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Edited Transcript of TVSMOTOR.NSE earnings conference call or presentation 17-Oct-19 10:30am GMT

Q2 2020 TVS Motor Company Ltd Earnings Call

Chennai Oct 19, 2019 (Thomson StreetEvents) -- Edited Transcript of TVS Motor Company Ltd earnings conference call or presentation Thursday, October 17, 2019 at 10:30:00am 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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* Abhishek Kumar Jain

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

* Aditya S. Makharia

HDFC Securities Limited, Research Division - Analyst

* Ashutosh Tiwari

Equirus Securities Private Limited, Research Division - Research Analyst

* Basudeb Banerjee

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

* Chirag Jain

SBICAP Securities Ltd., Research Division - Lead Automobile Analyst

* Hitesh Goel

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

* Hitesh Bhargava;Batlivala & Karani Securities India Private Limited;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

* Raghunandhan N. L.

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

* Shyam Sundar Sriram

Sundaram Asset Management Company Ltd. - Research Analyst

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

* Vijay Sarthy T.S.

Anand Rathi Financial Services Limited, Research Division - 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 TVS Motor Company Limited Q2 FY '20 Post Results Conference Call, hosted by Batlivala & Karani Securities India Private Limited.(Operator Instructions).

Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Hitesh Bhargava from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

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Hitesh Bhargava;Batlivala & Karani Securities India Private Limited;Analyst, [2]

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Thank you. Good evening, everyone. On behalf of B&K Securities, we welcome you all to 2Q 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, Chief Financial Officer.

I would now hand over the call to Mr. K. N. Radhakrishnan for opening comments, followed by Q&A 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, and I have great pleasure in sharing the results of TVS Motor Company 2Q.

Two-wheeler industry continues to decline due to lower economic growth and consequently the two-wheelers, our sales -- two-wheelers sales come down by 19.7%. On a strong base, exports of two-wheelers, however, have grown by 4.2% over last year, same quarter. Three-wheeler sales during the quarter grew by 9.2%. Overall revenue for this quarter is INR 4,353 crores compared to INR 4,994 crores of last year, a decline of almost 13%.

Strong focus on cost reduction helped the company to improve EBITDA for the quarter to 8.8% compared to 8.6% during last year Q2 and 8% during the Q1 of this year.

Profit before tax of this quarter is INR 310 crores compared to INR 306 crores of last year. This profit before tax for this quarter, however, includes an exceptional gain of INR 76 crores towards the reversal of NCCD provision for Himachal plant of the earlier year pursuant to favorable order from CESTAT. Tax provision for this quarter is INR 55 crores, net of deferred tax reversal of INR 36 crores.

Profit after tax for this quarter is higher at INR 255 crores compared to INR 211 crores, a growth of 20.7%.

For the season, we have launched already the Jupiter Grande with smart connect. We have given in 2 colors, matte straight blue and tech blue. And also Apache RR 200 -- RTR 200 launched with smart connect. NTORQ is continuing to do very well and we have given a base edition for the season. All the other models we have given special upgrades and colors, TVS Sport, TVS StaR City+, Radeon, Pep Plus and TVS XL 100.

Overall, if you look at the monsoon, even though it was delayed, extremely happy that in the last 1 month, it has been normal and it'll definitely lead to a positive sentiment. And the GST whether it will come down, go up, all this confusion that what will happen to GST, now that is not there. So those customers who have the mobility needs will definitely buy now.

The Dussehra season, however, we saw heavy rains in Bihar, Jharkhand, MP, some parts of Maharashtra, some parts of U.P., some parts of West Bengal. Definitely this has affected two-wheeler sales. However, last 1 week, we are seeing the rains are settled down and walk-ins have improved. We are hopeful that Diwali season will be better than Dussehra season.

The reduction in the interest rate and the initiative to look to retail funding to repo rates is a positive factor and definitely will help the retail finance.

In terms of dispatch from the companies, however, because of the BS IV transition to BS VI, I think the primary billing in the industry will still continue to be much lower. We have a very strong portfolio of mega brands like Apache, Jupiter, NTORQ, StaR range, HLX, Radeon and TVS King. So a combination of domestic market plus strong brands plus international market doing very well, both on two-wheeler and three-wheeler, we are very confident that we will continue to grow ahead of the industry, both in domestic and international.

The rural economy will definitely recover, thanks to the good monsoon, but it may take a little time. Maybe, next year first quarter or fourth quarter of this year, there will be some improvement, definitely. The sentiments are positive. The challenges BS VI transition and we are confident from TVS Motor side that we will have a smooth transition of BS VI compliant production and sales going into the fourth quarter.

So overall, we are pretty positive in terms of looking ahead. While there are challenges in Q3, I think Q4 will be much better. With respect to EBITDA, we will continue to perform better and better, because the cost reduction is sustainable; quarter after quarter, you will see the benefits of that. The product mix has been healthy; it is improving. Export has been doing extremely well, both in two-wheelers and three-wheelers. So all put together, I think we will continue to grow in EBITDA as well quarter-on-quarter. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Thank you. Can we open the call for a Q&A session now?

Can we start for the question-and-answer session?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [2]

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Yes, please.

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Operator [3]

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Thank you very much. (Operator Instructions)

We take the first question from the line of Pramod Kumar from Goldman Sachs.

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

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Congratulations on a good set of numbers. My first question pertains to, if you could just share how much of this current quarter P&L has income from interest from dealers? Because we are seeing that across the industry, dealer inventories going up and the companies are charging the dealers for that receivables, which is outstanding. So if you can just share what are the number last quarter, which is June quarter? And how does the number compare in September quarter, sir? That will be the first question.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [5]

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Okay, the Q1 number is INR 21 crores and the Q2 is INR 22.5 crores.

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

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So there's no big jump in the dealer...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [7]

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It is INR 1 crore increase.

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

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And this is accounted in the other -- in the top line itself, right?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [9]

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Yes, that's the practice. Right from last year, we have been in line with the accounting standard. We do that.

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

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Okay, and second question is for KNR sir, on the -- sir, how would you describe the current demand scenario and kind of layer that with the current inventory situation at your end with the BS VI transition starting from 4Q? If you can just make comments on these 3 parameters, which is demand, inventory, and your BS VI transition plan. Because we have heard that some of your competitors are looking at keeping more than 50% of production for BS IV even in February -- as late as February. So in that context, how are you looking at this BS IV to BS VI transition, sir?

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

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I think the demand, like I said, post Dussehra, I think, last 3, 4 days have been pretty good in terms of walking in because the rains have kind of settled down. I think sentiments are coming back and absolutely there is no confusion on the GST now. So I think the positive sentiments are likely to happen in the industry. This is for the industry.

And with respect to TVS, I think, the products whatever we have given for the season are extremely liked by the customers and we are pretty confident that Diwali season will be very good for us. However, on the billing side, we are recognizing the fact that we have to start the transitioning into BS VI. So we have already started rationalizing our BS IV stops into the market because we want to very systematically reduce it and completely change over into BS VI. And our readiness, we are very confident that BS VI, we will start, already some of the models we have started producing. Billing, we will start next month so that there is no confusion during Diwali season. And with respect to stocks, we have been always very closely monitoring the stocks around 5 weeks and we want to maintain that. And we will keep reducing on one side BS IV stocks and at that time keep giving the BS VI stocks, that is going to be our strategy with the market.

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Operator [12]

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Next question is from the line of Shyam Sundar Sriram from the Sundaram Mutual Funds.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [13]

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On the gross margin side, the gross margins have significantly improved on a quarter-on-quarter basis. How much would you attribute this to product mix change in terms of better exports? And how much would it be due to the commodity sliding down sir?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [14]

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I can tell you, if you look at quarter 2 to quarter 2, the material cost reduction has been the significant proportion, because the RM did not come down with respect to last year Q2 to this year Q2. But RM has started slowing down with respect to Q1 to Q2, okay. That RM cost reduction is very, very small. Q1 to Q2, for example, this year, the RM cost has come down by 0.2%. Whereas, material cost overall due to our cost reduction initiatives has come down by almost 1.2%, okay. And overall product mix has given about 0.4%. So overall, material cost reduction is the significant reason. Material cost reduction includes all kinds of cost reduction in the material price, including VA/VE, including alternate sourcing, including localization, including weight reduction. So it's a combination of all. Those things are there in the retail cost reduction. And this is sustainable. It'll continue.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [15]

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Right, sir. Just one point on the domestic motorcycles. We have seen Apache volumes slightly coming off. Is there any -- is it a function of the industry itself? Or is there anything specific for us if you can comment on that, sir?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [16]

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It is more of an industry because Apache is a very, very strong brand. You know that some of the competitors have taken such strong steps in reducing the prices and giving certain new models at a much, much lower prices, okay. When that kind of a decision is taken, sometimes there may be a short-term, little bit slow down. But now things have started, for example, the retails are significantly better for Apache, okay. And we have been also conscious about rationalizing the BS IV stocks going forward into the market. So I'm pretty confident here as a whole, Apache will do very well.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [17]

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Understood, sir. Understood. And on the export side, sir, how are we now looking at it? We've seen some softening, but broadly three-wheelers exports have been very strong. Two-wheelers exports have seen some softening in terms of growth rate. Is there any, I mean, are there any hot spots in any geographies? Or is this more of a seasonal, if you can just comment on that, please?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [18]

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See, generally when we look at economies, most of the economies are a bit slow. I think it is not only in India or other markets, most of the industry economies have been little bit slow. And if you look at the exports, we have grown 6.2%. In first half, our industry growth of 2.5%. I'm pretty confident it'll come back because most of the economies where we are exporting, the dollar is stable, the local currencies are stable, local currency -- the dollar is available, and also (technical difficulty) stable or a little lower. It is not that it is going up. So exports markets in two-wheelers will continue to do well.

In terms of three-wheelers, industry has declined this year, 12%. However, we have grown by almost 15%. So that momentum will be there in terms of three-wheelers. And three-wheeler also international markets, some markets are a bit slow, but I think, overall, when you look at over a longer period, international markets will do well.

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Shyam Sundar Sriram, Sundaram Asset Management Company Ltd. - Research Analyst [19]

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Okay.

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

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I'm talking about industry, and we will definitely do much better than the industry.

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Operator [21]

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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 [22]

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Sir, just wanted to check firstly on the staff cost, it's down 5% Y-o-Y, and the other expenditure is up compared to last year despite drop in volume. So any color over there?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [23]

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See, everywhere there's a strong focus on cost reduction, including the employee cost. So overall fixed cost also there is a focus and we are trying to trial down. Only we shift if industry can support a little bit better. But our costs are not going to go up significantly when the industry -- the revenue starts growing. So overall, there is a full focus on cost reduction, which we started about 8 quarters back. That is playing the results now.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [24]

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Okay. Can you elaborate a bit more on the cost reduction that we have achieved in this quarter, like give some examples of what exactly we have done because 1.2% is a big saving, right? So just trying to...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [25]

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Yes, I gave a color on that. This is primarily because of the value engineering and looking at the rate of weight reduction and also looking at some alternate sourcing, also localization, content improvement. So it's a combination of many things, which are associated with material cost. And also lot of initiatives on the fixed cost side. And also improved product mix. And improved product mix is a small proportion, which has benefited, but significant benefit has come from the cost reduction side.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [26]

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Okay, okay. And sir, one question was on the investments. We have seen investments of INR 45 crores in TVS Motor Services and TVS Credit both, is that right? Could you explain that?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [27]

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Yes, it's right. Both are...

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [28]

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Sundaram Holdings, I have -- I mean there were some plans of starting production this year in Sundaram Holding USA. So what are the plans there? If you could give some more detail and the investment there?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [29]

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I think Sundaram Holding USA, the commercial exploitation is expected in November of this year. The plant has already been inaugurated in May 2019. It has a capacity of 10,000 metric tons.

As far as the investment in TVS Motor Services and Credit Services, both are subsidiaries of TVS Motor Company. The TVS Credit Services has certain non-core assets, which were transported to TVS Motor Services to improve the liquidity. The consideration was settled through an infusion of capital from TVS Motor Company. Otherwise, both are subsidiaries and the money invested has gone into the TVS Credit Services retail finance business.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [30]

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Okay, and what is the full-year guidance for CapEx and investments?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [31]

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It will be around INR 600 crores for this year.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [32]

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And investment?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [33]

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It is...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [34]

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On investment, maybe another INR 100 crores to INR 120 crores.

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

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But I think we have already done INR 218 crores in 1Q and 2Q?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [36]

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No. What is that? I couldn't follow you?

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

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I'm saying that we have already done close to INR 218 crores in 1Q and 2Q, right?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [38]

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No, the one investment what we have done, explained last time also, into the new space initiative through our subsidiaries in Singapore in the digital and fintech space. Therefore, that's why it has gone up. Otherwise, the investments are in line with the original plan.

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Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [39]

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So what should we assume for the full year?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [40]

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Full year, maybe another INR 120 crores.

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Operator [41]

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Next question is from the line of Ashutosh Tiwari from Equirus Securities.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [42]

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Congrats on good performance, sir. Firstly, if I look at, like gross margin you said that there is a material cost reduction initiative and also fall in RM prices, that is only 0.2%. So -- but we've seen large fall in steel prices. So how do you see the decline in the coming quarters in commodity prices for us?

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

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Commodity costs are softening. Definitely, the benefit of that will be -- going forward will be better. So -- but we always have the lag factor. So definitely we will see commodities softening little better than whatever we have seen in Q2, going forward.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [44]

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But can you quantify that?

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

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Quantification will be too early at this point of time because quarter after quarter we can look at it. The material cost reduction, whatever we are doing, we'll sustain and we will continue to focus on that.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [46]

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Okay, secondly, I mean, can we provide some color over the reduced sales in second quarter versus wholesale numbers?

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

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See, we always believe in not adding stocks to our dealers. So we have been very closely looking at the dealer stocks and we have been managing our primary billing because we always look at a healthy stock levels in the market of maximum 5 weeks. And that has been a constant, not today, it has been a long-term plan, the way we have been working with our dealers. And so -- that constant focus has definitely helped us within the industry.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [48]

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So we mentioned about some reduction in inventory in September press release in the volume. So in 2Q, what the retail...

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

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That we have started now with a special focus to cut down BS IV much, much ahead of the transition date. So we want to more and more focus on BS VI and start -- post Diwali season, start producing and giving BS VI product into the market.

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Ashutosh Tiwari, Equirus Securities Private Limited, Research Division - Research Analyst [50]

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And sir, lastly, on the -- in the Navratri season, overall, what's our state of industry decline in volumes, retail sales?

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

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I cannot be able to put a number to it. But industry retails were lower during Dussehra season because there were few markets which were underwater, practically nothing happened there. That is unusual. But the positive thing is, rain is very much required for India. About 6 weeks back, we were very worried about water availability, but today, I think, it is plenty. Having plenty is much better than having problem on water availability. While that has created little bit of confusion, in the last 3 4 days, the feedback I'm getting from the dealer friends in most of these markets, like Bihar, Jharkhand, they are open, business has started, customers have started walking in, bookings have started for Dussehra. So these are all positive feedback which are coming from many other markets, which were affected due to Dussehra season -- during Dussehra season. So our estimate is Diwali season should be much, much better than Dussehra season.

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Operator [52]

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Next question is from the line of Chirag Jain from SBI Capital.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [53]

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Sir, as we are very much closer to the BS VI variant launch, any color you can give in terms of the cost hike or the price hike that we could see?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [54]

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Very close to launch I will definitely share with you both the price increase and how we are going to manage it. Even now it is too early because we are fully focused on Dussehra -- Diwali season now, and how do we very systematically reduce the BS IV stocks, that is the focus at this point of time. As we are closer to the launch of BS VI, definitely we will share with you what is planning, how we are planning to look at the price and the cost.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [55]

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Okay, and how is the competitive dynamics on the ground, as you indicated that this start to the festive season was a bit weak during Navratra's? And obviously inventory what we hear is that it's fairly high in the industry and obviously, we would also have this BS VI transition. So obviously, what we are seeing in media is obviously huge offers for consumers. So in terms of discounting, how is the dynamics over there?

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

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See, one, GST is fixed at 28%. So that confusion is not there. Positive sentiments are definitely there, thanks to the rain, rural market should respond well. Unfortunately, many markets were not performing due to heavy floods. So Diwali season, I think, industry is looking forward to a much better retail is the feedback I'm getting. Number two, I think, each competitor has got their own strategy. Our strategy has been to delight the customer. In every brand, we have, for example Jupiter, Grande is available with smart connect now. New colors have been given in that smart connect. Apache RTR 200 is also having smart connect. NTORQ has come with a racing version. So something to delight the customer for season has already done by TVS. Our retail finance arm is fully supporting on retail financing scheme because that is very much required. So going forward, these are the initiatives we have taken. I think each company, each competitor has got their own plans to look at how to attract the customer, how to convert the customer. I think that I leave and I respect the competitor plan.

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Chirag Jain, SBICAP Securities Ltd., Research Division - Lead Automobile Analyst [57]

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Okay, and anything you would like to share on EVs? Any plans to, like to launch EV products into the market?

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

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Our products will come soon, that I can promise you. I think we are looking at launching, definitely, this financial year into the market.

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Operator [59]

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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 [60]

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Sir, my question pertains first on clarification on cost reduction. This 120 basis points saving on due to cost reduction initiatives and product mix of 40 basis points is Y-o-Y or Q-o-Q?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [61]

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See, Q -- I said first is Q2 to Q2, if you look at it, the material cost reduction is little higher, maybe 1.5%. The product mix may be about 0.4%. Q2 to -- Q1 to Q2 this year is at about 1.2% and 0.2%, something like that. So...

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Jinesh K. Gandhi, Motilal Oswal Securities Limited, Research Division - SVP of Equity Research [62]

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Understood, understood. Second question pertains to, with respect to your exports, so would you be able to share export revenues for the quarter?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [63]

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Export revenue, kindly hold on. Exports revenues for this quarter is about INR 1,167 crores, correct?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [64]

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Yes, 1-1-6-7.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [65]

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1-1-6-7.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [66]

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Correct.

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

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Okay. And spares?

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

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Spares, total parts. You want parts of exports or total?

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

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No, total. Total parts.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [70]

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Total. Just give me a minute. I think all parts put together we are around INR 421 crores. Sorry, INR 447 crores.

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

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And vis-à-vis last year, what was last year number?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [72]

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Last year was almost similar, almost similar.

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

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Okay, okay. And what would be our USD...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [74]

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Our exports for the last year was again almost similar.

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

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Okay, and what would be our USD realization in 2Q and 1Q?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [76]

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One second. Realization, Q1 is, I think at the same level, around 70.3 and 70.5. Q1 is 70.3 and Q2 is 70.5.

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

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Okay, okay, right. And coming to, if I look at your average realizations have -- they've gone up reasonably on Q-o-Q basis. Is it primarily reflection of product mix or have you have taken any price increase?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [78]

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We have taken some price increase. Just a minute, I think in Q2, we have taken a price increase of 0.3%. And Q1 was about 0.2% -- 0.1%, sorry. Q1 was 0.1%. Q2 was 0.3%.

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

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And last question on the tax rates. Sir, what's the effective tax rate you expect for the year? Would it be close to 25.2%? Or we expect...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [80]

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No, the effective tax rate for the year will be around 25%.

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

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Okay, so the entire revaluation of deferred tax liabilities has been done in this quarter.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [82]

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No not the entire. Relating to the 2 half year, first half has been done. That's the reason why it is lower than -- the tax rate still is at 25% only.

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Operator [83]

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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 [84]

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Congrats, sir, for reporting all-time high EBITDA per unit. So few questions, some of them might be repetitive. Just wanted to understand the state of financing availability across rural markets. So other than your capital finance, how is the financing availability improving, if at all?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [85]

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Overall financing availability has been good this year. We have never felt any challenge in availability of finance. I think, we have -- other than our own retail finance company, we have others also participating pretty well in retail finance.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [86]

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IndusInd, L&T.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [87]

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L&T, IndusInd, HDFC. I think practically every...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [88]

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Shriram.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [89]

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Shriram. Every retail financing company, which is available for competition, is also available for us.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [90]

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And all are organized players. And there is no issue of liquidity to any of them.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [91]

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And you see any improving trend or it has been like this even 6 months back?

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

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I think it is fairly same. Mild improvement is there. I won't say significant improvement because overall industry coming down and also last quarter, there was a bit of a confusion in terms of GST rates. Some customers were also contemplating that GST will come down, so wait. So that wait and watch was there. But if you look at it, barring that, I don't think the finance penetration in the industry has come down, even for us. It's around 46%, 47% in the market. And for us also.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [93]

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Sir, second question already was partly discussed in the call earlier. So almost INR 5,000 plus price hikes roughly for entry-level bikes also, say StaR City Sport. How do you look at that down the lines? So you will be focusing more on margin maintenance or sacrifice margin for maintaining volume? How should one look at that? Or you think that...

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

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What is this INR 5,000?

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [95]

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I'm saying roughly INR 5,000 price hike for motorcycles.

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

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I didn't say that. So please don't quote me. I have not said anything related to BS VI prices. It is your own assumption, your own assumption because closer to launch, we will decide what is going to be our strategy on BS VI and how we are looking at -- most importantly at this point of time is focusing on BS IV retailing and also looking at transition into BS VI fully and making sure that the product reaches all the dealers post Diwali season, that is our focus. And step-by-step, we will be start launching one by one BS VI into the market.

And our focus on EBITDA journey, whatever we are doing today, will continue. Because that journey has started about 8 quarters back and last year was the first year where we gained EBITDA when the industry lost EBITDA. And this year first quarter also we gained with respect to last year's first quarter. This year second quarter also we have done better than last year second quarter. That momentum will continue on EBITDA, because we are pretty confident on our cost reduction and other drives towards waste elimination inside the company.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [97]

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Sure, sure. That's good. Sir, as you mentioned in the earlier part of the call, the components of your gross margin improvement, so how should one look at incremental scope of input commodities costing for you? Is there any scope of further reduction in forthcoming quarters as per your contracts or it's more or less done?

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

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It will come down because industry is minus 20%. So definitely, the RM cost will soften further, even for us. Definitely, it will soften further.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [99]

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Sure. And last question sir, what is the overall utilization level you are undergoing now and when is the next major capacity addition you are planning?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [100]

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Utilization is okay. I think month after month, slowly and steadily it is going up because thanks to exports, thanks three-wheeler, okay. Currently, the utilization month after month is very low. Now it is building up. As of now, we don't require any further capacity addition, okay. So very close. And nowadays, capacity addition doesn't take much time. In 2 months' time, we are able to add capacity.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [101]

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No, I'm just trying to understand from our CapEx perspective, as you said INR 600 crores this year, when one can see slight jump...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [102]

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That's sufficient. This INR 600 crores includes mainly on account of BS VI changeover, our electric project, our new products development. So all are included in this INR 600 crores.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [103]

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So that's why I was trying to understand, which fiscal one can expect some CapEx towards capacity addition? Obviously, the utilization will...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [104]

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Capacity addition this year? We have enough capacity; 5 million capacity we have. So we don't have to worry about that. And whatever we are creating for electric, et cetera, et cetera, will not be -- it will be definitely useful for next year when we launch the product, okay. Three-wheeler also we have good capacity for this year. And any capacity addition in any of the areas will not take more than 2 months to 3 months, maximum.

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Basudeb Banerjee, AMBIT Capital Private Limited, Research Division - Research Analyst & VP [105]

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Sure, sir. Congrats again for good set of margin numbers, but unfortunately, saw in media that you are not participating in auto expo, so won't be able to see the new launches down the line.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [106]

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Auto expo, most of the two-wheelers are not there. So that is one of the reasons given the economic conditions and the decline in the market, okay. And this is the BS VI changeover. So it's a combination of many things. So -- that is the reason we said we will look at next auto expo.

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Operator [107]

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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 [108]

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Sir, can you just tell us about this cost reduction? But my first question is on, because you said on a gross margin basis, on Q-o-Q basis, little bit benefit has come through on the gross margin front. So can you talk about that?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [109]

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Which one you are saying?

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [110]

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What are these causes?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [111]

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We have already talked about...

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [112]

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On a Q-on-Q...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [113]

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It has already been talked about. One is on the material cost related reduction. Second is the softening of commodity prices. It has been talked you know.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [114]

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So basically you said commodity cost is a very small component of it. So wanted to understand, on a Q-on-Q basis, what is the material cost reduction? Are you reducing content?

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

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Here is the data. About 1.3% we said that is coming out of material cost reduction.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [116]

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So commodity cost is 20 basis points, Q-on-Q. Material cost reduction basically is content reduction, is it, in the bikes? That is what I want to understand.

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

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No, the material cost reduction is not content reduction. We don't devalue a product through material cost reduction. Material cost reduction is looking at VA/VE, process improvement, looking at what all things we can do in terms of alternate sourcing, also looking at import content reduction. So these are the initiatives. It's basically reducing the rate, not devaluing the product.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [118]

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And sir, my second question is, what -- have you increased discounts during Diwali period on the bikes? Can you give us some trends for the third quarter?

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

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We have. See, we have given products, new varying products with very attractive features of smart connect in NTORQ, smart connect in Jupiter Grande. We looked at Apache. We have given smart connect. We have given a racing edition of NTORQ, okay. See, there may be small freebies which are given by the dealers in the local market because it's a part of celebration. If somebody gives a box of sweets or somebody gives something as a compliment, that is a part of celebrating the season, Dussehra season or a Diwali season. Of course, we have aggressive retail finance schemes for our customers. But there also, we definitely look at the quality of the customers. But -- these are the things we do. We don't believe in discounting hugely on any brand. We want to build the brand.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [120]

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And sir, my final question is that you said that you will still be left with certain inventory after the festive, but my sense is October should be a very high retail month. And if you are saying your inventory is only 5 weeks, so you should not be left with much inventory after Diwali. Am I right in my assumption?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [121]

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Yes, but we are not taking a holiday on billing this month, right. There will be some billing this month as well. There will be some dispatch this month also. The changeover in BS VI will happen from November.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [122]

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Okay, so you are expecting -- but you are going to keep certain BS IV in...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [123]

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It's not that we will be liquidating all BS IV by this month end. I never said that.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [124]

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It will be very slow and steady brand transition.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [125]

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Right. See, we want to be much ahead of this deadline this year on BS VI transition. We don't want any BS IV vehicle to be left unsold. So we are taking a proactive step of producing and giving it to the customer -- giving it to the market BS VI and then steadily reducing the BS IV into the market so that the transition is very smooth. It's a very challenging job, but we are confident that we will do it very, very carefully in the market. That is the point I highlighted.

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Hitesh Goel, Kotak Securities (Institutional Equities) - Associate Director & Automobile Analyst [126]

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So sir, do we -- will we have both BS VI and BS IV model in November? Or you will keep -- if you are supplying BS VI model, say for Apache, you won't have a BS IV inventory of Apache in November. Just want to get a sense on that? How will you...

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [127]

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These are fairly theoretical because we are dealing with so many dealers and so many sub-dealers. I think we start looking at the overall status and market by market. We will start giving BS VI, okay. Some BS IV may be there. And they will take -- on first in first out basis, they will try to retail that. These are small things which each dealer and the company and the sales department will be working out.

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Operator [128]

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

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

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Congrats on a good set of numbers. Sir, just continuing with that retail versus wholesale thing. So what I was trying to understand was that like you said, like you have always said that you 4 to 5 weeks of inventory in the channel and that is not an elevated level. And I think, I mean, one could assume that given that you're proactively now moving towards BS VI, you could probably end up with 4, 5 weeks of inventory by march of BS VI, so there is no BS IV inventory. So even in that sort of a situation, why do you still think that the wholesale numbers will be negative in the second half? I mean, like if we -- I mean, just wanted to understand from that angle? Or do you think it is...

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

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See, end of the day, it all depends upon the customer demand, okay. Customer demand as it goes up, that we will also be able to give more and more into the market, okay. So customer demand still if you look at it, the industry is still negative. So I don't think between Q3 and Q4, the industry is going to be hugely positive. It will steadily come back because there are positive signs of rural recovery, but it takes 3 to 6 months' time because the rains have happened now. So it will take at least 3 to 6 months' time for the rural to come back. There is no confusion on the GST now. It is -- number is there at 28%. So given these 2 things, I think, those customers who are definitely planning to buy the two-wheelers will start buying now, okay. Additional challenge is BS IV liquidation and BS VI transition, okay. Given all this, there is always a challenge in the customer retail suddenly picking up because macroeconomic condition, still GDP is coming down only, it is not going up. So that is a big challenge. I am highlighting that the confusion on GST is gone; rain worries, sentiments, very positive. I think going forward, quarter after quarter, you will see all this playing out in the market.

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

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Okay, so basically you're saying it's not about sort of for you at least the inventory reduction on -- if I look at on a 6-month period. It's more about whether the underlying retail has actually picked up and that is the...

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

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No, no. There are 2 points. One is for the industry, one for us, okay. For us, definitely, we will do much, much better than the industry, okay. The point what I was highlighting is even this BS VI transition is for the industry, okay. So when the stock levels are reasonably higher at this point of time for the industry, please understand it will take time for certainly the dispatchers to go off. Because systematically, BS IV stocks have to be brought down for the industry, okay. This is point number 1.

As far as we are concerned, we have started the journey of looking at rationalizing BS IV. We have started looking at producing the BS VI now. Once the Diwali season is over, we will start putting our BS VI slowly and steadily into the channel, okay. So there will be a period when BS VI stocks will keep coming down -- sorry, BS VI will keep going up for TVS and BS IV will keep coming down, okay. We want to be much ahead of the deadline this time. That is the point I highlighted for TVS Motor.

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Operator [133]

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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 [134]

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Congratulations on the margin numbers. Sir, 2 questions. Firstly, how do you see the outlook on the moped side? That segment had seen more pain than other segments. Secondly on -- I missed, how much would be the dealer inventory levels currently? And by when do you expect the production of BS IV vehicles to be completely stopped?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [135]

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See, moped decline is first of all it is mainly on account of the weak sentiment in the rural market. I think if you look at it, there was always a worry about delayed monsoon. And you know last year, the kind of cost increase due to higher insurance premium, suddenly 12%, on-road prices going up. That started creating a huge problem. And all of us know there is a huge discounting from many of our players in the economy motorcycles, okay. So these are the 2 important factors which started affecting moped market. However, moped, we have not discounted the product. We have added value in terms of electric start. And today I am very happy that 90% of our moped sales come from electric start, okay. And I am pretty confident when the rural market starts coming back, moped will come back in a big way, okay.

And the second question related to you is BS VI transition, okay. BS VI, even moped will have no problem in transitioning to BS VI. We are pretty confident on BS VI transition on moped and giving it on time to the customers.

We will start reducing BS VI from November, early part of November, and start supplying it to the market. Definitely, last quarter of this year will be completely BS VI supplies into the market, so that we can proactively remove all the BS IV, sell the BS IV, and we are ready for the March 31 deadline, given by the government. So we are working towards that. And always we keep about 5 weeks of forward sales stock.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [136]

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Sir, just a related question. Thank you for the clarification. So basically sir, mopeds are more price sensitive and with the BS VI price also increasing, do you see customers taking more time to adjust and moped demand still remaining weak even after BS VI?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [137]

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BS VI is applicable not only to moped, it is applicable to the entry-level motorcycle, it is applicable to commuter motorcycles, it is applicable to scooters, it is applicable to premiums. So the relative cost increases are going to be same whether it is a moped or a motorcycle or a scooter, okay. So as the rural starts coming back, we are pretty confident that the customers definitely will come forward to moped because moped has got certain unique advantages vis-à-vis other products, and that will continue to remain. And I am pretty confident that moped will come back even in a BS VI scenario.

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Raghunandhan N. L., Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [138]

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Thanks, sir. I understand that. But by when do you see the industry turning positive?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [139]

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Industry turning positive, I think, what we are seeing today is a series of events starting from demonetization to BS III to BS IV changeover to the changes like what we have seen the GST implementation. Then post that we had ABS, CBS changeover. Before that, last September, we had the third-party insurance going up, and now BS VI. So if you look at it in the last 8, 9 quarters, there were series of interventions which are right, but it has added cost to the consumer. So what we are seeing -- and on top of it globally, every country is going through very difficult time. Global economy is also facing slowdown. And India is also facing slowdown. So there are multiple factors. However, there are very positive things which have happened in the last 4 weeks or 6 weeks, which is first is monsoon, very, very positive. Second, higher spending in infrastructure, recent announcement by central government will definitely help. Government higher DA likely to improve the sentiments in the urban markets. So there are positive things and also this confusion of the GST coming down is not there. So given all this, I think, going forward, I'm expecting at least it will take another 4 quarters, the recovery of the industry. However, please understand the penetration levels of two-wheelers, the public transport systems in India, definitely two-wheelers will come back in a big way. We are very confident about that in domestic market.

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Operator [140]

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The next question is from the line of Aditya Makharia from HDFC.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [141]

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Just in your assessment, would sales in Diwali be similar to the kind of retail you saw last year?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [142]

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Too early to comment on that. All of us are praying only for that. We're working for that, okay. Because we are looking at how do we match last year. Everybody, I'm very sure, even in the industry, will be looking at that. Dussehra season was much lower, that is the reason, that is primarily because of the sentiments as well as the severe rain. Now everything has settled down. We have about a week's time. All of us are looking for how do we come closer to last year. Definitely, that is the plan. But I may not be able to put a number to it at this point of time.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [143]

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Sure. And just on the tax savings, which we have, you mentioned you're not offering higher discounts. So would you retain the tax savings entirely? I mean, how should we think about it?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [144]

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What is the tax saving? I don't understand.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [145]

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The government has reduced the tax rates to 25 percentage, which is a benefit for...

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K. Gopala Desikan, TVS Motor Company Limited - CFO [146]

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No, no.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [147]

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We have invested behind new products. New products also require money. Smart connect investment in Jupiter, there is an investment, okay. There is a new product racing edition of NTORQ requires investment. Apache 200 -- so it is not necessary that our tax rate whatever the corporate gets, need to be given as a discount. It is in the value add for the customer. Jupiter is a value add to the customer. You give it as a part of the retail finance whatever you can best support the customer, need not necessarily be only through discounts.

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Operator [148]

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Next question is from the line of Abhishek Jain from Dolat Capital.

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Abhishek Kumar Jain, Dolat Capital Market Pvt. Ltd., Research Division - Analyst [149]

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Sir, just how -- just wanted to know that how is the rural versus urban demand? As you said that festive demand is picking up, but it is the same in the rural space as well? Because there is a space on the earnings of the lower income group in last couple of quarters and government has taken many steps like reduction in the corporate tax rate and plus relaxation in the establishing of the new manufacturing units. So how the things are turning around on the ground level, especially on the rural site?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [150]

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I think, definitely, last year, the higher cost of insurance, liquidity crunch definitely affected the rural market much more than the urban market. And the sentiment, the negative sentiments of water and monsoon definitely was the major concern. But in the last 4 weeks whatever we have seen was very, very positive. Only thing is some rural markets are still underwater. They will take more time to recover, but I'm pretty confident that we will see a good recovery in the rural market going forward. Definitely, Q4 -- Q1 next year will be definitely good in terms of agri as well as the rural market coming back in a big way. I think overall, sentiments are positive in the rural market now.

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Abhishek Kumar Jain, Dolat Capital Market Pvt. Ltd., Research Division - Analyst [151]

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My next question is related with this balance sheet items. There is a one item included in BS, that is the Right on (sic) [of] use Asset, that amount is INR 104 crores. So can you throw some light on that?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [152]

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No, that is nothing but the lease-related accounting change that happened during the current year. Some of the leased assets are to be brought into the books and that's the treatment here.

Responding liability also, it's just a compliance of an accounting standard.

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Operator [153]

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Next question is from the line of [Jugal Shah] from [Maybank].

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Unidentified Analyst, [154]

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Congratulations for good performance. My question pertains to the premium segment of motorcycles. If you could give a bit of color in terms of how this segment is performing with Apache? And also a bit if you can highlight on the BMW products that they are -- that you are doing?

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

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See, the Apache, the premium segment, like motorcycles, overall motorcycles, this year, there has been a decline. Actually, scooter as an industry is doing a little better this year than the motorcycle category, okay. Scooters are minus 17%, but I'm talking about Q2. And also if you look at H1, scooter industry has been 17.1% and 16.9%, so around 17%. As far as we are concerned, in scooters, we have done much better than the industry decline. And with respect to motorcycles, if you look at it, premium motorcycles are down by almost 22% in Q2. And we are improving. Primarily, there has been some challenge post last year November in terms of some of our competitors coming with certain models which are significantly priced down, and that definitely made the -- some challenges for Apache, but the kind of portfolio what we have, Apache 200, Apache 180, Apache 160 4V, we have started seeing significant improvement in our sales of Apache. And going forward with smart connect, whatever we have given, we're confident that we will -- year as a whole, we will definitely start gaining market share in Apache, too.

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Unidentified Analyst, [156]

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Thank you and one more point on export, if you can give some more color, how the exports have behaved so far? And how you see them in the second half, especially if any particular regions that are doing better than others?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [157]

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See, currently, we are exploring to about 70 countries plus. And if you look at H1, the industry grew by about 2.5%, and we grew by 6.2%. This I'm talking about two-wheelers. If you look at three-wheelers, the industry declined by 11.6% in the first half and we have grown by 15.7%. So both we're doing extremely well. And I think there is a global slowness, but oil prices being steady and being low, plus availability of local currencies, dollars as well as no major depreciation of currencies in most of the countries, I think international market will do well going forward. And we have a very good portfolio, excellent product range, and the acceptance of this range has been very, very good in most of the markets. So we are very confident that we will continue to keep up the same momentum, whatever you have seen so far.

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K. Gopala Desikan, TVS Motor Company Limited - CFO [158]

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Can we have only one more question, please?

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Operator [159]

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Sure, sir. Next question is from the line of Vijay Sarthy from Anand Rathi.

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Vijay Sarthy T.S., Anand Rathi Financial Services Limited, Research Division - Research Analyst [160]

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Just want to check what is the import content for the quarter?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [161]

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Import content quarter-to-quarter is about 10%.

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Vijay Sarthy T.S., Anand Rathi Financial Services Limited, Research Division - Research Analyst [162]

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So 10% from the 11% in Q1 FY '20. Has that created a big impact in margin?

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K. Gopala Desikan, TVS Motor Company Limited - CFO [163]

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It is. It is helping. I may not be able to quantify exactly, but definitely import content was 14% last year. It has come down to 10% now.

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Vijay Sarthy T.S., Anand Rathi Financial Services Limited, Research Division - Research Analyst [164]

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Sure. And with BS VI coming in from November, is it right on our part to look at RM to sales much higher than what it is today, given that -- at least in the initial phase till the cost cutting measures starts on the BS VI. So in that parlance, should we expect this raw material cost to inch up, to sales to inch up in Q3 or probably even in Q4?

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [165]

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Closer to launch I will let you know about the pricing and what is likely to be the raw material cost to sale, okay. I'll let you know that.

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Operator [166]

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Thank you. Ladies and gentleman due to time constraint that was the last question for today. I would now like to hand the conference back to Mr. Hitesh Bhargava for his closing comments. Over to you, sir.

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K. N. Radhakrishnan, TVS Motor Company Limited - President, CEO & Additional Whole-Time Director [167]

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Yes, first of all, thank you. Thank you very much for participating in TVS Motor Q2 call. Like I said, while there are challenges in terms of the market, we are expecting the industry to do better in the Diwali season. As far as TVS is concerned, thanks to our strong brands like Apache, Jupiter, NTORQ, StaR range, HLX, Radeon, TVS King, both in domestic market and international market, we will do better than the industry. Our cost reduction and product mix will continue to kick in and support sustainable growth in the EBITDA margin. And we are pretty confident that going forward, the industry will start supporting and we will start getting benefits of that. So overall, we will see both growing better than the industry and EBITDA margin doing better and better quarter after quarter. Thank you.

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Operator [168]

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Thank you very much, ladies and gentlemen, on behalf of Batlivala & Karani Securities. That concludes today's conference. Thank you all for joining us. You may disconnect your lines now.