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Ladies and gentlemen, good day, and welcome to the Hero MotoCorp Ltd. Q1 FY '24 Earnings Call hosted by Anand Rathi Share and Stock Brokers. [Operator Instructions].
Please note that this conference is being recorded. I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Share and Stock Brokers. Thank you, and over to you, sir.
Thank you, Aman. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to the Hero MotoCorp Q1 FY '24 Conference Call. I thank the management for giving us the opportunity to host this call.
I would like to hand over the call to Mr. Umang Khurana, Head, Investor Relations and Risk. He will introduce the management and take this call ahead. Over to you, Umang.
Thank you, Mumuksh. Thank you, Aman. Good morning, and hello, everyone, to the quarter 1 FY '24 investor call of Hero MotoCorp.
On the call with us today, we have our CEO, Niranjan Gupta; the Chief Business Officer of the India Business Unit, Ranjivjit Singh; Chief Business Officer, Emerging Mobility Business Unit, Swadesh Srivastava.
We'll begin with opening comments from Niranjan and then we'll open it up for questions and answers. Over to you, Niranjan.
Thanks, Umang. Good morning, good afternoon, good evening, depending on which part of the world you're joining from. I'm sure all of you would have seen our results by now. We've declared a top line income of close to INR 9,000 crores for quarter 1 with our overall EBITDA going up by 28% and our profit after tax up by 32% after the exceptional item of the VRS, which was INR 160 crores.
Our EBITDA margins reported 13.8%. And as we talked about in our press release, the underlying ICE business margins are now 14.5%. Effectively, it means that we are back to pre-COVID levels, which are around 14%.
Therefore, moving forward, having covered the margins back to pre-COVID levels, our singular focus is going to be growth and market share on the back of lots of launches that we have done and the launches that are in the offing in the next few quarters.
Our journey of premium, as you will have seen, has begun extremely well. Harley-Davidson X440 we have been [indiscernible] with the response, 25,000-plus bookings. In fact, we've closed the online bookings and now the focus is on ensuring that each of our 25,000 customers who have booked actually become our brand ambassadors and they get an experience which is world-class. We're going to ramp up capacity and demand fulfillment as we move forward.
As far EV is concerned, again, our ramp-up in terms of number of cities is on track. We talked about 100 cities by December. Glad to report that we already crossed 36 cities as we speak and we will be covering 100 cities well before December end. And then, of course, we'll be building the portfolio, which will be the next year, on our way to EV leadership, which is our goal.
Within our current portfolio on 125cc as well, we've been doing lots of action there with Super Splendor Xtec, which has started doing well. And as we speak, the Glamour 125cc revamp has gone -- is going into the market. All of this augur well for recovery on our core market shares as well.
Overall, the focus on premium, the EV rollout, and of course, recovering the shares is well on track as we speak.
As far as demand side for the industry is concerned, we know that the last couple of years the government has been spending a lot of capital expenditure, almost to the tune of INR 10 lakh crores a year and CapEx has a time lag. And time has come when this CapEx will translate into income demand and employment as we move forward. And therefore, that augers well.
We also know that the rate hike has peaked. RBI has paused the rates for the last 2 or 3 times. And clearly, that means that the cycle of increased inflation is going to pause, and that again, will mean that more income in the hands of consumers to be able to spend.
And the third factor, of course, is monsoon, which so far has been pretty decent. All these factors combined, they auger well for double-digit growth as we move forward through the festive season.
And of course, on the back of the launches, as we talked about that we have done and we are going to do, we are quite confident of increasing market share as we move forward.
Just to repeat again, margins back to pre-COVID levels now. The focus moving forward singularly will be our growth and market share. Thanks.
We will begin with the questions and answers now, please.
[Operator Instructions] The first question is from the line of Kapil Singh from Nomura.
Yes. Can you hear me?
Yes, we can hear you now.
Yes, Kapil. Go ahead.
So sir, first question is on Harley. We've seen very strong bookings clearly. Can you just talk about what is the expected supply and why the bookings have been stopped currently?
Also, what will be the milestones that you're looking for based on which you will decide on working on further models in this lineup?
Kapil, so the booking stop is part of the plan. So there's a whole marketing/sales strategy around it, and it's all part of that plan in terms of online booking having stopped. For that we will open the window very soon because we do want the first set of this 25,000 customers to experience the motorcycle, to experience the test rides, for them to become our brand ambassadors. And of course, we know a lot of customers have been demanding for bookings to be reopened. We will soon reopen the bookings as well.
As far as supplies are concerned, in fact, on the launch itself, we had started ramping up our capacities looking at the response that we have received on the launch date itself. And the teams are working on that because we're going to ensure that each of these customers, their demand are fulfilled. But we are very glad that now demand is chasing supplies. And we're going to ensure a world-class experience to each of our customers as we move forward, Kapil.
Okay, sir. And anything on the milestones for deciding further models under Harley-Hero partnership?
So Kapil, as you know that the model that we have launched and the segment that we have launched is one of the biggest segments in the premium, both from the revenue point of view as well as profit pool point of view. So we are focusing fully on this model as of now. But obviously, there is a thinking in future to extend the portfolio and also to look at geographies. But those are discussions that we will have with our partner, Harley-Davidson, at the appropriate point in time.
Okay, sir. Second question was on margins. Can you just talk about what will be the margin trajectory you expect from here because I believe we have taken some more price hikes, but at the same time EV mix may also rise going ahead. So in light of both of these factors, how to think about margins from hereon?
So Kapil, we stick to our guidance on the ICE margins that we have talked about even long time back. And we've always talked to the trend line of 14% to 16% which we have been saying. Of course, during the COVID period and with the cost inflation, the margins have gone down to around 11.5%.
And we are happy that with all the efforts around whether it is price, whether it is mix, premiumization, the savings program, of course, helped also by the commodity tailwinds, the margins are back to pre- COVID levels.
So our trend line on that will continue, which is 14% to 16%. And we've said, given that the margins have been repaired, the focus will be moving forward on growth and market share. And obviously, it allows us headroom to invest more behind EV as well.
Okay. But I mean, what I was trying to understand is that your EV volumes will also rise, right? So the losses that we are seeing, as the volumes go up, the losses will come down, but the EV mix will rise. So is there a break-even level of EV volumes that we have at which this drag will start to reduce?
Kapil, broadly, while it's very difficult to predict, but broadly, we have talked about that in the range of 100 basis points on the EV business as a dent -- or the investment, I would call it, not a dent, which goes behind that.
As volumes go up, of course, there will be economies as well. In terms of scale economies, we will get and there are cost reduction, there's a localization happening.
So both the factors will come into play. And therefore, cash burn per unit actually is going to come down in the industry if you take 2, 3 quarters away from now. So that's what the industry is working on. So it's not going to be like proportionate to that the cash burn amount and all that will go up. Yes?
The next question is from the line of Gunjan Prithyani from Bank of America.
Just good to hear so much focus coming back on growth. I just needed a little bit clarification on your thoughts on a number that you've put on an annual report where you call out 6.5 million units production for F '24.
What will -- I mean how are we looking at this 20%-plus growth, if you can share your thoughts. What comes from premium, what are we doing to sort of rebound the entry segment, which has been depressed. So some color on how should I read the 6.5 million number that's there in annual report.
So Gunjan, while I will not comment on the numbers, part of it in terms of production. But what we are aiming is, as we talked about, we are talking about a double-digit revenue growth in the 2-wheeler industry and then we are looking at market share gains.
I'll ask Ranjivjit to talk about what are the actions that we have taken and are taking to ensure growth and market share across these segments. Ranjivjit, over to you.
Yes. Thank you for the question. And let me just build on that in terms of the whole demand and then the projections that are coming in.
With the recent launches that we have done, for example, Xoom 110cc that we launched, it's already added up market share there in the scooter segment. We very recently now dispatched Destini Prime. That's another beautiful product, bang on the key buying factors of the segment that is really at the bulk and the belly of the market and it's getting a very good reception.
So overall, in scooters, across 110cc and 125cc, we are seeing very positive movements from a volume perspective.
If I then go to Super Splendor Xtec, we have launched that in March and we have been able to see increasing volumes in the 125cc motorcycle segment coming -- very, very well building up.
We've just started dispatches of Glamour, the classic Glamour. And markets like AP, Telangana or West Bengal or Assam Northeast, these are the ones that are really looking forward to that classic style updated with all the latest features with the digi-analog speedometer and the whole styling, the comfort of the Glamour, that is something that the market is really looking forward to.
If I then go deeper into Passion+, that's another one which recently has helped to bring in -- bring it in the top 10 motorcycles in June and July. It was the fastest to cross 10,000 units within 15 days and is doing very well. It's very well received, particularly in the South and the West and now it's going across to the other zones and the regions as well.
And as we launch our new premium product, we also see great momentum coming back, whether it's 160R 4V or the 160, 200 -- sorry, the 200S that we have also recently launched and the upcoming launches, which are [indiscernible] many others.
So when you look at the whole pipeline, never before has Hero brought in so many products within a year. And so you're going to see a lot of action coming in this year. And so the numbers that you're referring to, I mean, basically, I think we're on a very positive sort of a ramp-up that we are seeing from a market perspective.
Okay. That's good to hear. The second question I had was on this -- the consol and the stand-alone difference. These losses seem to have gone up in this quarter, I mean almost about INR 120 crores or so. If you can give us some color on what subsidiary losses these are and how should we think about it through the course of the year? Is this the trend line that we see, it's going to be INR 100 crores, INR 120 crores each quarter loss on the sub?
So Gunjan, there is a one-off item there, which is on Ather, which is one of our associate companies, which had to take a hit because of the regulatory issues, the charger refund that the -- that was around INR 175 crores of the -- in 1 quarter that they had to take. And obviously, our share of that based on 35% comes what it is.
I think that's the one-off. So I think if you take that one-off out, then the rest is stable and then FinCorp will continue to increase the profits and improve that, and therefore, that's what is going to be the trajectory going forward, yes.
Okay. Then just last question, if I can pitch in, is on the Hero 2.0. Where are we on that in terms of the rollout plan? And what is the sort of investment that the dealer has to do in terms of refreshing the look of the dealership? And what's been the acceptance from the dealers while you're rolling it out? Just some thoughts around it, and I'll join back the queue.
Sure. So Gunjan, currently -- firstly, we shared the new VI. We did a couple of pilots, we tested out the consumer response. And overall, it's worked on many, many dimensions. The whole experience that it provides the customer, the customer really feels a very elevated experience in that whole -- not just buying. Buying, of course, the conversions are much better. The premium portfolio becomes better. The scooter conversions are better. But coming to a Hero showroom, the kind of stature that the customer gets from that kind of an experience is really good.
And so we've been able to roll out the pilots to around 38, which are live as of today, across the country. And we have a very strong pipeline where the designs, the architectural design, the interiors, all of that, has been worked out. And in fact, our dealers are very, very keen and enthusiastic to get many, many more up and ready and running by the festival season.
So we've got a very strong pipeline, I would say, between 200 to 300 dealers depending on the way we -- the rains and everything goes on. But we have a really good pipeline. And that augers well for the entire portfolio that we are bringing in. The platform that we are creating for experience, customer experience, is really solid. And I believe it's truly differentiated versus anything else that's out there in the market. So the brand trust just becomes even stronger with this entire experience.
Just to add to Ranjivjit's point, Gunjan, again, just like we talked about, the number of new launches that we are doing this year is unparalleled as far as our history is concerned. Probably unparalleled in the industry as well. I don't recall any player launching so many products in such a short period of time.
Equally, the Hero 2.0, which you picked up is of a scale, which is also unparalleled when we go back to in terms of the lifting the VI. Absolutely the fastest ramp-up in the industry in number of stores. And what's helping this is also because what we are saying is you get to store VIDA only if you're Hero 2.0, yes. You have a chance to sell Harley only if you're Hero 2.0.
So all of these things are also exciting to dealers. And of course, they are extremely excited and they are coming up much faster in terms of building up the stores.
And everything that goes with a really premium experience, the planogram, [ desk clutter ], very -- it's not only the hardware, it's the software. It's how we treat our customers, the training of our people. Everything gets elevated.
[Operator Instructions] The next question is from the line of Jinesh Gandhi from Motilal Oswal.
Can you talk about the spare sales in the quarter? And any reason why realization should have dropped on Q-o-Q basis in this quarter by a reasonable margin?
I couldn't get the question really.
So question is, one, is can you talk about the spare sales in the quarter, what level it was? And secondly, guided realizations declined...
Sir, please, your voice is a little muffled.
Yes. Is it better?
Ranjivjit has got the question.
Yes. I got the question, I can address that. We've been able to clock a net revenue of INR 1,210 crores, which is a growth of 14%, and of course, it contributes to about 14% of the revenue.
What I just wanted to say is this is really a very good strategy and execution of the pivot that we have taken towards expansion availability. Because really, what you need here in the aftermarket availability at arm's length, and we were able to get that.
The second thing that we are doing is we're also adding new lines of business. So whether it's tires or oil, there's a lot of new business that's coming in. And our parts distributors and our super stockers are embracing this new way. It's a very CPG/FMCG kind of approach that we have of order fulfillment, demand pull, all of those kind of things that are helping us. And as we do this, there's also the parts, but there's also accessories and then there's merchandise.
And each of these 3 is getting an individual focus from the team here. And we'll be able to pull that through in terms of range and the way we display it at our dealerships and how that gets integrated into the product planning itself. When we think about a premium product, we start thinking also about the accessories and the merchandise that goes with it. So all of this is really not only a top line grower but also...
The next question is from the line of Amyn Pirani from JPMorgan.
My question was on the volume plans now. Obviously, on the wholesale side, your growth YTD has been below market. I think part of that has to do with inventory correction. But on the retail side, it hasn't been as good as what we would have hoped for. So can you help us understand what's happening on the retail side right now? And given that you have been correcting inventory, wholesales have been lower than retail. Where we would be currently on a retail inventory point of view?
Yes, sure. So there's a bit of a back story that is important for me to just preamble here. Q4, we started the -- and all of you will remember the OBD II transition. And that's where our dispatch market share was higher than our retail shares. And we were first off the blocks. We were able to position our OBD II products into the market as we were closing out on Q4.
When it came to Q1, it was extremely important for us to do the FIFO to make sure that we transition well and we manage whatever may be the calculated risks that were in the market in terms of the transition of the 2 different things. And I must say, credit to the team that, that has been managed very well.
And therefore, you see higher retail market share. We managed to keep the 36% market shares in terms of retail and that's on VAHAN. And lead that over the dispatch so that we, in quarter 1, we actually reduced inventory while the industry collectively added to inventory in quarter 1. And that's part of transition planning. It depends who takes what kind of a strategy. We decided to go with the market-first, retail-first strategy. And that positions us well now as we build up towards the festival season.
Now this festival season, as you know, versus last year is also a little bit later. We know that. So 15th October is when the demand starts picking up. It goes beyond Q2. And therefore, as we build up the inventory, we will look at between Q2 and the beginning of Q3 to prepare for festival season.
What also helps is the range of new products, both at the mass level, which is the high-volume products we talked about, whether it's Passion or it's Glamour or its Super Splendor Xtec; or the more premium portfolio that we're coming up, whether it's the Xtremes or the Karizma or even in the scooter portfolio. So I believe we are very well positioned and we continue to work on that to make sure that we are aiming towards the retail offtakes and then, of course, this such will naturally follow that. I hope that's helpful.
No. That context is helpful. So would it be fair to say that the inventory levels are lower than where they were, say, 6 months back? Like what is the kind of inventory levels that we're looking at right now, if you can help us quantify that number?
Typically -- and that's -- we have always given that in terms of how we look at it in terms of the future. Well, currently, the way we manage it, between 6 to 7 weeks. That's the range that we are at. We're at 6 weeks currently. And that's something that is very well positioned for the festival season as we start building it out.
Okay. And lastly, one thing on the EV side. You -- I mean, based on the press release and even in your commentary, you mentioned that ex of EV margins are already above 14%, which means that around 70 to 80 basis points [ of a track ] from EV. So is there a part of it, which is also because of the same subsidy removal? Or is it just a normal general investment on the EV side?
And where does this cost sit, if you can help us understand? Like is it because the other expenses which had gone up earlier are come down now. So if you can help us understand where are you, where does this cost relative to EV sit?
It's more of the gross margin side because we didn't have a [ past sale ], so we didn't have any one-off like the other players on the subsidy withdrawal. But of course, the subsidiary withdrawal has an impact on the unit gross margins, which is overall underlying some price increase and some margin hit, which is there.
As we have guided already that around 100 bps is the investment that goes into the combination of all the cash point that happens. And let me ask Swadesh to pitch and talk a little bit more about this and also in general about the plans for EV as well.
Yes. So thanks, Amyn, for the question. As Niranjan said, we're obviously investing heavily on building the infrastructure for EV. When it comes to subsidy, we are also preparing ourselves to be profitable without the scenario of subsidy. Obviously, subsidy has been helpful to the industry. But as a business, we need to make sure that we are geared for that. And we have products, which will be coming up in the near future, where we will be more geared even without the subsidy.
Having said that, obviously, everybody has gotten a bit of a hit because of this. Thankfully for us, it was much lower. But it has also led us all to accelerate our product portfolio, which will be geared for a subsidy-free environment.
Great. That context is helpful. I'll come back in the queue.
The next question is a follow-up question from the line of Jinesh from Motilal Oswal.
Yes. Sorry. Can you hear me?
Yes, Jinesh. Go ahead.
Yes. So question was also on the gross margin reduction or RM cost increase, which we have seen on Q-o-Q basis. Is that just the mix impact as economic segment has seen a good recovery on a Q-Q basis? Or there is something else also? Are we seeing any cost inflations there?
Yes, Jinesh, it's a combination of a bit of a time lag on the cost and also mix. But overall, if you look at it on the trend basis, which is year-on-year basis, in terms of our gross margin, that remains healthy. But you're right, it's a combination of those two, which moves between quarter-to-quarter. But overall, it is something which is in a position year-on-year basis at a reasonably steady level.
Got it, got it. And the second question was for the EV side. I mean given what we entered with VIDA around December and now we are in scale-up mode, so how do we see scale-up of VIDA over FY '24? What kind of volumes are we looking at? And then subsequently, when do we launch our next product? Because that, I believe, will be contingent upon how fast VIDA will also ramp up. So any thoughts on that?
Yes. Jinesh, I'll take this up. So yes, as you heard, we had announced that starting with the 3 cities from last year, we will be going to 100 cities this year. We're already at 36 cities and we will -- well before the end of the calendar year, we will be reaching 100 cities.
And as you all are aware that we are coming out with 3 formats. We started with experience centers. Now we are doing VIDA [ pods ], which are shop-in-shops. And you'll also see some of our dealers putting EV-specific dealerships over the course of this year.
So we are really building that platform very strongly. We're also expanding our charging infrastructure to have convenience to the customer and not have the range anxiety.
I also want to share that we have also partnered with Ather where we have made the investment and we've also partnered with them for a common connector. And you will see interoperable charging network coming out very soon, so that our customers will have a much expanded charging network available.
Coming to the product, we are focusing heavily on the products we have launched right now to get it to the -- each and every corner of the country. But we also are working on a strong portfolio for the entry and the mid-segment as well. And we will announce those launches in the due course of time.
The next question is from the line of Mumuksh Mandlesha from Anand Rathi.
Congratulations on the good EBITDA margin performance, sir. Sir, just continuing on the VIDA, any market share target we have over the next few years? Any aspiration numbers we're looking at for this product, sir?
And on the -- can you update on the PLS (sic) [ PLI ] scheme benefits for the EV, sir?
So on the VIDA side, thanks for the question, Mumuksh. We definitely put, as I also explained in the last question, we are really putting all the building blocks to get to the EV leadership within a shortest of amount of time. And you can assume within a few years we want to take that top position across the segments.
We also are taking EV as our starting point in a lot of global markets as well. So we'll see a lot of focus on whether it's through our GTM, whether it's through our product or whether it's through our digitally-enabled services, we want to get to the leadership position very, very fast.
I think your second question was around PLI incentives. So we are also working very heavily on making sure that we cater to all the criteria for the PLI. And we will sort of announce when we are closer to those qualifications. But it is an important aspect for us and we are doing all, which is required to make sure that we are ready to qualify for those requirements.
The focus right now is to go to 100 cities-plus. Then after, like we talked about fiscal year '25, it's about portfolio building. And as we do all of these, clearly, our aim obviously is to take leadership in this EV segment as we move forward.
Sir, coming to Harley-Davidson. What are plans to ramp up its stand-alone stores over the next 1 to 2 years, sir?
So we will be -- one, we will be servicing through definitely our current Harley-Davidson stores plus also select Hero stores. So going in itself, it will be starting with almost 100-plus stores to begin with. And then thereafter, the gradual ramp-up will happen based on that.
But let me also at this point, ask Ravi Avalur, who heads the Harley-Davidson business unit to provide a little more color on what we are doing as plans for this product moving forward, not just the stores but overall. Ravi?
Well, to first address your question regarding the stores, of course, we have the Harley legacy stores in 26 locations across the country. That number is quite sufficient to provide a Harley-Davidson experience in India. We'll also, as Niranjan said, be opening Hero premier stores, Hero 2.0 stores and perhaps even directly serving customers in certain markets. So it's a very exciting time ahead.
Our current focus will remain on the X440 and providing an exponential experience and then rapidly expanding over the next few months test rides to customers who book the motorcycle, and then after that, as a means to serve the market. That's an overview of what we'll be doing.
And also remember that the way we have gone about this is that this is not going to be a push-based model, it's on a pull-based model. So you don't need to have the product in advance to create the demand. So the demand is actually going to chase the supply, and then serving and fulfilling the supplies will be through various modes that happens. So it's a change in the order in which we used to operate our 2-wheelers so far.
The next question is from the line of Raghunandhan from Nuvama Institutional Equities.
Congratulations, sir, on strong margin performance and Harley booking. My first question on the objective of growth and market share gains in premium segment, Harley, Karizma, Xtreme 125 and other products within next 18 months should strengthen position. Can you indicate any volume potential that you are targeting? I mean 125cc model itself has a potential of 30,000-plus units per month and Harley can have a 5,000-plus units kind of a monthly potential, assuming supply follows the strong demand.
So I'll leave the volume estimates and calculations and modeling to you, so we would not be giving any guidance on the volume.
But again, reiterating what Ranjivjit talked about that the 125cc, clearly Glamour, which we have done just going in; Super Splendor Xtec, which has been received well are going to be big volume drivers. Harley-Davidson X440 is in a segment which is really big and our bookings indicate that, clearly, this can become a very big model for us moving forward. We're getting so many bookings in 1 month itself.
And then we have follow-on launches like you talked about. Karizma, which is coming back -- which is an iconic brand coming back in a different avatar very soon. And then, of course, quarter 4, we'll have on the same 440 platform another cross-badged product as well.
So there is lots, lots that are coming our way and coming to the market. And clearly, these are each one of them are volume -- I won't say volume, let's call it revenue and profitability driver, market share drivers. And more importantly, all of these what they are doing -- going to do is to build our strong credibility in the premium segment, which so far, we were known in the commuter segment, but clearly strong credibility building in the premium segment.
I remember when we met on the Investor Day, which happened a couple of months back, we did talk about changing gears. And you can see it already happening, and more and more you will see it happening. Of course, numbers are something that will follow. Once we do the right things, now we know that the revenue and the profitability and everything will follow.
My second question is if you can share some thoughts on how you are seeing the urban-versus-rural demand in the recent months. And what is the expectation for the festive season?
Yes, sure. Look, urban continues to be a strong driver. We see good momentum out there. As far as rural is concerned, I think there are some very good indications that we have got, already Niranjan has covered that, whether it is the CapEx that drives the income in the hands of the people, the rains that have been spread across the country, and therefore, how [ brisk coming in ] forward as we look the festive season. We have seen some green shoots as we see Super Splendor moving in, as we see Passion coming in. These are products that have a very good balance across the country. So I think overall, the good monsoons, the elections, the festival, all of these things are all pointing towards a good festival season that's coming up, and we are preparing for that.
Just a last question. On the raw material cost side, any benefits of commodity deflation on precious metal which could accrue in the coming quarter? And for Q1, on other expenses side, it has been on the lower side. So any specific reason or it's just seasonality?
On the other expense, just the seasonality, and therefore, I think more importantly to look at a full year basis what has been the trend. And as our revenues go up this year, obviously, there will be operating leverage that will come in.
As far as the commodity is concerned, now moving forward, we expect the commodity to have a stable operation. So I think from hereon, unlikely that we will see big movements on either side on the commodities. Of course, nobody can predict. And as and when it happens, obviously, as we have shown in the past, we will be geared to take our dynamic action on all the [ plans ].
The next question is from the line of Kumar Rakesh from BNP Paribas.
My first question was on understanding your commentary from the near-term and medium-term perspective. In the monthly release, you had talked about that there are some crop damages and that is something which is impacting the demand. Whereas you have also talked about with the earnings release that you are expecting demand to recover, and especially in the second half, you are expecting better demand. So what would translate from the near-term weakness, which we are seeing right now to better demand into the second half?
I think there are 2 reasons that we talked about. One is the more underlying, which has been progressively. If you spend INR 15 lakhs, INR 17 lakhs overall CapEx over a 2-year period, obviously that's going to translate gradually into demand because CapEx takes a time lag, and therefore, there's a belief. So it's not about 1 month or 2 months. It's like an uptrend that should start happening on the back of the capital expenditure, the government expenditure that we're talking about.
The second part is a more recent part, which is, as you have seen the progress of monsoon across the board, which is earlier when we saw that somewhere it was deficit, somewhere there's too much excess. Now it seems to be evening out as we move forward. And therefore, that's more a short-term nature that we are talking about.
And therefore, these are the reasons to say that as we move forward as a buildup to festive, the demand in the rural side also should start recovering.
My second question was more of clarification. So if you can just give some sense on -- in the VRS scheme, how many employees have subscribed for that across staff and worker [ level ]. And there's a small investment you have done for the -- in the Netherlands subsidiary. So what is that for?
So therefore, as far as VRS is concerned, INR 160 crores is the charge that you see in the P&L. And broadly around 10% of the -- our staff level opted for the warranty retirement scheme. The small investment that you are looking at subsidiaries is the investment in Colombia as the one.
The next question is from the line of Chirag Shah from White Pine.
Sir, as a broader question on the demand side. If you look at over last 12 months also without going into a longer history because we know [ BS emission ] condition, et cetera, but even over last 12 months, while the industry is hopeful of demand recovery, somehow it is becoming elusive and getting postponed by a quarter or two. And I'm giving a general industry comment rather than a [indiscernible] comment.
So what are the parameters that you are tracking closely internally to gain the confidence that from now on or whenever, second or third quarter, we should be back? Festive season in general seasonal every year, it comes, right? So that momentum will build on sequential. But I'm more looking at on a Y-o-Y basis.
So Chirag , again, the way to look at it is you look at demand by segment and by cities and by state and by region. So it's not like overall, as a country, the demand has not been recovering. For instance, we know that last year, the premium segment grew by almost 25%, 30%, yes, in terms of the overall growth. So that segment is registering growth.
If you look at any of the models that are launched that are higher features and higher [indiscernible], it grows. You have seen the bookings indications that have -- our booking numbers that have come for X440 at that price and some of the other players also having launched in that price segment.
So really speaking, India is becoming obviously a story of many Indias. So there is a part of India, which has recovered much faster from whatever it was and actually really growing very well. Of course, there's a bottom of pyramid, which is taking more time.
It's only a question of time. It's not that the entire sector is not recovering. If that by parts, it's already started recovering. Some part is strongly growing, some part is recovered and some part is yet to recover. So that's how I would put it. And that gives us confidence.
And also there are underlying indications. Economic indications are there, of course, which we all know. But yes, I will have to be patient sometimes that you predict that this quarter, next quarter will happen may get shifted. But the underlying factors are there, which can drive demand and can drive growth.
So on the commuter segment, which has been a sore point for the industry in general, right, if you can closely indicate the trigger points that you are watching out, which will really give the confidence and you would be ahead of the timing building up the inventory. So how should one look at that because that has been the sore point for the industry, right?
Chirag, very simply. Yes, some of these things do take time. One has to rely on the underlying factors. And underlying factors what drive, and we all know the economy is scary, is that you need to do a huge capital expenditure, which then percolates down. Now how fast and how far, that takes time.
There's been inflationary pressure. Inflation is coming down. And we aren't just talking inflation into the 2-wheelers. I think overall, general inflation. Of course, we do know some vegetable prices, XYZ. But overall, when we are saying the [ way ] cycle peak, inflation coming down that is.
Third indication is the replacement demand is coming back as we see. In small measures, it started coming back. So the people who are postponing and therefore looking at holding on to their vehicles for a longer period of time, now that is actually we see a replacement demand is coming back from what it used to be around -- it has gone down almost to around 4%, 5%, 6%. And in the latest month, we see that almost 10% of the buying is coming from the replacement demand.
There are a lot of these indicators, lead indicators, which are there that is going to come up. And that gives the confidence that, yes, that segment also should see growth coming back. I mean, just to talk about even 125cc, Ranjivjit, which of course, some of the new launches and launches by players, others, that segment started growing as well. So it's a question of -- Ranjivjit, do you want to add anything on -- color on the commuter segment and bottom....
Yes. I think broadly, the question is on the industry. And you're absolutely right that there are different segments and they behave differently. But again, coming back to where we are -- I mean Niranjan talked about 125cc. Not only are we talking about Super Splendor Xtec and Glamour revamp, but also we are preparing for another one, which is coming up soon.
So we will continue to proliferate with our very differentiated portfolio to drive the market upwards and drive our market share upwards as well. So whether it's premium, which you've heard a lot about; it's also 125cc; scooters also you've seen us. And anyway, you've seen the market share getting strengthened with Passion Plus for the commuter segment.
So recently, we also did a look at our brand scores and brand strength. And I have to say that we are very pleased with the way the market continues to give confidence to our brands, whether it's across the portfolio. So it's really something that we are preparing well for this festival season seeing the industry, the volumes.
You're right, over the last 2, 3 years, there was a bit of a lag in terms of the industry growth, et cetera. Now we are seeing that turnaround coming there. You've seen how Q1 has happened. We have seen positive movements as we go along with good monsoons, with inflation under control, with people coming back. Whether it's for the occasions of marriages manages or festivals, there is a far more economic activity and more participation in that economic activity that will drive our entire industry. So I think overall, it bears well for the industry -- for the 2-wheeler industry.
Chirag, good to hear from you from the other side as well.
So just one comment on commodity side, if you have anything. So any benefits expected going ahead? Or how should one look at that side? If you can just make a brief comment on that.
I think Chirag, moving forward, I would say that we do not expect, as we said, any significant up or down on the commodity. So the way we are building our model is for commodity to stay stable and no more benefits to be coming through on a more stable regime.
But yes, if there's any benefit that comes, it will help us actually. Again, further invest behind growth and market share like we talked about.
The next question is from the line of Pramod Kumar from UBS.
And I just wanted to raise the disconnect between what I hear from you guys on the call in terms of all the product launches that you had and the great response that you're getting and the market share because the data suggests that start of the fiscal till now you lost some [ 400 ] market share, and market share for August is trending below [ 27. ]5. So I'm just trying to -- and I'm talking about Y-o-Y market share here like-to-like seasonality.
So I'm just trying to understand what am I missing here? Despite all the launches, if we continue to see market share split, what explains that? Because in the core segments, you haven't lost market share as you alluded to. So just help us understand this gap between what we are seeing at your end and what we're seeing on the retail database.
Right, right. So Pramod, I'll answer, I remember a couple of years back when we had the call and we were having a very good [ dispatch ] market share. And you did pick up the one in the retail market share, which were bad at that point in time. And I'll revert back to your logic this time, which is the right logic to look at the retail market share.
So I look at the retail market share. Retail market has 36.6% for the quarter. So there's no loss as far as the retail market share is concerned. In fact, on a sequential basis, the retail market share up by 300 basis points. So that's one number that we need to look at.
The second is more fundamental is that when we are putting these launches, Remember, these launches doing well is -- what we say is an indication that's coming from how well customers have received. Now no launch will translate into a full potential market share at the point of launch.
So therefore, that we know that it takes 4 to 8 quarters to actually get to the fullness of the potential. So now that you've got the Xoom, which has been launched, when Ranjivjit he talks about, received very well in the pocket. The early customers, fantastic feedback. That means the potential for this to rise over the next 8 quarters is big.
Similarly, Passion, which has come back in terms of the classic -- Passion classic on par, which again a lot of customers picking up. They're all lead indicators. Then you have Glamour, 125cc revamped, which is coming in the market.
Harley-Davidson X440, if you were to ask me is it reflected in my market share? No. But will it reflect in my market share next 8 quarters? The answer is solidly yes. Because that's the indication. Similarly, Karizma will come -- similarly, that will come.
So actually, all these launches, Pramod, it's very important that once you launch, how customers are receiving it, what is the market feedback, which is that, and therefore, this is something that will translate into market share over a period of time. What's very important are the right things, which are in the market, and it will translate. Hope that answers your question, Pramod.
Yes, yes. I think that explains because it will -- you need to feed these brands, make the marketing investment.
And second follow-up, how should we look at the marketing budget? Because you're talking about like never-seen-before kind of a launch pipeline, right? So that definitely would acquire enough marketing support so that you don't kind of -- there are investments, not even marketing cost. It's investment, right, behind the brands.
So how should one look at this and the ambition to get back to growth? Because to begin with for the first 4 months, we are down 5% on retail and 5% on wholesale. So we've got a lot to cover in terms of ground, in terms of volumes, right? So how should one look at the balance between volume comeback and marketing investments and the profitability?
Yes. Again, Pramod, I talked about if you carefully, again, see what we are talking about is that from -- our margins have gone down to 11.5%. We are back to the pre-COVID levels of 14%, 14%-plus. Remember, we had this conversation as well. Then at 12%, 12.5%, are you still going to maintain the 14%, 14.5%, whether it be possible at all. And we have proven that, yes, we can get to that level of margin on the trend line. So I think that job done.
And this time, we have been very categorical at moving forward. We know so many launches coming that we would be -- now focus will be on growth and market share. It allows -- remember the portfolio is so big that the investment allows us to reallocate and reprioritize, which is what we do. And that's what we have explained earlier as well.
Of course, there'll be an increase in the spend because there will be whatever benefit that we get out of our savings program, out of this incrementally moving forward will be plowed back as far as their investments are concerned.
And you are right to pick up. We don't call them a marketing cost actually. Behind these new launches, these are the investments.
But none of these will be [indiscernible] at all. We will do whatever it takes to ensure that all launches are backed completely, and we have a strong P&L to back it. And therefore, given that the P&L is comfortable and we know how to navigate that and we've actually proven that time and again, and obviously, the comfortable position on the margin allows us to ensure a higher level of investment while actually maintaining margin because that's repaired already.
The next question is from the line of Arvind Sharma from Citi.
You did allude to the spare part revenue being strong. If you could just throw more light on the overall pricing environment, especially given the pure realizations. When we talk [ purely ] revenue by volume, they have fallen. So what are the reasons for that ASP decline? I know you've alluded to it, but just more details.
I don't think the ASP has declined. I mean, if you really look at it year-on-year basis, our ASPs are up. Even sequentially, our ASPs are up. And I would suggest that maybe on an off-line basis, Umang will be able to provide.
It may be that we are looking at sequentially than the per unit of the parts revenue that comes. That shows a little lower. And therefore, you may see blended ASP being lower. But if you look at 2-wheeler ASP, that ASP has gone up. If you look at the parts, there's a parts growth. It's about the parts as a percentage of revenue. That, of course, quarter-on-quarter because some seasonality goes up and down.
But fundamentally, each of them independently are on a growth path. But Umang will share more off-line numbers to you so that it helps clarify the split of the three, yes.
Sure. And just one more thing on -- one more question on the EV part. You already reached the target level in terms of ICE margins. I think you again talked about it, but what has been a learning from VIDA. At what level do you see that VIDA pricing or the cost part is, where do you think it starts becoming at least EV neutral? I'm not talking about the other units per se, but maybe this year or next year because the ICE margins are very strong. So when do we -- when can we see that the impact of VIDA is not that high, 70, 80 bps. What's the time line that one could see?
Yes. I think -- look, I'll tell you in a little bit broader way. First of all, each of us in the EV industry are learning from each other because it's a nascent industry. So you learn from each other's experience, and therefore, it's not just about Ather learning from us or us learning from Ather. Each of us learn from what somebody is doing well, where somebody is not doing well and you start learning and building that part. So I think that's about the industry per se.
In terms of our focus, the focus has to -- it's about putting the right focus at the right point in time. Right now, this year, the focus is that go to 100 cities. The focus is on building portfolio, which you will see next year. And then thereafter, obviously, as you gain scale -- and there's a focus on cost reduction as well. And therefore, the unit cost and the margins will follow. So it's important to actually prioritize and focus on one thing at a time. And this is a sequence in which we have prioritized. Swadesh, you want to add anything overall on this?
No, Niranjan, you clarified how. We need to make sure that we don't start focusing on 3, 4 things at the same time. As you know, we came out with a very strong product which customers have loved. Whether it's removable battery, whether it's the look and feel, whether it's the drivability, customers are really loving it.
Right now, our focus is how do we take this product to every corner of the country, which is where we come with the 100 cities. Very strong work is happening behind the scenes on reducing the cost where we have strong work happening with our suppliers, with our R&D teams and bringing that cost down very strongly.
And with the product portfolio coming in the mid and entry segment and the costs coming down, you will see that we will move towards profitability very fast. So we need to make sure that we are doing this, laying the foundation very strongly, while behind the scenes we are working towards profitability.
But clearly, look, given our scale, and that's the advantage, I think, as Hero we have, that we have a scale of portfolio, a portfolio where the margins are now back to strong which is generating cash. And then therefore, you can invest behind portfolio, which we are building, whether it's EV or the premium segment that we're talking about and including, of course, the global business as well.
The next question is from the line of Pramod Amthe from Incred Capital.
So the first question with regard to the aggressive product launches you are planning. Considering the amount of your product, which goes in the product development and planning, how are you planning the system gearing up so that the full justification is made for these products to reach their potential, especially at the dealer end to give a time gap and to give proper attention to these products, otherwise, they usually go out, obviously. Can you give some color on that?
I think good question. And it's not that the launches are coming right to the market, it seems like it's all coming now. But this has been in the preparation for the last 3 to 4 years because, remember, any new model takes 3 to 4 years' time. So the marketing team, the sales team have all structured and planned very well.
In terms of making sure that each of these launches receive adequate resources, the attention to detail at the sales, at the marketing level, at the planning level, operation level, so all that is planned. But your point is very valid. Given that the number of launches that we have, extremely important for us to make sure that each of these launches receive the necessary support and the paraphernalia that is required. Ranjivjit, do you want to just add a bit of color on this?
Yes. I just want to say the whole organization comes together to bring these to market. So whether it's at an R&D side or the plant and operations and just making sure that the products are really well received in the market, the sales and marketing guys making sure that, for example, when Niranjan and I traveled across the country, we said the sales capability of being able to explain because our customers know a lot about not only our products, but also other products. And so being able to bring that value proposition alive at the store, making sure our online journeys are well crafted and they are frictionless, building all this out with the new visual identity of the stores, bringing in the right kind and attitude of the dealers who are so enthusiastic about the growth opportunities that these present, I believe this is the kind of preparation that you're alluding to is not a trivial thing. It's something that the whole organization supports and builds out together.
Excellent. So the second question is with regard to the prolonged government agency inquiries, which are happening. As shareholders, do you need to know -- do you have to make any provisions or impact for these taxes or any of those matters, one. Second, whatever policy-corrective actions you plan to take so that such things don't repeat?
So as far as we are concerned, we've given the commentary and the accounts as well that we do not see a need for making any provision. And whatever the information that is required by various authorities, the company continues to provide and cooperate with their [ party ].
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Umang Khurana, Head, Investor Relations and Risk, for closing comments. Thank you, and over to you.
Thank you, everyone. Thank you for coming in, and we look forward to keeping engaged. Lots of products coming, lots of launches coming. Let's talk off-line as well. Have a good rest of the day.
And good weekend. Happy Independence Day to everyone.
Happy Independence Day, everyone.
Thank you. Ladies and gentlemen, on behalf of Anand Rathi Share and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.