TVS Motor Company Earnings Call for Q1FY23

Good evening, everyone. Thank you for joining us today. Trust all of you and your family members are safe. God bless all of you with great health, lots of happiness, peace, prosperity, and definitely this Diwali season should be a good season for everyone. This quarter, Q1, the company recorded the highest ever revenue EBITDA and profits despite many challenges, especially shortage of semiconductors, which has impacted the production and sales of premium two-wheelers. Our revenue for this quarter was 6,009 crores, and EBITDA was 599 crores. PBT is at 432 crores. All of you know that Q1 of last year is not really comparable because last year we had the Wave 2. When we look at Q4 of last year to now and Q1, both we have done extremely well given the challenges. We sold 5.65 lakhs as against 3.29 lakhs in the domestic market, and most importantly, as against industry growth of 53%, we have grown much ahead at 70%, despite the challenges in semiconductor availability. Our international business has also done well: we did 2.96 lakhs against last year 2.9 lakhs. This is also faster than the industry growth. Overall, we did 8.61 lakh units against 6.1 lakh units last year first quarter, much better than the industry growth. The EV iQ in this quarter we have done 9,000, but what is very good is month after month we are able to ramp up, and the demand for this product is extremely good. Thanks to all customers. The three-wheelers we did 0.46 lakhs versus 0.39 lakhs during last year first quarter. Profit for this quarter is 599 crores as against 274 crores of Q1 last year, and we registered 10% EBITDA. In the last four quarters, we posted operating EBITDA of 10% despite various challenges of semiconductor and container availability and significant increases in commodity cost. I think this was possible only because of the customer faith, the range of products we have, our premiumization, our growth in the international market, and above all the sustainable cost reduction. PBT for this quarter is 432 crores, and last year Q4 was 373. Profit after tax is 321 crores as against last year's 53 crores. On EV, we are extremely happy that we launched the iQube electric scooter in three variants that come loaded with the best-in-class on-road range of 140 kilometers on a single charge. I think we are offering a host of intelligent connected features including a 7-inch TFT touchscreen and a lot of infinity theme personalization, voice assist, and the TVS iQ Alexa skill set, intuitive music player control, OTA fast charging with plug-and-play. I think Indian consumers are going to see a host of benefits and features, connected features, in addition to the biggest storage space of 32 liters. The response received from the customers is extremely encouraging. In Q1 we sold 9,000 EV scooters. In the month of June, we sold more than 4,500 numbers. There are supply chain constraints in semiconductor components, but I am confident month after month you will see improvement in terms of dispatch from the company. The demand is very robust, and we are currently taking bookings in 85 cities in India. The company currently has a customer base of more than 20,000 happy customers of TVS iQ. Thanks to all of them. As promised, we will be ramping up very shortly to 10,000 per month and progressively moving to 25,000 per month. We will be launching a series of new products focusing on different customer segments with a complete portfolio of offerings in the range of 5 to 25 kilowatts. We said this will be done in the next two years. Our vision on electrification: we envision a wide and reliable charging infrastructure for our EV customers. We have already partnered with Tata Power, CESL, and Jio-bp network. I am very sure this will sustainably enhance the customer convenience and experience. Overall, I think the progress so far has been as per plan. In terms of the new product launches, you would have seen very recently the TVS Ronin. It is a perfect combination of style, riding comfort, and technology for those who live the unscripted way of life. It comes with a lot of world-class merchandise accessories and a dedicated experience program. It is going to create a new segment, and I'm pretty confident about that. In terms of the TVS iQube and Torque XT, we launched with never-seen high-tech features like industry-first hybrid TFT console, TVS Smart Connect, and it has got 60 plus high-tech features including smart dock and smart racks. The scooter also features intelligent technology. And the TVS Radeon now comes with the TVS intelliGO multi-color LCD screen displaying 18 different parameters and a USB charging port. So overall, I think Q1 was a great quarter. When we look at Q2, we are extremely happy that the monsoon is satisfactory. We expect this year to have a normal monsoon, and this will definitely help the agricultural sector. The rural economy should definitely benefit from the global agricultural price trends which promise encouraging returns for the farmer. I think we should all be respectful. The good news is there is no hospitalization practically, it is negligible, thanks to the government for the vaccination drive and the booster. Social distancing requirement is continuing, but I think this will help in growing consumer preference towards personal mobility. We are well poised with the kind of range of products we have, and we are confident that this is going to help us grow better than the industry. We are cautiously optimistic about the international market because some of the markets have challenges in terms of affordability, and in some areas we are seeing depreciation of the currency and a little bit of inflation. However, with the kind of product range TVS has, we are pretty confident on growth even in the international market. The demand for premium products is growing. We are aggressively working with alternative sources on the semiconductor area, and we are happy that those efforts will see good improvement in Q2. Already some improvement has been seen in July, and we will see good improvement for Q2. Despite some challenges in Q1, we were very happy that the sustained material cost reduction and overall range and international business focus helped us in achieving our EBITDA of 10%. As I highlighted earlier, we will continue to invest in new product development, technology, and new features. We are planning a series of product launches in the coming quarters both in ICE and EV. We have a very strong portfolio of brands starting from the Apache series, Jupiter series, Jupiter 125, Radeon, Torque, HLX range, Radeon, TVS King, and the recently launched new product TVS Ronin. We are very confident that our customer delight and the range will help us to grow ahead of the industry, both in domestic and international market. So the top line growth, increased premiumization, and the sustained cost reduction initiative both in material cost and fixed cost will confidently help us to sustain EBITDA movement. Overall, this year, as you know, Diwali season is starting sometime mid-September till end of October. We are very well poised for a good growth ahead of the industry. Thank you.

Always we believed in the scooter category to come back, Pramod, and we have seen this quarter scooters are almost 32% of the category share in the Indian two-wheeler industry, which is a very good news. And we have also significantly grown in the scooter category thanks to Jupiter 110 and Jupiter 125 and Torque. So that is one of the categories which has significantly helped us in this quarter. And these kind of challenges we have always faced in the semiconductor, so I think we have taken some countermeasures and that is going to help us in Q2. Equally, international business and three-wheelers also have helped us. And what is most important on the EBITDA side is the sustained material cost reduction. And thanks to our strong brands, we were able to pass on price increases to the market, cannot be fully, but that has also helped. So overall, it's a combination of overall sales going up, scooters going up, international business doing well, and also the cost reduction sustained from the company side. On one side, the material cost reduction, because there were some challenges in availability of Apache and Radeon, we also controlled the marketing expenses related to that. So overall, it was a very concerted focus and that has helped the company.

International, I think the dollar rate is 76.5 that we have realized. The overall turnover from international business, give me a minute. And even spare parts if I have it handy... Spare parts is about 620 crores. So there's no big sharp spike because some of your peers have seen a very sharp spike in spare parts contribution to overall revenue. We are at the same level. International is about 2,174 crores.

Yeah, we have a consistent inventory norm. We keep around 25 to 30 days of inventory plus the transportation time, especially in international you have to provide replenishment. The last thing we want is lots of retail. We never keep extra stock in any market because we believe that the customer should get a fresh vehicle. That philosophy will never change. Now coming back to the international market, we have seen such challenges in some of the markets even in the past, so I'm pretty confident that this is only a small phase. Even in some other markets like Nigeria or other markets in Africa, I think there is a strong brand pull for our products. I'm pretty confident that overall, the range of products we have will continue to grow ahead of the market. We are pretty confident even in Q2.

See, commodity for Q1, I think there is a carryover of about 1% and there is another 1%, so overall almost 2% impact in Q1. And we have taken up prices almost 1.5%. So I think the product mix and the combination of benefits we got in the sustained material cost reduction helped us to keep our material cost almost at the same level or slightly better than last year. In terms of Q2, there may be small increases because there are some materials which are going up, but overall, if you ask me the trend, I think Q3 onwards you should see some softening in terms of material cost. Please remember that all these material costs are already at a very high level. In terms of the numbers of vehicles, I'm talking for the industry, not for us, we are still three or four years back. So I am of the view that second half you will see softening of materials.

Uh, the profit on sale of our investments in intelligence is more. It is other income, not an operating income.

It's around 22 crores. We have not considered in our disclosures. If we do the calculations also, it's around 21.9, close to 3%. We have kept it outside EBITDA.

Yeah, we are… for example, June month this quarter was about 9,000, but what is silver lining is, in the month of June we were closer to 4,500 to 5,000 that number. And I am pretty confident that July will be a better number and August will be another better number. So we are moving towards the 10,000. We also wanted to reach it as early as possible because very good booking from the customers. As I highlighted, I think our endeavor is to… the pull for iQube all three variants is excellent thanks to the kind of features and product we have delivered. So month after month, I am pretty confident now. Many of our suppliers especially in the semiconductor area are also supporting us. They understood the brand strength of TVS. So I'm pretty confident that month after month you will see that going up.

We have about 20,000.

We are now currently about 80 to 82 cities in India. 85 to be precise. And because our ramp up versus the demand there is a gap, we are also cautiously going because we have to satisfy the customers that is very important.

So we'll come back to you. Still we are evaluating all options, and definitely we'll come back to you on that.

We definitely had the Raider and Apache affect the retail also, unfortunately. We had three months, April, May, June, where we had serious problems in both these models. But the good news is we are having some alternate supplies which have started supporting these models. With the current supplier and the new supplier, I am pretty confident that you will see a much much better number in Q2. Channel inventory, standing inventory, we always believe in less than 25 days maximum to 30 days in any model. But these models did affect, that's why I said the stock levels were very low in the market for these two models in April, May, June. April was okay, but May definitely would have suffered a loss of retail as well. But I'm pretty confident that going forward from July you will see improvement.

I think working closely with the suppliers. Because it's not that – suppliers also ultimately lose huge profit because premium products are very very critical. In the case of Jupiter, we were able to work closely with the supplier here also, we worked, but unfortunately sometimes their tier one in certain locations had problems and challenges. But in the case of Jupiter, that did not happen. We work very closely with our tier one, and some of the tier one also works very closely with the semiconductor supplier. So certain things did not work for us in April, May, but we were able to come up very quickly with alternatives for these two models and that will definitely help in Q2. I think this is something we have to be constantly at it, because thanks to the EV sector, we are learning a lot on the semiconductor industry – what kind of challenges and lead times. So this learning helps us to prepare very free planning. Practically you have to plan 52 weeks ahead. So that kind of planning – I think that combination of learning has helped us for Jupiter.

Let's see, the pending orders normally we don't book. Only in the case of EV we book because it's a very new model and new set of customers. Other models, normally we have very healthy demand in the market. Both Raider and Jupiter, we have lost retail in the month of June, mid onwards. I don't want to put a quantification to that because what is most important is taking countermeasures so that we don't lose customers. And there are some customers who are still waiting because they love this brand. Most importantly, what is liking to me is Apache and Raider customers still wait, and we are fulfilling the demand this month. So I am very happy and thankful to those customers.

And we are extremely happy the way moped is moving. These are set of customers at the bottom of the pyramid. They had a lot of challenges if I look at the last two years. The biggest challenge was the lockdowns, and all of us know there were a lot of challenges in terms of the category itself. But we should always remember, I gave this statistic: if I look at moped, it has declined by 38%, but if we look at entry level motorcycles, it is declined by 50%. So it's not related to moped, it is related to the entry level consumer not having ability to buy, or they had, thanks to the lockdown, they are daily wage earners, self-employed. If they don't go out, they don't earn. Thanks to the booster and vaccination drive, today the fear of hospitalization is slowly moving away. You will see the rural, once the rural starts spending, the bottom of the pyramid will start picking up. I'm pretty confident. But this is three to four percent of the category because they have a purpose. So that purpose will continue to be there, and we will definitely fulfill that. That is the role of a moped.

Again, we have a range of products which we are planning to come back. Only I don't want to specifically say these are the kind of products. I gave you from 5 to 25 kilowatts, and we have a very clear range. We have iQube, 3 versions are there. I think quarter after quarter you can see something coming from TVS to delight the customers.

See, these are products which we have to respect from the market side, the low speed. But I think what is most important is the customer usage. We always believe that for any product, there is a particular type of customer. I don't think customers look at the technology. If somebody wants to buy a scooter, he wants it to be going on good roads, bad roads, it should be able to climb any kind of gradient. Low speed vehicles have their own limitations. For a serious commuter who needs to go 30-40 kilometers a day, low speed may not be the answer. So I think the market will decide. TVS will focus on high-speed electric scooters that meet regulatory requirements and offer real mobility.

Flyover should be able to carry whatever required. Normally, if you look at it, husband and wife and children, they should be able to carry whatever they require for normal household work. I think somewhere, if this and of course safety, and an overall total cost of ownership, if these criteria are not met, I think they will reject that category. That is our belief. That's why I always say, put the customer at the center and keep working on whatever is required for the customer. Whoever works for the customer and understands the overall total cost of ownership and the usage pattern will succeed in the long term. Otherwise, there will be many products coming. This is not only applicable for two wheelers in my view, it is applicable for any category.

I told you about moped. It's a big problem in the bottom of the pyramid because of the last year and last couple of years of real, you know, COVID. Their income level got completely affected. They had a lot of challenges. All of them are self-employed, and you know, a lot of challenges. It is not only for moped. I highlighted the entire entry level. You look at the motorcycle entry level. Sure decline only 38% and entry-level motorcycles decline by 50%. So please look at it in a greater perspective.

Electric. We have, we are. This is going to be a key strategy of TVS Motor Company. We see there is a great opportunity. I think our full focus is on giving the best to the customer in terms of usage. You have seen already in iQ. Now the new three variants, I think they will definitely delight the customer. It has got all the features I explained. There are three versions, and I am pretty confident that is going to delight the customer.

Which one are you asking?

You will be seeing our three-wheeler coming soon into the market. Right. I think the PNG, CNG three-wheeler is also very good in the market, and also petrol. I think alternate fuel. I think you will see again TCO. If customers look at the usage, they look at the TCO. I think whoever is able to manage that, whoever is able to satisfy the customer requirement, there'll be success.

We are currently exporting to 80 countries: Africa, ASEAN, Asia, Latin America, Middle East. These are all the countries. We have an excellent range of products starting from HLX to the recently launched Rader. And please remember that we also export from Indonesia our Vikes and Scuba. So overall, the product portfolio is excellent and the customer delight is also excellent from these markets. Now, we have also seen in the past currency challenges, availability challenges, depreciation challenges. Okay. Overall, there are some markets where we feel that there are some challenges in terms of little higher inflation and also currency availability. But I think a couple of quarters it should ease out because the basic mobility needs are there. The purpose of these products for mobility is there. African market, predominantly the taxi market, the need for taxis is there. Predominantly this is the mode of employment there. So I think a couple of quarters you moderate yourself. And we always believe in very lean stocks in the market. We go by pull in the market. So that is definitely helping us. So I'm pretty confident that we will be able to do extremely well in coming quarters in an EV.

I think these are strategies of the company. We constantly look at, you know, what is most important is value to the customer. And the moment you give value to the customer and customer sees a total TCO superior to the competition, they will start preferring you. Okay. Each country has got their own currency, their own challenges. India has got our own challenges. I think these are all part of day-to-day planning and overall strategy of the company.

This year, capex is about 750 crores. This is on 2022-23 capital. And the investment in subsidiaries, that will be how much? It is one of the questions. Yeah, see, we will have to invest in previous credit services to maintain the capital adequacy ratio. We are in line with whatever we have done in the last year. For northern Asia, as explained, it may require. Capex program is happening. There will be investment. Other than that, I don't foresee any investments. About TVS, you want to highlight this again? They have done extremely well. Yes, the USCS performance has been extremely good. Their book size has crossed 15,000 crores. Now they are at 15,400 crores, close to the book size. The gross NPA is the lowest at 3.1 percent. And the collections have been extremely good, better than the pre-COVID levels. Today, for the profit for Q1, PBT is 111 crores. In all parameters, they have done exceedingly well. So put together, the amount will be closer to 3,400 crores or probably more for this subsidiary. Around that.

Yeah, we can hear you.

Yeah, we have invested two percent. Okay. And as you know, they are basically to leverage their synergies of their respective business in the fast-moving mobility market in India. So this is going to definitely help us benefit for TVS Motor also. Because it will help us in the delivery of vehicles, also credits and financing solutions. I think it is going to definitely support the overall TVS, that is why we have invested in Rapido.

Again, we always focus on the customer segment. So you can definitely expect whatever is required for the customer segment, we will miss behind that. That is the strength of TVS. We have a dedicated team of R&D and we look at the customer segment and segment by segment, we will give solutions to the customer so that they get delighted.

Thank you.

Once again, can you repeat the question?

Absolutely, absolutely. I think if you start integrating the investments we have made in the charging infrastructure partners like Tata Power, CESL, Gobp, and product on the other side, I think you will be able to see how we have a very clear strategy behind the product and also the infrastructure for supporting. Ultimately, we are looking at how do we enhance the customer convenience. How do we provide, depending upon the customer segment, starting from home charging, fast charging, to public charging? So I think there is a very clear strategy as we go quarter after quarter. You will be able to understand what is the overall strategy of the company. But we are putting all the elements of the strategy closer to every product launch, and with these launches we will be able to share more detail.

It is a part of overall strategy. It is thought through very well, thoughtful, and we are putting separate steps in investments behind each of these partnerships also in the product and customer segments. That's why I said next 24 months are very important in terms of growth, customer segment, product delivery, and also the variants we will be giving to the Indian consumers, and definitely leveraging these products for the global market as well.

I think EV is a very important strategy for the company and we are building up long-term relationships with many of this supply chain providers. More details I can tell you as we proceed quarter after quarter. As of now, we are moving in the right direction. Month after month, you will see the ramp up going up. What is most important is a very healthy booking from the consumer side. The twenty thousand customers are giving very positive about TVS iCube, and you have seen the new three variants in the market. And again, you will see a series of products getting launched. On one side, on another side, we are very systematically working on the ramp up. Month after month, you will see the improvement. And we are also having very good relationships with many of the new suppliers who are supporting us in the EV space.

Last year Q1 export was 1,830 crores. And price hike, you are asking July? In Q1, I said about one percent.

No, nothing.

I'll start from the last question. I think EV is going to be across. I think we have to look at that. That's why I said there is a very clear segment-wise product strategy, and quarter after quarter you will see how the company is planning the investments and how we are planning to deliver the product. Now, Norton is a very special and very premium brand, and a lot of work has happened. In the new headquarters in Trolley Heath, we have made an excellent high-quality manufacturing facility, assembly facility. I think a lot of work is going on there. I think you have to give me some more time. The strategy is very clearly worked out. Now, which products and which quarter, I can assure you that there is an investment which you will see significant returns going forward. My analogy is always pretty previous Indonesia. Okay, you invest, and we are very serious about these investments. Whatever we make, we have to give some time because when you invest in the right segment and right business and focus on the customer, we are pretty confident that we will deliver good performance in the future. That's exactly TVS's track record. And you have seen in previous years, you have seen in PT TVS. Okay, and quarter after quarter you can see our strategy. We are focused on the segments and we will be behind the right.

We have a very clear customer segment-wise product strategy. Okay, and you will see for which products which customers recommend, and there is also a rationale on the sequence of these products. So closer to launch, I can share more information about which products, which segments, how we are planning to. Now, you have seen we have three variants. I think at this point of time, I want to delight the customers who are booked and they are not delivered. So what is most important is these are all concurrent. We have to concurrently work on the products and we have to keep delivering.

We are ramping up. First is to reach 10,000, then go to 25,000 month after month. What is most important is we are delighted that the customers are showing a lot of confidence in iQ. Okay, I think we are very, very focused on looking at month after month delighting the customer, giving variants to the customer, giving the best features, best technology, and standing with the customer.

Drawn in is modern retro, it's a new category for us and a new category for the industry. I'm pretty confident that the customer will be delighted. Okay, and again, we invest in the new products, we wait for the customers. Month after month, we see all that. What I can say is TVS will delight the customer.

Thank you. Let me try to answer the last question. Yes, there is a proposal for divestment of the investments in a material subsidiary. The sale will happen to a Sundaram Catan which holds the balance 49.5 percent. By this process, internal creator will become 100 percent owner of the Sundaram Catan USA company. It is a cash transaction, and the money will be received post approval of the shareholders by the subsidiary of TVS Motor Company, namely Sundaram Motor Components. And SMCG is concerned. Kenner, would you like to say something? One of the leading providers of e-mobility solutions in the DACH region. Last year, ladies and gentlemen, the lines of the management have got disconnected. Please stay connected while we reconnect the management.

Yeah, I was answering about ACMG. It's one of the leading providers of mobility solutions in the DACH region. And this year, there are some supply chain issues and also there is a little bit of slowness in Europe as a whole, but we are pretty confident that this product and the demand will be good. Already we are seeing some improvement in the month of July, so we are very confident about ACMG doing extremely well.

I think these are investments into the complete category. I think if you look at our investments, whatever we have done in the e-mobility area, especially in the e-cycles, I think TVS Motor has got certain products. The e-mobility is on the one side and the Norton on the other side. So you are seeing a huge range of products for both developing and developed markets. But this also gives us a great learning opportunity about Europe and the consumers in Europe. So these are investments which are definitely going to yield very good returns in the future. I don't want to give any guidance on what exactly will be the kind of returns, but these are going to be strategic investments which are going to definitely help the company in the long run.

See, on the first question, with the COVID situation, what is it today? I'm pretty confident that this year's Diwali season will be a good season. Rural, thanks to good monsoon, I think rural will do well. I'm talking about domestic market. I'm expecting that rural market even now, thanks to the vaccination drive, I think the number of incidences, COVID is becoming like a flu now, three days, four days and no hospitalization. Still, I think we can be a little bit more disciplined in wearing the mask and distancing. I think it can help, but I'm very positive about August, September, October this year. Because I think many of the areas, there are no lockdowns expected. Number one, number two, rural will do well. Number three, the urban markets will do well. Schools are open, everything is open. And I told you that already, scooter category is 32%, almost 32%, and scooter will continue to grow because of its own inherent benefits. The positivity according to me, the bottom of the pyramid also will start seeing some traction because last two years they had very limited income and mobility needs are there. Thanks to the investment by the government on the infrastructure, there is definitely mobility needs are there. The two wheelers will continue to do well. It may take the CAGR of 10% what we have seen about three years back, it may take maybe another couple of quarters or three quarters, but overall I am very positive about Q2 and Q3. You will see much better year overall. This is on the industry side. From our side, we always keep very lean stock, 25 to 30 days. Season, no season, we look at the retail. Again, from the customer point of view, you have to give the fresh vehicle. That is our philosophy, and that philosophy will continue. All that is required is we should not lose a retail. That is the focus. So for that, you look at the lead time. We have fortunately three plants: one in Hosur, one in Mysore, one in Himachal. So between these plants, we look at what is the best opportunity to deliver to the consumer to the dealer, and we make sure that stocks are available so that we don't lose the retail. And we will never increase stocks beyond this 25 to 30 days. Because that has been the philosophy, and same philosophy we will continue even in the international market.

Raw material, raw material, we can only at this point of time, as I said already, it is in the peak. Okay, and we have already seen Q2 maybe some more increases may be there, but Q3 onwards you should see some little, you know, the raw material to be stable or slight reduction. These are the things we are expecting in the market. So we learn to seek water by water, and we are not so much worried because this is something we have to go product by product, brand by brand. And thanks to the customer confidence on the brands what we have, we are able to absorb some cost increases, some we are able to reduce through our overall cost reduction, sustained cost reduction. We are also focusing on a premium category. So I think the range is helping us, the demand is helping us, and our overall approach of looking at giving value to the customer through features, attractive quality, and total cost of ownership, I think that will definitely help us in going forward and growing ahead of the industry. Thank you, thank you everyone. So I think the Q2, Diwali season, Puja season, the kind of products we have, and I am very confident that we will be able to ramp up iQ much faster this quarter, July to September. And overall, the sustained cost reduction, the focus of premiumization, international business, and the range we have, we are confident that we will deliver continued and sustained EBITDA improvement along with gain in overall growth ahead of the industry, both in domestic and international. Thank you very much.