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Edited Transcript of EICHERMOT.NSE earnings conference call or presentation 31-Jul-19 10:59am GMT

Q1 2020 Eicher Motors Ltd Earnings Call

Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Eicher Motors Ltd earnings conference call or presentation Wednesday, July 31, 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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* 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

* Mihir Jhaveri;Avendus Capital;Analyst

* Pramod Amthe

CIMB Research - Head of India Research

* Prateek Poddar

Reliance Nippon Life Asset Management Limited - Research Analyst - Investment Equity

* Ronak Sarda

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

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

* Venugopal Garre

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

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Presentation

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Operator [1]

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Thank you, Ali. Good evening, everyone. On behalf of HSBC, I welcome you all for the Post Results Conference Call of Eicher Motors. We have -- we are joined today by Mr. Siddhartha Lal, MD; Mr. Vinod Dasari, CEO, Royal Enfield; Mr. Lalit Malik, CFO and Chief Commercial Officer at Eicher Motors.

I will now hand over the call to Siddhartha for his opening remarks that will be followed by the Q&A session. Over to you, Siddhartha.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [2]

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Good evening, everyone, and thank you for joining us for the quarter 1 results of Eicher Motors Limited. I'm Siddhartha, and I'm going to tell you first about our consolidated financials for the quarter ended June 2019.

So as you've seen in the financials, our revenue was at INR 2,382 crores, which is down 7% from same quarter last year, and resulting in an EBITDA of INR 614 crores, which is down 24%, and an EBITDA margin at 25.8% against 31.8% last year. All of that resulting in a PAT of INR 452 crores, down 22%. So on -- particularly on Royal Enfield business update, we've had -- our motorcycle sales is down from -- by 19% to around 1.82 lakhs or 182,000 motorcycles for the quarter. But within that, we've had a -- so that's largely, of course, India, which is the negative. But the exports have done well, even though it's on a small base of 5,600 motorcycles last quarter. It's gone up to 9,600, so 9,600 motorcycles, basically on account of very strong response to Twins around the world. So that's for the exports.

Our network, we continued to expand. We've added 13 stores in India, going up to 928, and we've added -- continued to add stores. Added 6 stores in international markets, exclusive stores, that is, and taking the total count of exclusive stores up to 48 and, obviously, many hundreds of multi-brand stores as well. So we've entered South Korea and with the first exclusive store in Seoul. We added 2 stores in Brazil and 1 each in Indonesia, Vietnam, Argentina. So we're continuing with that plan. We have -- we had announced earlier this year our plan to add new studio stores in smaller towns in India. So the initial plan at the start of the year was to add 350 stores -- studio stores, which are a smaller format store in this year. We're happy to say that we've actually -- Vinod Dasari has been captaining this cause. We've really increased that number tremendously. So we'll be on track to opening these 350 stores within the first half itself, and we will add further studio stores. So that's really helping us in our reach in smaller markets across the country.

The Twins, as I said, have got enormous interest across India and international markets, and we're doing exceptionally well. We've won all the big awards we could have won, and we've got on all the big covers of magazines. We won a lot of comparison tests against Japanese, European, American brands. So it's really world-class product that people are seeing enormous value and -- and -- and that it's as refined as anything else in the market. So it's been enormous halo product for Royal Enfield across the world, and giving us a lot of pull in markets from customers, from dealers, from media everywhere. So it's really helping us in unprecedented ways. For example, we've become the #1 selling naked street motorcycle in the U.K. So -- and that's just with -- just having entered the market, it's already reached that end.

Similar stories across the world where the Interceptor and the Continental GT are really taking market by storm. And, therefore, we are continuing to ramp up our production for our Twins, as we speak. We're also very much on track with our transition to BS-VI, well in time for the regulatory requirements. All our platforms, all our new products, all of them are planned in a manner where we will have a phased transition and, clearly, we are planning to have 0 stock on 31st of March, that's how we are working out the transition plan of -- 0 stock, sorry, of BS-IV product so that BS-VI is available in the last quarter of this year, and, of course, then 100% from the first quarter of -- from April onwards of 2020.

As far as our plants are concerned, our Vallam Vadagal Phase-2 is -- the building is over, the equipment is -- installation is underway, and the facility will be available for production as per original plan. Our Chennai technology center, the product development part is completed and we've moved in there. We're already doing testing, validation of our BS-VI products in that new facility in Chennai. But -- this will also be -- this site will also be the new headquarter for Royal Enfield. So that's -- the administration blocks and all are nearly complete, and we'll be moving in, in the next couple of months, which becomes really the base for Royal Enfield in the future. We have -- a lot of people are going to be moving in there to the new technology center or headquarter in the coming time.

Rides and events continue very strongly. We are at 16th edition of Himalayan Odyssey with 60 riders covering 2,200 kilometers, and it's included participants from around the world. And more than just a simple ride now, we're putting a lot of emphasis on sustainability, on various other aspects of our rides. So the same -- we made this as a zero single-use-plastic-ride. So not only did we not use any single-use plastic during the ride like water bottles and other such things, we also added to the communities by installing water purifiers along the way of our ride in 6 different locations and other such things. So leaving every place better where Royal Enfields tread. That's our attempt, of course.

Moving on to our joint venture with Volvo, VE Commercial Vehicles Limited. From a revenue perspective, in quarter 1, the revenue was INR 2,255 crores, which is down 14% from same quarter last year. EBITDA at INR 125 crores, which is down 48%, resulting in an EBITDA margin of 5.6% against 9.2% last year. Profit after tax is at INR 38 crores, down 68%, and total sales for quarter 1 were at around 1,300 -- 13,300 units, down 18%. The commercial vehicle industry has been extremely weak last quarter. Sentiments are low. The liquidity is not there in the market and dealers are also under stress. So there are lots of such things and general economic slowdown and has resulted in a lower replacement demand for trucks. So all of that is affecting the industry. Further, the discounting is at all-time high levels, and that's affecting our EBITDA margins as well.

Having said that, we've also had some positive news and progress. Our Pro 2000 series, which is the new light-duty platform from nearly 5 tonne to 12 tonne has been unveiled, and it's our first BS-VI compliant range. But, of course, it's been launched first in BS-IV, as we speak, but eventually will be available in BS-VI in time for that. It's a very strong new product range in light duties, and we expect to continue -- we expect to gain market share in light duties with this new product range. It's absolutely class-leading in -- as a modern product, introducing many industry-first features like all-wheel disc brakes and touch-screen infotainment and steering mounted controls, advanced telematics, which really helps in productivity improvement, [be it] on telematics.

So all of that's coming in our new Pro 2000 series, which we're delighted about. And it's been powered by 2 new engine platforms and the payload capacity actually in this range is from 2.47 tonnes to 7.2 tonnes. So that's in the Pro 2000. We're also preparing and on track for BS-VI in VECV.

As you know, we've manufactured and delivered tens of thousands, maybe 100,000 plus Euro 6 engines, which is equivalent for us for the medium-duty engine platform to Volvo globally. So VECV really has an enormous head start over competitors as far as BS-VI is concerned because we've gone through the learning curves in the production area and in the design area. We've produced a lot of these engines already for markets around the world, and a similar treatment will be done to the engines available for India. So their learning curve is very strong. We have a very strong understanding of BS-VI already. And I believe that gives us an edge as the industry moves to BS-VI and a higher level of modernization. VECV will certainly have an edge on Eicher brand of trucks and buses, should be able to benefit from that.

There could be a bit of pickup in the CV industry post September with the onset of the festive season and, of course, in the last quarter of this year, January, February, March of 2020, there is possibly going to be quite a bit of pre-buying before BS-VI comes in and is -- and the prices go up for trucks and buses.

So yes, that's been our quarter for Eicher Motors Limited, and it's now open for some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First 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 [2]

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Firstly, I wanted to check on your volume outlook, if you would like to share any number or any qualitative input there. Also because we are starting Vallam Phase-2, so is there a threshold level of volume at which you will start it or any ways it will go ahead? That's the first question.

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

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Well, at the beginning of the year, plan was to -- that we will work towards the 950,000 production capacity. So that basically means, the manning for production, et cetera. So we are in line for that. Of course, if things change and the plans change or, lets say, the market continues to be as sluggish as it is now and it doesn't pick up, then we may have to do something later. But as of now, that continues to be the plan for 2019, '20.

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

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Kapil, well, Vallam Phase-2 kind of also comes in it even if the volumes remain sluggish for the year and all, for which we don't know yet, but they'll only be the parts of the plant or the new phase that we'll for sure use like paint shop. I'm sure we'll have some use for it because we're always short of painting capacity as is. There will be some machining that we have put up in Phase-2 of Vallam that we might use. So there will be bits and parts, which will 100% add to the overall robustness of the supply chain.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [5]

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Okay. That's helpful. So you -- when are you starting that?

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

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In the next month, month-and-a-half.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [7]

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Okay, okay. Secondly, just on the staff costs. I see there is a 23% increase for the quarter. So is that run rate we should assume for the full year? Or will this increase further with Vallam Phase-2?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [8]

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Sorry, which costs are you talking about?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [9]

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Staff.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [10]

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Staff cost. No, no. So this was basically the end of the hiring program that we had for last year. And, of course, the increments and all that stuff, which was all in the Q1 phenomena. I don't want to stick my neck out too much about it, but I think here on, we'll see a lower run rate for sure.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [11]

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Okay. And despite starting Vallam Phase-2, it should be lower?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [12]

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Yes, the incremental cost of starting Vallam Phase-2 won't be that high. I mean, because we're not adding like full management teams over there. It's an extended part of Vallam Phase-1. So there'll be a lot of leverage from the parts perspective. And it's a more automated plant than the plant that you've seen in Oragadam.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [13]

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Okay. Got it. And lastly, I just wanted to check, could you comment on the footfalls and the conversion rates across the network? How have they moved in Q1?

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

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It's really, I mean, extension. Q1 was largely an extension of Q4, so there was sluggishness in the walk-ins and all the stuff. But I have to say, some of the online stuff and some of the field inquiries kind of increased a bit. But the overall walk-in phenomena continues to be weak at this point in time. Maybe later, Vinod will talk about it. There's a whole lot of stuff that you'll see from us happening in the next 2 months on quite a few fronts that will hopefully trigger higher walk-ins, including further studio stores. So I'll just hand over to Vinod to have a brief on the studio store plan that would change a bit.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [15]

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Yes, we had -- at the beginning of the year, we had planned to set out 350 studio stores by the end of the year, but realizing that we need to enhance the walk-ins, and the only way to do that, our customers are saying, is to give us greater accessibility in the upcountry areas, both for sales as well as for service. So we accelerated the plan, and I think not only we will exceed this plan of 350, we'll probably do 500, and better part is that we'll probably finish it in this quarter itself. So we will have 500 -- roughly 450 to 500 operational by end of this quarter, which would be of certain jump in our network.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [16]

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So that would significantly increase the walk-ins that you're talking about.

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Operator [17]

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

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Pramod Amthe, CIMB Research - Head of India Research [18]

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And one accounting question on depreciation side as well as in there's been a sharp jump there. Just wanted to understand how much of this is probably pertaining to some bit of a write-off of the BS-IV technology or components? Or is there anything pertaining to the new platform or the BS-VI technology, which has started getting amortized at the start of the fiscal?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [19]

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No, no, nothing, zilch on BS-IV or anything like that. It is just accounting -- it's a new accounting standard, which is applicable from April 1. Called AS 116, it has got to do with the leases, rentals and other stuff. So it was -- this was sorted out.

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Pramod Amthe, CIMB Research - Head of India Research [20]

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So that would mean that line item would have -- expense line would have moved from other expenditure line to depreciation? What's the nature of movement there, Lalit? As in that's kind of overstated EBITDA?

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

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It's going to be higher.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [22]

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About 7-ish -- INR 7 crores.

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Pramod Amthe, CIMB Research - Head of India Research [23]

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INR 7 crores for the quarter, and that's a sustainable run rate, and the rest is related to your expansion or towards Vallam or the equipments which have come in and all that. Is that right? Or will it step up further as Vallam comes?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [24]

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No, no, no. So Vallam depreciation, quite a bit of margin is already over there because, as you know, once you start the pilot, (inaudible) we have to start the depreciation.

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Pramod Amthe, CIMB Research - Head of India Research [25]

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Okay. So Vallam is already in the numbers?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [26]

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Yes.

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Pramod Amthe, CIMB Research - Head of India Research [27]

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Okay. That's good to hear. And on the question on the demand side, Siddhartha, as in -- of course, this is an industry-wide sluggishness, we haven't seen any meaningful change in your segment share in 200cc plus category as such. So we just want to understand what is your -- what is your check from the sales and the marketing side with customers and dealers? What is the common excuse or what is the reason why all of a sudden things have slowed down so much? And what will be the 2, 3 ask, which you think the customers are looking for, which can probably turn this around from a demand perspective?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [28]

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Well, the first thing that the customers are asking for is greater accessibility which, as I mentioned, we are not only providing, but significantly accelerating our own plans. And they're asking for greater number of variants so that they have more different types of products to show through, and that's something else that we are working on also. Equally, we are pushing our non-motorcycle revenue up. Our spare part sales are higher than last year, although that's minor. And another minor thing, but very important, is our growth in international, which Siddhartha pointed out, is up 72% over last year. Despite the sluggishness, I must say that we are doing very well, even in India, not just on the Twins, but what we often doesn't get talked about is the substantial success that we are having with the Himalayan. So our core Classic is down, but Bullet is up, Himalayan is up, Twins are up. So I think with some excitement on the Classic also that we are thinking about, that would probably bring back the market.

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Pramod Amthe, CIMB Research - Head of India Research [29]

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And is there understanding that 650 response remains strong because whenever we check, the waiting periods are still pretty robust? And you still haven't gone deeper in terms of the network of the 650. And if you can just talk there about what are the kind of numbers you are planning now because, initially, I thought the plan was up to 5k, now I think you've already crossed 4,000. I still see reasonable amount of demand with the 200-odd stores where you're selling. So if you can just help us understand where do you see the 650 ramp up? And connecting to that is the new platform rollout, and if you can put some time line around that? I know it's a bit confidential, but will it be kind of a BS-VI? And what would be the kind of broad expectation? Because it's like a -- it's almost after more than a decade that you're going to have a meaningful replacement for the existing portfolio. So if you can talk more about that, Vinod or Siddhartha.

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

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So I think you asked several questions, but I'll take the first one, which was on Twins. The waiting period is still about 3 to 4 months. And despite us ramping up the production close to 5k, I think we will reach very close to 5k this month, somewhere around 4,700 in August...

[Audio Gap]

And as far as variants and all, we continuously talk to customers and take their feedback, and as and when we get a positive feedback towards a particular type of variant, we will continue to work on those. It's not like one major thing that we are planning on that we have to hold it with bated breath. But BS-VI (inaudible) ready across the platform. We'll be -- I mean, we want the road to be ready and I think very soon we'll be ready.

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Pramod Amthe, CIMB Research - Head of India Research [31]

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Okay. So fair enough, fair enough.

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Operator [32]

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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 [33]

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I just wanted to understand, I was a bit curious to know. Over the last 12 to 18 months, we've actually stepped up in our dealer network in terms of the number of dealers we have added last year as well as the plans that we have. Now incrementally, in general, there seems to be some concerns on dealer health. And I think in the last couple of months, there have been some comments from banks about wanting to sort of moderate financing to the auto sector dealers. So I just wanted to understand, from your own perspective, how do you sort of look at -- or how do you find your dealer health at this juncture? And more importantly, the new dealers that you've added over the last, let's say, 12 to 18 months, are they in a shape where you would not have to go and incrementally support them by any measures?

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

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I think majority of our dealers, I would say most of our dealers are in decent health. They could be much better. I think because of the volume drop, everybody is feeling some of the pain. But what was this recent talk about some 20, 30 dealers, which got a notice or something like that, I'm told. That was all unrelated to Royal Enfield completely. That was because some dealers, they're all small entrepreneurs also. They had probably diverted some funds here or there that the bank didn't like. It is not something that we get too involved with the bank. And we make sure that our dealers are not defaulting because of Royal Enfield. We have brought down the inventories over the last few months and now it's less than a month, so nobody is defaulting because of the inventory or anything like that from Royal Enfield. There were, of course, some few bad apples in every set of dealers. So some guys have done some things, which the banks don't like and they have canceled their financing. But that's between the bank and them, it's got nothing to do with Royal Enfield.

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [35]

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Okay. Secondly, I'm not sure if you are going to answer this question, but there has been a lot of news articles about potential 250cc product that Royal Enfield is going to work on, it's going to take 3 years for the product to come out, et cetera, et cetera. Should I consider this as speculation? Because I think you've generally been of the view that you don't really want to move below 350cc.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [36]

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Well, first of all, we never said anything about 250cc. I don't even know where that is coming from. I think Royal Enfield is, and I'm fairly new here, so has always said that Royal Enfield competes in the segment of 250cc to 750cc. So that's why people probably thought that we will bring in a 250cc. I mean, I will answer that question directly. There are no such plans. So there is speculation in the market, and I can't go after every speculation and answer those.

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Operator [37]

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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 [38]

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In one of the comments, I think, Vinod mentioned that the customers are looking for more variants. Could you expand on that? You said one of the few things customers wanted more accessibility and more variants. So how are you planning to address the more variant part?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [39]

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It's a longish answer. I think I'd like to spend some more time with you at some point, but one of the things that I love about this new industry that I have come to learn about is where, unlike a B2B sale, this is a B2C sale and the customers are actually buying this. This is an expression of their personality. So what can Royal Enfield do to help them showcase their personality much more so. So customization, personalization, more variants, more colors. This is how we are building the capability at every level of the company. And that is what I mean by more variants so that the customer has more options, not just on accessories, but on apparel, on colors, on trends and graphics and whatnot.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [40]

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Okay. And you also talked about 500 studio stores by end of this quarter. That seems pretty quick ramp-up in this sort of liquidity-crunch environment. What sort of an impact do you think will it have on mix and volumes? Like, when do we actually see -- like what kind of volumes do you think can it bring in? And how will that impact mix?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [41]

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So half of those will be done this month itself. Balance of them, we are working on. Hopefully, before Diwali, we'll finish everything. And these are all by, if I'm not mistaken, all by existing dealers creating new branches. And they are maybe 600 square feet and 100% as per our brand identity, so but much lower investment by our dealers. And they do sales and service. This is just not -- not just sales point. So it enhances the accessibility and the service reach of our company substantially, a 50% increase in 6 months. That's the pace at which we are moving. And each one of them breaks even, I think, if they sell 10 bikes a month.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [42]

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[Even they sell].

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Binay Singh, Morgan Stanley, Research Division - Executive Director [43]

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Gentlemen, I think this will be interesting to see because it's a very aspirational brand. So hopefully, the new format also keeps that pace? And lastly, just on financing side, could you say about that?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [44]

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It is -- I should add that 60% of the market for this aspirational brand is actually outside the main cities. So we have to reach out to those people, otherwise they have to come to the city. So that's why we are pushing this more aggressively.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [45]

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Yeah, I know that. That's interesting. And what was your finance penetration? Anything or ways you are planning to increase it over a period of time? Because that can really address the affordability issue if you increase finance availability.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [46]

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It is the same like (inaudible) around 50% to 53%, no change on a quarter-on-quarter basis. Plan to increase [Foreign Language] we don't plan to increase, but if the customer wants financing, then we should be ready with financiers, choice of financiers, and the choice of products they have. So that's the back-end work that we are working with all the financiers, which is a regular thing. I mean, nothing more to be done.

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Operator [47]

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The next question is from the line of Mihir Jhaveri from Avendus Capital.

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Mihir Jhaveri;Avendus Capital;Analyst, [48]

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Just wanted to ask, so in case of 9,50,000 when we keep talking about the production capacity. So in the wake of the demand slowdown, how should we look at it? So isn't it prudent to just give some of the demand guidance? How do you look at demand from the 1-year perspective given the fact that, basically, the demand has been quite sluggish? And secondly, also that new production capacity is going to just add up to the 9,50,000. So just wanted to understand how relevance that is? And secondly, in terms of inventory levels, did I hear correctly the inventories right now at 1 month? Is it 1 month?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [49]

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Less than 1 month.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [50]

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(inaudible) inventory.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [51]

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The channel inventory is also less than 1 month, this is even far less than that.

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Mihir Jhaveri;Avendus Capital;Analyst, [52]

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Okay. So in that sense, just in the first question, so how should we look at it? And what is the relevance of this 9,50,000?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [53]

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I think when Siddhartha was talking about 9,50,000, that was creation of the production capacity of 9,50,000. And, of course, if the market was there, we have the capacity to get to that level. So our job now is to find ways and means to enhance the market, whether through network, whether through variants and whether through new products. That is what our goal will be -- Royal Enfield production was the constraint, and so the point now being that production is no longer the constraint. Hopefully, we will work towards making it a constraint again.

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Mihir Jhaveri;Avendus Capital;Analyst, [54]

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And in the wake of this demand slowdown, will -- the new capacity anyway is going to come in and that's only going to add up right from the -- to the 9,50,000. Why I'm asking is that the run rate, basically, what we have currently is of 60,000, which does not add up to even around 8,00,000, kind of a number, for the full year, even if I were to add around 65 from hereon. So I just wanted to understand from Siddhartha and Vinod sir that how should we look at from -- probably from a number point of view for FY '20, how should we look at?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [55]

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We can't answer that in terms of what the demand will be because one, we don't give forward guidance on demand. The production number we gave was what we are planning to set ourselves up for, for the year, because that's what we estimated we will require for the year. But that's only from a production perspective, right? And from a demand perspective, who knows, I mean, we are working towards improving the situation, but we didn't expect demand to be down this much. So we're working towards it. It's impossible to say what's going to happen in the future. We can only work towards all the levers that we have under our control and that's what we're doing. We're adding a lot more stores. We're doing a lot more variants. We're doing a lot more work on walk-ins, demand generation, and whatever will result, will result. You'll see the results as they come out every month. You'll get to see what the sales numbers are. So there's nothing more we can add here in terms of what the demand position will be.

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Operator [56]

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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 [57]

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My question pertains to standalone RM costs. So it seems there is some increase on Q-o-Q basis. Is it anything to do with mix, or have we seen any actual cost inflation?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [58]

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There has been hardly any cost envisioned. If you remember, some of the benefits of the costs flattening out on the [individual model] are yet to be seen. I'm hoping we'll get to see them in Q2 and Q3, if the cost lines are as stable as they are at this point in time. This has largely got to do with the fact, if you remember in Q4 also, we said because of the full transition of ABS, there were some elements of the costs that were not, that were parcel of course, but not the full margins now, because you've not taken any price increases in Q1. The sale that has flown through in Q1 as well. So beyond that, yes, there is no other reason beyond that.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [59]

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Okay. And similarly, other expenses also have come down reasonably well on Q-o-Q basis, despite lower -- I mean, so one is, obviously, variable cost. But is there any -- is there any one-off item there? Or it's largely a reflection of AS 116 impact?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [60]

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So AS 116 is a part of that, but there are a whole lot of cost initiatives also began last year. We continue to work on them, and certain non-material cost initiatives. So some of them you're seeing, the impact of some of them you're seeing now, some of them you'll see in the next few quarters as well. One of this is, yes, for sure, in Q4, we had a bit of Twin launches in India, around the world and all that. So those are further not there in Q1.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [61]

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Okay. Okay. Understood. Secondly, with respect to our vintage stores now since we have presence in 8 cities, any initial feedback which you're getting from the vintage stores? Are people coming in to trade in? And is that getting some bit of momentum?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [62]

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So great news at the brand level, but fairly bad news at the vintage level. People are not coming for trade-in. They still like to preserve the bikes and hold the bikes and all that stuff. So -- and the whole idea about vintage was, when the time comes for people to really trade in or replace, whatever they come to do, we should be ready with that. So it's a slightly longer-term kind of a thing. But the 10, 12 or so that we have, I think, almost all of them are doing reasonably well. The problem continues to be sourcing of old Royal Enfield bikes.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [63]

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Okay. Okay. So that underlying objective is still not being fulfilled with respect to offering trade-off there -- trade-in there?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [64]

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At the larger level, we don't have any replacement demand in the company. So there are new customers, and that's one of the bigger things about Royal Enfield, pretty much all the sales that you see is due to new customers.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [65]

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So even with products like Himalayan and especially the Twins, we expect a lot more replacement. So a lot of this work for vintage stores was done in preparation for the Twins, when people come in with their Royal Enfield singles and want to upgrade. That's very much the objective and we're working towards that. In fact, it's merely a positive thing because actually, we've not been working really hard towards sourcing more Royal Enfields back. So we're not able to find enough secondhand Royal Enfield bikes in the market. So it's a -- and that's a good thing actually, because that means there's not a flood of motorcycles. That means that the residual value of a Royal Enfield is still very high. And that's actually our biggest objective as well, right, for these vintage stores. So whatever secondhand bikes there are, I mean, we're stocking them up and bringing them in, so we have now a channel to sell secondhand Royal Enfield bikes, but that there aren't that many in the market is actually a good sign.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [66]

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You know, and too, as like I spoke at the Investor Day as well. It's about half the Twin customers, are old Royal Enfield customers, half of them are outside of Royal Enfield. So like I said, they are not people who want to come in to sell.

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

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Understood. Understood. Lastly, with respect to BS-VI transition, this question has been asked, but considering that we are seeing a reasonably good response for relatively new products like Himalayan, Twins and that way, would it be fair to say that Classic is seeing some bit of fatigue in terms of brand or product and would it make sense to launch BS-VI of Classic and Thunderbird relatively earlier than the deadline and if that's the case, what kind of time line are we looking at?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [68]

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That has nothing to do with Classic. I mean, it has to do with larger, I would say, larger macro headwinds, weak demand, consumer sentiment and all that will help good old Classic there. Every time that we have done something on the Classic, it has done exceedingly well. Like, if you see the last 2, 3 years, starting with, [there is Jetset], which is about 2, 2.5 years back; Signals, which we did this last year. So Classic still continues, I mean, in most parts of the country, apart from strong Bullet and strong Thunderbird territories, it's just Classic. So incrementally, we would never have the confidence to open more stores if we knew that there's a fade on the brand or fade on the Classic brand. I think it's still a very strong and evocative product that we have. Further, we have not evidence as a marketing measure or any other measure like that, that there is any fade on Classic at all.

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

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Okay. Because only with, I mean...

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Operator [70]

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Mr. Jinesh, I'm sorry to interrupt to you, may we request you to come back in queue for follow-up questions.

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 [71]

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Just 2 follow-ups. Firstly, on the margin side. As we go to the remainder of the year, do we see any meaningful RM or commodity-side tailwinds? And as the Twins ramp up, do you see any improvement in the margins going ahead? Or do you think that this 26% EBITDA margin that we've reported is kind of the level we are going to see through the year? And just in this context also, given that you're now talking about the accessibility in newer markets. That will entail some higher promotional spend, or I'm not sure what kind of spend we'll be doing around that. How does that impact the margin outlook for this year?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [72]

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So question number one, on the overall margins of the company, I mean, rather than us speculating, I promise, every quarter, we'll come back to you with report actual margins of the company. So please wait for every quarter end. Point number two, no, on the studio stores that we spoke about, although we want to open a very large number over the next few months, I don't expect any studio promotional expense and stuff like that. It's pretty much what is already -- in the normal run rate of the company that you've seen us do A&P expense, it's just going to fall in line over there.

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Unidentified Company Representative, [73]

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With [1, 2 national].

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [74]

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Yes. And these are all local, very local, so one-off press conference, some spend, that kind of stuff will happen.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [75]

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And any commodity tailwinds? You don't have any -- I mean, in your guidance, you would want to give around that?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [76]

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We have seen the softening of key commodity prices for the last 4, 5 months now. And we're continuing to be stable. So when the overall world demand is soft, these commodities tend to come down, which is what we are also seeing at this point in time.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [77]

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Okay. And the other thing was on the -- I mean, you've spoken about increasing the footprint. But there are some of the larger markets, where clearly, demand has come off very, very meaningfully. Is there anything specific we are doing in terms of creating more excitement in these markets, because the product launch is still some time away? Or a refresh around BS-VI of Classic 350 is still some time away, too, so is there anything that we are doing, which you can share with us around reviving the demand in the mature markets?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [78]

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We don't want to talk about future product launches and all that. But you will see some more activity on that, very soon.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [79]

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Yes. So more variants. But also, I think, very importantly, in the mature markets, which you're talking about. The, of course, some of it -- some of the bottom has come up because of various other reasons. But the growth eventually will come from higher-level product because that's where we want to see the replacement. So Himalayans and Twins and all, I mean, will provide the growth, whereas Bullet, Classic kind of will provide the base, right? So there will obviously be new people coming into the market, but the actual growth will come from the newer platforms that we've launched, and which are now really getting established as the next-level platform. So where we have very large market shares in places like Delhi or Kerala, Bangalore, we expect that any growth there will come with the extended efforts. And we are doing a lot more seeding efforts because for us, it's been around. We've been working on the Twins for a long time, you know, imagine. But for people in those markets, maybe they're not fully aware, they've not ridden or test driven an Himalayan yet or a Twin. So work, there is still only at the early stages. And as we get deeper and as we understand how to sell it better, because there's also a lot of concept selling, right? I mean, Himalayan, there's no adventure tourer bike in India. So how do you sell an adventure tourer? We've learned that now. And now we'll be able to deploy that much better, and especially in markets where we already have higher market share. So that -- in those markets, in addition to the variants that we talked about -- Vinod talked about, we have huge focus on products like Himalayan and the Twins in mature markets.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [80]

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Okay. And just lastly, there have been some talks about road tax increases in some states, specifically, Rajasthan. Is there anything -- I mean, are there more states which have taken such kind of increases, if you can talk about it?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [81]

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I mean, obviously, in Rajasthan only, which happened a couple of weeks back. But it's pretty much a state subject. So they can do whatever they want to do on the road tax.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [82]

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But besides Rajasthan, we haven't seen any other state? Last year, Karnataka also had a increase, right?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [83]

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Karnataka had a increase last year. Yes, you're right. Rajasthan now, and in between that, we saw a little bit from Kerala as well, on certain higher CC bikes, which, again, means ours only. So yes.

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Operator [84]

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

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

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Yes. Chirag here from Edelweiss. I have 2 questions. One on this raw material price. Can we assume that the raw material price and the cost increase that you have done, there is an incremental deterioration in gross margin is unlikely, unless raw material becomes very (inaudible)?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [86]

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Sorry, what was the first part of the question? What cost increase have we done?

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [87]

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So if you look at the pressure on gross margins, this caused an accounting issue, where you are unable to mark up the cost increases that have happened in the recent times, where you will not -- so you will -- is that mark unassumed in the margins? And the -- is this the base cost margin (inaudible)?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [88]

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So I don't know whether this is base or not, but for sure, the technology there, largely ABS-led cost increase that happened towards the end of Q4. The full quarter impact you have seen now in Q1.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [89]

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Okay.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [90]

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And all that is cumulative error...

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [91]

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Second is about the long-term question, that traditionally, our Classic was selling for also at a price point with a really big bump, INR 150,000 [around in bike] facilities. Now given the way the restrictive cost increases that have happened, that price point has been restricted by our existing models. So any thoughts about launching your brand in that category at that price point, because you have smaller CC or kind of a stripped-down version of the existing products?

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

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We're working on a lot of things, but we can't talk about future product. Of course, there are price points that we've had to vacate because of certain reasons, but -- and as always, we are thinking about different ways of how to address those customers who may be more price sensitive. So that's an ongoing exercise. And we certainly, we're working on different ideas there, but we have nothing to announce in terms of any new product or anything like that.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [93]

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So although [you have SG&A], there is still a price point vacation, but please do remember, over the last 10 years, there have been many new price points also we have created. So -- 1.6, 1.7, 1.8 could be the new price point for the future.

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

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And just a case in point, I mean, we created a new -- I mean, the Twins, that's now starting at INR 2.5 lakhs. In 6 months alone, we are now already over half the market for all motorcycles, 500cc and above. So they've been players for 10 years in all of that in that market. More than half that market, within 6 months, we are bigger than all the other players combined. Royal Enfield is already bigger than all the other players combined in that market.

While we are working on these, we're also creating new price points which didn't exist earlier, INR 2.5 lakhs.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [95]

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Not just in India.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [96]

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In India, and of course in...

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [97]

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And one last question. So how do you decide or when do you decide to ramp up the capacity, now that Twins have achieved 5,000 units a month? So what do we need to do to increase the (inaudible) 10,000 units a month capacity increase? How do you make that call? What are the key trigger points that drives you, the demand is a sustainable and growing demand and hence, we should add capacity?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [98]

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Well, at this point, we're not going to suddenly add capacity to double it, but we will continue to find ways to debottleneck the lines and try and see if we can double our capacity. If the demand continues to sustain like this, which -- well, if it does, then we will look at it in a few months.

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Operator [99]

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

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [100]

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Just a couple of clarifications. One was on the financing penetration. I mean, given the increase and given that there is a fair amount of financing dependence, are you seeing any sort of -- I mean, like, issue in terms of customers getting finance availability or credit availability?

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

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No. None whatsoever.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [102]

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In fact, Royal Enfield, I'm told has the lowest NPA amongst all automobiles, not just 2 wheelers. So in that sense, I think Royal Enfield customers don't find that much of a difficulty in getting finance.

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [103]

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In Bangalore more than either of the [cities], because despite the fact that over the last years, we've grown a bit bigger in areas that are considered slightly more delinquent than some of the other big town kind of areas. Our overall portfolio in line with the 3, 4 big banks, you have NBFCs, I think we are extremely strong. So no problem there. CV is a different story altogether. So we're not talking about that, we're talking about Royal Enfield.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [104]

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Sure, sir. And just on the demand side, I mean, if you were to sort of break this up, I mean, are we seeing like more slowdown in like the top 20 cities or something of that sort, and this is more like a pan-India thing at this point in time? I mean, any color on -- if you were to cut the market any way, and you can draw any inferences from that?

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

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Sorry. Just -- repeat your thing here, Sonal.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [106]

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Sure, sure, sir. So no, I was saying that if you were to look at the demand slowdown and try and see, I mean, which are the pockets which are sort of seeing a major slowdown? Or you're not seeing any specific pockets, and it's more of a pan-India sort of a slowdown? I mean, just wanted to get a sense on -- I mean, are there specific pockets where you see pressure or bigger cities in general? Or are we seeing things, I mean, whichever way you want to cut it across the board, being weak?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [107]

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I mean, many ways to cut it. Like, you're right. I mean, one of the things to cut it is the places where we are higher -- our market share is higher than the overall India market share. If you were to use the term of over-indexed over there, then clearly, there's a bit of a stress over there. And these have been historically our key markets where we expanded our distribution first over there, typically, south and west of India. But there's a whole lot of stuff to be done in terms of distribution. And Vinod alluded to the studio stores, which will be towards -- from, I don't know, west to east would be a good way to describe them, because that's where a huge potential lies over there. So there we can't -- we don't tend to see any demand slowdown over there because it's still a strong open vacancies of distribution that we plan to fill with our studio stores.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [108]

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Right. And any number you can share on the top 20 cities, how much of your demand comes from there?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [109]

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Just a sec. So right now, it's 25%.

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Operator [110]

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

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst [111]

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I have a quick question on the studio stores. You just highlighted something on the regional presence. Can you just elaborate a little more on where do you plan to open the stores? Is it more in the larger states? Or is it in states where we had negligible presence for now?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [112]

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So again, to seeing there are so many [optic] stores, the [SEC], we are seeing here, there are so many businesses we are seeing here. But one of the ways you can think about is that just about 2, 2.5 years back or 3 years back, we were largely a urban play. Then we went into slightly more semi-urban, kind of a play. I think, right now, with new stores, we are talking about semi-urban play, to a very large extent. So beyond that, we'll step into what we can loosely call semi or rural, the studio stores still don't touch the semirural or definitely not the rural.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [113]

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The other way to simply look at it when you do analyze the market, as Lalit is pointing out, just -- we looked at all the markets where there are the motorcycle TIV is high or motorcycle market is high and our market share is less. So obviously, the same bike selling in a different part of the country is selling well because there is accessibility to sales and service. So the only reason it's not selling into all those other markets where the motorcycle market is high, people would still want to be aspirational and buy a Royal Enfield, but they just don't have a place. So that was one of the reasons why we said we'll focus on those markets where motorcycle market is higher and our market share is less and push the studio stores much more aggressively.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst [114]

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Sure, sir. And the second question on VECV. I mean, can you highlight what's the inventory there? And you alluded that discounts remained pretty high. What kind of range in discounting levels industry-wide discounting level as of now?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [115]

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Sorry, I don't have a number of range of discounts. It's just at, my understanding is it's at, it continues to be at the peak levels and perhaps new peaks on the discounting part. So it is the discounting level is very high. But of course, it ranges tremendously from product-to-product and peak discount or average discount, all of that. But it is putting us under a lot of stress in terms of pricing, actually, and that's the main issue here.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst [116]

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On inventory?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [117]

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I didn't understand the first question, the inventory?

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst [118]

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The inventory in the VECV, channel inventory in VECV?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [119]

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It's -- again, there's a -- it's over 30 days, give or take, but I don't have an exact number. It's not -- again, our policy in VECV is to maintain healthy channel inventory. So we do not push excessively with the dealers. We just keep it right. So our focus is always on retail, and that's what we continue to focus on. Of course, a reasonable level of inventory is still required, even in these times, just because of -- especially in CVs, where there's a vast model mix, there's so many different variants which happen there. So you need to keep that level of inventory, but nothing out of the ordinary.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst [120]

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Okay. And one more question, if I can squeeze in, I mean, given the slowdown and the price points that you're talking about, can you highlight what's the mix of single channel and dual-channel ABS for us in last 1 quarter? Is it -- I mean, customers are preferring more a single channel? Or is it more dual-channel ABS?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [121]

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So last year, at this point in time, it's only the Bullet which has a single channel. Just everything is dual. But we are not seeing any -- and to be honest, we're not seeing any bias between single and dual. So I think people are very (inaudible) people are neutral between maybe single and dual. Of course, they had a big presence when we move from drum to disc. So that was a big kind of move, but between single and dual, I (inaudible).

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Unidentified Company Representative, [122]

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Especially if some customer says that I want single channel, I want only drum. We can do that.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [123]

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That's good. From a technology standpoint, it's very good.

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Operator [124]

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The next question is from the line of Prateek Poddar from Reliance Nippon Life Insurance.

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Prateek Poddar, Reliance Nippon Life Asset Management Limited - Research Analyst - Investment Equity [125]

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This is Prateek from Reliance Nippon Asset Management. Just 2 questions. One is, what is your first-time buyer split and replacement buyer split? That's the first. Second is, generally, you've always been saying premium outperforms the industry. That isn't happening with Royal Enfield in the last 2, 3 quarters. Now when I say the industry, I mean the motorcycle industry. So just if you could talk about these 2 questions.

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [126]

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[First buyers] are about 15%, existing Royal Enfield customers is 5%. And those who are upgraders -- first-time buyer of a motorcycle is 15% and first upgraders from engine capacity, those who upgrade from other parts is the balance.

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

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Yes. So basically, I mean, from Royal Enfield, we have only 5% customers coming in. So for us, all, 95% of customers are new customers. So that's..

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [128]

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It's not like somebody is giving back a Royal Enfield and getting a new Royal Enfield, that is -- 95% of the people are coming from other parts.

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [129]

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But what's happened is that over 1/3 of people now coming are from commuter bikes. So earlier, we used to have majority coming from 150 CC-plus bikes. Now even people directly from 100 CC bikes, around 1/3 of people, from sub-150 CC are coming in directly. So they are bypassing the 150 CC and coming directly to Royal Enfield. So that's a great trend for us. And now 15% of people, which was much smaller earlier, are coming, first time they're buying a motorcycle, they're buying a Royal Enfield. So they're bypassing all other brands altogether. So these are healthy trends, continue to be healthy trends for us, that we are attracting people from smaller motorcycles as well.

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Operator [130]

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The next question is...

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [131]

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Monitor, maybe we'll make this the last one.

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Operator [132]

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Sure, sir. So we'll take the last question from the line of Pravin Yeolekar from CGS-CIMB.

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Pramod Amthe, CIMB Research - Head of India Research [133]

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This is Pramod here. Two questions. One, you seem to be also impacted by the overall industry demand slowdown on the motorcycles. In case the demand revival happens for the industry, do you expect your products to lead this trend of revival or lag? And what is the reason for the same?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [134]

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Right now, it's even -- there is a demand drop. I believe, we dropped more than the demand, because ours is a aspirational bike. The minute the market starts to come back, we will go up faster than the market, too.

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Pramod Amthe, CIMB Research - Head of India Research [135]

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But any fundamental reasons why it should be the case, than just you have fallen and you will bounce back?

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Vinod Kumar Dasari, Eicher Motors Limited - CEO of Royal Enfield & Whole Time Director [136]

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Because it's an aspirational bike, and people, whenever the sentiment is positive, they choose to look at it, right? So we also look at the social media and see how many people are interested still in Royal Enfield, how many people look at our web searches and all that. Today, if I saw just the last 3 months, I think the number of people who actually look for a Royal Enfield in some shape or form at the website is double all of the next 3 competitors combined. So there seems to be tremendous interest, pent-up demand in Royal Enfield. I think people are waiting for the market to turn, the economy to turn, some positive sentiment. I feel that the market will come back to Royal Enfield.

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Pramod Amthe, CIMB Research - Head of India Research [137]

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And sure. Second question is with regard to the regulatory changes. When the ABS happened, you guys did a good job to gradually transform your product portfolio. But having said that, you took much longer time than the peers who were able to do ABS within a quarter, whereas you were sort of almost like 2, 3 quarters. So similarly, when it happens to BS-VI, would you be similarly cautious to transform your portfolio? Or do we see different behavior of yours to be moving to BS-VI much faster?

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Siddhartha Lal, Eicher Motors Limited - MD & Executive Director [138]

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Well, the only absolute truth is that by 31st of March, we should have 0 BS-IV. So that's the real transition plan. Because, I mean, of course, the transition will start happening well earlier than March, but there will be a lot of different factors that happen. So we have to be on top of that, and we're going to make sure that the main transition will happen in Q4. We will not do an enormous transition before that. So the main transition will happen in Q4 between Jan, Feb, March, where we will start ramping down BS-IV and ramping up BS-VI. So that's when you'll see the entire transition happening.

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Pramod Amthe, CIMB Research - Head of India Research [139]

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And the last question, if I can ask, considering the aggression with which you are planning to expand the distribution. If I had to look at others who have done the same in the 2-wheeler industry, it leads to much more price undercutting by dealers or discounts and all these trends, which are much, how do you see that? And how do you plan to put a control on it, as compared to what you have achieved in the past?

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Lalit Malik, Eicher Motors Limited - CFO & Chief Commercial Officer of Royal Enfield [140]

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Pramod, you have been tracking the company for far too long here to ask this. We absolutely control the final price to the customer. It is our digital management system through which the entire billing, the -- I mean, the entire sales funnel is managed through our own billing, for which we have real-time information flowing through. So there's absolutely no way that the dealers can discount. And if he's caught and there have been cases in the past that he is caught doing something on that count through non-system means, then we take immediate punitive action against that guy. So on that count, we are least bothered about it. The dealers sell at the price that we ask them to sell at, is the final thing.

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Operator [141]

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Thank you very much. We will take...