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Edited Transcript of HEROMOTOCO.NSE earnings conference call or presentation 23-Oct-19 10:59am GMT

Half Year 2020 Hero MotoCorp Ltd Earnings Call

New Delhi Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Hero MotoCorp Ltd earnings conference call or presentation Wednesday, October 23, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Niranjan Kumar Gupta

Hero MotoCorp Limited - CFO

* Sanjay Bhan

Hero MotoCorp Limited - Head of Sales & After Sales

* Umang Deep Singh Khurana

Hero MotoCorp Limited - Head of IR

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Conference Call Participants

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* Basudeb Banerjee

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

* Gunjan Prithyani

JP Morgan Chase & Co, Research Division - Analyst

* Hitesh Goel

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

* Jay Kale

Elara Securities (India) Private Limited, Research Division - Analyst

* Jinesh K. Gandhi

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

* Joseph George

IIFL Research - Assistant VP

* Kumar Rakesh

BNP Paribas, Research Division - Analyst

* Mitul Shah

Reliance Securities Limited, Research Division - VP of Research

* Pramod Amthe

CIMB Research - Head of India Research

* Pramod Kumar

Goldman Sachs Group Inc., Research Division - Executive Director

* Priya Ranjan

Antique Stockbroking Ltd., Research Division - Research Analyst

* Raghunandhan N. L.

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

* Ranjeet Jaiswal

Sanford C. Bernstein Limited - Senior Equity Research Associate

* Ronak Sarda

Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Hero MotoCorp Limited Q2 FY '20 Earnings Conference Call, hosted by Antique Stock Broking. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Priya Ranjan. Thank you, and over to you, sir.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [2]

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Thanks, Raman. It's our pleasure to host Hero's 2Q results conference call. Now I will hand it over to Umang to introduce the management team and move ahead with the conference.

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Umang Deep Singh Khurana, Hero MotoCorp Limited - Head of IR [3]

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Thank you. We have with us today Niranjan Gupta, CFO; and Sanjay Bhan, Head of Sales and Aftersales. We will begin with an introduction, the first comments from the CFO, and then we'll open it up for your questions.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [4]

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Thanks, everyone, for joining our call. You would have seen our results. You can see that the quarter 2 results in general were impacted by overall slowdown in the economy and of course, auto sector in particular. Having said that, there are some significant positives. One, overall, on motorcycle domestic, we gained market share in quarter 2 as well as on YTD basis. Secondly, the premium launches that we have done are picking up and that is reflected also in the market share, though it's a long way to go, but we are on track. And third, the EBITDA margins have been maintained sequentially despite the adverse top line.

Moving forward, the festive seems to be showing good buildup versus our double-digit retail decline in the industry and our own portfolio in the 6 months preceding the festive. We are seeing a positive growth in festive, which is a good sign, albeit the growth is in low single digits so far. But it's still a very positive sign given that the negative momentum which was there, seems to have been neutralized and arrested. There are a couple of tailwinds moving forward in the short term. Lot of rains that India has received, while in few parts, it may be a short-term damage to some of the crops but in the medium term, it increases the water reservoirs and water table, which means that the crops moving forward have sufficient water, and therefore, there should be a positive reflection moving forward from rabi crop onwards.

The second tailwind is, of course, the expected Q4 prebuying because as you would have seen, some models have already come into the market on BS VI, which has a price increase of around 12% to 15%. And obviously, that quantum of price changes should trigger some prebuying in quarter 4.

Having said this, recovery -- a sustained recovery in the short term may still take some time, but we do remain optimistic about the long-term future for the auto sector, given the under-penetration and lot of opportunity that exists in India. This belief is also reflected in our continuing investment behind new launches as well as the Andhra project, which we continue to move forward with. And finally, our BS VI is on track, and you will see -- soon see our launches coming up post-festive.

So with that, with concluding (inaudible) that the short-term, some tailwinds. Recovery may take a bit of time. But long term, we are optimistic. Let me hand over this for the call and the questions for us to answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Kumar Rakesh from BNP Paribas.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [2]

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My first question is around gross margin which you reported during the quarter. So sequentially, almost 200 basis point gross margin expansion we have seen despite a sharp decline in the volume -- wholesale volume, which you have reported. This partly could be led by the production, the factory inventory buildup, which we have seen during the quarter. Going into the December quarter and that being the model year -- change quarter as well. You most likely would be winding down some of these inventories, and also at the dealer level, the inventory, which you would be running, that also could be coming down. So are we looking at the December quarter where the production could be sharply lower, and hence, this level of gross margin may not be sustainable going forward?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [3]

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Thank you for the question, but we don't guide on quarterly margins. What we do is that we keep applying various levers of margins, which include, of course, cost optimization, sourcing, LEAP program, optimization on other expenses, portfolio, et cetera. It's a combination of various things and the tactics and the strategies that we adopt from quarter-to-quarter. And that's how we expect it moving forward as well.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [4]

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The rest of the 2-wheeler OEMs who have reported and discussed their quarter on the call have indicated that festival demand they are looking at is likely to be flattish while you are suggesting that you are experiencing low single-digit growth during the festival season. So what different you're doing? Are you gaining retail market share? Or you are doing something different in the marketplace?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [5]

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Let me hand this over to Mr. Sanjay Bhan to respond.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [6]

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Yes. So Kumar, I think the reason Niranjan mentioned about the kind of improvement in the sentiment overall, I think the key there is, this is clearly evident in terms of the footfall. We've talked about earlier in the previous earnings call, we did talk about the lack of inquiries and not just the fact that there were lesser number of people walking in, but also the fact that even those who were walking in, the conversion levels were abysmally low. So things seem to have come back, like Niranjan mentioned, in a very robust manner, therefore, leading to a certain growth, which is, like you said, right now, is not very high, but it's in lower single digits. But yes, growth, nevertheless. And given the momentum that we are seeing, even after Dussehra, there hasn't been any let up. It's been, in fact, building on. So in contrary to, if I was to break the period, the first 10 days were more or less flattish, where the subsequent 10 to 12 days have been actually -- had a pretty decent growth rate. So overall, there is a belief that we will see some recovery going forward. And hopefully, we will report a positive growth in this period.

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Kumar Rakesh, BNP Paribas, Research Division - Analyst [7]

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Great. Just to be clear, this low single-digit growth you are referring to is on the retail sales and not the footfall or booking?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [8]

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[They are] within the retail sales, [you're absolutely right.]

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Operator [9]

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The next question is from the line of Mitul Shah from Reliance Securities.

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Mitul Shah, Reliance Securities Limited, Research Division - VP of Research [10]

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Congratulations on a very strong performance. Sir, you explained about this near-term phenomena of improvement in sales, but from medium-term point of view, next 1.5 year point of view, which are the indicators you generally look for the industry forecasting? That is my first question. And second question is in past. Sir, any strong correlation with better monsoon have you observed? Because at this time, rainfall is around 10% excess, which had some negative impact in few geographies due to crop destruction. But it is positive for rabi crop as well as next year point of view. Because even if there would be a monsoon deficit to the tune of 5% to 10% next year, this water reservoir will provide cover up those deficits, so -- which also happened in FY '15 and '18. So what is your take on this, sir? Being the rural player, your judgment on next 1, 1.5 year point of view.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [11]

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I think that's a very, very good question to ask under the circumstances, Mitul. Yes, there is -- there are lots of green shoots. This monsoon has been a mixed bag. In fact, it started off a little inconsistent, then it started peaking, then it started pouring, I guess, and that's how we finally ended up. September [this year saw --] virtually, after about 100 years, we had a September as wet September as this one. So there are positives clearly attached to it. There is also this a bit of a blemish in terms of crop destruction in certain markets, particularly cash crops, particularly in the states of -- places like Madhya Pradesh where we're obviously (inaudible) has been hit badly.

But there are obviously some very critical indicators that we watch out for. And just to kind of share that with you, while the key indicators will be visible as early as mid- or third week of November, which is when the rabi-sowing starts. The current trend as it [seems is,] while as the kharif sowing has been a little lower, yet at a yield level, given the kind of crop prices that the MSPs, et cetera, that have been announced. There's a likelihood that at a farmer level, there will be about 10% to 12% better yield despite a slightly lower production, which therefore, will encourage farmers to go out and sow for rabi, which is a phenomena that finally we'll see a reversal. Because last year, you know that we had a fantastic bountiful kharif crop, did not translate into moneys coming back to farmers in time, resulting into a poor sowing in kharif -- in rabi, which was almost about 25% down, which resulted in the poor kharif -- rabi yield in the month of April, May. And then eventually leading to further the cyclical pit of another round of lower sowing for kharif, which has resulted as (inaudible) was saying, while it may have [relatively less] production, but it will probably end up giving better yield. So the cycle will eventually break. So my -- our sense, therefore, is that the first indications of a rural recovery, so to speak, will be visible by the third week of November when the rabi crop sowing is in full swing. And I think that will send us the -- give us the right indication. But as it seems there is enough and more available in historic data that you can, kind of, go back to and look at, whenever there's a bountiful monsoon it may not have an immediate impact from a kharif yield point of view as in the months of October, November, but it eventually has a very solid pushback or solid recovery in terms of the quarter 4 phenomena. So we do expect that this kind of rain will yield to a lot of positive sentiment.

And this fortunately, and thankfully, a lot of this over rainfall, if I were to use that term has happened in markets which have been dry for long periods of time. I mean, think of Maharashtra. Areas of Maharashtra that we've been hearing about farmer episodes of various kind of suicides, et cetera. In most areas, now we have bountiful rainfall, the reservoirs are full. And hopefully, times are going to change in those markets. So we do expect a lot of positive sentiment coming into the rural area post-November.

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Mitul Shah, Reliance Securities Limited, Research Division - VP of Research [12]

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Sir, in terms of outlook, between motorcycle and scooters, do you expect now it would grow similar trend? Or again scooter will continue to reduce the overall pie?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [13]

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Scooters, we have seen more or less are not able to push beyond that 31%, 32% contribution. And scooters is not as much a rural phenomena as it is an urban phenomena. So unless the urban market starts expanding differently and the kind of coverage for scooters improves there, it is unlikely that scooters will see a recovery in terms of contributions changing significantly. But what is going to happen is the first-time buyers in rural markets, which is where the penetrations are much lower than in urban markets, penetrations in urban markets being as high as they are. It's unlikely that scooters will see a major turnaround in terms of their contribution numbers going up. But it is quite evident that if rural market starts kicking as we just explained, if things improve and the sentiment in rural market improves, which we will know by end of November, then it's very likely that it will have a very positive bearing on motorcycle demand.

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Operator [14]

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The next question is from the line of Ranjeet Jaiswal from Bernstein.

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Ranjeet Jaiswal, Sanford C. Bernstein Limited - Senior Equity Research Associate [15]

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My first question is on product pipeline. So what is your strategy, especially related to EVs, which you plan to launch in-house?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [16]

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So Ranjeet, as far as EV is concerned, we have said this before. I think given that EV is an evolving space, we don't think that a single direction strategy is actually a right strategy.

While some of the players have boasted about their singular direction strategy, but I think in any evolving space, if you look at the history, it's important to have a multi-pronged strategy, and then some would fire and some may not. As far as we are concerned, we are having a strategy where we invested in Ather. We are the largest shareholder in Ather. It's not a small stake. And Ather has launched in Bangalore, and now they've expanded to Chennai. There are a lot of learnings coming out of that, which are getting incorporated in our own program. Second thing is within HMCL, we already started building EV. We now have dedicated Emerging Mobility Business Unit, which has accelerated this. Third, we have opened up the Tech Center Germany where they are focusing on premium and EV only. So there is enough focus on this. And we are navigating this space carefully, but surely and certainly.

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Ranjeet Jaiswal, Sanford C. Bernstein Limited - Senior Equity Research Associate [17]

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Okay. And one more thing. On the price cycle related to BS VI, you mentioned 10% to 15% price hike. So can you quantify something related to the segment-wise price hike which could happen?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [18]

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No, Ranjeet. We won't be able to right now but sufficient to say that I think there are enough indications in the market that players seem to be passing on the full regulation costs in the initial stage on the pricing. And you would have already seen the models that have launched. And you know our Hero policy, which is, we are always rational and sensible about pricing. Beyond that, I think you will see that in the first launch that we do very soon.

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Operator [19]

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The next question is from the line of Pramod Amthe from CGS-CIMB.

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

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Two questions. The first one is with regard to our employee expenses, which used to hover below 5%. But in the current context of double-digit decline in volume and you're still growing your employee expenses by nearly 10% in first half. How do you look at why it is rising even in this environment? One, and second, how do you look at the VRS happening? What's the payback? And can it come back below the 5% range?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [21]

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Honestly, we've not been growing our employee expenses disproportionately. If you look at the overall increments and in general, 2% to 3% headcount, which is required to ramp up some of the things like our R&D center, et cetera, et cetera, then on an absolute basis, if you look at, then the growth on H1-over-H1 on employee expenses is around 10%, 10.5%. And of that 8% to 9% would be increment itself and the balance is headcount. So I think, honestly, it's not about that. And the second thing is we don't want to get into self-fulfilling prophecy of curtailing down our resources and thereby, actually [starving] growth. As we talked about in the beginning itself, what we see is signs of positive things which are coming back. Overall recovery may still take a little bit of time, but we remain optimistic about the long term given the entire opportunity that a country like India affords in the auto sector. So there's no reason for us to actually start shrinking our base. Probably, it's the time to build further capabilities. So I think on an absolute basis, it's not off. Yes, as a ratio, in the quarter, few quarters, where you would have probably lower volumes as a ratio, it will look increasing, but fundamentally, it's not something that we worry about. We would rather use the capability to boost the top line than actually cut the capability and reduce the top line further. So I think that's our strategy. And as far as VRS is concerned, you've seen the exceptional item, which we have put in, we don't look at, honestly, the payback, et cetera on the VRS. This is more about over a period of time, you need to churn a bit of employee base and which is what we have done. It was voluntary. So it was not done with the purpose of any payback. So won't like to quantify on that aspect.

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Pramod Amthe, CIMB Research - Head of India Research [22]

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Sure. Second is with regard to scooter market. We have seen a substantial deterioration in your ranking and market share in the scooter space? Is it by design or you are forced to take this up? And how do you plan to bounce back?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [23]

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So Pramod, I think the fact is that the -- if you look at the scooter industry overall has not been doing too well as you would have figured out. The industry has been declining at a much more rapid rate than the overall industry trends, about 17% decline in scooters. And within that, we've been maintaining that the segment within scooters, which has had a disproportionate and a significant growth and relatively speaking, within the segment, 125cc scooters have done far better. In fact, even in the current environment, they are the only ones growing while as the 100, 110s is the main stake, 76% of the market is from the 100, 110cc scooters. That has been degrowing almost 23%. Now, obviously, 125cc is a new segment for us because we've not been there. We've just been there about 11 months now with Destini as the solitary option that we had. We have now strengthened that segment with Maestro Edge 125 and the FI variant. So now the portfolio is a little more complete. Clearly, that's a segment that we believe is going to lead the charge in growth for scooters. And there's going to be a internal evolution of the category into 125. No small wonder then, that you know, when you saw the scooter in the BS VI being launched by one of our competitors, there is the first model they've launched in BS VI is a 125cc. So it just goes to show the importance of that category. We had called it out last year. So when we launched Destini, we talked about it. We have been able to maintain a 15% market share around in that category, 125. Clearly, our aspiration is much higher. At an overall scooter level, the amount of seriousness we have for the category is absolutely pretty much there. And the fact that we have in the first 6 months, launched 3 new models of scooters, basically, [centering] to 125cc portfolio by launching 2 variants of Maestro 125, the FI and the carb variant. And then also trying to bring in a refresh, a new product, the Pleasure 110 in the 100, 110cc scooter category. Our portfolio in the 110cc needed refresh as well as led the charge. Subsequently, as we go into the BS VI zone, you will [soon] realize that all of our brands are going to see a massive change. And hopefully, that will bring in a lot of units to the entire range and will help us come back in numbers. Surely, there has been some setbacks in the recent past, but our intention is to come back very strongly in scooters. And a new proposition, which we ideally think we should [own up,] which is a very strong contender in the category.

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Operator [24]

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The next question is from the line for Raghunandhan from Emkay Global.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [25]

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Congrats on the festive season sales. So I have 2 queries. First query was on RM cost. Gross margin has improved by almost 2%, what factors have led to this improvement? Also, if I look at H1, the change in inventory, which is part of RM cost was almost INR 3.3 billion. But the balance sheet shows a change of INR 1.5 billion, what is the difference there? My second query was on tax rate. What is the expectation for the full year and H2 tax rates, sir? And lastly, if you can also share the spares revenues.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [26]

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Right. So many questions, Raghu. But let me try and answer that. So one, as you yourself answered the change in gross margin is led by material costs, there are 3 parts to that, and I won't be able to quantify individual parts. But one is continuous savings that we get from our sourcing and LEAP program. The second is the general softness in the commodities, which is helping the auto sector. And third, of course, is the inventorization, which some of you have already picked up, yes, which unwind in the next quarter. As far as spares revenue is concerned, for this quarter, we have INR 723 crores of parts revenue, which is a growth of around 1.5% on year-on-year basis. And as far as tax rate is concerned, the tax rate, overall, if you look at it, has the impact because you spread over a bit of quarter 1 [of the higher] of the full tax rate absorption and the benefit which came in Q2 also absorbs that. And the way we've accounted it, overall full year tax minus the Q1, the benefit is spread over the 3 quarters. It [talks] about the benefit of the deferred tax liability, which was restated at the revised tax rate. So underlying, if you see from next year onwards, you should be seeing a 25% to 26% kind of tax rate, which is what comes if you look at the base rate surcharge (inaudible). Hope that answers your question.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [27]

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That was very helpful. And one more thing that I had asked was the change in inventory in first half was INR 3.3 billion, but balance sheet inventory change was INR 1.5 billion. I mean, just was trying to reconcile those numbers.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [28]

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Maybe what you can do is you can take it off-line with Umang. We'll be able to answer this. But what the balance sheet reflects is the exact inventory that we have as on September 30 and values at the appropriate basis.

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Operator [29]

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The next question is from the line of Jay Kale from Elara Capital

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Jay Kale, Elara Securities (India) Private Limited, Research Division - Analyst [30]

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So my first question is regarding the festive season and for the inventory. I just wanted to get a sense that this you're talking of growth on a Y-o-Y, festive-to-festive and what would be your inventory currently? And what is the ideal level of inventory that you look at post-festive in a normal case scenario? If you could just throw some light on that.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [31]

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Yes. So Jay, thank you very much. Let me just answer this question on the what is the normal inventory levels that we are very comfortable with so -- as much as the dealers are. So I think, ideally, the stock level that we are comfortable with is about 45 days. We maintain that. About 4 to 6 weeks of inventory is something that is required, given the kind of SKUs, the kind of network that we have, the penetration that we have. We need to keep the network fed -- well fed. And therefore, that kind of works out at about 45 days. Now by saying that, it's important that we have a very good line of sight in terms of retail, which means essentially in a good, solid, healthy market situation, 45 days is a right level of inventory. However, when the market sentiment is poor, even a 45-day inventory starts hurting. Now to answer your question of what is our plan to close the festival season with. Our intent is -- and we're targeting to get this down to 30 days. And there's a reason why we're trying to get it down to 30 days, and we may be close to that, we may be thereabouts, but that's the intent. And the reason is very simple. We are getting into -- this is not a normal year. This is a year, which will obviously lead to a lot of change -- it is a transition year of BS VI. Therefore, it will really put a lot of -- put a lot of the impetus on how we are able to manage our inventories and how we have been able to manage the transition best. And to that extent, we will need to be extremely careful and guarded about in terms of the kind of exposures we keep in the market. So while intention is to bring it down to 30 days, I would still retain that the ideal level would be 45 days. So we really have a headroom opportunity there. But the reason we are not counting that in, and we are sort of discounting that is only to bring in the seriousness about our intent to transition as smoothly as possible. So that's the whole idea. So ideal level, 45 days in a normal healthy market situation. In a rather not-so-healthy market situation, even the 45 days start hurting. The answer to your question on closure of festival, the target for us is about 30 days (inaudible).

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Jay Kale, Elara Securities (India) Private Limited, Research Division - Analyst [32]

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Great. And this is -- I'm assuming this is including the sub-dealer level and...

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [33]

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That we have said, it is our direct dealers, and that's how we monitor, like-for-like, as long as all the other inventory levels are remaining the same, it doesn't matter.

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Jay Kale, Elara Securities (India) Private Limited, Research Division - Analyst [34]

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Sure, sure. And just one, last on the scooter side, I mean, we [built] upon that. But just to understand, what are the macro factors, what should change in the economy for you to believe that scooterization will come back again. In FY '21, you alluded on the rural factors which are more motorcycling. Anything that you are looking at from the economy perspective that scooters could come back? Or do you think that once rural comes back, you will see scooters in the rural markets also coming back, which has been hurting currently? Or have they been -- have rural scooters been grossly underperforming urban scooters currently?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [35]

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Well, I'll just leave you with one insight. And I think I will leave it out for the jury to decide. Because right now, there are multiple levels of assessments and [piercings] that are kind of going on. But there's one data point, which I'd like to happily share with you is that if you look at the trend on scooterization and the sort of reversal or, let's say, at least a blunting of that scooterization, you would possibly be able to plot it against a very [healthy] graph for the fuel price increase. Now if I was to take that data point as a fairly reasonable reference, unless the crude drops down to $50 per barrel, I don't see any recovery beyond the point that it's already gone to. So I guess, when you do the plotting and you do the graph, you realize that clearly, for consumers, fuel efficiency and mileage is a very critical one. And therefore, their belief that motorcycle will deliver better mileage is not an unfounded one. That's also a reality. On an average, motorcycle delivers 20% more fuel economy than a scooter. So (inaudible) fuel becomes, is very critical in terms of the reason to buy for a consumer. I think it will continue to be something that will haunt scooters. Unless scooters do something dramatic, which is bring the fuel efficiency levels as close to motorcycles, the possibility of reversing the opposite trend of scooterization is not going to change dramatically. So I guess while there efforts with the BS VI, people are talking about improved in mileage. But those mileage numbers are still going to be very off from what motorcycles will deliver for similar technologies. So my guess, therefore, it's -- this is the level and for scooters to come back, they will have to outperform motorcycles in terms of what they are -- delivery on mileage, et cetera, as one critical aspect, and there are several other areas which customers see. But I'm just leaving you with this insight and you can do the maths on that. So therefore, we do believe that motorcycles will have a continued good run.

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Operator [36]

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

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

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Sir, my question pertains to your net realization, what kind of price increase you have taken in this quarter?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [38]

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We took price increase in July itself, we haven't taken from October 1. But In July, what we took was around on a net realization basis, close to around INR 200 (inaudible) basis.

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

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Okay. Okay. And what kind of commodity saving you would have benefited in this quarter? I mean, most of your peers have been indicating about 20 to 40 basis points. Is it similar for us? Or...

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [40]

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It would be on a similar range. And in that plus the LEAP program, which is the added benefit that we had.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [41]

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Okay. And do we expect further commodity savings just because of the prices?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [42]

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Honestly, it depends on where the commodities go from here. It's extremely difficult to forecast commodities. But if you look at the global economic growth projections of the IMF and the general forecast, then there's no reason to believe that the commodities should do an about-turn. They are more likely to remain softish, but how soft and how far, very difficult to take a call.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [43]

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Sure, sure. And lastly, in terms of variable marketing spend, any sense on how those are trended in 2Q versus 2Q last year, or versus first quarter?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [44]

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So I mean, the way I -- what we are spending is a very similar level as we continue to spend, so there's no big movement as far as our overall marketing and sales spend are concerned.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [45]

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Okay. Because we hear about substantial increase in discounts [had grown on to your site.] So that's (inaudible) what we would have projected for, is it?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [46]

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Yes. I mean, not as far as Q2 and H1 is concerned, you might see some elevated levels in quarter 3, which is the festive season. But again, they are not million miles off from what we have been doing. We haven't been doing mother of all discounts. We've been doing innovative schemes, a 360-degree which is on financing, dealer, credit, and of course, some consumer-customer benefits as well because in festive in India, that's how the expectations are. But it's more sensible and reasonable levels that we are doing.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [47]

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So Jinesh, just to add to what Niranjan was just saying, if you look at what we've been doing this [festivity] I don't think it's way out of the league from what we've traditionally been doing in terms of the spend. But I'm not going to talk about the spends. I'm going to talk about more about what exactly we are trying to do. We're basically trying to look at all the potential levers of demand. Our focus is not on discounting or kind of giving [metal socks] to consumers, we're trying to make it a little more easier and more affordable to buy, by giving very, very interesting finance offers at very little documentation, hassle-free financing, helping them to exchange for those people who are either replacing their existing 2-wheelers, et cetera. So I think the enablement mechanism is working much harder for us. And therefore, it's delivering results. Like I said, at an overall level, we are already in positive trajectory, which probably will get consolidated as we go towards the business end of the festival season, which is now the Dhanteras, Diwali and so on. And therefore, we will come back with some decent numbers again. The key therefore has been that most of the drivers and enablers of demand have been pretty [dominant] -- have been [really dominant] over the last 6 months. So we realize early on that if we have to really turn this around, and we were hoping that there will be some intervention from the demand side from the government. But unfortunately, that didn't happen, we thought of trying to trigger things on our own. I think one of the conscious decisions, and it was a very tempting one given the overall pressure on profitability. And yet, we took a prudent for not changing our prices, given that the consumers were already under stress during the last 6 months. And this particular quarter would have been even worse. So we thought of investing in those enabling systems and mechanisms that will trigger the next level of demand. And we are seeing some impact coming in from that.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [48]

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Great, great. So any reason why our other expenses would have gone up from a Q-Q basis? Is it just impact of higher inventory -- pardon me, higher production or there is more to that?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [49]

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Well, it's just the ratios are just impacted by the overall top line. Otherwise, if you look at on absolute basis, H1-to-H1, if you look at it, the other expenses on absolute basis are actually down by 8%. And Q2 versus Q2, if you look at it, they are actually down by 10.5%.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [50]

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When looking on 2Q versus 1Q, there is an increase, maybe it's...

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [51]

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That's -- I don't think that's the right way of looking at it. I think it's either you should look at Q2 versus Q2, or you should look at H1 versus H1. Otherwise, there always is [tailing] involved based on the timing of launch programs, et cetera, et cetera. So one should not look at sequentially, better to look at year-on-year, you can look at 6 months basis. Even that actually shows a 10% or [8%] decline.

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Operator [52]

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

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [53]

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Just on the realization, of course, you did mention, even in the last call that you had taken a 1% price hike in July. But if you see on a quarter-on-quarter basis, the realization improvement has been much better. Has there been any support from other operating income in Q2 as compared to the Q1?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [54]

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Not really -- I mean, if you look at our other operating income, the other operating income for quarter 2 is INR 193 crores. And last year was INR 203 crores, the same quarter. And Q1, of course, was INR 156 crores. So maybe if you are looking at sequentially, then yes, that explains but year-on-year basis, our other operating revenues by and large remain similar levels.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [55]

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Okay, sir. Okay. That's helpful, sir. And broadly, you did talk about the promotion and ad spending, how would this compare with last year? Are we seeing a slightly higher level of promotion ad spending as compared to last year festive season?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [56]

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I think we just answered. It is at a slightly elevated levels, as we said, but it's not something to be concerned about. And like Sanjay, my colleague, explained, we are focusing on all the levers of growth and not just the discounting alone in the festive.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [57]

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Right. So on the financing penetration, you did mention that you are using [yield] financing as a lever to enable buying. Last quarter, we did talk about a 37% kind of financing for us. How has it trended in Q2? And how are you seeing that in Q3?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [58]

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Yes. So you are absolutely right. The focus on the financing has increased the financing levels to 46% in quarter 2.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [59]

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Okay, okay. 46% in quarter 2. And for the industry, also we would have seen a similar improvement?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [60]

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Difficult for us to say, as far as the industry is concerned. Maybe some other players are focusing on discounts, but we are focusing on financing as well. And that has moved it to 46%.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [61]

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Okay. So if I may squeeze one last question. Sir, with BS VI, will we be launching completely new platforms and wholly refreshed portfolio of products. Will that, in turn, sort of, in some sense, negate the cost impact that will come through?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [62]

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You will get to hear from us very soon.

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Operator [63]

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

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [64]

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So my first question is just a clarification on the answer you gave to Shyam, just prior to this -- my question. How does this 46% financing penetration compare to last year's same quarter, sir?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [65]

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44% last year, same quarter.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [66]

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44%. Because in the fourth quarter call, we mentioned a number of 37% in financing. So I was just a bit confused with the numbers. So...

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [67]

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37% is quarter 1. 37% was quarter 1.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [68]

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Okay.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [69]

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So that's the right number. Maybe you've got the quarters wrong. And this quarter is 46%. And same quarter last year was 44%.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [70]

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Okay. So it's a seasonal spike, which you're seeing in 2Q, which happens every year.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [71]

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Not only seasonal spike, but also year-on-year improvement as a focus on financing.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [72]

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Sounds good, sir. And sir, just wanted to clarify on the dealer receivable bit, how does the accounting for that work? Because we do see that our trade receivables have jumped another INR 500 crores, INR 600 crores over the balance sheet (inaudible) FY '19. So just wanted to understand a bit -- I believe you do charge a interest component on the dealers for the outstanding payments. Where does that line item reside sir, in the P&L? And how much will be that number?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [73]

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So I won't quantify that number. But we do charge interest on over dues. And that gets [part] into the other income.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [74]

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Other income that is below the EBITDA line, right?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [75]

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Yes, yes, yes. Other income below EBITDA line in the published results. It comes in the income line as b-item, which is other income.

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

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Other income. So it's not part of the operational numbers, that's a conservative...

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [77]

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No. No. It's not part of -- it's not part of our declared EBITDA numbers.

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

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No, because some of your peers do account it in the operational numbers, that's why.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [79]

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We follow the absolute pristine accounting, which is that only operation thing we put in operations and interest and financial items we put in other income.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [80]

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Great. And final question on BS VI transition, sir. And I believe we didn't get the inventory number, actually, where it stands today. You talked about a 45-day target, but if you can help us understand where it is today? And given the BS VI transition plan as to -- by when do you see you kind of crossing a milestone of 50% production of BS VI? Because some of your peers are looking at as early as January to be close to 70% to 100% range in terms of the monthly production for BS VI. How would you -- where would you put Hero say in the month of say January or somewhere in terms of your BS VI preparedness at the production level?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [81]

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So inventory, as far as -- let me answer your first question, which is the inventory. Current inventory, what we hold is actually wholly irrelevant. What we have is with our festive plan and we've given out also what we are seeing the growth and expecting the growth. And with that, we should end up at 30 days. That's what we are targeting October end, which will be fantastic at that level or thereabout that level that we should end up with.

Secondly, as BS VI is concerned, we said that post-festive, which you have been saying as well. And you would see the launches coming one-by-one. We have a sequence planned, which is calibrated, both from ramp-up perspective as well as launch perspective, and you will see us migrating over the period, starting post-festive until March.

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Operator [82]

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(Operator Instructions) We move to the next question that is from the line of Ronak Sarda from Systematix.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [83]

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The first question is just a clarity on BS VI transition. So how do you see once we start up model production in BS VI, would there still be [scope] of BS IV vehicle production if there is demand? Because you highlighted that you are building in some estimates or expectations of a prebuy. Or that would be just based on inventory, which goes in Q3, and there will be no production overlap?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [84]

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So we can do. I mean, because we have multiple lines and multiple manufacturing sites. So accordingly, we have various scenarios on which we are navigating to ensure that, A, we do the transition very smoothly between BS IV and BS VI. And second, if there's any prebuying opportunity that comes our way, we are in a position to capitalize as well. So it's a very fine line navigating, and we have scenarios, and our teams are there. There are teams that actually meet on a weekly basis. There's (inaudible) committee, which meets on a fortnightly basis. There's a fair bit of work going on into that. I think our spread of manufacturing sites and multiple lines and scale, it gives us an added flexibility over other players to do this.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [85]

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I'm assuming that would be pretty challenging. And then the second question would be, I mean, can you help us with how the capacity utilization across different plants? And how is the Halol ramp-up going on -- Halol ramp-up shaping? (inaudible) the volume that's [falling] so much in this year?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [86]

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Yes, I think the capacity utilization across plants, you can take it off-line from Umang. You've seen our volume numbers and you know our capacities. So utilization is a function of that only. As far as Halol ramp-up is concerned, it's progressing well. [It's except] that, based on the volume, we allocate, depending on if it is a sale for Gujarat only because Halol has benefit. So all of that goes to Gujarat, all of Rajasthan sales go to Neemrana. And the rest gets allocated based on where optimization makes sense.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [87]

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Okay. And the last question is for Mr. Bhan. If you can highlight how is the customer response for Maestro FI variant? Anything to -- which points out that the FI variant is (inaudible) smooth as a carburetor-based engine? Any feedback from customer side?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [88]

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Yes. So the initial feedback, frankly, Ronak, has been very positive in terms of how the customer is -- I think your question is how the customer is finding the technology FI on a scooter. So the answer to that is, as you know, Maestro FI was the first scooter with an FI to be launched. So to that extent, it was novelty value, clearly, and customers did feel the difference in the ride quality, et cetera, which gives us further confidence for our BS VI because this is the setup to the BS VI. Of course, BS VI has got a few more things, but potentially FI and -- which gives us that much extra confidence because the (inaudible) Ride quality and the experience was pretty decent. And the whole point is that this is clearly a very stable, good product. And hopefully, if we continue in the same spirit as we get into BS VI. Is that much more better story for us.

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Operator [89]

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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 [90]

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Congrats for good set of numbers. I just wanted to understand that if I see your year-to-date wholesales are down somewhere around 17%. And assuming things are going to be steady year-on-year in October but as you are saying that you are confident of prebuying during Q4 on a 30-day inventory, then what's your outlook for fiscal '21 as it will be prebuying of the potential demand for fiscal '21? So one year, we are seeing almost more than double-digit decline. So what's the outlook for '21?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [91]

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So at this point of time, we won't be giving out an outlook on FY '21. We have outlined various factors, both short-term and medium-term factors, and let's see how they play out. And we will have to take on from there.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [92]

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Sure. And second thing, like what Pramod was asking on the call earlier, what was your inventory level, beginning of the festive season, if you can highlight that will be great?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [93]

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Obviously, (inaudible) wholly irrelevant. What is relevant is that in festive, you need to build up for sales because in the 30-day, industry or for anyone else end up selling almost 2.5 to 3x the normal selling run rate. And therefore, the buildup we do based on that planning. All we are saying is that right now, the sales are at per plan. And we hope to close at 30 days, which could be a little optimistic, but it'll still be around those levels is what we hope. I think that's important. So wait out for a few more days.

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Operator [94]

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The next question is from the line of Hitesh Goel from Kotak Securities.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [95]

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Just wanted to understand this inventory when you are talking about, does this include the sub-dealer inventory also? Or do you only the main dealer (inaudible)

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [96]

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No, we have clarified, Ritesh, that it does not include sub-dealer inventory. In the past, also, it never included that. So these numbers are all like-for-like basis, based on what we have been giving out in the past as well.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [97]

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And just to cheer you up. (foreign language)

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [98]

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Okay. And sir, just wanted to get a sense, this BS VI cost increase, have the company taken a call to fully pass it on or retain some of the cost increase? What is the strategy in this?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [99]

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So this is confidential information. And therefore, you will see in the models that come out in the market very soon.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [100]

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What would you advise?

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [101]

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Okay. So I think given the demand scenario, you should not pass it down fully.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [102]

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We'll take it on record. So we'll keep it there. But yes, it's a strategic decision and a call, our pricing is not a tactical thing. It would need to have a bearing on the overall [payout] that is there. And like Niranjan mentioned, it's very sensitive information. Obviously, we need to watch the market very closely and accordingly plan our strategy.

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Operator [103]

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The Next question is from the line of Gunjan Prithyani from JP Morgan.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [104]

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Just a follow-up on this inventory. You mentioned that by the end of the festive you expect that they should come down to 30 days-odd. Is it fair to assume that, of course, retails are faring maybe slightly positive, but you would be taking -- billing corrections in this quarter. So to that extent, the wholesales could continue to stay negative?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [105]

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Yes. To some extent, yes, you are absolutely right. The focus is on the retail and the focus is on market inventory. I think our job is to push retails and do the sales, applying all the levers that Sanjay has talked about, and thereby, get an inventory level from where the BS IV, BS VI transition can happen. Thereafter, of course, the more retails we push, the more [despatches] of the wholesale also we can push.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [106]

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So this 30-day that you mentioned versus the typical 45-day healthy levels that you indicated earlier. My guess is you were saying 30 days right now because you are going through a BS VI transition. So you may not aggressively introduce BS VI inventory, and you would want to keep BS IV lower in the market. Is that understanding correct?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [107]

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Yes, because we have sufficient production capacities to actually take care of the upside of the prebuying. So we want to calibrate. And like Sanjay mentioned, in a times like this, it gives the dealer added headroom and headspace and liquidity space. And from there on, then our BS IV, BS VI transition becomes smoother.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [108]

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And intuitively speaking, Gunjan, would you rather have a lower stock of BS IV to get your transition to BS VI smoother? Or would you want to have high levels of stock of BS IV and still manage to get your BS VI in a very easy manner? So I think the answer lies there. I think it's important that we understand the context in which we're trying to attempt to get to that 30-day inventory. It's to ease the system, de-stress the system and make sure that our transition to BS VI is all set. And then we'll take calls, depending upon how the demand for BS IV versus BS IV. Like we said earlier, we are all ready with every (inaudible). Virtually, every single model is absolutely ready for us to trigger the launch. The timing of those launches, the transition is part of an overall strategy. Unfortunately, at this stage in time, we don't want to really disclose that. That will be visible to you over the time of the launch for various models.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [109]

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Post festive is when the whole corrective action will be taken, and you will make sure that it comes down to 30-odd days?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [110]

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No, during the festival, we need to do the stock correction. That's what we're trying to do. And post-festival, what will be visible to you is the platform that we have set for BS VI transition.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [111]

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Okay, got it. And the second question I had was, are you seeing any divergent trends between the urban and the rural is -- I mean, as far as the last few weeks of [pick up] goes, has it been any -- very different for these segments?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [112]

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Yes, to be very honest with you, I think the first 10 days, we saw a massive hit in terms of overall scooters not doing too well. And scooters is a bit of an urban (inaudible) now. While as motorcycles, while it was not so strong initially, but it started picking up closer to Dussehra and thereabouts, and this trend continues. Even as we speak today, the trend is that scooters, overall, at an overall level, seem to be a little muted in terms of growth, but motorcycles are doing much better. And if you were to link back to the overall [show] plotting of both these categories, then you would figure out that scooters are by and large, more of an urban-centric phenomena, therefore, urban markets aren't doing that well because a lot of these initiatives that the government has taken, it's taking time to kind of play out. And (inaudible) for demand side, not much is happening. And the -- for the first-time buyers, motorcycle seems to be a [bigger] option for rural markets and therefore, rural market has started doing a lot better. So you could say that in the first 20 days of this festival, urban is a little bit muted, while as rural has shown slightly better pulse.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [113]

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Okay. And just last question on financing. Now this sharp increase versus last quarter, is this a structural trend you think? Or is it more a festive scenario where you tend to have far higher festive schemes during this time? So is it structurally moving up meaningfully on financing? Or it's just outcome of this quarter?

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [114]

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No, I think, Gunjan, there are 2 things. If your question is, was it done on purpose or it happened accidently. Then let me clarify, I said this earlier, this was a deliberate attempt. We realized that one of the drivers of demand is the first-time buyer. We've talked about it earlier also. And I'd like to repeat that. The first-time buyer is the one who triggers the demand cycle and growth in the market. If the first-time buyers in any category, stop coming to market, the market is unlikely to grow. The overall impetus to the market is defined by the first-time buying. Now what are the critical things for the first-time buyer is availability, ease and convenience of finance, at the same time, the cost of finance. So we have tried to apply as much [judgment] on that and try to put the entire impetus and focus on driving for the availability, the costs and the penetration of finance in a very different way. So the number that Niranjan has already shared with you, has [inorganic] improvement, which normally happens during festival period, but this is also a very deliberate inorganic push to drive financing particularly for those segments that are going to be coming to the category first time, hence, providing us the growth impetus.

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Operator [115]

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The next question is from the line of Joseph George from IIFL.

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Joseph George, IIFL Research - Assistant VP [116]

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My question was in relation to Niranjan's opening remarks. If I heard you right, you mentioned that the festive season has started seeing some growth, especially after the first 10 days of the festive season. And you also mentioned that sustained recovery may take time. So I'm not able to read the 2 comments together. So can you elaborate as to how exactly you're thinking about it?

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [117]

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Yes, the sustained recovery actually indicates that would, therefore, based on these factors, can we say that now auto sector will be back on the growth path from November onward itself. I think it will be too premature to take a call on that. So that's why I said that sustained recovery may take a bit of time in terms of coming back to the growth levels that the auto sector or the 2-wheeler we have seen. The good thing is that, a, the festive is good, yes, relative to what was happening 6 months -- until six months before, which was 12% decline. On that scenario, if you see that festive-over-festive is actually whatever marginal positive growth is a very heartening sign and positive sign.

Second thing is that, yes, there are a couple of tailwinds which we can see in the near term. But does it mean that now all is well and sector is back to its fullness of growth? The answer is no. So the sustained recovery may take time. That was the intent of making that statement. Equally, that we do remain confident about medium to long-term opportunity on the auto sector.

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Joseph George, IIFL Research - Assistant VP [118]

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Niranjan, do you think there is some bunching up of demand that has happened in the festive season, now some of the sales have got postponed in the last 3 or 4 months, materialized or got converted into sales in the festive? And similarly, because of the discounts or some of the schemes, some of the demand that would have come in, say, in November, December were preponed into festive. Is that something that you're thinking about, a lot of bunching up of sales in the festive? Of course, it happens every year, but do you think it happened a little more this year? and -- which is the reason why you're not too confident on November, December, et cetera.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [119]

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So Joseph, let me take (inaudible) I think it's a very relevant question to ask. A, this is not unique. This happens every year. People do tend to kind of bunch up there requirements towards the festival season. We as Indians love to do the binge shopping part during the festival. And I think that's normal. But this year was a little bit peculiar in nature. So we saw a lot of uncertainty in terms of these cyclical trends and the fact that there was a lot of uncertainty around what's going to happen in terms of the regulation, in terms of the government intervention, there was expectation that the GST may be going down, et cetera, et cetera. So a whole lot of people did postpone. In our July call, I think we mentioned at that time. One of the typical trends we were seeing in the industry at that point in time was the quality of inquiries was becoming poor, which is meant that the number of inquiries were going down, which is understood in a depressed market environment. But worse still was the fact that the conversion of those inquiries was not happening. A lot of that was being deferred. And we are seeing that the initial days of -- not initial days, we're almost 24 days into the festival now. So the 24 days of the festival thus far. And a lot of that has also converted into sales. And therefore, the question on bunching up is absolutely relevant. But most of that bunching is already fructified, some of that may still happen in the next few days because we are now, as I said, in the business side of, particularly the Northeast and Central India, this is the festival, the big one. So hopefully, that will also show up. And that's why we are very confident that (inaudible) the numbers will be even better than the numbers that are there currently for us.

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Operator [120]

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Ladies and gentlemen, that will be the last question. I now hand the conference over to Mr. Priya Ranjan for closing comments. Thank you, and over to you.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [121]

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Thank you. Thanks for participating in the call and thanks to Hero management group for opportunity to host. Thank you, everyone.

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Sanjay Bhan, Hero MotoCorp Limited - Head of Sales & After Sales [122]

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Thank you so much. Thank you, everyone. Bye-bye. Happy Diwali.

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Niranjan Kumar Gupta, Hero MotoCorp Limited - CFO [123]

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Have a good festive. Happy Diwali, everyone.

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Operator [124]

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Ladies and gentlemen, on behalf of Antique Stockbroking, that concludes today's conference. Thank you all for joining us, and you may now disconnect your lines.