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Edited Transcript of BAJAJ-AUTO.NSE earnings conference call or presentation 26-Jul-19 10:30am GMT

Q1 2020 Bajaj Auto Ltd Earnings Call

Pune Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Bajaj Auto Ltd earnings conference call or presentation Friday, July 26, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rakesh Sharma

Bajaj Auto Limited - Chief Commercial Officer & Executive Director

* Soumen Ray

Bajaj Auto Limited - CFO & President of Finance

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Conference Call Participants

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* Abhishek Kumar Jain

Dolat Capital Market Pvt. Ltd., Research Division - Analyst

* Ashutosh Tiwari

Equirus Securities Private Limited, Research Division - Research Analyst

* Ashwani Kumar

Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager

* Bharat Sheth

Quest Investment Advisors Pvt Ltd. - Head of Equities

* Binay Singh

Morgan Stanley, Research Division - Executive Director

* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Gunjan Prithyani

JP Morgan Chase & Co, Research Division - 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

* Pramod Kumar

Goldman Sachs Group Inc., Research Division - Executive Director

* Priya Ranjan

Antique Stockbroking Ltd., Research Division - Research Analyst

* Raghunandhan N. L.

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

* Ronak Sarda

Systematix Shares & Stocks (India) Ltd., Research Division - Analyst

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Q1 FY '20 Results Conference Call of Bajaj Auto Limited, hosted by Emkay Global Financial Service. (Operator Instructions). Please note that this conference is being recorded.

I now hand the conference over to Mr. Raghunandhan N. L. of Emkay Global. Thank you. And over to you, sir.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [2]

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Thank you, everyone. Good afternoon. On behalf of Emkay Global Financial Services, I would like to welcome you all for the first quarter FY '20 post-results earning call of Bajaj Auto. We would like to thank the management for providing us this opportunity.

From the management team, we have with us today, Mr. Rakesh Sharma, the Executive Director; Mr. Soumen Ray, Chief Financial Officer; and Mr. Sushant Joshi, Divisional Manager, Finance.

As usual, we will directly start with the Q&A session. Nira, can you please start with the Q&A, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Ashutosh Tiwari from Equirus.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [2]

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Congrats on decent volume performance, considering the volatile nature of the market right now. Sir, firstly, your question is on -- we recently launched the CT 110 model, and we [hear] that 110ccs are doing well.

So what was the need to launch the CT 100 -- CT more than 110cc, because it might cannibalize on the sales of Platina 110cc?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [3]

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Yes. There is 2 things which are driving our management of the CT brand. As you know that it is positioned as an entry level. And by taking the customer gently upward, what we're trying to do is to improve the average realization and the average EBITDA for the brand itself. Even if we are able to shift a few people from our own CT 100 into CT 110, we would have realized that objective.

Second thing is that via our proposition to competition is that at similar prices, we are giving a better product. And so we -- on that basis, we want to have the means for re-innovation and attract people from competition side. And the proposition that we are building in CT, this actually CT is known for us because it was a brand which launched in 2004, is durability. So it's a trend.

So if you see CT 110, if you have seen it, you will -- first thing which will strike you, that it is a strong-looking product. So when you move away from a price-based positioning into some kind of a meaningful equity, which we sort of then starts to talk about. So -- and that becomes then a basis for attracting people from competition and upgrading people from your own portfolio, leading up to slightly better margin share and realization.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [4]

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As a related question, is that like other things which come up in the [interim] results you tested in the past and now also that there's -- in the past, there are so many variants that sometimes it's difficult to maintain all the spare parts of a particular model, especially when that model will get discontinued. And that impacts the customer and the servicing. And there the customers, they're able to look into that.

Now again, we have so many variant on different models. So how do we address this thing that maintaining the spare parts availability for all the variants in either level? There are so many SKUs.

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

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So it's a very valid point. And compared to, let's say, 5 or -- 10 or 5 years ago, the shift in approach has been the platform approach. So when you have the CT 100 and the CT 110, it is not that every part is different. So there will be -- because they are forming from the same platform. And so we have been working on platforms for each segment. This should spawn different ways.

Now I would say that if there is a variant which is drum brake and spoke wheel, alloy wheel, disk brakes. These are things which are trying to increase the choice. There is a customer always out there for a particular variant, but they don't have the consequent impact of complexity in the portfolio.

But it's an important point to watch, and there is no doubt about it, and we endeavor to give more choice to the customer. You can very easily tip the balance and get into complexity. It's always a tight balance, which one has to strike. So we are very conscious of that, but this one is more less on platform approach.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [6]

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And sir, secondly, what are thoughts on Discover? I mean will we look at it different on altogether from 125cc? Or are you going to vacate that?

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

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No, we're not vacating anything. Discover performance has not been good in the last few years, we all know. We have discussed and we've analyzed the reason for that. I think, in previous calls, we've discussed with the analyst community and media also.

But there is a followership for Discover in different parts of the country. People like it for what it stands for. And we will continue to serve those, but we are not investing behind the plan. But certainly, we will not withdraw it because why disappoint the followership, which is there?

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [8]

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Sir, lastly, to finish in export, the revenue for first and last quarter, fourth quarter?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [9]

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So export revenue for Q1 FY '20 is about INR 3,150 crores, roughly. And for Q1 last year, was around the same number.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [10]

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And the fourth quarter '19?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [11]

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It was about roughly around INR 2,800 crores.

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Operator [12]

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The next question is from the line of Pramod Kumar from Goldman Sachs.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [13]

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I just wanted to understand the -- a flat ASP on a sequential basis and a jump Y-o-Y because if you look at the broader mix as, Rakesh, you highlighted on the CNBC interview as well that your 3-wheeler volume contribution fell materially. It's one of the lowest in the last 2 years, to 13.2.

And in the past, whenever we've seen 3-wheelers kind of slip from the 16% handle to a 14%, 13% handle. The ASPs take a hit. And if I notice, your model mix, even the premium portfolio, hasn't done sequentially any better in terms of the volume contribution, domestic plus export put together.

So I'm just trying to understand and this is what matters to the market as well. So where 100cc does generally well in domestic. So what is -- given this sharp ASP outperformance, given -- versus the mix?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [14]

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It's Soumen here. The ASP increase is primarily driven because of price increases for TVS and ABS on 2-wheelers. We are also picking up prices on 3-wheelers from April.

So there was an increase in 3-wheeler prices, and there was a significant increase in the 150cc plus segment from April because of ABS.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [15]

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Okay. And 3-wheeler, somewhat was surprised. So if you can get -- if you can just elaborate?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [16]

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Well, one -- about 1.5 to 2 percentage points.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [17]

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1.5 to 2. And the ABS would be around 4,000, 4,500 is that right?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [18]

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So it depends on model to model. Yes, it could be higher than that. It could be lower than that, based on which model we have price quote.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [19]

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And I see you've restated your fourth quarter and the first quarter of the previous year numbers, where other income has gone down, other operating income has gone up because of its EBITDA has gone up. If you can just throw some light as to what has driven that change, sir? And also any impact from the -- in this 116 in the quarter?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [20]

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So I'll take the first question. So there is -- the reason why it was being done was there was a -- we have tried to align ourselves with how most established corporates accrued to the expenses. And when you see the annual report, this year, you will see that they have all been done properly because those expenses were coming into operations, whether if there is a corresponding income or reversal, it was coming in other income, which is grossly unfair.

So that is the reclassification, which has been done. I thought this is a question which will be there for a lot of people. So upfront in the call, I will give out those numbers so that those questions can be eliminated.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [21]

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And what line item is -- what are the head item -- what's the name of the line -- as in, is it related to export hedging?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [22]

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So hear me out, hear me out. So the thing which has been moved out primarily are, we received -- we have got some expenses, which we incur on behalf of the group, and they will recover it based on the breakup between the group. But that is to come with other income, whereas the expenses all come in operating expenses.

So that is one number. We have an investment property, for which we get certain rate, which -- but again, the cost of maintaining that property is to come in operating expenses, but the income has to come in other income. And there is some reversals of earlier provisions, where the expenses come in expenses, and the reversals come in -- or the actualization of those expenses are coming in too.

So if I have to increase the expense, it comes in operating expenses. If because of actualization, there is a reversal, there it comes in other income, which is broadly unfair.

So to give you numbers, in Q4 last year, the other income would have come down by about INR 43 crores. And my operating revenue would have gone up by about INR 31 crores, and the balance would have been netted of immaterial cost.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [23]

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Okay. And the rental property, as in -- that's not our main line of business. So how can rental property be part of the operational income? How much is that on account of that? If you can elaborate?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [24]

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Yes. So that number is insignificant in the case of [actuals] we are booking, but number is less than INR 6 crores.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [25]

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Okay. Fair enough. On a quarterly basis?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [26]

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Yes. On a quarterly basis.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [27]

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And with all these adjustments, we are still kind of comfortable holding the margins around the 15% to 16% band. Is that understanding right for the year?

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

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So I think Rakesh has already mentioned in the CNBC interview, which you -- I thought you mentioned it. So we are looking at the drop in EBITDA reasonably bottoming out. Obviously, we cannot tell you that a 50 or a 70, which will not change because the way the industry is going down, fixed cost spread can become a challenge. We do not know how will material prices behave from H2. But certainly, if those things remain as they are, I think we should be range-bound on margins.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [29]

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And what is the volume assumption here, Soumen? As in broad volume assumption for the company, domestic/export all put together?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [30]

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Why should we -- assumptions? I didn't understand. Which period are you talking of?

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [31]

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No. As in normally, we do guide for the volume outlook for the company. So I'm just trying to understand...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [32]

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Well, we're not giving a volume outlook for the company.

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Operator [33]

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The next question is from the line of Kapil Singh from Nomura Securities.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [34]

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Could you share the demand indicators that you are witnessing across the segments? I know you will not give a volume outlook, but at least qualitatively, if you could share your thoughts on the full -- in segments.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [35]

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Well, the demand outlook -- let me say what we are experiencing currently is a decline in the industry. So Q1, the industry -- the motorcycle industry declined more than Q4. And within Q1, June was worse month and July is now worse than June. So there is a declining trend in the rates as well.

To some extent, they'll get mitigated going forward into the quarter, hopefully. Because there is a natural onset of season in some -- early season in some parts of the country [Maha Shivaratri] Maharashtra and so on and so forth. And then there is a little bit of a stock build-up, which will happen, which may not be so high at this time. But consumers start coming into the buying cycle in September, et cetera.

But I don't think that this seasonality will be sufficient to completely turn around the decline that the industry is facing. It may mitigate it. Now by how much? Exactly when? We have been -- be very alert, and we have to keep watching. Our [I will quickly just add] one point about the guidance. What we've been now facing in the industry, whatever the industry growth rate is by 8% to 12%, and our approach is going to be to try and do that quarter-on-quarter.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [36]

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Sure, sir. And for the other segments?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [37]

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So yes, this was about the motorcycle. The [CV of the --], domestically, also -- actually, for them, the Q2 is a better quarter than Q1. So we will see all this in September certainly better than Q1, which, as you know, again, I think the minus 8 to 10 or so. You should see an improvement in that.

But again, it's a seasonality effect. It's not a structural change which is occurring in the demand.

The international business holds steady on the back of Africa and ASEAN. Latin America is very muted. But everything put together, if we don't see any major geopolitical tensions in the Middle East and all the China-U. S. led currency volatility, then we will see this -- that international market, which we serve, the emerging market, continuing at about 2% to 3%. Very, very standard growth put together.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [38]

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2% to 3% for 2-wheelers and 3-wheelers put together.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [39]

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It -- we aren't really talking about motorcycles in the international businesses. Three-wheeler business is not so widely spread. And there is a -- 3-wheelers is in a bit of a decline, largely because of one country, which as we know is in Egypt, which we had a 95% share and very large market for us. That is going through a regularization process. It's a very good long-term move by the Egyptian government to regularize the 3-wheeler and give license plates, but the apparatus to do so is taking some time to put it. And because of that, the registration will become a bottleneck. And because of that, the retailers are suffering.

The demand -- underlying demand is there, but we're not being able to register those vehicles. So that is going to take -- it's anybody's guess, maybe another 6 months. So in the meantime, we have not been exporting to Egypt. And Egypt is specific part, almost 10,000 units per month we were doing. So that is sort of coloring the entire industry. And in fact, I will say [it affects other industries, other seasons].

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [40]

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Got it. Okay. And one question I had on the financials. If I see other expenses, there is a big increase both on a Q-o-Q and Y-o-Y basis. So any color over there?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [41]

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So primarily, the increase has been driven by higher advertising expenditure. And while in domestic motorcycles, we haven't overspent much compared to last year. In commercial vehicle, there has been some focus and certainly in international markets. We would -- launched a couple of products. We've become a little more active in some of the markets. But that is more of a, I would say, a pleasing issue. I would not read too much into it. It should grow at the normal regular growth rate that would happen.

Also there is some amount of CSR expense, which happened in this quarter, which was a little higher than the normalized 25% that should come.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [42]

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Okay. And just one last question. On the 3-wheeler side, in the domestic business, we keep hearing that there is a discussion going on to bring only electric 3-wheelers beyond a certain point, maybe 2023 or something. How well is Bajaj Auto prepared for this kind of an event risk?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [43]

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Actually, we are quite well prepared. And we had prototypes of the 3-wheeler running around in a couple of cities for some time, on the campus. And there has been true for some time.

The thing is that we are really not sure whether the consumer is fully prepared because there is a cost implication. And there is infrastructure of the ecosystem which supports [what you need but the advantages] of that is an issue. That is causing anxiety. These bridges will have to be crossed, but from our product point of view, we are prepared based on the current technologies. We are fully prepared to put it out there.

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Operator [44]

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The next question is from the line of Chirag Shah from Edelweiss.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [45]

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Good set of numbers. Congrats for that. Just first or basic question, what are the spare parts revenue for the quarter, if you can just share?

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

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Yes. The spare parts revenue for this quarter is about INR 740 crores.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [47]

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INR 740 crores. Okay. Yes. Sir, second question was on this electric vehicle. Earlier, you were indicating that you -- the product could be showcased by around end of this financial year. Is it still on track? Or is there a thought process? Maybe it has changed internally?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [48]

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No, there is no change internally. We are very much on track. It's just about deciding the right timing to put it out. We are quite prepared. And so it's quite imminent, but we will showcase a 2-wheeler, which is based on electric.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [49]

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Yes. And similarly, on this ABS transition that you indicated that has happened, as a percentage of the bike, what would be the broad range of price increase? If -- our cost increase that will be there because the range is reasonably high. So how do we look at that?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [50]

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So the ABS cost increase, well, is commonplace [economics]. Roughly around INR 4,000 increase across all models, which are [modern] -- technically more than 125cc. So if you're at 124.99, you are on the lower version, which [might be CV] or ABS or whatever [brand you call.] 125cc and above is ABS, and we can even check with [competitor of ours] if they're selling. So you can take a number of about 4 as the customer.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [51]

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Okay. Okay. And similarly on BS VI, so by when do you expect you will be rolling out the peer product? Is there any internal thought process on that? When the -- because you have a wide portfolio. So every roll out do not happen at the same time, you may have to time it. What is the time space of the rollout?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [52]

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Yes. The timing of the BS VI rollout has to be driven by external indicators rather than internal one. We have a program, which is on track for [the picture then] validated for converting the products into BS VI.

But there is a few things to consider. One is, how we will -- post season, how the season goes and how that existing stock will be run down. We have to see what type of competitive action is going to occur.

And the third thing, which we have to really monitor is, what is the kind of demand surge, which is taking place. Is there -- what is the kind of industry behavior at -- industry and consumer behavior at the time.

So I would say that it's very -- we don't want to start planning that exactly now because those variables will have to be assessed at that point of time. We are -- on our side, we want to be completely prepared, and then take calls which are very strict. But having said all this, I think all the chips will fall in place in the quarter 4 of this year.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [53]

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Also just to add to what Rakesh was saying, Chirag, I'm not sure just because I have a large range, I need to phase them out. So I mean that I don't think is a technical requirement. Yes, I might not start manufacturing them on the same date, but it is not as if I can only do 2 models in a month.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [54]

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Okay. So transition is like it's very small in that. This is helpful.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [55]

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It's a good point this Soumen has brought up because you need to consider one thing if you look at Bajaj Auto holistically, with half of our -- of this [40%, 45% -- 40%] of our production going overseas and to so many countries, which has got very different standards -- emission standards.

So here we are talking about just basic. But actually, we are manufacturing on behalf of KTM. We are exporting to the U.S. We are exporting to Brazil. We just got a methanol requirement. We are exporting to Euro 1, Euro 2, Euro 3, Euro 4 countries. We are exporting to countries with different emission requirement [in that book]. So the total of emission-related [fluctuation is] the plan is currently undergoing, in many cases.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [56]

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This is helpful. And sir, one last question, if I can squeeze in, is on the dealer inventory. So I heard that it's around 7 to 8 months, but it's only dealer? And what would be your inventory at the factory level that you will be maintaining? And is it -- has it also gone beyond the normal range for you?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [57]

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So it's not 7 to 8 months, it is...

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [58]

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Weeks. Weeks. Sorry. Sorry.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [59]

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Yes. Yes, [right]. So yes, it is a bit higher than usual. It is likely to be, let's say, a couple of weeks. We have a 2-tiered distribution system. So there is the main dealer and there is the sub dealer. And it does through these 2 tiers. So in general, in any case, if you have to service the demand well, there is a 6-week requirement, which is there in any case. And that is now about 8 weeks or so.

With the answer to the season expected in a month's time, we will have to be at that -- those kind of levels. So we are not looking at a major destocking program. We have been gently destocking for the last 3, 4 months. So the quarter 1 performance, which you saw, was after the destocking. And I think they are coming very close to the season where we will need to be at about 7 to 8 weeks.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [60]

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And at the factory, well, what kind of inventory you maintain?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [61]

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No inventory.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [62]

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There is no inventory.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [63]

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The [main] inventory I'm talking about.

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Operator [64]

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The next question is from the line of Jinesh Gandhi from Motilal Oswal Securities Limited.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [65]

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My question pertains to the domestic car [to the] demand outlook. So given where we are in July and BS VI transition in place, what kind of outlook -- what kind of growth do we expect for the domestic motorcycle industry?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [66]

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So it's a very difficult question to answer as I sort of responded, I think, previously also. Quarter 1 has been as you know a negative for the industry and July is worse than June. So at this point of time, if you have to entirely base your projections on July's performance, then the outlook is obviously abysmal. But to some extent, we think it should get mitigated by the consumer getting into some kind of a buying more with the liquidity improving slightly.

But I don't think it is going to be strong enough to change the negative growth rates into the positive one in the short term. How things move for the balance of the year, we'll have to take it month-by-month and see what the consumer is telling us. What -- because there is a combination of 2 things that is. There is the tangibles, which is you are familiar with the economic issues, and the liquidity, and so on and so forth. But there is an intangible also, which is the consumer confidence. There is a lot of heat and noise about this change and that change, and DS exchange and electric, and all that, which is definitely prompting some customers to say, so hey, I'm going to hold back on the purchase. What we need to change my bike, which is 4 years old. I can do another -- I can do another year, and let the dust settle down. There are segments of people who are talking like that.

So both these things have to get addressed and the government is addressing, hopefully, one. And when we start looking at this together, and you can see how we get at this. So it's very difficult to, at this point of time, give you an outlook on the industry for the whole year. To base it on June and July would be unfair because they're really down. Thus, then we have to see month-on-month and take it how it comes.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [67]

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Sure. And I saw [it in the interim]. I understand. And are you seeing financing for consumer also getting more stringently evaluated? Or that is not a problem so far.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [68]

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Not really, a large part of the financing is done by Bajaj Auto Finance, which of course operates quite independently and has its own set of rules. So we're very familiar with that performance.

We have not seen a withdrawal. A little bit, maybe, for the commercial vehicles, people are being -- scrutinizing the profiles a little bit more. But for the motorcycle business, we have really not sensed that there is a systemic withdrawal or tightening of funds. That's really not an issue.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [69]

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Okay. Okay. Second question pertains to Mr. Ray. Primarily, in 1Q, did we see any benefit of commodity coming through? Or commodity cost benefit coming through?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [70]

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So if you compare versus Q4 or Q1 of last year?

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [71]

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Fourth quarter.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [72]

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4Q, we are reasonably there. There is not much of difference.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [73]

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Okay. Okay. So the recent decline in commodity prices, which happened in, say, last couple of months, you have to see benefits of that?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [74]

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No. I think that has been built in, but that has not been significant. Maybe about [INR 100] per vehicle or something of that sort. So the way -- between Q4 and Q1, marginal dilution in commodity prices, not significant enough to move the EBITDA significantly. And between Q1 and Q2, we will be almost at similar levels.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [75]

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Okay. Okay. Okay. And second question on financials. It's primarily, given the transition to AS 116. Have they seen material change in -- not at pack level, but in the line items apart from what you mentioned about the reclassifications between other expenses and depreciation?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [76]

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No. Because we do not have too many leases. Literally, nothing on leases, almost. So we don't have any impact on 116.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [77]

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That's good. And lastly, with respect to, as we see this quarter, KTM has reported loss. So is there anything one-off there? Or...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [78]

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Yes. So good that you have brought it up. I would just give some heads up on KTM that -- see, KTM, there was some stock buildup in December quarter, DQ -- sorry, in DQ from Jan to March, they went a little soft. And they tried to collect stocks and all that, which led to a lower-than-normal run rate of their top line. Plus, there was some investment in AMP. All put together, brought that $2 million loss -- EUR 2 million loss. However, in Q2, the numbers weren't public, and so I cannot share with you, but they are very robust numbers.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [79]

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Okay. So normalization has happened there?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [80]

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Yes.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [81]

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Okay. And lastly, on ForEx side, would you indicate what kind of hedges are we -- have we taken for FY '20 for -- on the export side?

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

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So we are playing it, a part of it you can say, about a little more than half of it is already covered. And the balance we are covering as we are going ahead. But it's already a difficult market. We can clearly see RBI offering a resistance at [69 69 or 10]. It is not even allowing it to go to [69 25 on top of this]. And on the bottom, that [68 90, 68 70], there is, again, a resistance.

So it is getting very, very range-bound. And our view is that in case the borrowing goes through of [10 billion] between September and December or maybe February, and considering that, out of the 54 trillion global debt, 17 trillion debt is at 0. And the average yield of all the 54 trillion is at about 1.5%.

[In India, that was] done at about [2.5 to 3]. I think they will find enough traction, considering that we are still investment grade to get that 10 billion . So not much of depreciation in the near term with the 10 billion additional coming in. And similarly, I think [our year -- we] will resist much of appreciation. So we believe that for the next 6 to 8 months, it is going to be pretty range-bound.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [83]

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Okay. Okay. And this 50% coverage, which we've taken would be...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [84]

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More than 50%.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [85]

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Would be at 70% or slightly...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [86]

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We do range forward. So we don't do spots.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [87]

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Okay. But floor would be 70%.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [88]

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I would not be able to share that.

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Operator [89]

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The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual funds.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [90]

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In the domestic motorcycle space, the NT Level segment, those 1,800 space, that has not seen as much impact as the other segments. What are -- according to you, what are some reasons for this?

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

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Well, on the contrary, I have to say that the NT entry level segment has actually got a little bit more battered. So you see the weakest consumer financial point of view is at the entry level. So there is an issue at that level, certainly. What happens is that when the economic changes, people tend to slip back into the previous vehicles. And if there's economic support, then they'll slip into the first and become first-time buyers. So I would say that segment is definitely impact. Slightly above that, which is where the CT 110, we had launched now, the Platina 100 is operating. That segment has done much better than I would say the CT 100 subsegment.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [92]

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Okay. Got it, sir. So on the export front, our export revenues has been flat on a year-on-year basis, despite the 3 million mix deteriorating. If you can help understand how did we manage that kind of revenue pace? Because...

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

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Yes. So while 3-wheeler has gone down, we have been able to short out volumes of motorcycles. There is nothing other than that. And some of the fringe monies, for example, we have been able to do a little bit of premiumization, and so on and so forth. We also took a bit of price increases as well.

So it's a mixture of multiple things, but clearly, motorcycles has been able to deliver a reasonably decent growth.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [94]

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Okay. Understood, sir. Sir, on the 3-wheeler cargoes' days, will in that note advantage into BS VI?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [95]

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Yes. All vehicles -- all automotive vehicles, whether 2-wheeler, 3-wheeler, cargo, passenger, 4-wheeler, everything has to transition to BS VI.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [96]

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Right. But the cost increase may be higher still will there be? Because they have been gaining good market share in the cargo segment over the last year or so. So where we posted BS VI transition, now do you think the demand level for that segment still be there?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [97]

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So I would answer it to you in a different way. So first of all, BS VI is applicable to not only me, but all players. So I will not be any worse off compared to my competitor in cargo. What will actually work to a great benefit is today, there a lot of 4-wheelers, small 4-wheelers, which are operating, while the price increase might be more than what is 3-wheelers. So we have yet to see what kind of price increases happen in both segments.

We might surprise ourselves with some sort of tailwind as an industry. So 3-wheeler cargo industry might see some tailwind from very small 4-wheeler cargo industry.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [98]

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Okay. Okay. I understood, sir. Understood. Sir, I...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [99]

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Don't put it into some carving stone thing. It all depends on other items, like 4-wheeler cargoes. So I don't know what is their cost increase, what is good and what is to be their pricing.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [100]

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No. No. I understand, sir. I understand the context. That's good enough. Sir, you have been maintaining our leadership in the [REs] versus 3-wheeler in the passenger segment, and the profitability has also been very high.

Now the government pushing very hard on -- towards electric 3-wheelers, it looks like it will level the field in terms of there will be more permits and a lot of new entrants could be there. Do we see a threat to our -- in terms of both the profitability and our dominance in the passenger 3-wheeler segment?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [101]

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Well -- certainly, when things change into electric -- different when they the change into electric. We will have to revisit our strategies at that time.

We will -- we should not forget that at the end of the day, today also, there is vast tracks of the market where permanent restrictions are not there. And there also we continue to hold 80%, 90%. And so there is something that the market is telling us about the brand. The RE brand or the Maxima brand or the [Bajaj] brand, which has been sort of serving these customer for a very, very long time. And there is an ecosystem of mechanics, of financiers, of customers, of second-generation, third-generation customers.

So I think those things will come into play. The competitive intensity, when it becomes 3-wheeler, will be more if we will offer a different time. I admit that. But I think we will still have a strong strength in our brands, and of course, in a go-to-market infrastructure, which is there on all the dealers, which can also be used for charging stations, et cetera, swapping stations, et cetera.

So there is a considerable infrastructure within ecosystems already in place. So we -- I think we will start ahead in the game. But yes, there will be a different kind of a competitor, and we'll have to be ready to deal with them.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [102]

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Okay. Understood, sir. And in terms of just profitability, I know we have not yet...

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [103]

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Yes. Yes. So you asked about the profitability. The profitability is -- obviously, with the prices, it sort of goes like this. And if there is a mandate, and if you take those assumptions and suddenly, it's not a good outlook for profitability. Because in any case that cost out of quantum difference between the gasoline and the battery-operated. So obviously, the profitability is not as rich as it is in the conventional 3-wheeler.

But that's -- and that's also one of the reasons because the costs are so high and one of the reasons which is going to be a big stumbling block for adoption. It's a commercial vehicle at the end of the day. If the dialogue is not going to get it payback, who's going to spend that much more money, and for what? So we have to see how those things pan out.

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

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Just to correct one comment of yours regarding the export things. There is -- overall, there is a marginal dilution, a decline in the sales of exports. We have been able to mitigate it through motorcycles, but still, overall, there is a marginal decrease.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [105]

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Okay. Okay. Understood, sir. Understood. So I mean Y-o-Y, it is not exactly the same. Okay. Good.

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

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I have given the number for this, it just come down from about INR 3,250 crores -- INR 3,280 crores to about INR 3,170 crores. That [is how we see growth] down.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [107]

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Got it, sir. Sir, just one more question, if I may squeeze in. On the export outlook in the 2-wheeler space, you mentioned 2% to 3% kind of outlook. We have been growing at a much faster clip currently. Is there -- are there any challenges in specific geographies? You've alluded to LatAm being weak, but is it more because -- any specific challenges in geography? Or is it more of a base effect that comes into play here?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [108]

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I must clarify to everyone, the 2%, 3% number which I said, wasn't approximate industry growth number. Now you know that is very challenging to give you an industry growth number, which is -- comprises of 50, 60 countries at least. So -- but yes, we -- when I said 2% to 3%, is what we've been experiencing as a combination for all the markets which we are present in from an industry point of view. And if you see, we have grown much faster than that in motorcycles, right?

I think this is going to continue, this demand. This performance any differently, yes. We have grown by 8%, and the industry is at about 2% to 3%. So this kind of projection -- I'm not seeing anything fall out of this -- in the industry, unless -- like I said, there is a current geopolitical issue of the China-U. S. thing just along the way due to some complications. Unless those kind of mega-events happen, we think the industry should support in this 2% to 3% growth, and we should be outpacing the industry in the way we are doing the last quarter and before that.

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Operator [109]

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The next question is from the line of Binay Singh from Morgan Stanley.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [110]

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Most of my questions have been answered. There have been a lot of media articles just on this Pulsar 125cc. There's been a lot of media articles on that. Could you comment on that? Are you confirming it?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [111]

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So the 125cc [this delay] is becoming more interesting, given the headwinds which have been unleashed because of the braking systems in the 150cc. The cost increases, which Shyam was referring to. And we definitely see people either not [ramping] it, it was not moving up, upgrading into the 150 because they are happy to be in 125.

Now we are certainly attacked this segment. At this point of -- and that is quite imminent, but I would not, at this point of time, Binay, if you excuse me, I will not sort of be more specific about the product or about the brand, et cetera. You'll probably see it in 3 weeks' time.

But certainly, our strategic objective is to take chunks out of the middle segment coming from below, and I think, from the top. We don't believe that we should participate with retail products in the middle segment because it is getting squeezed. But we are putting out products, and when I'm saying the middle segment, it is really the executive 100cc right up to the 135 -- right to almost 150cc. That is what I would call the middle segment. So we will be attacking it both from underneath and from the top, trying to take customers down and to customers. So you will see actions over there.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [112]

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Yes. Because I think also one of the sort of the feedback that you often getting a lot, could it be like back fire? Because Pulsar is quite a premium brand, more aspirational. So if you bring a lower cc model in that thing, didn't it sort of adversely impact the Pulsar brand?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [113]

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Well, without commenting on it, we're doing it as Pulsar or as -- in some other brand. But just to conceptually answer the question, we have launched the Duke 125 quite recently and also the RC 125 under the KTM brand. And the conventional logic would have suggested that we should have abstained from this because it could damage the 200cc or the 390cc. And there are people who are avid followers of the brand and the purists were taking 390cc and 200cc. And what would they think that if we offer a 125cc variant?

We're going in this first, but it was a very defensive logic, and it is really mitigated by being true to the brand values. If we betray the brand values, then there is a problem. But it is a Duke 125, which is -- which has the same gene and the DNA and the designing and the styling and the performance. And all those values which are possessed by a 390 or a 200, then the brand doesn't get stretched. Yes, a little bit of cannibalization is there, but in return for the cannibalization, you will widen the net considerably. And that is what we are experiencing in Duke. So that's the strategic belief of the company.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [114]

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That is interesting, we'll be watching for this one. Just lastly, on BS VI. I know there have been a lot of questions, but do you think there'll be any mix impact of BS VI pattern in the bike space that will consume a bit of a price hikes so quite sizable and payable, right, versus in the premium level. So do you see any mix change impact with the BS VI?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [115]

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So it's a funny thing. Without getting into specifics, the cost of any technology does not depend on what you see is going in largely. So if the cost is constant, but the bike in which it is going, the price increases with cc. Technically speaking, a 400cc will see no increase in percentage terms and 100cc will see the highest improved in percentage terms. So if at all somebody has to do, there's an uplift, which is really unlikely.

So I think -- I do not see any large mix change because of -- let's assume, there is a bike which is costing [INR 60,000] and a bike which is costing [INR 1], unless that the price goes up by [INR 5,000]. But values -- value of [INR 65,000] will not good or [INR 85,000 or] or INR 1 on that price. So I don't see a mix change that is going to happen because of this.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [116]

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Yes. No, I think the way to [pilot this thing] is probably the [INR 60,000] slowdown sharply after BS VI.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [117]

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Unlikely. That could be, again, this is just conjecturing. But obviously, whenever -- so we have seen it in the insurance case also. There is an initial shock, but after the value arise, I mean, if you have to pay [INR 5,000] more of INR 2,000 to INR 10,000 or what it might be based on what -- towards the end, and what commercial arrangements. How do you buy a bike? I mean for example, the car owners are also going to do the same thing. I mean we are not car owners. Would we not buy a car because the price is going up? Yes, initially, there's a bit of insufficiency.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [118]

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We can see on the [guide] with financing rising, and you're having Bajaj Finance. I assume company will come out with some innovative financing schemes to increase the...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [119]

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There is nothing innovative -- you should take a tenure risk.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [120]

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Correct. Correct. So do you see that sort of happening? Because that's an easy way to sort of keep the EMI same.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [121]

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Yes. So I think -- and I think at the bottom end, people don't look at IRR. They are not so complicated. They look whether they can afford the EMI. And also the EMI isn't preferable [when you start at 36 months] becomes 58 months or -- yes, if 36 months becomes 60 months, then there is a problem. But that [is not typical]. Yes, initially, will there be reaction? There will certainly be a reaction. Price goes up, there would be some impact on consumer sentiment.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [122]

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And financing at around 50% for you now, right? Finance penetration is around 50% for Bajaj Auto now?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [123]

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Slightly more. Our own reserve was 50%, and there is some outsider also to that [side of it].

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Operator [124]

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The next question is from the line of Bharat Sheth from Quest Investment.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [125]

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Sir, just one question. Post BS VI, which will have a lot of electronic components, so how do we see this ecosystem on the retail side? And will it go under change? Sir, can you...

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [126]

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So we do not see any major significant change. As a matter of fact, our system didn't leverage like from a CT 100 to a KTM 390. And a KTM 390 with the touch screen on and everything is far more focused to get any reserve, but that's onboard, CPU and everything.

So we do not see it as -- and people will be trained. So there -- we obviously have a lot of network of services, and then they would get trained to the right -- I don't see that to be a very big issue that the repairs, if at all, and it would become a bottleneck. I think the important business, what would be the price increase, and how will that price increase settle down with the wallet of the consumers.

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Operator [127]

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The next question is from the line of Ronak Sarda from Systematix Group.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst [128]

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A couple of questions, more of clarifications. Usually, the last quarter, you used to share how the other income breakup, which you used to say that part of it is to treasury and part of it is to the operations. You have stopped doing that. So how does the pressure with EBITDA margin differ from the schedule 6 numbers?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [129]

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It doesn't differ. It is exactly the same. The only difference is the CSR. So in the press release, we do not take CSR as our expenditure. Whereas in [the inclusive], everything is an expenditure.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [130]

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Is that INR 52 crores, which is the difference between the CSR?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [131]

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Yes, it is. It is not mainly, but only...

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [132]

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Only CSR. Okay, sir. And so second is, I mean if I look at your consol profits, it is much lower than the standalone profitability. This was not the case...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [133]

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Partial one?

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [134]

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Yes.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [135]

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Yes, there is a line for a drop, correct. The standalone, yes, profitability. Yes. Go ahead.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [136]

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Because, I meant the consol profits are at INR 1,012 crores versus the standalone is at [INR 1,125]. What would the difference be?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [137]

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The primary reason is about INR 104 crores of dividend that we received in Q1 from Q2. And other than that, we have 3 companies where we -- 2 subsidiaries and 1 investment in Q2 where we do equity pickup. So those are the profit delta.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [138]

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It means that the dividend has not confirmed?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [139]

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No. The dividend has to be negated. I can't do a consol when I cannot keep the dividend and up the profit as well. So in the standalone, I will have income as -- dividend as income. Whereas in the consol, it will be the equity pickup of my share of PAT.

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Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [140]

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Right. And sir, lastly, inventory. When we say 7 to 8 weeks, what's the base we are using? Is it the last 3 months or last 3 or 6 months trend? Or how do we calculate that?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [141]

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So we look at the immediate retails.

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Operator [142]

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The next question is from the line of Priya Ranjan from Antique Stockbroking.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [143]

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A couple of things on the demand side. One is on the -- when the same thing has happened in BS III, BS IV and inventory was suddenly has to reabsorb. And with the inventory not coming down, and even -- I mean your inventory level is also higher than what you want it to be. So how do you see the pricing behavior in the third or fourth quarter of this year?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [144]

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The one big change is going to be that because of the price difference between BS IV and BS VI and because of the hard close in terms of registration being only for BS VI on 1st April. Unlike the last time, we will probably see an on-rush of demand. Now where is it [all going] and I was saying that into our previous question. But logically, it seems that if there was [imperfect] information floating around. People would definitely advance the effort to take advantages -- advantage of the last days of a well-priced BS IV.

So that would, I think, be a -- have some kind of [compression] effect on the industry.

But in any case, post the season, there has been inventory wind down. Or let's say, [bookings after] the inventory wind-down will start to happen. So I think that you're not anticipating that we will have to depreciate the existing BS IV inventory for this reason. There will be a -- the season will take some volumes. And then there will be winding down in -- for full year advancement of sales, which would be sufficient to take inventories -- to finish the inventories.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [145]

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Yes. And one more question is on the different segment of the current motorcycle industry. One is, I mean, we have seen that entry level is still doing good in terms of at least in the wholesale numbers. And the second part is, your sports segment is doing well. One is like 110cc or 100cc executive and one is 125cc executive. So sports segment has been -- for you also, the growth has been strong, and even I mean TVS is also doing good in terms of sports, whatever numbers they are doing so far.

So is the cannibalization or what we have tried to do is with the squeezing of the middle segment between, say, 100 to 125cc. Is that segment getting more squeezed, which -- I mean which segment do you think is getting more squeezed? 110cc or whether it's 125cc?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [146]

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Well, I -- we're not differentiating that much. It's a 0.5 million a month segment, which is slightly under that, which is the executive 100cc to almost 149cc segment. And at this point, I would say that it is really the 125cc segment which is getting hit, not just from now. But if I take a 3-year period -- let's take even a 5-year period, 3-year period, you will see that with this segment is the one which has been underperforming versus the industry. The sport segment has done better. And you're right, we have done exceedingly better than that.

Our market share is now standing at 47%. So we have -- so these are not only increasing our market share within the segment, although we tend to expand the segment itself because we did 47% of that expansion in the least. So this is a trend which has been going up, and we're going to try and continue to ride this trend.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [147]

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And just one hypothesis on, say, if out of, say, top 3 players in business. They've been -- I mean 1 of the top 3 players decide not to increase the price in BS VI, then what's your -- I mean what should the industry behave in that case? Because some of the indicators are also suggesting towards that.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [148]

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There will be many hypotheses. And whether it would be for the entire range or a certain part of the portfolio, in a certain brand or in a [bearing]. There are so many options to play the game of people, increase the disk brake and not increase the drum brake size. People can increase 1 brand and versus the other brand.

So I really don't think at any point [quantificating] over these hypotheses. We will see at that time. We'll, of course, ensure that we are as competitive as we are now through a combination of product, price, et cetera. So we will consider that matter when it occurs.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [149]

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And lastly on the export front of the Africa market. What's the outlook in, say, you have given the consolidated outlook of, say, 2%, 3% growth for -- where LatAm might be subdued and others. So what's the outlook on Africa?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [150]

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It's about the 2%, 3% number which I gave out for the industry. We think that we will continue to grow at the rate at which we are growing. As you know, the motorcycle business has grown at 8%. I mean a couple of percentage points, down or up, but in the -- Africa is doing well. And we have almost a 40% market share in Africa. We have really very strong leaders in all the large markets of Africa, like Nigeria, Kenya, most of the markets. So we think we will continue to do well in Africa.

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Operator [151]

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The next question is from the line of Sonal Gupta from UBS Securities.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [152]

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Just a couple of clarifications. So could you break down the INR 740 crores of [cycle] revenue of domestic and exports as well?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [153]

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Yes. So that INR 740 crores over INR 550 and INR 190.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [154]

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Okay. And just on the financing side, how has the financing ratio really moved in the last few quarters? I mean are you seeing sort of an increase? Or you're seeing that trend flattening out? Or I mean because it has seen a pretty sharp increase over the last couple of years, right?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [155]

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So the 2-wheeler industry -- the 2-wheeler business continues to see similar penetration, but we are seeing some strong uptick in the 3-wheeler segment.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [156]

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Okay. So 2-wheeler, what sort of a percentage number you would be at?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [157]

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That would be hovering around 50% kind of a number. So this I'm talking about -- you are talking of overall finance or only Bajaj Auto Finance?

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [158]

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The overall finance.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [159]

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Overall finance, it's difficult to say because there are a lot of people who take unstructured finance, where the payment is made by the guy who's buying the bike. So technically, you do not know. But to figure out, some of the banks will say overall penetration of this would be about 60%.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [160]

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Okay. And that number not come off in the last couple of quarters, right?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [161]

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No. As a matter of fact, what will happen is, this number will go up because with the [India] sector drying up, the people who used to buy through unstructured finance will not have access to money. Indirectly, people having access to finance in a structure where their percentage will go up, not because they are actually going up, because the other part is coming down.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [162]

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Right. And I mean like you -- and on the -- like you mentioned it, we've not really seen any -- I mean like scrutiny and impact of that increased tightening of lending standards really impacting this.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [163]

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So let's say I used to divide the market into 3 parts. There is a couple of people who have got bank approved loan sitting in their mailbox. Then there is a segment we called income proof and address proof. And Bajaj Auto is a new [player] of financing and it is there to give them. We're talking of the last leg of the people who have access to finance and to unstructured finance, we're finding it difficult.

Obviously, the decline that is happening in the market is partially because of that as well. However, you don't have a finger because this is all unknown. You don't have a finger as to how much that contributes to. But if you were to pick up top 3 reasons of why the auto industry is declining and suddenly 2-wheeler is declining, one of them will be tightening of liquidity in the market.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [164]

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Right. And just lastly, like you mentioned that 3-wheeler, actually the financing has gone up. So could you give us some numbers there?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [165]

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In 3-wheeler also, our Bajaj -- see, 3-wheeler, again, I can give you Bajaj Auto number but I can't give you industry numbers because they have fleet owners and so on and so forth. So how much they borrow and from where they borrowed, I did not know. So Bajaj Auto is now closer to 50% of penetration.

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Operator [166]

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The next question is from the line of [Virat Kacharia] from Securities Investment Management.

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Unidentified Analyst, [167]

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Just had one question actually. If you look at overall business mix...

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Operator [168]

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Sorry to interrupt you, sir. Can you please speak a bit louder?

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Unidentified Analyst, [169]

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Sure. Am I audible now?

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Operator [170]

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Go ahead.

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Unidentified Analyst, [171]

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Yes. So if we're looking at overall business mix in the domestic market and overall company-wide basis on, sir, the 3-wheeler domestic business being down. You have a higher share of [entry racings] and also the lower-priced 150cc Pulsars. You're still doing somewhere around 100 and -- or sorry, 15 to 16 basis, both significant margins. So if I look at overall 2-year basis for us, would we -- how should one look at the market share versus the margin structure? Would it be like this is kind of a new normal for us and going back to, say, 18% or 20% is really not there anymore? With the kind of business mix we have, you're focusing more on launching new products at aggressive pricing. So how should one understand the market share ambition in domestic market vis-a-vis the margin structure over the next 2 years?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [172]

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So I think that's a pretty long question. I will break it into 3 parts. First is our objection to the comment about aggressive pricing. I think barring one model of ours, which is CT 100 case, there is no model which is aggressively priced. We have an eyeball competition and we are benchmarked to eyeball competition where we are a challenger brand. Where we are a leader brand, we are ahead of competition. So I don't think pricing is a problem. Now yes, obviously, we want to be aggressive lead in the segment that we are already market leaders in that segment, the mix will get impacted.

The next question is you are not comparing apples to oranges because you are commenting about domestic motorcycle market share and kind of relating it to the company's overall EBITDA, while overall EBITDA is a mix of 3 -- or 4 businesses: domestic [EBITDA] motorcycle domestic, CV international, motorcycle international. So there are 4 legs. If I need to drive 1 leg, which is domestic motorcycle market share, that does not necessarily mean that the others have to also come down. This year, this quarter specifically, we are in an unfortunate situation because in commercial, in CVs, both in domestic and international, we had some headwinds. Domestic because of our mix in the previous quarter and international primarily because of Egypt and, to some extent, Sweden. And hence that has got impacted.

How do we look forward? I think we would like to have a certain market share, and we would be launching the right products at the right prices. You would have noticed that in the first quarter, there has been schemes given by other players in the industry, in the market. We haven't responded.

So the idea is not to throw money and get market share. The idea is to offer differentiated products and get market share. Now how the penny will fall between these 4 legs is something which we will have to see. I mean there's also some reason if we did decide to import large amounts of CVs or domestic CV market opens up, then margins will probably get more with no effort from my side.

Having said that, what is it that we should take, as Rakesh and me both mentioned, we are -- we would like to operate at good EBITDA margin, subject to: one, obviously, commodity prices; two, the market picking up because there is -- there are certain fixed costs which gets a lot into our volume. And if we are growing at 2%, then there is obviously a challenge. But ceteris paribus, everything remaining constant, market growing, materially remaining the way it is, we should be in rebound on EBIT.

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Unidentified Analyst, [173]

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Okay. And the rebound year would be, I mean...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [174]

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So currently, where we are is a place where we are happy to be.

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Unidentified Analyst, [175]

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And that will be the case in the medium term also?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [176]

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Sure. I would say, look, you don't -- we don't have a single product business or a single geography, single product business where I can say, this is the price, this is the cost, so this is the EBITDA. I'm selling different kinds of vehicles across 70 countries. Where or which market goes up, let's say, tomorrow, LatAm sports segment go up. I will obviously make more money. And if Indian end segment -- commuter segment goes up, I will make less money.

So I cannot tell you today how market -- my mix will play out. What I'm assuring you is that we are priced eyeball to competition and premium where I'm a market leader. After that, how the brands will come, we do not know. Is the current level something which is sustainable? Yes. We believe that at this current level, we will be able to -- this is current level which we are comfortable with. Are we breaking into a sweat to take it up to 20%? The answer is no.

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Operator [177]

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The next question is from the line of Gunjan Prithyani from JPMorgan.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [178]

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Most of my questions have been answered. I just had 2 clarifications. In terms of product launches, is the 125cc which you spoke about the only one which is pending for the rest of the year? Or do we have more product interventions coming through?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [179]

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As of now, I'm in liberty to only talk about 125cc.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [180]

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Okay. So the 3 launches that you mentioned in your last call, of those, the 2 have happened, and this 125cc is...

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [181]

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No, Gunjan. We have launched 3 products. We have launched the Platina 110 H Gear, which is a 5-speed gearbox in commuter segment. We have launched the CT110 Kick Start and the CT110 Electric Start. So those are the 3 models which has already got launched, and we would have a play in the 125cc segment.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [182]

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And as you've also mentioned about the electric launch, is that -- that's also going to happen in F '20, right?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [183]

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So we are still hoping that it will happen in FY '20.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [184]

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Okay. And my second question, sorry, I think this has been discussed in detail, but I just needed one clarification. You said that margins have bottomed out. Now I'm just trying to understand, the remainder of the year is not giving any confidence around the demand outlook. We do have a BS VI transition which is coming through, and we have cost increases because of safety, which has been taken recently, and we'll have another set of bike with BS VI coming through next year. So in this environment, I mean, passing through cost is going to be extremely difficult. So how are we confident that this margin is sustainable from a medium-term perspective? Don't you think there will be downside to this?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [185]

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Gunjan, I am not. I am not confident. But if I'm asked, I would have to give an answer. Nobody in this industry today can say hand on heart what will happen between demand and cost pass-through. If these 2 things are not known, nobody can predict what margin will it be. All that I'm saying to the previous gentleman who asked, are we trying to gun for a 20% EBITDA margin? Are we going to work towards making a mix or raising prices to reach 20%? The answer is no. Got it? Today, the market has declined by 9%. I have delivered 2% growth. If tomorrow I deliver 9% decline, my margins will be obviously down.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [186]

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So, sir, if I'm getting you right, you wouldn't -- there wouldn't be any company-specific initiatives that -- like CT was one that you took last year. Those kind of things may not happen. But if the market environment is calling for a reset because of a BS VI or something, that will impact you as well as the industry together.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [187]

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Absolutely. I am not going to -- say, last year, and this I have explained to a few analysts on some one-on-ones, see, there were 4 Ps that we could have played around. Unfortunately, product and place cannot be played around immediately. So we started with price and promotion.

Now that we have the product range in place between Platina 110, Platina 110 H, Platina 110 normal, Pulsar 150 Neon, CT110, and a plain 125. We have the product portfolio. We are offering a good product at reasonably good prices. That should take care of it. So I am not going to give a INR 4,000 discount so that I can sell 10,000 bikes more. That I'm not going to do and has not done. We are sitting in July, almost end of July, first 4 months. I have done nothing of that sort, which can give you the confidence that I'm not chasing that group. But as you said and I am also reiterating, how the industry bounce up? I can't comment.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [188]

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Okay. Got it. And we don't have any new brand assets coming through. It is only going to be a 125cc variant and one of the existing brands.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [189]

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Give us 3 weeks.

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Operator [190]

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The next question is from the line of Ashwani Kumar from Reliance Mutual Funds.

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Ashwani Kumar, Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager [191]

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My question is for Rakesh. What is the replacement cycle for the sports bikes, particularly the Pulsar variant? Second, what is typically the life of the commercial vehicles after which the user is replacing it?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [192]

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So in terms of sports vehicle, sports bike, it's typically about 5 years. So when I'm talking about this, I'm largely talking about the 150 Pulsar Single Disc, which is our largest-selling SKU, typically about 5 years. As far as commercial vehicle is concerned, frankly, they are prolonged as much as possible. So there are places in the country where it goes up till 7, 8 years or so.

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Ashwani Kumar, Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager [193]

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Okay. And just lastly, what is going to be the big advantage of a large company which makes an electric 2-wheeler or an electric 3-wheeler over a manufacturer who is making, let's say, 5,000 or 3,000 or -- which is relatively subscale as compared to large companies like yours? And where is the differentiation going to come from in an electric 2-wheeler between A and B?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [194]

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So I'll take the 2 questions separately. Where will the difference between a small manufacturer and a large manufacturer come from? It will come from 2 angles. One, it will come from certain efficiencies of purchasing. But you must understand that can only come when the large manufacturer is selling large number of electric vehicles, and the small manufacturer is selling small number. Today, as the scenario stands, last year, the total number of electric 2-wheelers sold was 126,000. That's 126,000, whether you are the large company or the small company, you're selling very small volumes. So at this point in time, that benefit doesn't occur in terms of commercials.

However, in terms of R&D capabilities and -- there will be a difference because a large organization will be able to develop things, will be able to fine-tune things far better than outsourced vendors. And dependence on outsourced vendors for any product beyond that point is risky. So that was one.

The other thing is, how will it differentiate? I think that depends on each organization as to what use, what space, what customer segment they are trying to address. It will come through the products specs as well as from the design element. So you can look at China, there are absolutely stripped down electric vehicle 2-wheelers to some very jazzy electric 2-wheelers. So it depends on how each company wants to segment their product and which is their target consumer that they are putting it.

But intrinsically between a small and a large, currently, commercial, not much of a difference because nobody is selling anything. And R&D-wise, a large difference, a significant difference.

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Ashwani Kumar, Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager [195]

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And sir, Mr. Rakesh also said -- talked about basically this 4-year replacement cycle moving over to 5 years basically in some cases. So is there a real evidence of the customer postponement of his purchase decision, particularly on the replacement side when it comes to exchange, which means most of the time upgrade of the vehicle.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [196]

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Yes. First of all, let me clarify. I had not said as a definitive that this is a 4-year. It was an example to illustrate the point that sometimes when there is a confusion in the market, a person may postpone the thing. So you should not take this number as written in stone, that people are doing this and it is happy.

But yes, I mean this is logical. When there is a confusion in the marketplace as to how replacements are going. People are trying to hold back when there is uncertainty, and there is an element of that. But the 4-year and 5-year, I had mentioned to illustrate the point rather than to provide some definitive information.

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Ashwani Kumar, Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager [197]

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Yes. But does your data clearly suggest that there is a difference between the proportion of first-time buyers or the exchange buyers earlier and now? What does it show?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [198]

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It's too early. These are mega-trends. These take time. But they may occur for a short period when there is high uncertainty. But they just even out. If you ask me over the year, what would it be? I would say, these kind of trends take shape over a 3- to 5-year period. So that is not -- there is no evidence for some major shifts occurring over there.

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Ashwani Kumar, Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager [199]

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And sir, almost 13 crores 2-wheelers have been sold, let's say, in the last 10 years. Do you feel as a manufacturer that it is now a fairly well penetrated industry, not across, let's say, all parts of India, but it is a fairly well-penetrated industry? And over a period of time, it might take some time for incomes to grow and then people, again -- for the industry, again, to go back to a higher growth path of 8% to 10%.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [200]

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I don't know. I think -- I mean if you look at various international benchmarks and if you see -- if you step out and move around in the country, in the interior of the country or wherever, the demand for mobility, individual mobility is so high that it is just not being met. The public infrastructure for movement is just not keeping pace.

We have seen this in the proliferation of so many things. You have a net asset figure proliferating, where people -- if you look at the public transports, they are bursting at the seams. The need for individual mobility is increasing. So I don't think that we have reached any kind of saturation irrespective of purchasing power or not. Yes, what drives this kind of -- what drives the penetration is financing, good economic tailwinds, et cetera. Those things definitely drive it. But certainly, I don't think we've reached saturation of any kind.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [201]

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So just to add to what Rakesh said, you have to also -- since we are doing a little bit of macroeconomic analysis, you need to also factor in urbanization and utilization of families. With each urbanization and utilization of family, with each event, I get an additional opportunity.

Second, even if I were to take your number of, whatever, 13 crores, assuming a 1.1 ownership or 1.2 ownership, your penetration on a percentage growth of household in the country is less than 50%, [why are we speaking that we have]...

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Ashwani Kumar, Reliance Nippon Life Asset Management Limited - Senior Equity Fund Manager [202]

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No, that is fine. That is fine. But I think all those 25-crore households can they afford when we talk of penetration? It would come towards -- I mean on a longer-term basis, certainly, I agree with you.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [203]

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We have South Asian countries which are close to 70%, 75%, and they are no different from us.

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Operator [204]

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The next question is from the line of Abhishek Jain from Dolat Capital Market Pvt. Ltd.

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Abhishek Kumar Jain, Dolat Capital Market Pvt. Ltd., Research Division - Analyst [205]

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I just wanted to understand your neighborhood expansion program for rural market and how many dealers have been added in last 1 year?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [206]

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Well, in the motorcycle business, we have currently 700 dealers and around 250 branches and about 3,000 sub-dealers. In the last 1 year, we would have added about 10%. I mean this is the -- so we would have been 90% of this. There has been quite a structured program going on, and in these 6 months, we should be adding another 40, 50 dealers and about 400 sub-dealer outlets also.

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Abhishek Kumar Jain, Dolat Capital Market Pvt. Ltd., Research Division - Analyst [207]

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And that, most of -- as dealers are facing funding issue or into the high...

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [208]

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Hello? Hello?

(technical difficulty)

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Operator [209]

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Sir, the line for Mr. Jain got disconnected.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [210]

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Okay. We would need -- we don't have a lot of time, so we'll go to the last question, please.

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Operator [211]

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And the last question will be from the line of Raghunandhan N. L. from Emkay Global Financial Services.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [212]

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Just a couple of queries from my side, sir. From September '19, the insurance product will be split into that [OD and TP] products. Do you see it as a positive for demand improvement?

And secondly, just a bookkeeping question. On the spare revenues, FY '19, if you can give a number and the breakup.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [213]

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The spare revenue for FY '19 is about 580 and 150.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [214]

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The full year, sir?

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [215]

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No, I have given you Q4. You want full year?

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [216]

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Full year, sir.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [217]

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About 2,200 and 800.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [218]

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And, sir, about that insurance products that are being split. Customers may not need to take that noncompulsory portion. Do you think it will lead to some cost reduction and hence, some demand improvement?

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [219]

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No. I think it's a very, very, very minor factor in -- the discretionary part of insurance would not necessarily sway the demand, I mean, at an aggregate level.

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Operator [220]

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I will now hand the conference over to the management for closing comments.

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Soumen Ray, Bajaj Auto Limited - CFO & President of Finance [221]

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Thanks a lot to all of you for patiently joining the call and giving us an opportunity to explain. We understand there could be some questions which are unanswered. You could write them to me, and I would coordinate with Rakesh and get those questions answered.

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Operator [222]

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Thank you very much. On behalf of Emkay Global Financial Service, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

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Rakesh Sharma, Bajaj Auto Limited - Chief Commercial Officer & Executive Director [223]

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Thank you.