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Edited Transcript of EICHERMOT.NSE earnings conference call or presentation 8-Nov-19 10:59am GMT

Q2 2020 Eicher Motors Ltd Earnings Call

Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Eicher Motors Ltd earnings conference call or presentation Friday, November 8, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lalit Malik

Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield

* Siddhartha Lal

Eicher Motors Limited - MD & Executive Director

* Vinod Kumar Dasari

Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director

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Conference Call Participants

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* Arya Sen

Jefferies LLC, Research Division - Equity Analyst

* Basudeb Banerjee

AMBIT Capital Private Limited, Research Division - Research Analyst & VP

* Binay Singh

Morgan Stanley, Research Division - Executive Director

* Chirag Jain

SBICAP Securities Ltd., Research Division - Lead Automobile Analyst

* Gunjan Prithyani

JP Morgan Chase & Co, Research Division - Analyst

* Jay K. Mehta

Edelweiss Securities Ltd., 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

* Kumar Rakesh

BNP Paribas, Research Division - Analyst

* Ruchit Mehta

SBI Funds Management Private Limited - Analyst & Fund Manager

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

* Venugopal Garre

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

* Yogesh Aggarwal

HSBC, Research Division - Head of India Research and India Tech Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Eicher Motors Limited Q2 FY '20 Earnings Conference Call hosted by Jefferies.

(Operator Instruction] Please note that this conference is being recorded.

I now hand the conference over to Mr. Arya Sen from Jefferies. Thank you, and over to you, Sir.

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Arya Sen, Jefferies LLC, Research Division - Equity Analyst [2]

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Good afternoon, everyone. On behalf of Jefferies, I welcome you to the Post Results Conference Call of Eicher Motors. We are joined today by Mr. Siddhartha Lal, MD; Mr. Vinod Dasari, CEO Royal Enfield; and Mr. Lalit Malik, CFO and Chief Commercial Officer.

I will now hand it over to the management for their opening remarks, which will be followed by the Q&A session.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [3]

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Very good afternoon to you all. I'm Siddhartha Lal, Managing Director of Eicher Motor Limited, and welcome to the earnings call for Eicher Motors Limited quarter 2 2019, '20. So that's quarter ending September 2019.

I'm going to give you an update on the financials first for Eicher Motors Limited. Overall, due to the general downturn in the industry, our revenue have been down 9% to INR 2,192 crores for the quarter. Our EBITDA is down 26% to INR 541 crores. And our EBITDA margin stands at 24.7% for the quarter versus 30.3% quarter last year.

However, our profit after tax has actually increased 4% from INR 549 crores to INR 573 crores. So that's the overall consolidated financials for Eicher Motors Limited for the second quarter. I now hand it over to Vinod Dasari, the CEO of Royal Enfield to give us the update on Royal Enfield.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [4]

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Thanks Siddhartha. Good afternoon. Just like the entire market, the volumes were low for everybody, even for RE. For Q2, we sold close to 163,000 motorcycles. It's down about 22%, but exports were fantastic. It grew by 161%. We now did 12,700 vehicles, bikes in the quarter as against 4,900 last year and RE accounted a very strong response that we are getting from the 650cc Twins in the Himalayan.

The 650 Twin, by the way, continues to get a strong response, both in India and international markets. In India, for example, the 500cc-plus market, because of the Twins, have grown by 4x. And I'd be happy to note that Royal Enfield became the second largest selling brand in the midsize motorcycle in U.K., and we won the Best Retro Motorcycle award by MCN. we continue to win many awards for this, and leveraging this and also been expanding our international reach. We now have 57 exclusive stores across 20 countries. We added 9 new international stores during the quarter. We added 3 stores, each in France and Thailand, also. And then 1 store each in Italy, Brazil and Argentina.

So while there was all those downturn going on, we looked at the Royal Enfield over the last 6 to 8 months to see how can we do lot more innovative stuff and focus a lot more on the efficiency. So when we looked at the innovation, we looked at innovation at 3 parts. One was on products, one was on reach and one was on how we do our rides.

The products, we said that we have to make them more accessible and give the customers a lot more options because our customers are unique. And they're not just using it for daily commute, it's sort of a commodity product. A product defines the customer's personality many times. So we're giving them a lot more color options and lot more options on some of the functionalities of the bike.

So we launched the Bullet X, then we launched the single-channel traffic ES. We offered many colors, so that has helped us. We also looked at the reach. Our stores, large-format stores, we have 932 of them, and we had added about 4 this last quarter. But since -- we said that we need to get into a lot more into the rural areas also. And we came up with this unique concept called the Studio Store, and we piloted it early in April or so. It was so successful in 2 areas that we did, that by August we added 250 of them. And by October, we launched another 250 and we have now 500 of them. Fantastic response for these.

Equally, we did a lot of innovation on rides, not just sell any rides from any dealer going outside in the city and coming back after a breakfast or something. It's very good for camaraderie and good for those who like the free spirit of motorcycling.

But how do we take that and make that into a truly exciting experience? So we looked at riders who not only had fantastic riding experience requirement but also had hobbies that they wanted to participate or partake in. So we did something what's called as the Astral Ride for those who are interested in astrophotography, and did a ride with 12 riders, took -- went to the Himalayas. They have fantastic pictures of the Milky Way and truly captures the essence of the free spirit of riding and combining it with the spirit of photography.

Equally, we did a Himalayan adventure, first of its kind, where we took riders to the Everest base camp. 11 riders completing 1,100 kilometers in 10 days. So it's fantastic performance there. Equally, we did this outside of India by competing in the Bike Shed Festival in the U.K. We unveiled a Nought Tea GT’s, and even to our surprise a bit, we claimed the top 2 places in the race. So we are looking at this downturn as not just something where we need to cut costs and find efficiency, that we are doing anyway. We're doing that too quite well, but equally, how do we build in a lot more excitement about the brand and do things in a more innovative manner. And that has resulted, as you know, in fantastic retail in October. And I hope that the excitement continues beyond this also.

Some of you might be wondering about our BS-VI readiness. We are 100% ready. We can start commercial production pretty soon. We are yet to figure out the pricing strategy for that, but we will be ready completely with our BS-VI.

In terms of the capital expense, we have now finished the final phase of the Vallam plant. We are done with that. Our India technology center is ready, and we have new Royal Enfield global headquarters in Chennai, and all the teams have moved in, too. All that part of transition is completely done and ready to go. That's about all from the Royal Enfield side. Would you take it back, Siddhartha, and talk a little bit about the leasing part.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [5]

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Yes, Vinod. So on the commercial vehicles, first, the financials, and then I'll give you the business update.

So on VECV, there's a revenue last quarter of just over INR 2,000 crores. INR 2,004 crores, down 32%, so that's the result of a very sharp downturn which is going on in commercial vehicles. The EBITDA, as a result, was down 61% to INR 105 crores. So that's (inaudible). And the EBITDA margin was down to 5.2% versus 9% the same quarter last year.

Overall, the profit after tax is at INR 15 crores, which is down nearly 90% from the same quarter last year. So while it's been a very tough period and tough quarter, we've just about managed to hold the head above water from a productivity perspective. And so, therefore, coming to the numbers, the overall sales for quarter 2 for trucks and buses, India and international put together, were at 11,400 units, which is down nearly 40% from the same quarter last year. But the industry is down nearly 50%, so as a result, we have gained a little bit of share. It doesn't add up to that much in numbers because in numbers that's still quite 40% down, but slightly better than the industry, let's put it that way.

Again, the industry's sentiments continued to be weak due to the economic slowdown, which is happening, and the general down cycle from a commercial vehicle perspective. That is -- there are liquidity constraints, there's surplus freight capacity in the market, so the buying continues to be low. Of course, there may be some prebuying before the BS-VI comes in over the next few months, but then again, the fundamentals are still not strong from a freight rate and other perspective, so it may still be a while before the VECV industry starts coming back into reasonable shape. So that may still be a while.

Overall, we continue to put new vehicles in the market. So we have 2 new tiers in the heavy-duty category, both in the higher end value segment, as we call it, of trucks and in construction and mining segments, these 2. With very strong fuel efficiency and whole host of new generation features that we are starting to put into more of our vehicles such as Intelligent Driver Information

System, Eicher Live advanced telematics and Fuel Coaching. We've also got India's first 9-ton payload CNG truck, which is -- which we believe will serve some niche categories very well.

More so, we've had an excellent response now to our Pro 2000 series, which is our new light 2T truck platform that we have. It's been 1.8 meter with cabin which is getting us into, let's say, the narrower roads and surfaces. And as a result of this new product which has come out, is we've actually gained in market share in the subitems. So this is a 3.5- to 5-ton category we're talking about. We've gained market share from 25% to 31%. And we continue to make further inroads by improving our distribution for these smaller levels of trucks in cities where they sell more than in the outskirts. So that's the direction of going into the Pro 2000.

Overall, we've worked very hard towards readiness of BS-VI and we believe we'll be -- we already have a large majority of our vehicles certified, and the rest of them are being in the process of certification for BS-VI. So it's absolutely on track. We've dramatically improved stock levels to a very strong point in already 5 months before BS-VI has come in. So now we're in a good position in order to make the transition in the first place from BS-IV to BS-VI over next few months, as well as take advantage of our inherent strength in BS-VI because we've been making Euro 6 base engines for Volvo for many years now. And that's expertise that we've gained over the last 10 years, will certainly come in to benefit us for much better quality, much better product in BS-VI in -- starting April 1. So yes, overall, tough conditions in commercial vehicles and also slowdown continues in motorcycles, but some great tools and strong preparedness from Eicher Motors Limited in all of these areas, giving us a strong position as we move forward despite the downturn. So that's it for me right now. And then over for questions. We've got Lalit Malik as well and Vinod Dasari to answer the questions.

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Questions and Answers

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Operator [1]

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[Operator Instruction]

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

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Binay Singh, Morgan Stanley, Research Division - Executive Director [2]

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Mostly on the ASP side, we've seen ASP expansion of almost 2.1% on a quarter-to-quarter basis. Could you expand a little bit on that? And if possible, share of the breakup between exports, domestic and spares.

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Unidentified Company Representative, [3]

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What?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [4]

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You talk about royalty, right?

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Binay Singh, Morgan Stanley, Research Division - Executive Director [5]

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Yes.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [6]

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These numbers, of course, we'll get to at the end of the year because that's what the annual report will cover, the whole thing. But what I can tell you is that -- it looks like -- let's -- you look up the number. Also for the quarter, the overall domestic plus international was [154], [146.1] net [54,000]. Out of that, 12,700 were exports.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [7]

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Okay. To add, the volume number, just to, you know, like in terms of revenue number.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [8]

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Yes, that again, no. So you have what you have right in front of you in terms of the numbers. The split between domestic and exports and spares and other services, basically once in a year's disclosure from us.

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

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Okay. Then just on the ASP expansion that we have seen on the sequential basis. What can you tell about that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [10]

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Yes. So clearly (inaudible) vehicles are doing well. So there's a whole lot of legacy exports number, [2,700], I think really is the highest ever. So there is a better ASP realization when it comes to exports. So in India, the Himalayan and the Twin variants are extremely well. It's getting driven by that.

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

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Right. Secondly, on the earlier, we had talked about a new plan, the Classic moving into the new platform. When do we see that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [12]

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We have never spoken about it and they are supposed outside (inaudible) where you see right now is the [Classic ES] because we're launching in a few states at this point in time and we will plan on it for the next couple of weeks. And then of course the other BS-IV, which will happen in Q4.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [13]

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Right. And then just last question. Any number you would share about how much of sales is coming from the studio format of stores?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [14]

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So they were set up with the idea that, depending on location to location, they would do anywhere between 8 to 10 motorcycles a month. And it in not about sales only, it's about service also. So it's a full, smaller size, but a full volume sales store. It's a proper dealership in that sense. So all put together, from a motorcycle sales perspective, they were to do 8 to 10. Early days, we just -- some of them were just a few weeks old already. But right now, I have to say, the start is extremely promising. Pretty much everyone is doing that kind of a number. So then we're also talking about October, where things are slightly, not slightly, for us actually it's quite better than the last few quarters of retail.

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Operator [15]

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Thank you. The next question is from the line of Venugopal Garre from Bernstein.

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [16]

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Just following up on the first question that was asked on the BS-VI transition in the new platform. So I mean, rather ignoring the concept of a new platform itself, I just wanted to understand that since there will be a few thousand rupees of increase in terms of cost on account of BS-VI implementation, but is there a way in which you would have reviewed the entire cost structure in which you could actually launch products where you don't even have to increase pricing? And the way you've done 350ES and 350 X for Bullet, so is that something that is a possibility or has been too wishful to think for?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [17]

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So we don't say this in the opening comments, the BS-VI drive. You'll come about the pricing as and when we launch the various models in BS-VI engine. So just hold on for a few moments there.

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [18]

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Okay. Fair enough. The second thing is we wanted to understand, on the retail side, the industry has seen a good pickup both PB and 2-wheelers. I just wanted to understand if you could give us some peek into how things are being post-Diwali in the last couple of days? I know it's just a few days, but the idea is to figure out how sustainable that you're seeing a demand nearest linked to the economy? And also, if you could tell us financing levels, festive-to-festive, that would probably be my second to the last question.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [19]

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So last few days, I'm seeking -- or it's been -- I mean, I'd say we are positively surprised. I won't say we are hitting the October number and all, but it's still a strong number, that retailing, over last few days. But this is still like some festivals are going on somewhere in the country, so maybe that is affecting that. Too early to call any trends or service for the month. For this one.

The other question was on a festival-to-festival, how much so?

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [20]

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Financing levels, yes. Financing levels, yes.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [21]

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Financing levels was higher because of the banks also are kind of a little more aggressive in making attractive customer schemes. And the route on their own, like in the past, they don't get any support from us. So Q2, the financing was 59% as opposed to the usual 53%, 54% that we see, month-on-month basis.

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Operator [22]

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

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [23]

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Sir, my question pertains to RE studios. So how has been our experience with RE studio with respect to the customer profile? Are we seeing any cannibalization from the mainstream? And can we get some light on that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [24]

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So finance over launch in the last 3 months, so, too early to call for any trends, but performance-wise, we are very happy. They are doing the job. They are there pretty much 20 kilometers to 40 kilometers, depending on location to location, away from the main dealers studio or main dealership. And as we've told you in the past that all those studio stores are being given as a first option and everybody has taken it to the existing dealership.

So with cash went to fees, we struggled to get in the past. You put cash fees and some tender stockholder would go there and all. So it was happening only (inaudible). Nothing to -- instead of the brand, we want to push in the brand. So all our work change. Now what we're doing, 8 to 10 per month as a past answer, it's clearly no because he couldn't do it for the whole month. Now we have a permanent structure and a good bolt-on month, pulling the existing staff from the divesture of this. So the level of start-up sells a very different kind of stuff that is always there in terms of sales.

The breakeven, generally speaking, is about 8 bikes to a month, and that's an open bike with chassis only because service industry will start in some period of time. Right now, everybody is over that. But it's too early.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [25]

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True, true. And given that you've already attained 500 RE studios by October, do we expand this further or wait for this to stabilize and modify our approach if need be?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [26]

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No. We're having a model store and because while officially we're being called studio stores for the last few months, but experimentally as (inaudible) revenues. I've been in these stores for more than a year now in a few locations. So model store, on the cost structure, investment patterns, is that everything is in place. So I don't think there's a call for any modification. Dealers are happy. We are happy and I am personally happy too because they're buying from these stores.

So we will add more stores. We will add either 200, 300 stores more between now and March.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [27]

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This took a lot of penetration in our country.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [28]

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Yes.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [29]

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Sure. That makes sense, clearly. Second question pertains to our price laddering, which we have done in with Classic and Bullet X, primarily. Again, any trend which we are seeing about how these new lower price variants are doing vis-à-vis single-model availability, do you have any insights on that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [30]

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So Bullet X is of course a couple of months that we were into the market. So the strong Bullet margins showed an extremely strong reception and impetuses, if you look at it on Kerala. This is a single biggest Bullet market for us. Punjab, (inaudible), all these spaces has shown extremely strong -- Bullet ES is still a vehicle that need no introduction. Sorry, Classic ES, the few service hub that we launched, it will be given clearly the (inaudible) of an audience. So we'll see how apparent it looks like. But we are hopeful, optimistic that given the initial reaction of the customer to the bike and the color vague, and all that, it will be accepted well.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [31]

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Okay, okay. Understood. And last question pertains to our compression. Given that you're looking at our success here and seeing a couple of new entrants, [Ashok Leyland] [Bharat Benz] being second, does it call for any change in our approach to market now given there is -- I think, you are trying to level into high volumes. In the past, it was not that concentrated, but with the new launch or new competition, are we looking at any change in our stance in terms of marketing?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [32]

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You ask this question every year. I think that every year, the brands change. So some comp, some don't comp. So right now, actually we are into our own space. So (inaudible) with all the brand attributes, and that's what the marketing team is doing to permit those attributes to the world. (inaudible) comp plan, they don't really matter in the scheme of things.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [33]

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Understood, understood. And lastly, can you spend your CapEx for Royal Enfield? Are you still stand-alone for this year and next year?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [34]

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Sorry?

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [35]

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CapEx for stand-alone entity, sort of FY '20 and FY '21?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [36]

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FY '21, we will be out in second one only. So once we're done with our planning for the year or next year and saying all the stuff, but clearly, the big CapEx that you've seen from us over the last few years, when we were building up capacity in the tech centers and product development and all that stuff, now it will be clearly lower than what we have been so far.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [37]

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So the CapEx going forward will be products -- new products?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [38]

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I don't think we'll need to add more capacity or more new centers.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [39]

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Right. So for this year, it would be about INR 700 crores as indicated at the year?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [40]

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Yes. That's what we said at the beginning of the year. Yes.

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Operator [41]

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[Operator Instruction]

The next question is from the line of Ruchit Mehta from SBI Mutual Fund.

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Ruchit Mehta, SBI Funds Management Private Limited - Analyst & Fund Manager [42]

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Just a couple of questions. One is that, could you give us a sense that of what was the retails during the 32, 33 days was to the period this time around versus what happened last time? And did we see what kind of movement on a year-ago basis? And the second is that, you spoke about having very great response to all these new launches, to Bullet X, in the certain markets that you've launched, would you say that, that it reflect that the market is fairly price-sensitive at this point, and therefore, getting it -- carry a product at a particular price point is crucial to sort of stimulate demand again?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [43]

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I could answer the second part of the question. I'll ask Lalit to see if he can get the data on last year or to this year. So Bullets X was not just about price, it was about giving a lot more options on colors, letting the customer choose what he wants the bike to look like. Even with traffic, if he wants only a single-channel ABS, then he gets it. If he want to change colors on it or change the fuel-tank, he gets it.

So the personalization options, the customization options that we offer with Bullet X and Classic ES has gone up substantially. So it's not just a cost reduction exercise. And by the way, we actually limited the Bullet X production because it was a way to get the customer into our stores. And then give them all the options that we offer. And so because if you look at just the Bullet X sales, they haven't -- I mean, they have gone up, of course, from 0 to whatever they were, but equally, Bullet X sales have gone up, Classic sales in some parts have also gone up. So I hope that helps.

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Ruchit Mehta, SBI Funds Management Private Limited - Analyst & Fund Manager [44]

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So is there, in some sense, that the variety of -- broad pricing is drawing in the customer, and therefore, you may have come thinking that I want a Bullet X but you could have ended up buying, say a Classic 350 ES or something completely different, (inaudible) customer will do that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [45]

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Yes, yes. The first thing that our salespeople should do is when a customer walks in is to understand the customer very, very closely and then suggest to him, what would be the best bike for them. So many times, the customers made up his mind before you walks up the store but when he comes in, we can show them all the products that we have. We can tell him the attributes of the other products, we -- how he can get something better if he wants a higher kind of model. So it is not just -- not like a cost reduction exercise, but an exercise to do 2 things. One is to win the customer and to regenerate or reignite the interest in Royal Enfield brand. And -- but more importantly, giving fantastic options to the customers in terms of the ability to personalize. In my few months, that sentence that I heard from all of our customers was

(foreign language)

So I mean, that's in one sentence, so that defines my customer base who is so proud of their ownership. But in just one slightly more color to slightly more personalization, and this offers them the opportunity to do so.

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Operator [46]

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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 [47]

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I had the same question on the Festive, if you can share how has been the festive retail versus last year or similar days?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [48]

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Either way you cut it, it's the highest levels. So whether you take a calender month or you take from ex-period end of [sharp] to this, that and the other. So all I can say, this is our best ever time in terms of rebates that we've ever brought.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [49]

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Sure. So what I'm just essentially trying to understand, is it like a really double-digit growth versus last year retail, mid-single digit. Any sense, of course, it's been record sales at just getting a sense would be good?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [50]

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It's a double-digit roll out here. But you don't know the last year numbers. So if you [learn something] about.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [51]

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Okay. And could you talk about the inventory levels now at the channel as well as the factory? And did we see wait periods on any of the variants. So how will we be approaching the inventory now, here on, given that the BS-VI also comes through from early next year?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [52]

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So you are the -- and I'm sure you challenged and sort of given some sense that inventory is really, really low, in fact, doing this in the last rest of the festival time -- last week also, in October, there were many stores in Bombay and Delhi utilizing stock outs. And what (inaudible) [Peter] is asking for more stores and other stuff. So it's very, very low and all. It's going to be the retail and wholesale closing on to follow each other as we move into the BS-VI, because we don't want any kind of a buildup anywhere on BS-IV stocks.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [53]

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Will be it below 2 weeks now?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [54]

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It's slightly above.

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Unidentified Company Representative, [55]

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That's not the pipeline. Dealer plus...

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [56]

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Yes, dealer plus company plus goodwill transit all put together is less than 3 weeks.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [57]

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Less than 3 weeks, okay. And on the festive, I just had another follow-up. Have you seen any divergent trends that you're -- as you said, Mumbai and Delhi had a stock out. Kerala did good for you. Was it that the mature markets were coming back more strongly, or you saw the similar trends across less penetrated as well as the mature markets?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [58]

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So this festive -- I mean, it's all about festivals, but this festival time was more about Northern West. The [thousand] happened in January. But strong price came in, everything went up. There is nothing to pick and choose. Every market, especially north, west and east did well.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [59]

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Okay. And -- okay. And lastly, on Twins, if you can share where are we in terms of -- because it was available only in limited or a dealership. Where are we in terms of the availability of Twins? And what is the kind of running book or run rate of bookings we have seen or any back book that you can share on the Twins in the domestic market?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [60]

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Sorry. What was the last line? In the what market?

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [61]

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The order books in the domestic market.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [62]

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So it's still doing very well. We are clearly at the same level as we were in Q1. So Q2 was interesting. We had to cut down domestic [fills]. We still have to ration a bit because international demand from Europe, from U.S., from Americas and from [Africa] was extremely strong. So as you know, some of these countries are also 12 months retail countries as well. And we are opening up new stuff in Japan, Korea and so on and so forth. So it is a very, very strong demand for us. So nothing exceptional to report apart from rise of the Twin exports internationally. And domestically, we held our Q1 kind of numbers last year.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [63]

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Sir, booking is holding on to -- your back book largely running still at the same because your production has largely been stable month-on-month in the domestic market -- I mean, wholesale and domestic markets. So eventually, we are continuing to see similar run rate on Twins in terms of booking.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [64]

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Yes. Production write down is not a concern for us. So we have upped internal capacity a bit. More will come in next year. So that's not a concern for us at this moment [in time].

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Operator [65]

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The next question is from the line of Chirag Jain from SBICAP Securities.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [66]

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So my question is on gross margins. We have seen a sequential decline in margins whereas the other 2 companies have reported almost 150 to 200 basis points sequential improvement, largely led by commodity cost benefit. So how has been commodity spreadout for us in this quarter and probably, what could be the outlook going forward?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [67]

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So commodities, I mean, there is -- they do not have a lot to excite me but very [exciting] between Q2 and Q1. So I'm not comparing with other (inaudible) our own company. So we reported what we reported and the slide 9, as you see, (inaudible) is a 0.3%, 0.4% decline at that level was largely because of the product mix. So some of the countries, especially in exports that we're now exporting to, are not the high-margin countries for us at this point in time because of high tariffs and all the stuff, and we still want to be very competitive. So the pricing is linked to the market. But the cost is not because that is in some of the other things that will play up. So nothing much over there.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [68]

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Okay. And our margins have been declining over the last 4, 5 quarters. So any guidance that -- would you like to give where our margins can stabilize?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [69]

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You [dial] to the next call, and we'll have further updates.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [70]

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Okay. And just lastly, on prebuying ahead of BS-VI, do you think that our customer profile would -- or are we -- first of all, are we expecting any major prebuy in our segment of Motorcycles? And are we preparing for that? Or do you think that our customer profile may actually -- may prefer to buy BS-VI, let's say, fuel-injection motorcycles?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [71]

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Very hard to say to you. Actually we put those bikes out there. And further development of pricing as well, whatever pricing of BS-VI Motorcycles. So -- but propensity for the customer to inch up a bit, in terms of pricing, I think that is great for the (inaudible) customer as we've seen in the past. So gearing the functional, how the pricing cadence fills out initially, which will determine the BS-VI. But do we want a better vehicle in terms of fuel efficiency and all this, EFI and all this systems?

I think the answer is yes. EFI is not new to us. We have been doing EFI for a while in some of the other variants, and we're very happy to give out [a pay] for the larger pricing that is (inaudible) then.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [72]

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But we are not expecting any major prebuy or probably we are not even preparing for a major prebuy ahead of BS-VI? In terms of pushing up inventory and probably clearing out in fourth quarter?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [73]

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Inventory, I don't think will be the trigger for us to do -- to take any action. We would like -- because the pipeline inventory sales has got lower at this point in time. And from here on, we are just about managing the hotel and the retail quite closely. So we won't allow any build-up of stocks anywhere.

So we are lasting also but there is also pre-buying and I thought I'm [sick of] bikes now. There was this whole inventory that was piled up with so many people, brands. Does that, too, also offer massive cuts and all this stuff just to clear all the stock. So that look like a pre-buy but actually it was a price difference (inaudible) of the stock. We were never in that position then, and I don't think from our additional way we are thinking and planning internally, we won't be in a position now. So in the past, the initial (inaudible) are not trigger any prebuying. Whether this one will or not, just wait and see. But why should we prepare for it. Nothing on should not we prepare for it.

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Operator [74]

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The next question is from the line of Kumar Rakesh from BNP Paribas.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [75]

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My first question is in continuation to what [Binay] was asking earlier. So over the last 3 quarters, we have seen revenue per unit growing continuously by around 13%, 14%. Now without getting into any specific details on that. Can you give a broad sense as in this 13%, 14% split across price increases, mix and other sources like accessories, merchandise and spares. What would be this 13%, 14% be getting driven from?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [76]

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It's actually none of those. It's a fact that we have added many features of the bike largely led by regulations. So about 1.5 years back, we introduced the rear disc brake, [bank in] ABS, especially in April 1 when all the bikes have to be ABS compliance. So this is added to the cost and hence to the price, and therefore, you're seeing the upturn. Of course, on all things that you mentioned that (inaudible) accessories and so on and so forth, there has been an uptick in the top trend as well. There's also the big feature introduction revolution that they were much smaller.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [77]

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Understood. And on the Twins part. So we understand that it's running in order book, especially in the domestic market, so what's your production plan -- production capacity expansion plan, especially for Twins in the coming months.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [78]

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(inaudible) the matter. Demand matters. So like I said, we are prepared for higher supplies. The demand will improve to some extent. And like I said, the highly bigger production example will happen early next year. [Why could we] negotiate on the Twins supplies.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [79]

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Okay. And finally, you had earlier guided for margin to be in the band of [25%] to 30% in the stand-alone business. This quarter, we were at 25% . So you would still hold to that range of margin guidance, right?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [80]

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(inaudible) there's always a margin range, the (inaudible) at the comment, I have no idea. The industry will fall on the 22%, and we also are short on the 22%. We are (inaudible) slightly better industry and warranty kind of performance.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [81]

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Is it fair to interpret that this should be the bottom of -- from the margin perspective?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [82]

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Like I told Chirag, dial in for the next call, and you'll have better answer from us, and speculative answer [it's for return].

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [83]

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Sure, I'll do that.

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Operator [84]

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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 [85]

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So one question was again on the -- I mean, like you said, we're seeing a very good ramp-up on the export side in terms of the 650cc demand. I understand there's a seasonality also on the international side. So do we see these sort of levels at 3,000, 4,000 sort of sustaining going forward through or do you think there is a seasonality, which could sort of impact that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [86]

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[I see that]. So the actual closure of 700 (inaudible) in Q2, seasonality will definitely impact that in the -- in Q3 and Q4 but we have slightly more heads than in the past. We're still exporting. We will start some exports in Latin America, which is not a 6-month riding market. It's more than that. [Hatchback], large part of hatchback , but also longer than in markets. So a little bit of a heading is there. So some amount of hedge is there but 3,000, 4,000 for the next few months it will also come down a bit.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [87]

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Right. But -- and -- but in terms of the longer term, like Thailand, you are expanding significantly. You've opened, like this year, I think the target was split about 10 stores. So are there any other markets in the next year, which you could see a similar sort of significant rollout?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [88]

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So the markets that we entered over 2, 3 years back and we kind of tested those markets out in terms of the brand, the products, the customers, how do they see the brand and everything else that we do was actually marketing activity and all those stuff. That is 2, 3 years. So time was close that time. So hence, the expansion starts. They will also, usually once over 2 years, and now it's going to be [8, 9] (inaudible) through the end of the year. So nothing new at this point in time. Actually, nothing new at all in terms of markets that we may be interested in. I think the presence in new markets along with this level task.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [89]

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Right. No, what I was trying to understand is, like, I mean, obviously, there's a big jump because the portfolio has been significantly enhanced and there's wins coming in. But beyond this, do we see this momentum continuing? Or, I mean, like the growth could slow down very substantially next year?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [90]

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No, no, I don't think that this will come substantially. There was a lot of (inaudible). While we say we're in Europe, but we are still a very small (inaudible) in terms of distribution. We've done very well over the last few quarters in Europe. You can't call us that we have the distribution that we ought to have, we are far away from them. So entering the margin in these (inaudible) market versus growing the market. In front of these, not just in U.S. for example, I think we have about 100 touch points, but the U.S. doesn't grow 100 touch points, they have many hundreds of top touch points. So entering, establishing and now looking at growth. I think we are in the building of continuous looking for the growth stage in some of these markets that we have been there for a while.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [91]

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Sure. And my second question was on the -- like on the -- like, if I look at the 150 cc and above market share? And you -- I mean, even though you had a pretty sharp decline. You've actually gained market share in the second quarter. Now we looking at wholesale numbers. But -- and just like -- I mean, your decline also started earlier there because, I mean, do you think that (inaudible) was because you moved to ABS and rear disc earlier? And then people effectively moved to ABS, et cetera, only like because they had so much of stock in the inventory in the channel that effectively May-June is when people really started shifting to ABS for the 150 to 250 cc guys. So as the relative price gap has closed, your market share is improving there? Or am I just reading too much into the detail?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [92]

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The release you had is partially right. It's not completely (inaudible).

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [93]

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No. What are your thoughts on (inaudible) and how it is that -- is that really -- I mean, is that the case?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [94]

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I don't know how you (inaudible) branded loyalty larger theme of things, but when there is a slowdown because people's sentiments begin to weaken up and all the stuff, maybe then the [volunteers] are the folks who feel the headwind because we'll write up this. And when it begins to [lure] us out, maybe we will focus again. I mean, this is all stability now. It's a very cargoes direct side. Then, of course, it's a channel problem and this channel is a little bit more in August. So that, of course, adds negatively as we are passing right over this.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [95]

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Okay.

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Operator [96]

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Thank you.

(Operator Instruction]

The next question is from the line of Yogesh Aggarwal from HSBC.

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Yogesh Aggarwal, HSBC, Research Division - Head of India Research and India Tech Analyst [97]

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Just a couple of questions on the Domestic RE business. Firstly, any color you have on the profile of people who came back to buy RE in October and in November. So the pickup, was it driven by salaried class, self-employed or the business guys? And then secondly, a few months back, you changed the service intervals and also authorized service stations to use semi-synthetic oil. Any early feedback of that, anything which is helping dealers to pull more customers and expand the kind of addressable market?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [98]

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So as far as the profile of customers are going. We did, as Lalit pointed out, sold a lot more in North and West (inaudible) and because of the Studio Stores, we have a lot more up country sales. So there was some change in profile.

In fact, states like UP did far better than states like Maharashtra. So there is some bit of change happening there. The second question you had was pertaining to the oil change and all of that. Yes, that has gone up very well. It has already been proven the same time within particularly we're using our other stuff. But as far as the dealers go, their profitability has improved because there is a much higher penetration of extended warranty program that we launched recently in the [AMC] program. So there's the further market share, which is the paid service after our warranty has gone up for all our dealers. So that is helping the dealers enhance the profitability also.

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Operator [99]

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

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [100]

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Yes. So just wanted to check has the pay revenue (inaudible) revenue for the year, we expect it to grow in double digits. In the past, we talked about initiatives, which are being taken on accessories side as well. Is this a broad direction of how is it trending?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [101]

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It's growing with double digits, and I hope that it will continue at that trend.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [102]

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Okay. Okay, that's helpful. And secondly, on the commodity side, should we expect some benefit this loan now that we're hearing that there has been some reduction in steel prices, particularly?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [103]

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If there is a reduction in steel prices, I'm sure it -- we'll also get the benefit of it. But I don't want to project a segment margin increase or something as a result of it as of now.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [104]

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Okay, okay. And sir, you also talked about the kind of initiatives you are taking on various types of rides. Could you give us a sense of what is your estimate of how many customers on the call are doing rides every year. So out of, let's say, 4 million or so people who own the vehicle, how many of them do ride every year?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [105]

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We do see dealer does 1 or 2 rides every month. So that's thousands of rides per month (inaudible) anywhere from 10 people to maybe 30 people. So that's -- we have 3 types of rides. That's just one. The second is where we have marquee rides like the fantastic ones like we have the ride to Mustang. And these are not -- these are what I was talking about earlier, not just going to some fantastic place, but also combining it with people's interest like photography and all that. So -- and it's also about how we are doing this ride. For example, we've been doing the Himalayan obviously now for 14 years. This time around, we made 1 simple change, [it said] No Plastic. So along the entire route, we set up water treatment facilities and gave water cans for people to carry along with them. And we left those water treatment things there for the community to use.

What is interesting that we have got in, which is causing quite a bit of excitement, is our riding communities that recently launched something where every dealer is being asked to do something where he promotes riding with a cause. So whether it's cleanup of a beach or whether it is planting some trees or cleaning up some garbage or something like that. The goal being that every ride should leave the place better. And that's catching on, especially with the younger generation to do something very positive. Riding and the interest in Royal Enfield, if you want to see there is a metric we have, every year, what is called as Rider Mania. It's a paid event where customers come after paying and they drive their bikes all the way to Goa and we were thinking we'll get some 5,000 people. I think we had to shut it down because it has crossed 7,000 people. Now it is 8,000 people who are coming to Rider Mania. So that shows the interest is only growing in Royal Enfield.

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Operator [106]

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Thank you. The next question is from the line of Basudeb Banerjee from AMBIT Capital.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [107]

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A couple of questions. First one, if we see delayed in this quarter. Each and every auto [EM] has improved their gross margin sequentially, most of them cited favorable [raw met] prices as a prime driver. For you, we are almost seeing sequentially flattish [RM2] sales. Should we expect some scope for reduction on that front in forthcoming quarters?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [108]

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To wait for the fourth critical quarter to happen. Like I said, the raw material [extraction] from our perspective is not that heavy for the quarter. Looking also the fact that I think most of the other brands, most of it, if not all of them, have taken some price increases, and we are taking the serve (inaudible) the $60 increase at the energy level in August, middle back. So others had not (inaudible) somewhere also support of -- I mean, that's what I would -- I could gather from what I read. Also the advantage of price increases, which was far better than the value we took.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [109]

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And second question, Sir, like from some thousand units of exports a year back. As Lalit said, you have ramped up almost 4x. So how much of that wholesale jump in exports is actual retail and actual, from a distribution enhancement perspective, just to understand, Sir?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [110]

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So it's actually seeing all the bikes in Chennai, there is clearly a bit of a lag between wholesale and retail. Because all the bikes have to reach U.S., which is a 2, 3 month process and then go to RENA which is -- that's a distributor market company. And then to the dealer also there are 2, 3 steps, including a long sea journey which is (inaudible) a little bit. So all in all, anywhere between 2 months, 2.5 months, counting the shorter sea routes like (inaudible) and the longer sea routes like [U. S. and all]. It's too much cluster (inaudible) before it shows up as kind of retail.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [111]

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Just from a positive perspective, that the export momentum continues. But so just to be on the safe side, hope that we don't see after full 5 months that the certain engine exports was more of inventory pile up at the foreign dealerships and then the supply starts contracting. So just to understand from that angle.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [112]

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(inaudible) we'll keep a watch.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [113]

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I hope for the best.

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Operator [114]

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The next question is from the line of Jay Mehta from Edelweiss.

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Jay K. Mehta, Edelweiss Securities Ltd., Research Division - Analyst [115]

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So my first question is on other expenses and staff costs. We have seen a considerable slowdown in the growth that we used to see in the past, a few quarters back, so is there a change -- because you were in expansion more hiring more employees in different locations and spending on development as well as marketing in the export market. So that -- this activity, how should we look going ahead? Now the pace would be more aligned to the revenue growth? Or is that a certain investment is behind us?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [116]

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I think, like you said, I think most of the investment, whether it's in capital investment or in human resource inversion, most of it is done.

But at the same time, there are a few areas that critical skill sets are required, and we are hiring in those. We're not -- it's not like we shut down hiring or we are laying off people or anything like that. But as we mentioned right at the beginning, capacity enhancement, whether it is of production or of human, I think it's starting to go at the same pace as other growth that we are seeing.

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Jay K. Mehta, Edelweiss Securities Ltd., Research Division - Analyst [117]

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So I was asking this because in the past, when we were seeing a strong gross margin expansion, our EBITDA margins were not expanding, primarily because of investments that we're doing in employees and there are just marketing spend and there are other expense on line items. So can we see some support coming to margins because of reduction in those activities or we have actuated that scale from the reinvestment department on the lower side?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [118]

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I think the investments will be lower. I don't think it will come down, but I think the growth at which it was happening will probably be slow.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [119]

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(inaudible) for example, we sell a market company. You can't sell it with 1 person, you have to have at least a team of 5, 6, 7 people to start a market campaign because you want to man all the critical functions over there. The works are network in the U.S. If you look at our -- the disclosed number is also between 2015, when the (inaudible) which is the U.S. now when we started operations, to now at the end of margin rate it was also breakeven. So there was the initial investment, there was marketing services, there was employee costs. That have to be supported in content, but now it's all [scoring] off, and you'll see that happening more and more over the next few years. I'm not (inaudible) all the market expansion that we have done, we'll take about 3, 4, 5 years to kind of score off. And then of course, the returns are positive contribution to the P&L business and all.

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Jay K. Mehta, Edelweiss Securities Ltd., Research Division - Analyst [120]

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Second question was on this financing intensity. So you indicated that during festive, there was a unusual financing intensity from the financials. Has the intensity continued or it was more of a festive period where there were more commodities in -- on various aspects?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [121]

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It will be 5, 6 ways for the months start, so not much I can say at this point in time, but there were schemes and I don't think -- most of the schemes were not system linked. I don't know about others, but in our case there have been maybe 1 or 2 schemes which was festival-linked and this is a short duration only and all that stuff. So most of it will go through to the months. But as of now, what is happening over the last 5 years, I think -- I don't have the numbers for the 5 years of financing levels.

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Jay K. Mehta, Edelweiss Securities Ltd., Research Division - Analyst [122]

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And just one last -- on the capacity side. So what would be our manned capacity right now? Because our installed capacity is far higher than what we are producing. So what is their installed in the manned capacity if you can just indicate that?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [123]

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Manned capacity is mapped exactly based on whatever is the intent. So we do have some flexibility, not complete flexibility with manpower, but I think in the last few months, we have reduced the temporary manpower. We're about some, [over] 800 numbers or something.

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Jay K. Mehta, Edelweiss Securities Ltd., Research Division - Analyst [124]

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And our installed capacity would be? Or the wage on all the 3 plants that we have?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [125]

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Suffice to say, if you order a bike you'll get a bike very, very soon. How does it matter? We'll take the last question now.

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Operator [126]

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Sure, Sir. Sir, this was the last question.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [127]

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Thank you very much for attending the call, and all the best. Happy New Year. [It's going to be well]. Thank you. Bye-bye.

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Operator [128]

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Thank you very much, Sir. Ladies and gentlemen, on behalf of Jefferies. That concludes this conference. Thank you for joining us, and you may now disconnect your lines.