Eicher Motors Ltd

NSE:EICHERMOT

Earnings Call Transcript 2022-Q4

[Raghunandhan N. L., analyst]

Ladies and gentlemen, sorry for the delay. It was a technical glitch. We should be starting now. Good evening, everyone. On behalf of Emkay Global Financial Services, I welcome you all for Q4 and FY '22 results conference Call of Eicher Motors.

We thank management for giving us the opportunity. Management team is represented by Mr. Siddhartha Lal, MD and CEO, Eicher Motors; Mr. Vinod Aggarwal, MD and CEO, VE Commercial Vehicles; Mr. B. Govindarajan, CEO, Royal Enfield and Full-time Director; Mr. Kaleeswaran Arunachalam, CFO. We request management for opening remarks, which can be followed by Q&A session.

Over to you, Siddhartha, sir.

[Siddhartha Lal, executive]

Hello, and good evening, everyone. I hope you're all doing well, and welcome to Eicher Motors Limited earning call for the quarter ended March 31, 2022, and for the financial year 2021, '22.

The year that's gone by was extremely significant for Eicher Motors Limited as we registered considerable progress towards our long-term goals despite numerous headwinds through the year. Eicher began expanding our business into international markets 6, 8 years ago. It has been our ambition to sustainably grow our overseas presence and to become a premium global consumer brand from India.

This year, we made really strong progress towards unlocking new opportunities in these markets led by expansion of our international footprint and commencement of operations in key markets. And all of this contributed to a stellar growth of 108% year-on-year in international markets.

Going to the main [indiscernible]. We've also added 2 new local assembly units this year in Colombia and in Thailand, which are very important markets for us.

In India, we continue to define the middle weight segment. And we performed consistently as compared to the other -- compared to industry despite enormous supply chain challenges stemming largely from shortage of semiconductor chips even though there were lots of other supply chain challenges last year, including huge inflation and unavailability of other commodities as well.

In FY '22, while our overall market share remained steady, we grew at around 5.8%. We actually closed quarter 4 with over 7% market share. And that's the overall motorcycle industry in India. So of all motorcycles sold, we were 7%, and it increased to 28.7%. That's a 2.8% increase in market share in all motorcycles, 125 cc and above.

So if you think about it, I think in the last quarter, it was above 30% we are above 125 cc market share. So basically 1 out of every 3 motorcycles sold above 125 cc. And we're not even present in below 250. So above 125 cc in India is a Royal Enfield.

And of course, we -- despite enormous number of manufacturers and new models coming into the above 250 cc space, we continue to dominate that with around 90% market share in the above 250 cc space despite all the global and Indian manufacturers entering into that space in a big way in the last many years.

Since its launch in 2008, the Royal Enfield Classic, as you all know, has become the most popular motorcycle within our portfolio. And this year, we achieved a critical milestone with the transition of the Classic to the all-new JCS platform. We launched this across all our global markets, and the new motorcycle has received absolutely amazing reviews from experts and the riding community across the world.

This was one of the biggest challenges of the last decade for Royal Enfield, to switch over from a running platform where we had our most important motorcycle, to switch it over. And it's absolutely amazing the motorcycle and the switch over we will be able to do. And despite all the challenges of supply chain, we were still able to get the production and everything else going. So it's been an enormous change management, and now we're in a really, really solid footing moving forward.

Also creating niche riding cultures and subcategories has been a key focus for us. With the Himalayan, we were able to build a unique subculture of accessible adventure tourer across the communities. And we cemented that proposition in an effort to build inroads in the adventure category.

In order to do that, we'll launched the Scram 411, which is our first adventure tourer crossover motorcycle. We launched that this year or just a few months ago. Scram also has received great response from consumers, and we are now taking this to international markets as well.

On the commercial vehicles front, the domestic commercial vehicle segment charted a sharp recovery in FY '22. And VECV clocked a 38% year-on-year growth in volumes.

We successfully launched a wide range of IC trucks and buses and variants for India and export markets. We established a brand-new Volvo FM and FMX truck range and delivered the first synergies from the successful integration of Volvo buses that we bought recently from Volvo Group into VECV.

We maintained our market share across light, medium and heavy-duty segments of around 30% in light and medium-duty trucks and 7% in heavy-duty trucks and continue to retain profitability and the only profitable commercial vehicle company last year, as you all would know.

So that's also a big, I think, feather in our cap and testament to our management and to our business model that we're able to accomplish profitability when all our big competitors are making losses.

The Board of Directors of Eicher Motors Limited at the meeting held earlier today declared a final dividend of INR 21 per share for the year 2021, '22, implying a payout sum of INR 574 crores. As we move forward, we've committed to align the next stage of our growth with a [indiscernible] and much stronger ESG vision that we have.

With the disruptive effects of the pandemic receding and a very strong product pipeline and distribution in place, we are confident to push forward on our strategic plans and long-term product and business objectives.

Now moving to financials for the fourth quarter and the financial year. The consolidated financials for quarter and financial year ended March 2021. So revenue for Q4, we had our highest ever quarterly revenue actually in Q4 at INR 3,193 crores, up 8.6% from INR 2,940 crores last year. For the whole year, we had our highest ever annual revenue at INR 10,298 crores, up 18.1% from last year.

Our EBITDA for Q4 was at INR 757 crores, up 19.3% from last year same quarter. And for the full year, we had INR 2,172 crores, up 22% from whole of last year. Our EBITDA margin has also climbed up. So for the quarter, it's 23.7% against 21.6% last year, which is a 2.1% year-on-year increase and despite a 10% drop in volume from last year, right.

And for financial year, we're at 21.1% against 20.4% last year. Overall, our profit after tax for Q4 is INR 610 crores, up 16%. For the full year, it's at INR 1,677 crores, up 24.5%.

So that's all for me. Thank you very much. I will now hand over to Govindarajan, who is the new CEO of Royal Enfield. Congratulations, Govin, on the new position. I'm sure you'll do an outstanding job considering you've been here for 23 years and been doing an outstanding job for all these years. So looking forward to your leadership and running of Royal Enfield, Govin. And over to you.

[B. Govindarajan, executive]

Thank you, Siddhartha. Hi, everyone. We have a small technical glitch not able to switch on video. So excuse us for that. As the audio -- hope it is clear. I'm just checking whether the audio is okay. So...

[Siddhartha Lal, executive]

All good, Govin. Loud and clear.

[B. Govindarajan, executive]

It's okay? Thank you. Hi, everyone. Hope everyone are doing well. At Royal Enfield, we're strongly committed to and remain steadfast in our long-term goals.

This year, we registered our highest ever annual revenues backed by the efforts made over the last 6 years across the business. We registered significant growth in overseas market, you all know, with about 108% growth in sales numbers and about 105% growth on the revenue term. This is marked by an improvement in the non-motorcycle business with a 45% increase in the sales year-on-year.

Now let me share with you some of the key highlights for Q4 of the financial year '21, '22 and full year '21, '22. Let me just begin with the sales volume for Q4. Royal Enfield had sold 1 lakh 82,125 motorcycles, which is down by about 10.4% from 2 lakh 3,343 last year.

Notwithstanding the constraints around the supply chain because of the semiconductor chips, we steadily improved our performance, which is about plus 8.6% supported by an onboarding of alternate suppliers to the entire ecosystem, which has been brought in to minimize the impact of the shortages. At demand, it's continued to stay resilient, further aided by the launch of Scram 411 as Siddhartha was mentioning. Scram 411, which has received an excellent customer response in India.

While our volumes remained 15.5% below Q4, we have increased our market share in the motorcycle segment of more than 125 cc engine by 5% to 32.9% as compared to 28.1% in Q4 FY '21. For the full year '22, total sales stood at 5 lakh 95,474 motorcycles, down by 2.3%, almost same like last year.

We had a lot of challenges in the supply chain on the production front. But as I mentioned, the demand for our motorcycles remains very resilient. Our market share in the motorcycle segment of more than 125 cc engine increased by about 2.8% to about 28.7% in the full year.

At international market, as I mentioned, we continued our strong growth momentum. We registered our highest ever quarterly sale in Q4. We sold 21,787 motorcycles, which is double almost compared to the previous year, which is almost a growth of 59.2%.

For the full year, the international business volume has doubled to about 74,238 motorcycles versus 35,700 motorcycles. It's at all around every market where we have entered, it has been a tremendous growth which we are seeing.

In all the markets where we entered, especially in Europe, we have achieved about 7% market share in the midsized motorcycles. In the Americas, we have achieved about 5% market share. And in the APAC region, we have crossed 7% market share in the midsized segments.

In all the markets where we are entering, we are steadily seeing the growth outside India, too. This is backed by the network expansion and firming up our commitment to the international markets. We have added during this period about 33 exclusive stores and about 44 multi-brand outlets across region this year.

We have also commenced our operations at our CKD facilities in Colombia and Thailand, Argentina, which was done last year. During this year, we did for Colombia and Thailand in addition to the facility in Argentina, as I mentioned.

In the CKD facilities, we have almost assembled 5,000-plus units. Our domestic network footprint stands at as of date about 2,118 stores. Of which, 1,063 is at dealership format and 1,055 are studio stores at the end of the financial year.

Our nonmotorcycling business, it has continued to grow steadily. Our constant endeavor to deepen rider's engagement with his or her motorcycle, which has resulted in growth of our journey in motorcycle accessories and spares verticals.

We witnessed a growth of almost about 45% year-on-year in this year. The total nonmotorcycle revenue for the business is currently standing around 15% of the overall revenue.

Our new product introductions, just to give you a background what are the things which has been done, we have introduced 2 new exciting motorcycles this year. One is the all-new Royal Enfield Classic 350 and the Scram 411. Reborn on the new J Series engine platform, the all-new Classic 350, which has received an excellent response from all the experts and the consumers alike and has won numerous awards and accolades globally. The Scram 411, the brand's first adventure crossover, was launched to great reception from consumers and experts. At the EICMA 2021, we showcased the SG650 concept, the new retro interpretation that pushes the boundaries of what Royal Enfield motorcycle could look like.

A host of landmark initiatives marked by Royal Enfield's 120th year anniversary this year. One is 90° South, a daring expedition that saw 2 of the Royal Enfield Himalayans accomplish the unthinkable feat of traversing the treacherous journey to the South Pole. Two of our company employees successfully completed this expedition in 28 days in December 2021.

We also debuted the 120th year anniversary edition of the brand flagship 650 motorcycle, the Interceptor 650 and the Continental 650 at EICMA 2021. The motorcycles received an incredible response in India as well as Europe, and all of this got sold within about 120 seconds.

This year, Royal Enfield marked its maiden foray in the world of modern motor sports with the Continental GT Cup 2021 with a focus on building accessible inroads for any enthusiast into the motor sports and retro racing. The first season of the GT Cup was conducted at the Kari Motor Speedway and Race Track amidst the fanfare and the resounding response from all the riders.

Strengthening our association with the Armed Forces, we partnered with the Border Security Force for one of its kind, all-women Seema Bhawani Shaurya expedition. The expedition saw about 36 women riders traverse 5,200 kilomters across the country on our Classic Motorcycle 350, which focused to build awareness about freedom and bias and stereotypes against women and the whole journey ended at Royal Enfield factory.

Further strengthening the pure motorcycling ecosystem, we initiated collaborations with iconic motorcycle lifestyle brands, TCX and Belstaff. The TCX association saw the 2 brands collaborate to create CE-certified protective riding and lifestyle shoes. The association with Belstaff saw the launch of a range of lifestyle and protective apparel.

To conclude, the consumer preference for personal mobility and premiumization continues to drive the demand for the segment and for our products. As supply chain constraints gradually ease out, we expect production to scale up further. With a slew of new launches planned in the near term and mid term, we are excited about what is in store for us globally.

That's it from the Royal Enfield side. Now I'll request Mr. Vinod Aggarwal to take you through the VECV performance and updates. Over to you, Vinod.

[Vinod Aggarwal, executive]

Very good evening to everyone. And I'll take you through our VECV performance and then also give you a little bit about the heavy industry.

As far as the performance is concerned, I think last year was a very, very challenging year. But in spite of that challenging year, I think, as Siddhartha mentioned in his opening remarks, we had good growth, both in volume terms as well as in value terms.

In value terms, we have a growth of 47% for the full year. In fact, last year has been our all-time high top line of INR 12,724 crores against [ INR 8,676 crores ] in the year before. So it's all-time high, even though the volume buy is 57,000-plus. And as you know, earlier peak was close to 73,000 in the year '18, '19. So while in volume terms, we are much lower than the earlier peak but in value terms, we have crossed the earlier peak.

As far as the EBITDA margin and the profitability is concerned, I think the -- there were a lot of challenges last year, starting with very high inflation and very high level of discounting and supply chain challenges. So in spite of all this, a good thing is that we have overall for the full year, we have remained profitable.

And for our full year, we have on consolidated VECV basis, we have a PAT of INR 108 crores, which, of course, is against INR 63 crores in the year before, in 2021. And as far as EBITDA margin is concerned for the full year, for the full year, we have EBITDA of 5.6% as against 6.8% last year.

So since the last year, the top line was much lower, the margins were better. So in spite of the top line going up, the margins have dropped, as I mentioned earlier, due to very high inflation and inability of the industry to pass on the cost increases even though we could make up a lot through cost reductions and also there was some losses due to the supply chain challenges.

And then, of course, as far as the market shares are concerned, I think we have done very well. We have a share of -- in 5- to 16-ton segment, we have a market share of [ 50.2% ] as against 30.6% the year before. In Brazil, we have improved, in fact, significantly in market shares from 19.9% to 21.6% even though the bus market still is very, very low.

In heavy-duty trucks, our market share is at 7.3% against 7.9% last year. So there was some lower market share because of very high discounting which were there in the market. And of course, beyond the point, we decided not to run after the market share. That's why you see that overall, we have remained profitable, whereas, I think, for 9 months, and now we also have results of Tata Motors for full year. For full year, they are still on loss in spite of selling very high volume. So therefore, I think considering the difficult situation in the market, I would say we are -- we have done reasonably well.

As far as the new product lines are concerned, I think the -- we are the ones which led the migration to CNG alternate fuel. And we have now almost a 34% market share in the entire CNG market.

And then apart from that, the full year, we introduced quite a few new products. And this was the entire range of CNG products, then, of course, various variants in heavy-duty trucks and in light- and medium-duty trucks and various new export products.

Overall, we introduced almost 66 new products last year, which included 25 in light- and medium-duty, 16 in heavy-duty, 7 in buses. And we have introduced intercity coach in Brazil, which is now manufactured in Volvo bus plant in Hoskote. So this is the first fruit of our synergistic working between Volvo bus and Eicher. As you know, Volvo bus is now part of VECV.

And then we also got the CV Maker of the Year award in the CV Apollo awards for our 2114 CNG truck. And we also got a few other awards overall in that CV Apollo awards.

So overall, I would say if you look at the product portfolio, if you look at the -- our industrial capacity, if you look at the -- our processes, especially the retail excellence and the network and all other customers-linked infrastructure, I think we have made significant improvement. We are consistently improving in our network.

And last year, we added, in fact, quite a few new network points in East and Far East and in some of the other unrepresented territories. And we have plans to add more network points even in this year. So therefore, we should get more and more leverage from the expanded distribution footprint.

Apart from that, I think we have done a lot of work in digitalization, and we have done a lot of work in retail excellence, we may hear specific parameters which create customer satisfaction. For example, we may hear responsiveness. We may hear the repeat repairs. We may hear in how much time our service plans are able to reach if there is a breakdown of a truck on the road. And we are able to give predictive maintenance. This is the first of its kind in the industry.

If the vehicle breaks down, if the vehicle has some problem while it is running on a highway, our uptime center keeps on getting the data consistently, continuously from a running vehicle. And based on the analytics, which we have put in our uptime center, if there is any problem with respect to overheating of the engine or oil level is less, that information is immediately known at the uptime center and on a real-time basis. And our uptime center calls up the driver to inform him depending on the seriousness, either to stop immediately or we book him the next service station.

So by that process, we are able to save a lot of engine seizures. So what I'm trying to say that we have initiated lot of customer-facing new initiatives, which are all digitalized and which are very strongly monitored from our side.

So therefore, on the company side, we have the products, which are technologically superior. We have the very wide range of products. And then, of course, we have a very good setup in -- the network is increasing, a lot of steps on the retail excellence.

And then, of course, the industry is on the right path now. The industry, we had 3 bad years, and the industry is improving now. Then hopefully, it should go back to its earlier peak or even grows there. So therefore, I would say we have good plans. And if we execute these plans well, I'm sure the company will have good growth potential in the future.

So then I now invite Siddhartha back on this call.

[Siddhartha Lal, executive]

Thank you, Vinod, and thank you, Govin. And so now you've heard from both the CEOs on the individual businesses on Royal Enfield and on VECV. And I have to say I'm absolutely delighted with the absolutely amazing leadership teams that we have at both the businesses. They're really in sync and very focused leadership teams working super hard.

And as you know, we have a very, very strong and resilient business model and capabilities. And it's really showing up even in tough times where the last couple of years, I mean, it doesn't seem like that's a -- they've been super tough from many perspectives. And you can see it's -- we're still thriving in these conditions.

And of course, as the markets go up, I'm sure we will do much better because we also have -- for both the businesses, I can see clearly that we have very, very, very strong product pipelines, very good distribution, which is working really well and in sync with our organizational needs. And we're super confident of making the strides and the path towards our long-term ambition.

So really delighted about how things are going right now and looking forward to answering your questions.

[Raghunandhan N. L., analyst]

Thank you, sir, for the comprehensive opening remarks. Can we start the Q&A session? Pramod, you can please go ahead.

[Unknown Analyst]

Congratulations, Govin, and great to see you also after a long time. My question is related to the demand, domestic demand scenario so that I wouldn't bother you on the exports side, it's going really great.

On the domestic side, thanks to the way the commodity price inflation and the regulatory headwinds have kind of added in, the product has become much, much more pricier across the industry level and especially for you as well because you can't escape the ABS bullet, right? So just trying to understand, given the kind of price leap what we have seen for your products over the last 3, 4 years and the macro where we are, which is not great, upgrade demand definitely kind of suffers and which is kind of visible in your kind of the mind share you have on the category and the kind of market share, and there is still a gap.

So is there any thought on reworking the product or looking at something which can be more accessible from a customer -- from a price point, which can probably accelerate the upgrade ladder because I'm pretty sure a lot of customers want to buy RE, but the prices have really gone through the roof, right? So is there something that the company can do in terms of reengineering the product or a new derivative or a brand?

You talked about a product pipeline. So does it include something like that? And if you can just spare your -- just share your thoughts on the upgrade customers, what you're kind of getting into your family every month.

[Siddhartha Lal, executive]

So Pramod, I'll start, and maybe Govin can add. As you know, unfortunately, for this situation, we can't -- we don't talk about our future product plans. So I can't really -- unfortunately, I can't get you that answer.

Of course, we do have a very strong pipeline. And we are cognizant of how the costs have been moving and therefore, how the prices have been moving. And yet we do absolutely believe in the segment that we're operating in and that we can continue to get upgraders into Royal Enfield fold.

And of course, we're doing lots of different things in order to get upgraders into our fold. We have a very, very strong new thought process and work we've done on financing operations as well, not ours, but I'm seeing third party but -- wherein how to get our customers in.

So there's a lot of different aspects of work going on, and there's a lot of new bikes that will give a lot of enjoyment to people. And they'll be willing to pay for it, really. I mean, that's how we're looking at it.

But there is certainly interesting things on the horizon for sure. Maybe Govin, you want to add something on what Pramod had said?

[B. Govindarajan, executive]

Yes. Pramod, you're asking about the demand, how is it going. I mean, just to drill a point which we discussed now, when the market is down by about 18%, 20%, Royal Enfield has actually gained market share. Now you can see how the love for this Royal Enfield brand is coming up.

Gradually, the market is bringing into the normalization. Last few months, I have been seeing steadily the volume is growing. Industry is coming back. Royal Enfield because all along, we have been seeing in the last 6 months also our bookings have been higher than the retail. To that extent, what is happening is when the production comes up, then obviously, there is the numbers, which are going to go up.

You had talked about accessible product. I thought all our products are accessible and aspirational. But we're also looking at how do we get more and more end customers who actually love to have the Royal Enfield motorcycle in his stable. For that, we are working on various methodologies of accessibility, how we can give it to the consumers, especially on the finance, which is one big lever. We have started working on it intensely where we feel that, that will help for the future products wherein the genuine customers can also be brought in into our stable.

[Unknown Analyst]

Sir, second question is to Vinod, sir, given that he is on the call today. On the commercial vehicle industry, pricing disciplines are -- because we've seen good growth for the last 3 years, but for some reason, the pricing doesn't hold up. So what is your thought on that?

And related to that is, do you see any improvement whatsoever in the pricing discipline in the industry? And also on the EV, some of these tenders, which have got floated recently, the bidding by 2 players seems to be very aggressive. So if you can share your thoughts on the viability of such bids, which have been kind of -- or companies which have kind of bid like that, is that a really viable business model there on EVs?

[Vinod Aggarwal, executive]

First, on the pricing front, I think definitely, currently, this is a major challenge that we are not able to pass on the price increases because of the competitive pressures. At the same time, I think it cannot continue like this because I'm sure a better sense will prevail. And once the capacity utilizations improve on the CV industries, on the recovery part. Once you reach nearing your capacities, I think there won't be any incentive to continue giving big discounts. So therefore, that is one part of it.

The second is we have to create more and more awareness with the customers that they should not look at the initial price. They have to look at the overall cost of ownership. If you look at the overall cost of ownership, the price plays only part to the extent of maybe 20% of the cost of ownership. 50% to 60% is the fuel economy and around 15% to 20% in the tire life.

So if we are able to save costs for the customer on fuel side and on the tire side, I think the cost of acquisition, even if they pay 5% to 10% premium, it doesn't matter because even if you pay 10% premium, it is only 2% of 20%. Whereas if you save 10% of fuel, then you save 5% out of 50%.

So therefore, our drive has to be to show the value to the customer. And we are right now working very, very seriously that in case there is any leakage in this value, that is what we are plugging in. And that is where the customer service is going to play a very, very important tool. And we are working very seriously to improve on various parameters of customer service.

And we are delivering a great value as far as through the digitalization initiatives and through connected trucks. As you know, we are now giving 100% trucks and buses are connected. And we make the connection live and give it for 2 years. And then customers, we are able to show him the value through a very powerful app, which we have put on the thousands of customers' smartphones. And we are also able to build predictive interest.

So therefore, I'm not too much worried in the long run as far as the discounting is concerned. This is a short-term phenomena. It has to die one day, it will die. And then, of course, that is the time when the companies like us will get into the major advantage.

As far as the electric vehicles are concerned, I think it's the beginning. The industry is evolving. And of course, the current CESL tenders, which has been allotted now, which has been decided, the prices, of course, it is beyond our understanding because there was a difference of almost 20% from the L1 and L2. So between L1 and L2, I've never seen the huge difference like this, which is almost 20%.

So we have to understand that -- what is the motivation to take on the orders at such a low price. And we should not forget, this is going to be a very, very tough business because -- but our tenders are picking up.

You have to -- this entire model is on per-kilometer basis. And we are committing for next 12 years. But our rates we are giving -- we are fixing rate for next 12 years. And then we could deliver uptime, and we have to deliver everything in next 12 years.

So therefore, if you are taking a hit in per kilometer, it means you are going to suffer consistently for next 12 years. So of course, we will never do that sort of a thing. We are very clear that we will incur loss because we don't want to become loss leaders.

But the industry will evolve. There will be more opportunities coming on the electric vehicles. It is just first tender, which has come. Now it was government incentive-based tender under frame 2. More tenders will come, which will be outside the frame and which will be for private contract because this, right now, 5,000 buses, this is all for government STUs.

Now the -- you will see more and more action happening in the private space in various intercity routes or various intracity routes. I think we are ready with the technology, we are ready with the products. So therefore, we are for a long run, and we are not going to give discounts in the short term.

[Raghunandhan N. L., analyst]

Next can we have a question from Jinesh Gandhi?

[Jinesh Gandhi, analyst]

A couple of questions. One is what are we seeing on the commodity side now? What are the pressures seen in the fourth quarter? And what kind of pressures do you expect in upcoming first quarter?

And second question on the other expenses, which continue to remain high. I believe last quarter, we had some event-related expenses. But despite that, we have seen further increase in this quarter. So how should we see through the other expenses line item?

[Kaleeswaran Arunachalam, executive]

Sure. Thanks, Jinesh. I think overall, from a commodity perspective, the headwinds continue. As you would have seen now, we all thought around Q4, maybe the beginning of Q4, it can settle in. But then there was the geopolitical disruption, which is further adding to the commodity pressure that we are seeing here.

At this point of time, we need to wait and watch. There is no clarity as to when will this stabilize. Various metals have started to increase. That is where the significant pressure is coming in. More or less, the precious group of metals went up, and that is coming back. So that is happening, but base metals continue to increase.

So we need to wait for at least a quarter or 2 to see where does it stabilize. And do we see a fundamental correction happening after the super commodity cycle. But at this point of time, too early to conclude.

Now coming to your second question in terms of the other expenditure, I would love to look at this in 2 parts. One is if I have to compare this to FY '20, our full year other expenditure was about roughly INR 1,200 crores. That in FY '22 stands at INR 1,400 crores.

Now if I have to look at the delta of what is driving this increase, one part of this is significantly on account of the freight increases that has happened. You have seen our export business. We have almost doubled the business, reaching about 67,000 units for full year. That also means there is one availability of container is becoming a challenge. And whatever container is available is at an extremely premium cost.

We are seeing a [ 4x ] increase in terms of the overall freight cost that is on the international side. So volume increase on international, coupled with the container cost increase, is one reason for other expenditure to go up, which we expect it will continue in terms of the future also. But overall, the model mix at international at net of all the costs is still accretive to the bottom line.

Second, yes, we did invest in some of the launches that we talked about in the earlier quarters, which had Classic, and it also had the trip to South Pole. So while those are milestone-based events that happens, but we would love to continue to invest in the brand and ensure that the aspiration gets balanced with accessibility. So that's probably the way forward I would see as to how you need to look at the other expenditure.

[B. Govindarajan, executive]

Just to add on, Jinesh, on the commodity side, as because it's a super inflation, which is continuing now, what is it we have to do as an organization, our focus is very intense. We have commissioned our value engineering, we have initiatives with our team, dedicated people who are put on to the job.

We have done, as a team, of mining out whatever the options which are there in reducing the precious metal. And that activity is continuously going on without disturbing any of the ride handling, which is very important for us.

We have also started looking at digitization of some of the activities. Thereby, the activities which is endlessly adding some cost can get automated. So internally, we are also looking at how do we hedge all these sort of issues which we don't have a control on. But we are very focused. We have seized all the issues, and the team is fully on the job, Jinesh.

[Jinesh Gandhi, analyst]

And then last question on exports. So given that, that has been doing extremely well for us. We now have broadly good presence in most of the important markets which we are targeting. Over next couple of years, which are the key markets where we'll be looking to ramp up our presence with respect to both in terms of the distribution network and in terms of volumes?

[B. Govindarajan, executive]

Yes. Jinesh, I think the international market, in our opinion, it's a starting point for Royal Enfield success. We have launched our Classic 350, which is also an outstanding product, which got received very well across the globe. This is an Euro-5 compliant vehicle. We launched Scram. All these vehicle launches which had come in. So for us, it is just a starting point.

As of now, the markets like Europe, North America, LatAm and APAC regions, all those areas, as I mentioned, the market share has been steadily growing. And some of the areas where we have decided to be there in that market through the CKD route, thereby, our presence is there. And that's how the consumers are actually relate to that they are part of this life. We live the life of the consumers in those countries.

And that's why we see the growth in the international market is going to be very huge. As of now, we are actually sending motorcycles which are manufactured in India to almost 60-plus countries. And wherever our consumers are in love of these motorcycles, we will look at that on a priority basis and will enter into the market.

[Siddhartha Lal, executive]

Yes. Just to add a little bit on the markets as it were, huge, huge for us, and I think it can -- we believe it can grow tremendously in the coming years or decades.

So Europe is absolutely enormous, and they love our motorcycles. So it just works out really well. In North America, similar, but maybe a step behind right now. So we're building further distribution.

So we're really penetrating now deep into EU, deep into North America. So in all the developing countries, which means Australia, New Zealand, we have a great brand equity, and people love our motorcycles. Japan, Korea, all these developed countries are doing well.

Then again, further depth, let's say, in the core LatAm and APAC markets. That's still a longer story, let's call it. So it's working out. It's got huge potential in the medium, long term. We're doing well. We've got brand salience. We've got distributors that are doing well. Dealers are doing well, sorry, all of that.

So it's actually a lot more in depth, but we keep adding a market here, a market there to test different situations, conditions. We've added something in Morocco recently. Again, just to get a feel of what different markets may be like, approaching some markets in a different way. We're doing only some B2B transactions in some markets for door operators just to sort of see how we operate in those markets before we actually start putting in a distribution.

So there's -- so we're testing those kind of things in Africa, for example, because we don't want to -- we can't be in the taxi market. We have no interest in that market, which is really the core for other Indian players who are in Africa, but we have other ideas, thoughts, means and not the typical fashion. But we are expanding but in different ways now in different countries.

[Raghunandhan N. L., analyst]

Next, can we have Sonal Gupta?

[Sonal Gupta, analyst]

Just continuing with the previous question, could you just sort of give some more details in terms of what's the broad split of exports in terms of EU, Americas and LatAm and APAC? And could you also talk about like you've been in Thailand, now you're setting up an assembly plant and also in Colombia for quite a few years now, 4, 5 years. So where have you reached in terms of market share or scale? And how large are these markets, if you could just talk about those?

[Kaleeswaran Arunachalam, executive]

Yes, no. So starting with -- from a region priority, if you look at it, the large product of our business, as Siddhartha started with, comes from EU. Close to about 40 percentage of our business comes from the EU market, followed by Americas, which includes Latin America, which is roughly about, say, 25%, 30%, and then the balance comes from Asia Pacific.

So let's start with Thailand. Thailand as a market, yes, I think we see a significant potential as a market, not only in Thailand but also the entire Southeast Asia for that matter. So we started with our penetration into Thailand with our stores, followed it up now with the CKD. And we do see the market growing up, and our market share is inching towards 7, 8 percentage already in the Asia Pacific region.

Now on the Latin America side, there are 2 parts to it. One, Brazil, which continues to be a significant opportunity for us in terms of the revenue deliverability, but the country has its own challenges in terms of -- for FX or in terms of the tax structure it has got. So we need to balance it out and appropriate time take calls as to what kind of setup will make it accretive for us as we go forward.

Colombia, Mexico, we have already -- sorry, Colombia and Argentina, we have already started our CKD plant. Business is delivering very, very well for us. Between Latin America, if we have to look at our run rate including Brazil, we should be doing roughly about, say, a 20 percentage of our exports coming from that markets.

Govin, you want to add?

[B. Govindarajan, executive]

No, it's fine, yes.

[Raghunandhan N. L., analyst]

Next, can we have Kapil Singh?

[Kapil Singh, analyst]

Firstly, wanted an update on the supply situation. What is the percentage production you are losing currently compared to the required run rate? And we had talked about several actions to address this problem. So what is the update on that?

[B. Govindarajan, executive]

Yes, Kapil. What is happening now is, as I mentioned, as is 100% ABS motorcycles. To that extent, the e-component especially the semiconductor issue which was there. Last year, we were losing production fundamentally because we have only one source.

But over the year, we swiftly brought in 2 more vendors, thereby the supply is increased. Just for everybody's understanding, the overall capacity of -- let alone for us, for the entire automotive, it will be kicking in from first quarter of 2023. That's what is being said.

But what we have approached as an initiative is that we shouldn't lose the production. So we have gone ahead with the various levels of purchase, inventorization to some extent, alternative sourcing additions.

So wherever possible, the supply chain volatility, which is there because of the current pandemic situations, our team is on the job of actually maximizing the potential which is available for us.

[Kapil Singh, analyst]

Personally, are we losing our production right now? Or you think it is more or less at the levels at which we want it to be?

[B. Govindarajan, executive]

We have been steadily ramping up a couple, steadily ramping up to the market whatever is required. We have actually come out with what is called as an [ instant opinion ] process, which we have added into this so that the consumers are continuously connected into this.

We are working very closely with all the suppliers so that we don't lose any productions. So that efficiency is also maintained. So it's a constant growth, which I'm just seeing now.

[Kapil Singh, analyst]

Okay. Great. Kalees, one follow-up to you, please. The other expenses, should we look at as a percentage of sales? It has been holding around 12% to 13%. So is that the right level to expect given your international expansions?

[Kaleeswaran Arunachalam, executive]

That's right, Kapil. I think at this point of time, we should take it at that level, considering there are growth aspirations plus brand-building aspirations that will continue via marketing investments also.

[Raghunandhan N. L., analyst]

Given the scarcity of time, that was the last question. Please note the IR team and management will be available offline to answer any questions. I now hand over to the management for closing remarks, please.

[Siddhartha Lal, executive]

Well, thank you all very much for attending. And looking forward to talking to you and seeing you in a bit next quarter. Thank you very much. Bye-bye.

[B. Govindarajan, executive]

Thank you.

[Vinod Aggarwal, executive]

Thank you, everyone.

[Raghunandhan N. L., analyst]

Thank you, everyone.

[Siddhartha Lal, executive]

Thanks, Raghu. Thank you very much.

[Raghunandhan N. L., analyst]

Yes, sir.