there are some of our suppliers who import. It could be commodity, it could be certain parts which they import. But with the current way of things, everybody is trying to localize. I do not think that it will create a huge pressure on our system, if it is allowed to happen slowly. Anything which you suddenly chop off, you will have repercussions. So as long as it is not suddenly chopped off and the industry, which is Bajaj Auto and its vendors are given time, we will certainly be able to become self-sufficient. We have reduced -- as I said, we were a pretty large importer. Our scales have gone up by almost 30%, but my imports have come down from, let's say, last 5 years.

--------------------------------------------------------------------------------

Pramod Amthe, CIMB Research - Head of India Research [50]

--------------------------------------------------------------------------------

Any indication of numbers, how much percentage of sales it might have come down, direct, indirect, now compared to peak level?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [51]

--------------------------------------------------------------------------------

So it is there in the public domain. The total direct, indirect, all put together, is about INR 600 crores, INR 700 crores.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

Next question is from Raghunandhan from Emkay Global.

--------------------------------------------------------------------------------

Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [53]

--------------------------------------------------------------------------------

And congratulations for a good set of numbers. Sir, couple of questions. Firstly, how would be the demand trends for the first time in the replacement segments in domestic two-wheelers? Is there an increase in share of first-time buyers? Any major shift you have seen for Q1?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [54]

--------------------------------------------------------------------------------

Raghunandhan, this is too early to start to make assessments of any shift. We've not noticed any such shift. And it will take us still some more time before we can come to that. So I mean it's the same thing. So we have not noticed any trend, but we will look at it for a quarter and then understand.

--------------------------------------------------------------------------------

Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [55]

--------------------------------------------------------------------------------

Understood. Sir, secondly, exports have done well in FY '20. And going forward, given the low base of domestic market, would it be like -- can domestic outpace exports in the remaining part of the year and next year?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [56]

--------------------------------------------------------------------------------

Well -- So, frankly speaking, we are not -- we don't compare the 2 businesses like that, and we run them independently to their own strategy with their own sort of set of objectives. And depending on how the competition is and how they fair, the chips fall, where they fall, and then we do a competitiveness. Then we know that what is the share of exports versus domestic. So there is no script which we are working with in terms of the balance between exports and domestic.

--------------------------------------------------------------------------------

Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [57]

--------------------------------------------------------------------------------

Sir, lastly, if I can just add another question. On the cost reduction efforts, any quantification of benefits for the quarter and expectations for the year? And part of the efforts will be structural in nature?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [58]

--------------------------------------------------------------------------------

Yes. I do not -- Raghunandhan, Soumen here. You used very heavy words of structural and all that, don't understand that. Employees' salaries have not picked up. That is the first thing that I would like to mention. If you want the numbers, I mean, roughly, it is about INR 100 crores for this quarter.

--------------------------------------------------------------------------------

Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [59]

--------------------------------------------------------------------------------

Understood, sir. I meant to say that...

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [60]

--------------------------------------------------------------------------------

This is other than advertising and marketing.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

(Operator Instructions) Next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Service.

--------------------------------------------------------------------------------

Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [62]

--------------------------------------------------------------------------------

A couple of questions from my side. Firstly, you indicated you've passed on the entire cost for BS VI. This also includes loading of gross margins on that? Or that is yet to be passed on?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [63]

--------------------------------------------------------------------------------

Yes. So we have not loaded gross margin on that. We are not talking of costs. Also, as I've mentioned, I'll just repeat, that cost is very nebulous at this point in time because part of the BS VI transition is higher usage of noble metals, and noble metals prices have been going up. Some of those graphs looks like a steep curve. It's almost a horizontal line. So we will have to come to a point when the noble metal demand versus supply stabilizes, and then we will know whether we have recovered everything or not. But as it stands today, I have reasonably recovered all costs, but no margin.

--------------------------------------------------------------------------------

Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [64]

--------------------------------------------------------------------------------

Okay. Okay. And secondly, two clarifications. One is, what is the production level vis-à-vis pre-COVID? And second is the INR 100 crores savings in the quarter, which you mentioned, that is entirely on other expenses or this also includes staff cost?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [65]

--------------------------------------------------------------------------------

So 65%, 70%? So we are operating currently -- supply chain, as we speak, is in the range of about 65% to 70% production capacity. Obviously, this fluctuates because of multiple sporadic local lockdowns and stuff like that. The INR 100 crores does not include, as we have mentioned in our press release also. There has been no employee-related costs, which has been cut, including contract workmen. So even if you see the results, which would be now up on the website, you will find my employee cost is just about INR 5 crores lesser than last year Q1.

--------------------------------------------------------------------------------

Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [66]

--------------------------------------------------------------------------------

Right, right. So this was entirely other expenses and maybe some RM cost?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [67]

--------------------------------------------------------------------------------

No, no RM cost.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

Next question is from Pramod Kumar from Goldman Sachs.

--------------------------------------------------------------------------------

Pramod Kumar, Goldman Sachs Group, Inc., Research Division - Executive Director [69]

--------------------------------------------------------------------------------

Congrats on a good set of number. Rakesh, my question was related to the demand momentum. I heard you multiple times on this call saying that demand trends are pretty solid on motorcycle side. But looking at the VAHAN database on a daily basis and even talking to some of your competitors and even dealers, including yours, things don't seem to be as encouraging as what you are talking about. So I'm just trying to understand, in a way, are you hinting that July is going to be stronger than June in terms of overall demand despite the pickup in [rains] and also in terms of (inaudible) of the pent-up demand, the way you say it?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [70]

--------------------------------------------------------------------------------

So Pramod, when I was saying -- talking about assumption and restoration of demand to normal levels, I'm comparing July to previous July because you can never take away the seasonality factors. When I'll talk about August, I'll compare August to previous August rather than the current July. When we compare it to the previous year, there are strong indications, particularly from second half June onwards to now that demand has been very swift in coming back to its normal levels. So normal levels meaning the same period last year. And of course, there are pockets which are underperforming like the larger metros. And there are pockets segments which are doing extremely well, agri business-based small urban areas, et cetera, these kind of places. And this is an average number. But there is no doubt that retails has come charging back.

--------------------------------------------------------------------------------

Pramod Kumar, Goldman Sachs Group, Inc., Research Division - Executive Director [71]

--------------------------------------------------------------------------------

Okay. The reason why I asked that is basically, if I look at even the VAHAN database, July to July was at the INR 14 lakhs base, we have barely done INR 6 lakhs so far, and this is already the third week of July. I understand there's a lag of registration that comes and hits you in VAHAN. But even if I adjust for that, the numbers don't exactly looking that great even on a Y-o-Y basis, Rakesh. So I'm just trying to understand, is there any particular region or state, which you can point out, which is doing exceptionally well, probably there, probably we are not talking to them or the data is not getting captured [along]? Because the numbers the way I say it on VAHAN, which is updated on a daily basis, clearly points to even the Y-O-Y trends kind of slipping in the last few weeks.

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [72]

--------------------------------------------------------------------------------

Yes. So VAHAN has a certain lag. And -- but, yes, you're right, that is one of the inputs. But I'm looking at a few things. I'm looking at the retail data from our dealers, right? So I'm not looking at only our shipments to them. We capture retail data from our dealers. I'm looking at retail data from our dealers. I'm looking at the rate of pending orders in our 3 plants and how easily these orders are coming in. I'm looking at how much own money the dealers are putting in for inventory. I'm looking at the number of SKUs, where which -- in different places, which we are getting stocked out on and receive calls about resumption. So when I put all these things together, some of them are lag indicators and some of them are leading indicators, which suggests to me that things are unfolding in a positive direction in a pace which is faster than us. And this is very important for us to understand, not just to get a kick out of it, but we have to alert the supply chain system, say my colleague needs a very -- a good, solid, long lead time, so that he can work things out with this vendor base and prepare himself. So therefore, we are definitely looking at things in the motorcycle to be much more positive going forward in August and September based on all these things, which I've told you, Pramod.

--------------------------------------------------------------------------------

Pramod Kumar, Goldman Sachs Group, Inc., Research Division - Executive Director [73]

--------------------------------------------------------------------------------

Great. And second question around the financing side. We've had a look at the Bajaj Finance numbers. The morat for them on auto remains extremely sticky at 50%, or thereabout. Your competitors, there's capital and some had kept morats, which were like below 30% even as of 1Q -- even as a part of 1Q. But just wondering, looking at the higher morat number, higher GNPA numbers were reported, is there a risk to the arrangement in terms of when Bajaj Auto will be forced to give a kind of a support to Bajaj Finance on their lending incrementally to Bajaj Auto customers, given that their slippages seem to be higher versus competition even historically? So is there a potential change? Because the way I understand you currently don't pay any subvention or credit guarantee or any kind of underwriting to Bajaj Finance, so is it fair to expect that to change? Or you don't see anything changing there?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [74]

--------------------------------------------------------------------------------

No. That is a -- this arm's length way of working is pretty much enshrined, Pramod, and we don't see that changing. And Bajaj Auto Finance will have to deal with the issues, which morat or post morat is going to show up in the way -- and they've already got a set of actions, which they are implementing. So that will continue. This type of -- the nature of relationship will continue. Having said that, it is also true that in certain pockets, particularly, let's say, three-wheelers, there is a need for some innovative financing, which may require a higher risk to be undertaken. So if Bajaj Auto wants some special product to address a certain segment, not across the board, but certain specific segment, special product is needed. And if that's required, a certain amount of risk sharing or cost sharing, I would say, it's not so much risk sharing, but it will be the cost sharing, then we will do that kind of subscription. We have done it in the past fall on a very, very product-focused way. And I'm actually encouraging that dialogue between the 2 teams because I feel that this is a great lever that which we possess. We've got a very fine financing organization. And I'm pushing them to work with the sales side to come out with some innovative products, which can help us improve our proposition.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [75]

--------------------------------------------------------------------------------

Pramod, Soumen here. You were asking this question from Bajaj Auto's perspective or Bajaj Finance's perspective.

--------------------------------------------------------------------------------

Pramod Kumar, Goldman Sachs Group, Inc., Research Division - Executive Director [76]

--------------------------------------------------------------------------------

No. Bajaj Auto's perspective. And is there a risk of cost coming in, in terms of supporting the financing activities because of the higher morat and higher delinquencies compared to peers? That was the question, Soumen, yes.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [77]

--------------------------------------------------------------------------------

So just to add to what Rakesh mentioned, we have actually got a new player in our internal list of finances in this quarter. The HDFC Bank has come on board. And they are very aggressive. They have tied up with Maruti and Bajaj and they're offering very, very differentiated schemes to two-wheelers manufacturer, two-wheeler customers. So no, there is no certain...

--------------------------------------------------------------------------------

Pramod Kumar, Goldman Sachs Group, Inc., Research Division - Executive Director [78]

--------------------------------------------------------------------------------

Soumen, any -- sorry, Soumen, (inaudible) any share that you can share, what is the Bajaj Auto finance share of the financing book in 1Q? That would be a great comfort in terms of whether we are not so overdependent on that.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [79]

--------------------------------------------------------------------------------

No. So we are not overdependent on them. As a matter of fact, the dependency is coming down. Exact numbers, we can pick up from Anand.

--------------------------------------------------------------------------------

Operator [80]

--------------------------------------------------------------------------------

Next question is from Chirag Shah from Edelweiss Securities Limited.

--------------------------------------------------------------------------------

Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [81]

--------------------------------------------------------------------------------

Sir, first question is on the international market. When you said that demand is at 70% to 80% level, now how do we read this? It will be a normalized level of demand? Or even there, there is an angle of pent-up demand, and this will bounce like much sharper and reach 100% levels (inaudible) domestic market?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [82]

--------------------------------------------------------------------------------

Chirag, you did not come clear. Can you repeat it again, please?

--------------------------------------------------------------------------------

Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [83]

--------------------------------------------------------------------------------

No, I will. I think the 75% levels of operations in international market demand level, are this a new normal? Or there is also an angle of pent-up demand over there and the way we are seeing a bounce back happening in India, like in July, we are almost seeing almost like last year July levels, we can expect similar kind of jump over there in the international market?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [84]

--------------------------------------------------------------------------------

See if I've understood the question correctly because the audio was not very clear. But if you ask us whether international demand is very similar -- showing similar pattern of behavior, I would say, yes. They are moving very, very close. I told you the sort of numbers in terms of retail, they're very, very similar, 80%, 85% in almost both the places. And this question about pent-up and fresh, it's very difficult to understand. People ask me what is -- are you getting -- is this demand fresh. Now how do you know what is fresh and what is pent-up? We can calculate this arithmetically that we have lost 45 days of retail days. And so we can spread that out arithmetically. But there is no way of really answering this question, whether it is pent-up, whether it is fresh, or whatever? Demand is demand, and we are here and now, and we are seeing it come back to normal levels pretty fast. And that's how I would answer the question.

--------------------------------------------------------------------------------

Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [85]

--------------------------------------------------------------------------------

Second, would it be a right statement that, let's assume, for the balance part of the year, first on domestic side and motorcycles, we would be at least, on a Y-o-Y basis, flat for the full year at the industry level? Can we make that assumption as of now? Let's say, from August till March, this year versus last year, same time, industry volumes would be flat, at least, if not growth? Is it a right assumption to go by?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [86]

--------------------------------------------------------------------------------

See, the thing is that forecasting demand is not about forecasting demand, but it is about forecasting COVID, and the response of administration to the ebbs and flows of COVID. The whole demand depends purely on that. And why I am saying that is having seen the outcome of July 15 days and previously of June, it is very clear that once COVID recedes and there is some kind of stability in the normal day life, demand comes surging back. Demand is coming back faster than COVID is receding. So it is bubbling at the surface. Now -- so it is singularly now, it is -- at least these 45 days tell us that the demand is singularly dependent on the ebbs and flows of COVID and admin responds to it. Now that's a very difficult thing for me to forecast. I can only tell you that if you are -- if you forecast that, then you've got the demand forecast.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [87]

--------------------------------------------------------------------------------

So Chirag, just to add to what Rakesh mentioned, I think what we have to figure, what we should know, which we do not know, is when will government allow that 10% attendance to go up to, let's say, 80%? When will they allow entertainment options to open up completely? When will kids go back-to-school? So there are a lot of these things which will actually determine demand as opposed to a share population of 150 million certain percentage wanting to buy motorcycles.

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [88]

--------------------------------------------------------------------------------

So the point which we are making is that demand would be impacted and we are also, obviously, in the same boat as you trying to understand it. So I'm not taking a point of view and pushing it. But I'm saying that when we are assessing demand, there are multiple factors, right? There is a factor of COVID. There is a factor of admin response to COVID. There is a economic situation. There is psychological factors, which are precipitated by uncertainty. These are the multiple factors which affect demand. What I'm saying is the other 2, the economic factor and the psychological factor in the consumers' mind seem to be much smaller. That is what June and July is telling us. And the larger factor is this whole thing about the physical interruption, which COVID is causing.

--------------------------------------------------------------------------------

Operator [89]

--------------------------------------------------------------------------------

Next question is from Venugopal Garre from Bernstein.

--------------------------------------------------------------------------------

Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [90]

--------------------------------------------------------------------------------

I just wanted to know, as far as your dealerships are concerned, are -- is all of it open at this juncture? Or there is still a percentage which is not operating?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [91]

--------------------------------------------------------------------------------

So 95% of our motorcycle dealerships are open as we speak and 85% -- 84% of our CV dealerships are open.

--------------------------------------------------------------------------------

Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [92]

--------------------------------------------------------------------------------

Okay. Great. My second question, just a quick one, there's the associate loss that we have seen, INR 130-odd crores, any color on -- I'm assuming it's KTM related. So any color on how that thing should shape up in terms of potential impact going forward?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [93]

--------------------------------------------------------------------------------

Yes. So I'll take that. There is already a press release, which has been issued by KTM. KTM has bounced back very well in their Q2, which is their April to June. And we consolidate with the quarter's lag. So this is essentially the Jan-March quarter where typically the volumes completely crashed because COVID took over, both on supply and on demand. They've bounced back very well. And we expect this share of loss to absolutely and drastically come down in the next quarter.

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

Next question is from Shyam Sundar Sriram from Sundaram Mutual Fund.

--------------------------------------------------------------------------------

Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [95]

--------------------------------------------------------------------------------

Sir, one question on the domestic motorcycles. Between the entry-level and the premium segment, how is the demand -- initial trends that you have seen so far? Is the level of the commuter segments showing more promise than the premium segment? And is there any delay in terms of the upgrade cycles from the premium customers?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [96]

--------------------------------------------------------------------------------

In fact, I'm glad you asked that question because this was the second important thing, which we have been keeping an eye out in the markets for. The first one was how rapidly or how the demand is coming back. The second one was on the quality of demand, whether we are seeing any down-trading or movement of that nature. And what we find is that we have got no evidence from our portfolio at a retail level of any kind of down-trading across the segments. And this is another heartening feature of the way the demand has come back. And I wanted to just reinforce this point, also in support of what I was saying to Pramod of Goldman Sachs, when we were having a discussion about demand coming back or not and VAHAN indicating otherwise.

Another positive indicator is that the quality of demand has not depreciated. The structure of this segment is still largely the same. It is not that we have experienced a big rush for CT 100 kickstart, which is the most affordable motorcycle in the industry. But we have found that today, including the Pulsar 125, which has been an outstanding success for us in this difficult time. 50% of our portfolio has become now Pulsar's, which used to be including Pulsar 125 in the previous quarter. Quarter 4 was just 40%. So at quarter 4, it was 40%. In this quarter, where one would expect the consumer to go towards cheaper variance, it has not happened. And on the contrary, the Pulsar side for us has increased.

If I delve deeper into it and look at the Pulsar 125 which we've launched, we've got 3 variants. We've got a variant which is Drum at INR 71,000-odd, and we've got the most expensive one which is at INR 79,000. The one which is outstripping the other 2 is a more expensive one. And we have experienced a similar phenomenon in each of the thing. And I just want to add one more point over here. We do have certain models, which are cheap, but which also have a very weak proposition. And we've got punished over there. For example, in 150 Neon, which we -- which was a stop gap arrangement for us to address the 125cc segment because product development takes time, and we have experienced -- we got punished over there. But our main line Pulsar 150 single disc and twin disc, they've done extremely well. We are at an all-time high market share in the 150cc segment.

At the pinnacle of the motorcycle pyramid is the KTM bikes, the Duke 125, or whatever, today we are able to satisfy only 65% of the requirement. We are trying to scramble to build a booking list -- booking management system, so that we don't lose that sale because we are just not being able to reach enough product. And I'm just keeping my fingers crossed that by September we should be hitting a 5-figure number in pro biking sales. And we are getting it. We have already given that indication to our supply chain. So the quality of demand in terms of the segment structure is still the same. It has not changed. And this is -- yes, we have definitely evidenced that the customer is more conscious of the value, he's testing out the proposition, he's asking the question and will not pay something extra just for it. But yes, if there is something substantive, whether it's suspension, whether it's disc brakes, but it has to be something real. Then the customer is not shying away from paying a little bit more. And this is counterintuitive. You would not expect that in an economically distressed situation. You would expect people to go wholesale to the cheapest version. We have not seen that happening. It is a very similar structure to what we were experiencing in pre-COVID times.

--------------------------------------------------------------------------------

Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [97]

--------------------------------------------------------------------------------

Right, sir. That was very helpful. Sir, one question on the export markets, more so on the crude-dependent African economies. In the last call, we did indicate there could be some challenges there. Now given that crude has recovered to close to $43, do we expect going forward, maybe over the end of this quarter or the beginning of next quarter, that we -- can we hit the same run rate what we were doing last year? Do you think that is quite a possibility there in terms of export of two-wheeler?

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [98]

--------------------------------------------------------------------------------

So if I take Nigeria as the bellwether of the crude-dependent economies, the -- so Nigeria is already at a 75% level and it is climbing. I mean it's 70 -- so what I'm saying is that Nigeria first half retails of July were 75% of last year's July. And that is very heartening. They were 50% in June. Of course, you're very right. Last time when we talked -- at that time, I would say, we were all very -- because of few economies, we were very concerned about the jittery exchange rates. They've not appreciated, but they've not devalued any further. They are very much similar, and that's a little bit of a relief because the Nigeria -- the naira can spin out of control. It has not spun out of control. It has devalued and it has stabled. In fact, stability is -- or certitude is far more important for business people. And so we are a little bit more reassured on the exchange rate front.

In most of the places like Mexico, Colombia, there have been big devaluations. But in last 3, 4 weeks, they've [head] steady. Philippines, Bangladesh, in any case, have been very, very steady. I'm saying -- Egypt also quite steady. So I'm saying that the top 10 markets or so, currency jitters are not there right now.

--------------------------------------------------------------------------------

Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [99]

--------------------------------------------------------------------------------

That was helpful. Sir, one question on the other operating income. This quarter, as a percentage of the total sales or even -- whether year-on-year comparison also, other operating income has done much better than the underlying risk. So is there any component there which has aided the other operating income to give that kind of good numbers for this quarter?

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [100]

--------------------------------------------------------------------------------

No. Sorry, my other operating income last year same quarter was INR 191 crores and this year it is INR 131 crores. So it has actually come down.

--------------------------------------------------------------------------------

Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [101]

--------------------------------------------------------------------------------

Yes, sir, it has come down. But I'm saying compared to our volume decline, other operating income has not declined that much. So is there...

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [102]

--------------------------------------------------------------------------------

All of other operating income is not linked to volume. There are some which are linked to volume, but not everything is not linked to volume.

--------------------------------------------------------------------------------

Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [103]

--------------------------------------------------------------------------------

Okay. Okay. Okay. Understood, sir. Understood. I'll take the spares number from Anand, later.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [104]

--------------------------------------------------------------------------------

Yes, please.

--------------------------------------------------------------------------------

Operator [105]

--------------------------------------------------------------------------------

Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to the management for closing comments.

--------------------------------------------------------------------------------

Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [106]

--------------------------------------------------------------------------------

Yes. So Soumen here. Thanks a lot to all of you for taking out the time and coming on to the call. I know we do a 1-hour call, and all questions are not answered. I mean, Anand and Sanjeev are there and I'm there if there are any follow-up calls. And if we need, Rakesh is advised on any of the answers, we will reach out. Before I want to -- before closing, I just want to make one comment, and we started off the discussion on gross margin. Yes, there has been a number, which has been quoted in the AGM of the June EBITDA percentage. But I would like to request to you that you be prudent in using that number. That number is the correct number. There is nothing wrong with that number. But monthly, there are a lot of swings, which happens in costs and stuff like that. So I think the 14.3% EBITDA that we have done is a proper reflection of the way we have been able to do. Yes, we had a month of more than 19%, but that would not possibly be very sustainable in the near future because as Rakesh mentioned, we would be upping our marketing spends as time progresses. So that is one thing that I wanted to say.

And then the second thing is how life is very uncertain. When I was -- in February, I had thought that this call will be all about BS VI and how the demand has crashed and everything. And lo and behold, there is no conversation of BS VI. So I think it is important that all of us look at fundamentally what we are doing for business. And as Rakesh explained, we are fundamentally doing what is right for the business. So some of you will treat this set of results as okay; some of you will treat it as good; and some of you will say, could have been better. But if you peel the onion and you see the underlying assumptions, what we are doing to our pricing, what we are doing to our product portfolio, all tells you that we are fundamentally running the business in a way where we optimize the -- both the bottom lines, the market share target as well as the profitability target. So with that, I would end this call and any follow-up questions for Anand and Sanjeev. Thank you.

--------------------------------------------------------------------------------

Operator [107]

--------------------------------------------------------------------------------

Thank you very much. On behalf of Bajaj Auto Finance, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

--------------------------------------------------------------------------------

Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [108]

--------------------------------------------------------------------------------

Thank you.