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Edited Transcript of TVSMOTOR.NSE earnings conference call or presentation 4-Feb-20 12:30pm GMT

Q3 2020 TVS Motor Company Ltd Earnings Call

Chennai Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of TVS Motor Company Ltd earnings conference call or presentation Tuesday, February 4, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* K. Gopala Desikan

TVS Motor Company Limited - CFO

* K. N. Radhakrishnan

TVS Motor Company Limited - President, CEO & Additional Whole-Time Director

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Conference Call Participants

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* Chirag Shah

Edelweiss Securities Ltd., Research Division - Research Analyst

* Gunjan Prithyani

JP Morgan Chase & Co, Research Division - Analyst

* Hitesh Goel

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

* Jinesh K. Gandhi

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

* Kapil R. Singh

Nomura Securities Co. Ltd., Research Division - Executive Director

* Pramod Kumar

Goldman Sachs Group Inc., Research Division - Executive Director

* Priya Ranjan

Antique Stockbroking Ltd., Research Division - Research Analyst

* Raghunandhan N. L.

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

* Ronak Sarda

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

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

* Annamalai Jayaraj

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Director & Deputy Head of Research

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Q3 FY '20 Earnings Conference Call of TVS Motor Limited hosted by Batlivala & Karani Securities India Pvt. Ltd. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities. Thank you, and over to you, sir.

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Annamalai Jayaraj, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Director & Deputy Head of Research [2]

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Thank you, Nirav. Good evening, everyone, and thanks for joining the call late in the evening. On behalf of B&K Securities, I welcome you all to 3Q FY '20 Post Results Conference Call of TVS Motor Company Limited. We have with us today, Mr. K. N. Radhakrishnan, Director and Chief Executive Officer; and Mr. K. Gopala Desikan, CFO.

I will now transfer the call to Mr. K.N. Radhakrishnan for the opening remarks to be followed with a question-and-answer session. Over to you, sir.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [3]

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Good evening, everyone. This is KNR. So first, I would like to start. We had a good Q3. We have successfully launched the BS VI variants of Jupiter, Apache mopeds. During January, we have further launched other variants, and I'm extremely happy that we have transitioned into BS VI. We have stopped the BS IV production effective last month. That was in January. We have developed 2 versions of BS VI Fi platform, namely, Ecothrust Fuel Injection and Race-Tuned Fuel Injection. Ecothrust Fuel Injection technology provides enhanced overall performing across drivability, smoothness and fuel economy. RT-Fi technology, on the other hand, especially designed to enjoy the racing experience or driving conditions. And customers will get 12% to 15% fuel efficiency improvement. And it brings down emission by 93%.

We also launched recently RR310 BS VI variants with very attractive features; multi-information race computer control with Bluetooth smart connectivity SmartXonnect technology; ride modes, 4 ride modes, urban, rain, sport, and track; throttle-by-wire technology; GTT+ for optimum performance; superior Michelin road 5 tyres.

So overall, I think, we are best-in-class. And we are also, last week, we had launched our TVS SmartXonnect platform, TVS iQube Electric, which is very clearly, we are now focused on urban and green connected. We are happy to state that the transition of BS VI inaugural has been very successful. For the quarter Q3, the industry continues to decline due to lower economic growth and lack of liquidity. The sales of 2-wheelers for the quarter, industry declined by 11%. TVS sales declined consequent to this and also we have rationalized our BS IV stock. Export for the 2-wheeler during the same quarter grew by 22%, 3-wheeler sales grew by 22%, again.

Total revenue for the quarter is INR 4,128 (sic) [4,127] crores compared to INR 4,655 crores of last year. Strong focus on profit improvement initiatives helped the company to improve the EBITDA for the quarter to 8.8% compared to 8.1% during Q3 of last year. The company had, in the previous quarter, reversed the provision of INR 76 crores towards NCCD based on a favorable ruling by CESTAT in the company's case. Following the ruling given in the current quarter by Honorable Supreme Court that NCCD is leviable, the company, as a prudent measure, has reinstated the provision of INR 76 crore as an exceptional item.

PBT before the exceptional item for the quarter is INR 221.8 crores compared to INR 258.4 crores for last year. Profit after tax, before exceptional item for the quarter is INR 184.23 crores compared to INR 178.4 crores of last year.

Indonesia, I'm extremely happy. We have sold 40,748 numbers of 2-wheelers compared to 26,291 numbers. TVS also sold 5,957 3-wheelers, compared to 1,422. In this quarter, PT TVS achieved a breakeven, and we expect to consolidate these gains during next quarter. Board at its meeting held today declared an interim dividend of INR 2.1 per share, 210% absorbing a sum of INR 120.3 crores, including dividend distribution tax for the year '19/'20.

As I highlighted, we have -- during Q3, Jupiter portfolio was refreshed with Jupiter Grande SmartXonnect in 2 colors, TVS Apache RTR launched with SmartXonnect, NTORQ great addition, exciting colors and upgrades in Sports, City+, Radeon, and Pep Plus and XL100. We have changed it over to BS VI, as I highlighted in January. We have stopped BS IV production for the domestic market. We have launched TVS iQube Electric scooter with very salient feature best-in-class in this segment.

And when we look at -- for Q4, we expect the industry to be challenging, primarily because of the decline in PEB. The buying power of the consumers over the last 12 quarters, we have seen due to BS III, BS IV changeovers and interim cost increase ABS to SBT and BS IV to BS VI changeover almost 35% increase. Economic growth continues to be low.

The BS VI product of TVS Motor will -- with the technologies whatever I have highlighted gives you 12% to 15% fuel efficiency, better ride comfort. And the initial feedback of our customers are very positive. Monsoon though delayed has been normal and reservoirs are having good water level. This should lead to better VA/VE and tariff costs during 2020.

The relief measure announced in the budget focus on rural infrastructure should stimulate demand. We are hoping that the government will definitely consider the request of GST reduction of BS VI from 28% to 18%. This will help recover faster. We are expecting the recovery to start second half of next year.

Our exports will continue to outperform the market. We have a very good portfolio, both in 2-wheeler and 3-wheeler. With our mega brands like Apache, Jupiter, NTORQ, Star range and HLX, Radeon and TVS King, we expect to grow ahead of the industry, both in domestic and international markets, and the focused cost reduction initiative will help us also to focus on and -- the growing EBITDA. Thank you.

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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 from Pramod Kumar from Goldman Sachs.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [2]

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Congratulations on a good margin performance. Sir, my first question pertains to the sustainability of the margins, we have seen like last few quarters, we've been significantly outperforming the industry on a relative margin performance basis. And given that BS VI is going to be a meaningful headwind for the industry and for you as well from a cost perspective, how should one think about the trend in the operating margins in terms of whatever you have delivered in the last few quarters, you expect to kind of build on them as volumes come back? Or you would be more cautious on the margins going into FY '21?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [3]

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I think we have -- actually, if you look at our margins in the last 4 quarters, we have been consistently performing. Thanks to the cost reduction initiatives for the -- in terms of the localization, the various initiatives of looking at alternate suppliers and also looking at kind of product mix we have got and the international business and the 3-wheelers, definitely, we will continue to focus on the EBITDA margin. The BS VI transition, as far as we are concerned, we have completed, and we will be supplying only BS VI in the domestic market in February and March. And our stock levels are under pretty good control. So we expect the same momentum to continue.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [4]

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Sir, and on a related note, how much of your Q3 revenues were geared towards BS VI? Because you have started dispatches, I think, somewhere like in November itself. So I just want to understand, do we -- did we have any reasonable exposure to BS VI revenues or BS VI volumes in the third quarter?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [5]

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It was very small. See we started, like I said, in Q3, we started Jupiter certain variants and Apache certain variants and moped. And all we started sometime in the third week of December. Yes, we started some time in December, and then significant proportion has started in January.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [6]

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And if you can just talk about the various catalysts for margin improvement. So if you can just help us understand where are we in different, like, say, on localization, how much have we achieved? And how much more can be done? Or similarly on cost reduction, how much of -- how much extra can be -- because the reason I'm asking this is, your margin performance is in context of a 17% volume decline. And your EBITDA per vehicle is highest ever. And margins are up in a meaningful way. So I'm just trying to understand how strong is this tailwind on the cost side? And if you can quantify how much have you lost out because of lack -- the operating deleverage what you have been suffering for the last 2, 3 quarters?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [7]

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See both content, we have been constantly looking at, which has come down from 14% to 10%. And we are looking at moving to something like 8% here going forward.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [8]

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Sorry, 8% -- is that 8% -- did I hear 8%?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [9]

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No, last year was 14%, and this year, it has come down to 14% (sic) [10%] of the total material cost. And next year, so 14%, and next year, we are looking at almost 8%.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [10]

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FY '21?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [11]

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This is the import content. And if you look at the overall cost reduction, we are almost -- Q3 to Q3, I'll tell you in just a minute. We are -- overall material cost reduction has been almost 2.3% comparing last year Q3 to this year Q3. And Q2 to Q3 almost 0.6% to 0.7%.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [12]

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0.6% to 0.7% sequentially between December quarter to -- sorry, between September quarter to December quarter?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [13]

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Yes.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [14]

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Okay. And you see it's sustainable. I think you can see further improvement going forward as the scales come back or as the business normalizes?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [15]

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This focus will continue going forward also.

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Pramod Kumar, Goldman Sachs Group Inc., Research Division - Executive Director [16]

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Okay. Sir, and last question on the BS VI acceptance because it's still early days. I understand, but January, you have had a meaningful dispatch of BS VI. If you can just help us understand how is the initial feedback from consumers, where, like, say, example, Apache, you don't have a BS IV variant anymore. So the customer doesn't have the choice of buying a BS IV from the dealer as such. So how is the customer reception to the increased price hike and the -- and then the value proposition in the BS VI regime, sir?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [17]

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Yes, Apache, Jupiter, the early feedbacks are very, very positive and excellent in my -- both in terms of both RT-Fi and ET-Fi technologies. And moped, again, we are getting a very positive feedback on the fuel efficiency and pickup and overall smoothness of the vehicle. So overall, even though the number of customers have started to like BS VI is lesser, the feedbacks are highly positive.

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Operator [18]

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

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [19]

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Congrats on a good set of numbers. Firstly, I wanted to check on the demand environment, what are you seeing currently? More in the context of the kind of volume declines we are seeing, if you could just help us understand whether the retails are in line in December, January or -- and where are the stock levels?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [20]

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See our retails are much better than our dispatch levels, primarily because we wanted to cut down BS VI -- BS IV stocks in the market. And we are pretty healthy. Our dealers have got very manageable stocks on BS IV because last month, we have given significant proportion of our sales on BS VI. And we are pretty confident that we'll be able to transition into BS VI much ahead of the time line.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [21]

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And sir, where are the inventory levels now?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [22]

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We have about 5 weeks of the forward retail numbers. Always, we maintain that.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [23]

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Okay. This is the dealer stock?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [24]

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Yes, dealer.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [25]

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Okay, okay. And in terms of exports, there were some news flow today that there is some issue in Nigeria, particularly where there are some exports markets like Lagos, they have banned some taxis and all. So I just wanted to check in terms of TVS exposure, how much do we export to Nigeria, both in 2-wheelers and 3-wheelers? And your thoughts on what will be the impact because of this ban?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [26]

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Too early. Too early, as we are fairly balanced also in terms of our exports. We have to assess it depending upon the complete understanding of that.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [27]

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Okay. And what is your exposure to Nigeria as a whole?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [28]

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Nigeria is, 3-wheeler it's a little higher, 2-wheeler is fairly balanced.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [29]

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Okay. Will it be possible to share numbers?

Some numbers, like what percentage of export [hit us]?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [30]

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3-wheelers, maybe -- 3-wheelers is about 55%.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [31]

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Okay. And 2-wheelers?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [32]

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2-wheelers is very small. Less than 15%, or even 20%, around that.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [33]

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Okay, okay. And just...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [34]

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I'm saying this is too early to judge on a news item today. We need to understand deeply what is happening.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [35]

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Sure, sure. Yes, we will look for that feedback from your side. And also on the product side, you mentioned that there is very...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [36]

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See we are exporting to 70 countries, each country will have some news. Okay? Overall, we have to look at it, and we are pretty confident of exports.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [37]

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Okay, okay, okay. And just on the technology front, you mentioned that there has been very positive feedback. I just wanted your thoughts that when customers are right now having both options, BS VI and BS IV and some of the BS VI options, as you mentioned, are offering much higher fuel efficiency and better features. What are the customers preferring? And is there a different reaction in different segments? Or in all segments, you are seeing similar type of reaction?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [38]

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Too early, too early because BS VI, BS IV has been -- the customers have got the experience for a longer time. BS VI is just reaching and whatever the feedback I gave you is very, very positive and very healthy. So too early to comment on how the -- we are pretty confident that our BS VI technology is one of the best in the industry.

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Operator [39]

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(Operator Instructions) 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 [40]

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I have one follow-up on this inventory question. The -- you mentioned 5 weeks. Is it fair to assume that majority of it would be BS IV, because the transition has been -- gained momentum only in Jan? Or is there any sense you can give of how the investments have been...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [41]

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This 5 weeks is total together and our dispatch in the month of January, 60% is BS VI.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [42]

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Okay. The Jan is 60% -- oh, the 60% is BS VI?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [43]

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Yes.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [44]

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Okay, got it. And in terms of moped, I just wanted to get your views on how we should think about it? Because there's been almost a sizable rundown in this segment. And I mean, is, of course, there's combination of rural being weak and a lot of other issues. But what is the feedback that you're getting? I mean, how should we think about growth? And also, the technology that you've used in moped, if you can share something around that on BS VI? Because the price increases seems far more modest there. So any color on that will be good?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [45]

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See the decline on moped is mainly on account of weak sentiment in the rural, okay? If you look at it overall, initially there were delayed monsoon, okay? And we saw huge increases in premium of insurance, okay? And we also saw very huge discounting in the economic, motorcycles and many competition. So there are multiple factors which affected moped. However, TVS gained with electric start with ISG version. And now we have come up with the BS VI version with a very good fuel efficiency, very good pickup and in terms of smoothness. So we are pretty confident that this category will start doing well.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [46]

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Sir, what is the technology on BS VI you're using and the price increase?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [47]

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We are using Electronic fuel injections.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [48]

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And then how have you been able to manage such a small price increase there? Is it that we are not passing through because it's a more sensitive segment?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [49]

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It is overall -- see, the pricing is based on the overall portfolio. We have various line of products. We have an overall portfolio, okay? And we are also focusing on cost reduction. So we have to look at overall, how do we manage the overall portfolio. And you look at what is very, very critical is giving an excellent product of BS VI, and we have been always highlighting that moped as a category, we'll be able to manage with an excellent technology for the consumer. So we are pretty happy that we are able to give the technology and customers, the initial feedback is very, very good. And with the rural and the reservoirs being full, I think, rural sentiments are positive. So most important is, once you have the rural sentiments which are positive and lesser competitive pressure in the entry level, hopefully, because with BS VI, everyone will have pressure. I think, we are confident that moped will start doing very well.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [50]

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Okay. And just last question on the financing. If you can share how has that moved up in the quarter? Are you seeing because the BS VI products are expensive. So is there financing you think can be a solution to...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [51]

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Surely, we feel that financing, retail financing, and we have a very strong arm TVS CS and that we will leverage as we start retailing big numbers of BS VI going forward.

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Gunjan Prithyani, JP Morgan Chase & Co, Research Division - Analyst [52]

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Okay. Has there been -- what is the financing penetration right now for the -- for your portfolio?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [53]

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Q3, majority of the sales has been BS IV and we are keeping almost -- our regional finance penetration overall has been 50%, 52%.

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Operator [54]

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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 [55]

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Congratulations on the sustained margin performance, sir -- operational performance. Sir, you could highlight that on a quarter-on-quarter basis, there is a 70 basis points that has come in from the material cost reduction? Is this largely due to underlying softness in the commodity prices. Or is it also got to do with some actions that you have taken for -- towards material cost reduction, if you can talk something on that lines?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [56]

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The material cost reduction definitely helped us. Okay? Commodity costs are also soft. Okay? So overall, we have benefited majority from material cost reduction and some from the softness of the commodity.

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

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Okay. So is there any ForEx and mix impact in terms of higher exports, has that also...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [58]

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Nothing, nothing. Practically, this quarter has been no change.

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

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Okay, okay. Understood, sir. Understood. Sir, as we're launching these BS VI vehicles on a gross profit per vehicle basis between erstwhile BS IV and BS VI, can we expect the gross profit per vehicle to be largely equal between BS IV and BS VI? Is that a fair assumption?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [60]

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Yes. In terms of absolute terms, maybe, yes, but maybe in percentage terms it maybe a little lesser. But going forward, you understand that the consumers are extremely happy. I think with our material cost reduction strategy plus ability to price better, we have a very good opportunity to, on one side, manage our demand ahead of the industry. On the other side, there is material cost reduction initiative, we can also a little bit of pricing. Overall, we will be able to do much better than what we are doing today. And please remember, almost 30% of our business comes from international. And that is also growing much, much faster.

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

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Right, sir. Right, sir. Right, sir. Sir, one last question...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [62]

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2-wheeler and the 3-wheeler.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [63]

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Right, sir. Sir, one last question, if I may. In terms of product white spaces as we see today, over the next 2 to 3 years, what we -- what are some significant white spaces that we think we can enter both on the motorcycle as well as in the scooter space? And any thoughts on the BMW venture? Are we planning to launch more products from there as well, both -- on both of these counts, sir?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [64]

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In terms of white spaces, I think, NTORQ, for example, is the new white space. This is something we have to constantly look at, and we have to delight the customer. And TVS products, we always come up with something, delighting the customer, and we are J.D. Power consistently fourth year in succession, we are the #1 both in attractive quality, IQS and also service index, we have been #1 consistently. So this is something we will continuously focus and deliver and delight the customer.

And with respect to BMW, I think they are extremely happy. The 2 products, we are doing extremely well. We have launched our one version of

(technical difficulty)

the new one BS VI was recently launched. And we are -- possibly next year, we will have one more variant of that from TVS Motor Company. So this is something the new product and upgrade is something we have to constantly look at opportunities and constantly delight the customer, and we will invest behind that.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [65]

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Right, sir. Great, sir. Great, sir. Sir, on the iQube Electric scooter that we have launched, sir, what is the market network strategy that we are thinking about? And how do we plan to expand? And any thoughts on electric 3-wheelers as well, sir? That will be the last question.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [66]

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See we are already started this with the Bangalore. Okay? We have -- currently, we have started with about 12 dealerships and we are 15. The next phase we will be looking at more cities, Delhi, Mumbai, Calcutta, Kolar, Trivandrum, Chennai, I think it's a very, very planned approach. And the product is extremely good. It has got superior connectivity powered with TVS SmartXonnect platform. It has got host of exciting connected features like geofencing, turn-by-turn navigation, remote charging status, find my iQube. So many -- incoming call alerts and smart ride analytics. So there's plenty of positives and attractive quality to delight the millennials, especially the urban young and it is focused on green and connected. So it has got a huge advantage. So we are really confident on the TVS iQube Electric.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [67]

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And on the 3-wheeler, sir, any thoughts on that? Electric 3-wheeler?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [68]

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3-wheeler, electric 3-wheeler also process a lot we will definitely let you know.

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Operator [69]

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Next question is from the line of Hitesh Goel from Kotak Securities Limited.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [70]

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Congratulations on good set of results. Sir, can you add some guess on the industry in the first half of FY '21, given that BS VI models will be launched. So any idea how industry is looking at the industry in the first half, could it be a substantial decline, will it start picking up? What is your stand on that?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [71]

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First half maybe a decline, at this point of time, too early to put a guess on how much will be the decline, because we are still expecting the GST could be reviewed and produced because this is a common man's, 2-wheeler is not a luxury item and definitely, rural sentiments are positive, agri should do well. There are a lot of initiatives taken in the budget, which will definitely focus on the rural and the infrastructure. So at this point of time, too early to comment on how H1 -- I'm pretty confident that H2 onwards you will find some improvement in the market. A churn may be a mild to negative. We are not looking at a big negative. But as far as we are concerned, like I said, we have excellent products with completely transitioned to BS VI and the technology is very superior and customer will get excellent benefits. And exports, we will do extremely well, both on 2-wheeler and 3-wheeler. So overall, I think we expect H1 should be good for TVS.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [72]

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Sir, can you -- just can you also shed some light on exports? Because we are seeing both you and Bajaj doing very well over last one year in exports. So it's -- is that market itself growing in Africa? Or is it that Indian players are gaining market share in the Chinese market? And how should we look at this trend over say next 1 or 2 years?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [73]

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I think most of the markets are stable. I will put it that way, highly stable. Currencies are stable, availability of currencies are good. Bajaj is also doing extremely well in the international market. And we are also doing extremely well in the international. Like I said, the Indian brands are very much liked by consumers in this market. And we have been consistently growing much ahead of the industry. So I'm pretty confident that we will do. And we have an excellent lineup, HLX to our models like Apache, NTORQ, the HLX Range, TVS King. So overall, and we are present in more than 70 countries. So they like India brand. So overall, it has been a great journey. And the stability is there in the international market.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [74]

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So stability, meaning there is not much growth, right? That's what you meant, and it's more because...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [75]

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No, I never meant stability means lack of growth.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [76]

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No, no. I mean...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [77]

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Stability means consistent growth, whatever you are seeing today will continue is the...

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Operator [78]

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The next question is from the line of [Dinesh Singh] from Morgan Stanley.

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Unidentified Analyst, [79]

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Just a clarification.

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Operator [80]

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Dinesh, sorry to cut you, may I request you to speak a little louder?

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Unidentified Analyst, [81]

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Yes. From Nigeria, I know like given it's almost half of your 3-wheeler exports. Is the ban on 3-wheeler taxis also? Or is it only on 2-wheeler taxis?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [82]

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Still too early on -- too early to comment on any of those news items, because we need to understand in-depth. And as I said, we are already present in 70 countries. Okay? These are some of the things, which the local government takes the decisions, okay? And we have to understand deeply what it means. So according to me, I am pretty confident that overall TVS do extremely well in exports, okay, both in 2-wheeler and 3-wheeler.

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Unidentified Analyst, [83]

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Yes. No, I particularly appreciate that as and when you get clarity, please do share because it is half of your exports. So it's quite sizable...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [84]

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In other markets also, our market share is growing, as the market expands, overall 3-wheeler, we are doing close to now 15,000, 16,000, and we have grown 22% over last year. Okay? And if you look at it, so far we have done 121,000, April to December. So please understand, we have to expand in every market whether it is Ethiopia, Tanzania, Egypt, Peru, Mexico, Ghana any market, and acceptance of our 3-wheeler has been very positive.

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Unidentified Analyst, [85]

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Right, right, right. And sir, secondly, like when we look at the entire narrative on GST cut for 2-wheelers, it's really confusing because 2-wheeler companies have passed on all the cost hikes to the consumer, and across manufactures the narrative is that the response to 3-wheeler products is quite good. So in the sense, then why will the government cut because as the industry has passed on all the costs, the consumers seems to be happy with 3-wheeler products. So don't you think then the probability of a GST cut on 2-wheeler will be very low?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [86]

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I didn't get your question.

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Unidentified Analyst, [87]

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Because like in case of cars, the industry has absorbed some of the price hikes because they believe that the demand environment is weak. So the consumer will not be able to absorb. Whereas in case of 2-wheelers in India, all the 2-wheeler players have actually passed on the GST cut or cost to the consumer. So in the sense, so better than cars actually a lot of them, it seems like some of the BS VI cost hikes, they have actually absorbed.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [88]

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Okay.

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Unidentified Analyst, [89]

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So in that sense, it seems that -- and the response also that like you are also talking about that the BS VI products are getting very good response. So in that sense, it doesn't seem like...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [90]

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See my experience is as long as customers sees a huge benefit in the product in terms of fuel efficiency, better ride comfort, or smoothness, very good pickup. I think customers are -- definitely look at what is -- we have also given new features. So it's not only BS VI as the cost increase. It is a combination of BS VI, but many attractive features in every model we have given. So when you package it like that, customers will definitely value that.

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Unidentified Analyst, [91]

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Right, right, right. Sir, I was trying to get as to what is the probability that there will be a GST cut on 2-wheelers in that sense?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [92]

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See, I don't know, because that is the government's decision, but I'm pretty confident that this is -- it used to be a common man. This is not a luxury item. So we have been definitely persuading the government to review this, and I'm pretty confident that at some point of time, they will definitely do something favorable to the industry.

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Unidentified Analyst, [93]

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Right, right. And sir, just lastly, on the gross margin trend. It's a very good trend that we've seen across the industry, both in September quarter as well as in December quarter, Bajaj, Hero, TVS, have all seen gross margin expansion. A part of it would have come from commodities. Looking at the current commodity prices, do you think that there is more gains from the commodity side that can come to the margins?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [94]

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See we have focused on material cost reduction, okay? That is helping us much more. Commodity is soft. And commodity depends upon how the industry is going to behave next year. Okay? And it is too early to comment on how the commodities are going to likely behave next year. Okay? As of now, commodity is smooth and soft. And the Q4, for example, the industry will be still negative.

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Unidentified Analyst, [95]

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Right. Now sir, from the current year commodities are is it reflected into your margin? Or do you expect any more commodity led gains into margins?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [96]

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It is flat. It is flat.

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Unidentified Analyst, [97]

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Okay. And sir, just lastly, sir, sorry, one more question on the electric vehicles that you launched, very interesting specs. What kind of any volume target? And any -- what is the localization rate of this product?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [98]

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It meets the same norms, and we are looking at initially -- we have capacity for 1,000, but we are initially looking at 100, and we are pretty confident that the customers will love our product. And capacity is not a constraint once we start -- once the demand starts picking up, we will definitely start fulfilling the demand.

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Operator [99]

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(Operator Instructions) Next question is from the

line of Raghunandhan from Emkay Global.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [100]

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Firstly, sir, on the export incentives, the MEIS scheme could be withdrawn. What are your thoughts on whether there is a risk of withdrawal of incentives? And what could be the impact?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [101]

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Again, in fact, in the budget itself, the finance minister has said, they will come back with another scheme on [OTTEP] therefore this -- whatever the -- as on account of MEI scheme will definitely be compensated by some other scheme, and we don't foresee any loss because of withdrawal of that.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [102]

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Understood. And sir, like, one follow-up question on Nigeria. You said 55% is the exposure. Would you be able to share how much would be the exposures for Lagos state?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [103]

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We can't get into such town-wise or city-wise, okay? As of now, 3-wheeler is at 55%, not overall. Okay? 2-wheeler is much, much lesser. Okay? And it is too early to comment on -- because this news item has come today, okay, it's too early to comment. And like I said, 70 countries -- more than 70 countries, we are exporting, okay? And we are pretty confident, overall, we are expanding in many countries. And we are pretty confident that both 3-wheeler and 2-wheeler in the international market will do extremely well.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [104]

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Just one last query. Can you share the CapEx for FY '20 and 21? And also, can you share the investments for the electric scooter?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [105]

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Investment for the electric scooter, we said that -- overall program, we said about INR 200 crores, okay? And we are coming up with that portfolio of projects is what we said at that time. And on CapEx, '19, '20, we said about INR 650 crores. 2021 is too early.

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Operator [106]

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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 [107]

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My question pertains to, firstly, if you can share revenue numbers for exports and spares as well as share USD/INR realization in the quarter?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [108]

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Exports for the quarter is about INR 1,200 crores. And spare parts about INR 441 crores for the quarter.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [109]

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INR 441 crores? Okay. And USD/INR realization?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [110]

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INR 71.1 crore.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [111]

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INR 71.1 crore.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [112]

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INR 71.1 crore. Okay. Sir, second question pertains to the BS VI price increase, which you have taken on an average. Does it cover the entire cost inflation only? Or there is also some element of margins pass-through?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [113]

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I told you, the overall cost in absolute terms, we are trying to recover, it may not be in percentage terms, but with our focus on material cost reduction strategy and the kind of product, whatever we have given to the market. I am very sure this will delight the customer. And when the customer gets delivered, we will always have an opportunity to review the prices. Okay? Equally, on the other side, we have a very strong company on the exports. So we have to look at the total portfolio and the cost reduction initiatives, okay? And that is why we have put our strategy for BS VI. And retail finance, with the retail finance strong arm of TVS here, I'm very sure customer will definitely choose our products going forward BS VI.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [114]

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Sure. And when you say pricing is on overall portfolio business, this is domestic plus exports, put together? Or domestic portfolio would have pricing for domestic and...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [115]

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It is total portfolio basis. Okay? Total portfolio basis, we look at it. And then look at what is the plan for the forthcoming quarters, and there is a cost reduction program. So overall, we look at it that way.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [116]

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Sure. And you indicated financing penetration is 52%, of which TVS Credit Services would be, what now close to 60%?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [117]

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Around 45%.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [118]

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45% of 52%.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [119]

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Yes.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [120]

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Okay. And any sense on TVS Credit Services performance in 9 months FY '20?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [121]

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PBT is more than INR 35 crores.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [122]

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Book size is about?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [123]

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Around INR 9,150 crores. 9-1-5-0.

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [124]

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Right. And any sense on whether the -- are they seeing any increase in NPAs, given many of your peers have been increasing...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [125]

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Nothing. Normal increase, more related to the economic related activity. There is a delay in collection otherwise.

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Operator [126]

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Next question is from the line of Sonal Gupta form UBS.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [127]

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So first, a clarification. In your comments to some other question, you had mentioned that you're planning to reduce imports from 14% of material cost to 8% by next year?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [128]

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Yes, 14%, it has come down to 10% this year, '19/'20. We are further reviewing that, and we are planning to further cut down imports.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [129]

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But I mean, why I'm asking this question is wouldn't -- with BS VI, wouldn't we see some sort of an increase in import content? Or the BS VI is largely...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [130]

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Many of the suppliers, they have the local plants and they're supplying from India plant. So I don't think it is going to go up.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [131]

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Right. So this includes the indirect imports as well, right? The child parts or anything which is imported?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [132]

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No, no, no. This is the total because we have excellent suppliers in India who supply BS VI parts as well.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [133]

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Okay. And sir, my second question was just in terms of, again, the industry, I mean, given this price increase you're seeing somewhere around 12% to 15%, even higher in some cases. I mean, do you see that there's a big risk in terms of customers down-trading? Because clearly, the price points are going up very sharply. So I mean, do you see the customers say even scooter customers start downgrading more to entry-level motorcycles or something of that sort?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [134]

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I don't think so because there are customers who want to buy Apache, I don't think they are going to buy an entry-level motorcycle. Apache customers will remain Apache customers and NTORQ customers will remain NTORQ customers. What happens is at the entry-level, there are set of customers who are budget customers, they will look at the price track, okay? There is a -- That is a very, very small proportion, very small proportion. So I don't think if somebody likes a particular brand or position, and there is a strict valuation. We understand when we have BS VI, especially the technology what we have provided, we are delighting the customer with the BS VI technology. And we have used 2 different technologies, one on the Ecothrust Fuel Injection and the other one is the Race-Tuned Fuel Injection. So I don't agree that customers will look at it that way. Budget customers, definitely, they will look at more entry level. Okay? But they are very, very small proportion. And please understand retail finance penetration is only still as an industry only 50%, okay? That will grow.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [135]

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Right. And just on that point, I mean, you're not seeing any issues in terms of retail financing in rural areas or in those markets also, finance is fully available or something? I mean, like, typically, it still seems to be constrained or -- I mean, like, typically financiers are a little more hesitant?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [136]

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No, there's no issue on availability of money, whether rural or urban.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [137]

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Okay. And sir, just lastly, again, on your comments on -- I mean, you said there are 2 technologies you're using. So one is electronic fuel injection. What is the other one? Sorry.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [138]

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Both are electronic fuel injection. Based on the customer requirement, we have looked into technologies which are -- especially for a budget kind of customer, it is race tuned. And for the commuter motorcycle or commuter scooter, it is more of a Ecothrust Fuel injection. Okay? And both will give different types of customer benefits, okay? So that has been the uniqueness of TVS.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [139]

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Right. But these are -- I mean, these are fuel injection in traditional sense? Or this is some modification of the more carb or e-carb or something?

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Operator [140]

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(Operator Instructions) Thank you for your patience. Ladies and gentlemen, we have the line for the management connected back. (Operator Instructions)

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [141]

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All are electronic fuel injection. Okay. Both the technologies are electronic fuel injection, okay? And what we have looked at is based on the customer segment. We have developed certain new technologies to most delight the customer. That is exactly I said. One is the Race-Tuned Fuel Injection, another one is the Ecothrust Fuel Injection.

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Operator [142]

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Next question 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 [143]

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I have few questions. Sir, we have -- I mean, the way the competition has reported numbers, there has been sharp decline in the realizations due to the new accounting system where discounts are netted off from sales. While, if I see your numbers, you reported a 2% Q-o-Q jump on the realization side. Can you help us understand, I mean, does that mean the discounts, which we were offering in the festive season was much less? Or is there a difference in the accounting philosophy here?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [144]

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All changes in accounting, okay, we have been focusing on material cost reduction, and we have been delighting the customers with very good features. Okay? And I said -- as I said, overall, we have looked at much better focus on the international business. So overall this has helped.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [145]

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There's no account increase material at all. It's all only a realization increase.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [146]

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So that's purely product mix driven then?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [147]

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Yes, 3-wheeler is more it's a product mix.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [148]

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Sure, sir. And the second question is on the technology side. So Bajaj Auto has launched I mean, on the economy segment motorcycle, they have not gone with the EFi. They have said that on the lower economy segment vehicles, you don't need an EFi, while we are on the mopeds been going with EFi, how does that is -- does that thought process work? I mean, are the customers want the EFi technology or we could have gone with some kind of a e-carb technology there?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [149]

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I don't know about competition, I always respect competition, whatever appropriate they will do, whatever appropriate for TVS, we will do. Okay? We always worked on the customer and customer-centric technologies, which always delights the customer, okay? So we felt this is the right technology, whatever we have chosen, and we have delivered the products with that technology.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [150]

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Okay. Okay. Sure, sir. And sir, final question on the scooter side. We are still seeing scooters I mean, being -- seeing some more decline versus motorcycles. One of the largest scooter manufacturer still taking production cuts for almost one year now. Are we seeing some more challenges on scooters front, maybe the penetration is catching up, this is a usual demand weakness? Any thoughts there from -- how does that pan out over the medium term?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [151]

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Long term, definitely, scooterization will happen, primarily because scooters have got certain unique advantages. So scooterization will come definitely. Okay? Short term, there's been some challenges.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [152]

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Okay. And what are the challenges there? I mean, if you can help us understand and what are we doing?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [153]

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We are seeing slow economy and we are seeing some aggressive pricing in the commuter motorcycle we are seeing. So scooters have got lot of maintenance in terms of multiuse and very convenient and there are plenty of advantages in scooters. And let us not forget that 32% of the industry is still scooter. 1% or 2% here and there, which has not been disturbed.

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Ronak Sarda, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Auto, Auto Ancillary [154]

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Sure, sir. So sir, should we see -- I mean, from TVS stable, more scooter launches, given we have gained a substantial market share here and shift industry towards scooterization or our focus would be equally on both motorcycles and scooters?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [155]

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We focus on the entire portfolio. Wherever the opportunities are there, we will come up with new models, it can be a motorcycle, it can be a scooter, it can be something on the premium side. So we have to consistently look upon which are the white spaces, which are the areas where -- and the uniqueness of TVS is we always delighted the customer with something innovative.

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Operator [156]

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

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [157]

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Congrats on a good set of numbers. Sir, just a clarification on the new BS VI technology between Ecothrust and Race-Tuned, will the costing change significantly? Or not really? So can you just help us understand that? Is there a big change in technology between the 2?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [158]

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These are technologies, which are based on EFi, okay, which are aligned to the customer requirement and the need.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [159]

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Okay. So your cost sheet will not change significantly. There will be some minor changes based on the output or the performance that you intend to offer to the customer based on the -- their needs?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [160]

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I don't want to give any guidance on what is the cost involved in that. Okay, we have delighted the customer requirements, and we want to delight the customer.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [161]

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Yes. And sir, second question, if I just look at our past performance and the recent one, when we were growing very strong on volumes, our margin expansion was not playing out. Operating unit was not being seen. And now when we are seeing the deceleration in volume, so there should be some negative operating leverage, we are actually seeing good margin expansion and good control across. So while, again, we enter into a volume growth trajectory, maybe 6 months or 12 months down the line, how do we see this event playing out? And if I could just also add...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [162]

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First of all, industry is declining for everybody. We are also in the same industry, number one. Number two, we have taken the proactive steps for cutting down the BS IV stocks in the market in the last quarter. And we have completely transitioned into BS VI. Okay? So I think we should do better than the industry.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [163]

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And sir, my question was more on profitability and margin front, that in a declining industry, we are seeing -- when our volumes are declining, we are seeing a margin expansion. And when we were in strong growth phase as a company as a whole, without distribution being exports and domestic, we were not able to see operating leverage benefit. So is it driven by product mix or your cost-cutting initiatives, what is the driver of this for the sharp improvement? Because some of your...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [164]

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Most importantly, I think this is a positive thing here. When the volumes are coming down, if we are holding on and growing the EBITDA, I thought it was a positive thing. Okay?

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [165]

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No, sir, it is a really positive thing.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [166]

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We are very, very happy about that, number one. And number two, it is happening primarily because we are a very strong brand today. Okay? We are not resorting to discounting. Okay? We are looking at building the brand. We are focusing on reducing the material cost. I'm surprised about this question.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [167]

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In fact, in the earlier call, it was made very clear that all the cost reduction initiatives that have been done are sustainable and that has been made very clear, and we are seeing the results today.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [168]

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Yes. So basically, there are efforts over the last 3, 4 years on building brands have now started yielding results to us. And these are sustainable efforts. So it can sustain over a long period of time.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [169]

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Absolutely, absolutely and international business, we have got the best portfolio in international business.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [170]

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And sir, last question is on the financing part, how much would be in-house financing arm, would be today, financing TVS vehicle? Is it possible to share the numbers over there?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [171]

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Overall, the retail financing is about 52%. Of that, 45% comes from TVS Finance.

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Chirag Shah, Edelweiss Securities Ltd., Research Division - Research Analyst [172]

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And though this number be stable because for some of your peers, in-house financing share has actually gone up over the last 12 months. So for us, has it gone up?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [173]

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We don't compare anyone. We invest, we look at the customers, and I'm pretty confident this proportion, it will go up with BS VI.

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Operator [174]

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Next question is from the line of Priya Ranjan from Antique Stockbroking.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [175]

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Congrats for the great number. Two things. One is on your scooter portfolio, if I have to look at, I mean, Jupiter volume, if I compare Y to Y-o-Y, it has come down, but your NTORQ volume has not come down. So do we see, I mean, the traction in the premium side of the scooter is much, much superior than the commuter motor scooter side? And the second part is on the -- with the new BS VI launch, we have seen even you and market leader has actually increased the fuel efficiency of the scooter. So there is a gap between motorcycle and fuel economy of scooter has come down by how much? I mean, if we compare BS VI to BS IV?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [176]

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See both -- I'll start with the second one. Both motorcycles, scooters and mopeds fuel efficiency has significantly gone up, okay? That is number one. Number two, Jupiter, as a category, has gained the market share even now. Okay? And NTORQ, gained a little bit more market share because NTORQ is a very recent product. Okay? And it was focused on youthful, young, urban, okay? And Jupiter has been a brand, which has been there for long time, and it has gained good market share. On top of it, we have built NTORQ. Okay? So -- and please understand, we have also looked at complete BS VI stock reduction, while our retails are much, much higher than our dispatch numbers.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [177]

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Okay. So I mean, when this BS VI, I mean, era we enter into. So can we see, probably, say in a year or 1.5 year time frame, Jupiter, I mean the NTORQ can be like 40,000, 50,000 kind of brand. I mean, monthly run rate?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [178]

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I don't want to say. We want to grow all our brands and make them very healthy and strong, okay? And we don't have any capacity constraint. Okay? And cumulatively, if you do better than the industry, we are happy.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [179]

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And one is better than industry and one is creating the -- I mean the segment. So I think the segment has been created by this NTORQ. So expanding the segment is also with the product.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [180]

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Yes, it is doing very well, even in a very, very challenging times, the NTORQ is doing extremely well. Customers are delighted with NTORQ.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [181]

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And second part is on volume motorcycle portfolios that I've been -- initially, we have seen good traction of Radeon in many markets. I mean, overall, probably the last few months, the volume has been declined because you want to move to BS VI transition. So can't we think, I mean, this can be a disruptive product in BS VI with other players may face any product challenges in BS VI?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [182]

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See, Radeon is a great product. And we are pretty confident on Radeon, okay? We wanted to transform -- transition into BS VI. So we have taken early decision, okay? So we are pretty confident on Radeon, doing extremely well in the coming quarters.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [183]

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And in terms of overall, I mean, if I had to see the export markets. So now we are doing roughly around 60,000, 70,000 every month. So if I have to look, say, 3 years hence. So can we think of say 1 lakh plus or 120,000, I mean, kind of doubling the number when we -- probably we are still a new entrant in South America and Southeast -- South Central America, et cetera. So how do we look at?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [184]

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Our momentum

(technical difficulty)

international has been pretty good, and the same momentum will continue for the future. Acceptance of our brand has been excellent in every market, and I'm pretty confident that we will keep up the same momentum.

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Priya Ranjan, Antique Stockbroking Ltd., Research Division - Research Analyst [185]

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And one last question, if you can say what proportion of the moped volume might be coming from the carrier side? And how much will be for the personal mobility side, if you have done some kind of study in there?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [186]

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95% as of now from the utility side, 5% is on the commuting side.

Can we have the last question, please?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [187]

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Can this be the last question, please?

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Operator [188]

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Ladies and gentlemen, due to time constrain that will be the last question. We will now hand the conference to the management for closing comments.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [189]

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Thank you. Thank you once again for your participation because is it late in the evening, 6 to 7. Thanks for your support for TVS Motor Company. As I said, we had one more quarter where we have delighted with our cost reduction, very good EBITDA margins. And Indonesia has -- that's breakeven, good volumes, and we have completely transitioned into BS VI. Exports continue to do much better than the industry. And same performance we will continue in Q4, and we look forward to a great 2020. Thank you. Thank you very much.

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Operator [190]

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Thank you very much. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.