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Ladies and gentlemen, good day and welcome to the Q3 FY '23 Earnings Conference Call of Hero MotoCorp Limited hosted by PhillipCapital (India) Pvt Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saksham Kaushal from PhillipCapital (India) Pvt Ltd. Thank you, and over to you, sir.
Thanks, Sunny. Hi, good afternoon, everyone. On behalf of PhillipCapital, I welcome you all for the Q3 FY '23 earnings call for Hero MotoCorp. For management introduction and opening remarks, I hand over the call to Umang Khurana, Head, Investor Relations. Over to you, Umang.
Thank you so much, Saksham. Hello and good afternoon everybody. Welcome to the investor call for quarter 3 FY '22 -- '23. On the call today, we have, as usual, our Chief Financial Officer, Niranjan Gupta; the Chief Growth Officer, Ranjivjit Singh; and the Head for Emerging Mobility Business Unit, Swadesh Srivastava.We'll begin with the CFO's opening comments. Over to you.
Thank you, Umang. Good afternoon, good morning and good evening, depending on which part of the world you're joining from. You would have seen our results, which we announced yesterday evening. We delivered a quarter revenue of INR8,031 crores and net profit of INR711 crores. Our topline is reflective of sequential market share improvement and we expect this to continue moving forward, backed by multiple launches and front-end action.Our focus on increasing non-product revenue is yielding excellent results with our parts, accessories and merchandise business registering all-time high quarter revenue of INR1,259 crores. Our gross profit per vehicle has reached all-time high of INR19,800 per vehicle, which increases our operating leverage and will benefit when higher volumes kick-in in coming quarters. This has been made possible through a combination of judicious price increases and accelerate sharing program across the supply chain.Our EBITDA margins at 11.5% is after absorbing spends on our Emerging Mobility Business Unit to the extent of 70 basis points, reflecting underlying ICE business margins of 12.2%. With overall inflation expected to stabilize, margins should be improving moving forward. Our profit after tax at INR711 crores reflects improvement in PAT margins to 8.8% in quarter 3, almost an improvement of 100 basis points sequentially. During the quarter, we commenced deliveries of VIDA and are now present in 3 cities. We will continue to expand more cities in coming months and quarter.Moving forward, as we've said earlier, while global headwinds are expected to continue, with some countries coming out of the woods while others may take little more time, India is relatively much better place and all key economic indicators are moving in the right direction. The recently announced union budget further solidifies the platform with its focus on capital expenditure on one hand, and increasing disposable income on the other. This should help the auto sector and we expect double-digit revenue growth for the next fiscal for 2-wheeler industry.As mentioned earlier, we are on path to market share recovery and backed by actions on all fronts, including multiple product launches, which are lined up in the coming quarters, we expect ourselves to grow ahead of the industry in fiscal year '24.On that note, let's open the floor for Q&A. Over to you, Umang.
Thank you. Let's take the questions now please.
[Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.
My first question is on the product mix this quarter. The 125cc plus models have been 13% to 15% of our volumes over the past couple of years, but this quarter, it appears to have fallen to close to 9% of the total mix. Is there any underlying trend you're observing that could be behind this? Any color here would be helpful?
Right. Let me just ask Ranjivjit to take this question. Ranjivjit on 125cc.
Yes. Sure. On the 125cc, we've actually made good progress with Glamour Xtec. Xtec has added to the confidence that it's given in the market at tremendous amount of acceptability. We've also had a campaign that's been running with Ram Charan and that's created a lot of excitement in the market. We are strengthening our 125cc portfolio as we go forward with the overall 125cc, which in the Super Splendor we'll be coming in with an Xtec. And I think that will give a very positive fill up to the entire portfolio.It's also the time for marriages. And it's a very good demand generation that will take place for the 125cc. So we see a very positive outlook coming from the 125cc. Going forward, we're also strengthening our portfolio coming in with a couple of more launches in FY '24 and we'll be sharing more details about this as we go along.Overall, premiumization has been a trend that we have really come in quite strongly in our overall portfolio. Now, Xtec contributes to over 30% of our portfolio. So that's another big trend that's happening and it's helping us consolidate and further strengthen our position in our core markets. So 125cc is work in progress. You will see some new information from us coming in towards the end of this month and then as we develop it further, we'll strengthen our position.
Yes. Also just to add to what Ranjivjit said, in the quarter, we've done inventory adjustments. So if you look at that amount, almost sort of 5%. So, really speaking, what you are seeing, I think 9%, 10% underlying, it is still 14%, 15% just to call that out.
Got it. That's helpful. My second question is on the Gogoro swappable battery electric 2-wheeler partnership. Just trying to understand if there are any updated timelines there. And just separately if Gogoro plans partnerships with other OEMs or mobility services in India, would Hero in that scenario have exclusivity in certain geographies or will Hero have to compete with the other Gogoro partners?
So let me just ask Swadesh to talk about our EV plans and what we've done and then I'll [indiscernible] if required. Swadesh?
Yes. Thank you for that question. So, see for us, right now, there is a lot of focus on getting our VIDA product and the VIDA launches across the cities and the expansion plan through the country stabilized and really putting all the effort behind that. The subsequent products and projects as we get closer to rollouts will be shared in the due course. And I think whatever is the right model for partnership or rolling out will be disclosed. At this point, I would just say that the whole focus is going on establishing ourselves with our product.
The next question is from the line of Binay Singh from Morgan Stanley.
In the opening remarks, you added that there was a 70 basis point headwind from New Mobility Business. Could you elaborate a little bit more on that?
Yes, Binay. This is basically around, because we did the VIDA launch in this quarter, and therefore we are calling out essentially all the spends that we have done on this unit, whether it is the manpower of the dedicated business unit or the advertising spends that we have done. So all put together, the P&L absorbs 70 basis point, which, of course, if you look at quarter 3 of last year, it was insignificant, it was negligible.
Right, right. So to an extent if I adjust for that, then obviously other expenses come down. So in this quarter, it's fair to add that even the sales promotion spending would have been quite high, because we had the Great Indian Festival running throughout October.
Yes, that's true, because this quarter actually absorbs 3 things. One is the EV spends that we have talked about, which, of course, will continue moving forward, but that reflects that our underlying ICE margins are much stronger than what is reflected in the reported results, which allow us the funding of the investment in EV as we move forward.The other 2, which are there is the CSR expense, which in quarter 3 of the previous year was subdued. There was hardly any spending because of phasing, while this year it's been proportionate spend as far as this quarter is concerned. So that's around INR20 crores and there is a bit around the festive spends as well, which happened because it's the quarter where the entire industry and therefore, it was spent, and therefore the festive retail was reflective of that. So you're absolutely right. So those are the 3 reasons for the elevated other expenses in this quarter.
Yes, no. And just further like you said that the EV expenses will continue in the coming quarter. Could you sort of share because a lot of the launch costs would have already been done, right, now will be mainly more reflected in lower gross margin rather than higher other expenses. Is that fair way to look at EV ramp up?
Binay, because we'll continue to expand to multiple cities in the coming months and coming quarters, so as you continue to expand, so therefore, we expect -- and I wouldn't say those are expenses are spent. I would actually say those are the investments in building a category. So to that extent those will continue.
So a similar kind of like 50 basis point, 70 basis point of sort of a little bit of a drag on margin should continue because of electric vehicles?
So I wouldn't say drag on margin, I would say reinvestment of ICE margins behind building the EV category. So that's how my definition of that would be. And of course like the given commentary, we do expect the underlying ICE margins to improve moving forward, which is what we have also -- I have also given in my opening commentary as well, yes.
That's very fair. Just lastly on the gross margin. Good to see gross margin expansion playing out. Taking into account price hikes and the cost index, do you see more tailwind on the gross margin side?
Ideally there would be, because now as we move -- we've seen over the last 2, 3 years that cost inflations had been running ahead of price increases. Now, logically speaking, it should reverse moving forward, where the cooling off or stabilizing off commodity or overall inflation allows some bit of more realization to go towards the margin improvement.Yes, directionally speaking, the significant headwinds of commodities that we had running inflation, running ahead of price increase, that we don't expect it to be, but equally one can't forecast commodity prices. So we will have to navigate this space. What is reflective of that even in the period of elevated commodity costs, we've been able to manage our gross margins very well by delivering gross profit per vehicle, which is an all-time high level and there's actually increase in operating leverage as the volumes go up, then obviously the more quantum will flow down to the bottom line straightaway. That's I think the key significant of the GP per vehicle going up.
[Operator Instructions] The next question is from the line of Kapil Singh from Nomura.
My question is on margin expansion that you talked about. If you look at over FY '24/'25 when we are targeting to get to a target range of margins that we talked about, do you expect that to be driven more by operating leverage or you expect further improvement in gross margins also? The question that is coming is mainly because there is a feeling that bikes have become expensive and maybe it makes sense to hold the pricing and let the operating leverage or volume increase play out. So how you are -- how are you thinking about it? Do you think there is more scope to raise prices or hold the gross margins here, which are probably at a good level as you said?
Kapil, thanks for the question. See, as a business, one will continue to see that how do you exercise various choices moving forward. So it will also depend on the growth of the industry that happens, the competitive price positioning. So it's not a simple answer in terms of the price increases, vis-a-vis inflation and also the commodity scenario. But yes, moving forward, the operating leverage should start contributing a bigger number on our direction to improve our margins towards our medium range guidance.
And second, I just wanted to understand again from a more 2, 3 year outlook perspective, what is the strategy for driving market share and also in areas of exports, as well as EVs in particular on EVs just wanted to also understand whether you are thinking about a market share on a certain position within that segment, let's say, being in top 3, 4 kind of players on volume front or it is still early days to think about those type of things. How you are approaching that segment?
Kapil, you've nicely asked 3 questions in 1 question. But we will attempt to answer all 3. First, let me just request Ranjivjit over the medium-term, what's our key actions to improve market share and then I'll request Swadesh to talk a bit about the EV plans of the medium-term.
Sure. So we've got a fabulous platform to build on. And we're looking at expanding that portfolio. We've talked about this before that we will see product launches every quarter as we go along and this is going to be along our key focus areas around premium 125cc and scooters. So we're feeling good about the portfolio that we have and that will help us drive market share in the areas that I just highlighted.Besides that, there are going to be a couple of other very strong initiatives that we are continuing to improve on and continue to strengthen, which is around our channel, channel efficiency, channel effectiveness and there are the whole customer experience around that. So new visual identity that will really give -- and this is something that we're already piloting and consumers are feeling quite elated with the experience that they're having and the conversion rates are improving there. There's a whole digital footprint from consumers and that brings me to the third point of process.There's a fabulous improvement in terms of the scope that we see for how the consumer journey plays out with Hero and looking at that very comprehensively whether it's in the area of looking at what the choices are, what the options are, the whole omnichannel part, also looking at the one app that we have recently launched. So that creates a complete gateway into Hero from a customer service, loyalty, community, all of that comes together.So a combination of these 3 things, which is our portfolio, our channel and our processes are going to help us really strengthen the brand and our market share. And the elevation of the brand and the continuing strengthening of the brand with the premium portfolio that we launch is something that you will see.I'm sure you would have noticed the launch that we did recently, which is XOOM. I believe that would be a good thing to reflect on in terms of how consumers are looking at Hero now, it's a very sporty 110cc with industry-leading features and with segment-leading features and that's coming out extremely well.So overall, I would say there's a lot of customer association that we're building around premium, there's a lot of experience that we've been building with the Hero Dirt Biking Challenge, all of those things are going to help us in terms of the future way forward. I hope that's...
Swadesh, quick one on EV.
We have come in to really create this category as it's still nascent in the EV space. And with this year, big milestones on the brand launch of VIDA which has come out as you have seen in a very differentiated and a new age way, with the launches in the 3 cities, the Delhi, Bangalore and Jaipur, where the customers are really taking up to the product and the overall sales and pre-sales experience. With this sort of stage, the set up stage, we are really ready to now multiply into many cities going into FY '24. So establish ourselves wider into the market with this product and then subsequently, we have an accelerated portfolio to come in the next 18 to 24 months, where that will help us establish us deeper into many other segments as we have already gone wider in FY '24 right. So basically we have established the brand and the positioning with the ecosystem set up this year, going into much wider markets next year and then deepening our leadership with accelerated portfolio over the next year. So that's what we are looking at as the plan.
Kapil, let me just address the global business part also, because of the third, 1.3 as your question or 2.3. As far as global question is concerned over the medium to longer term, we do want global business to be at least 10% of our overall revenue. There are actions which are in place, there have been headwinds in the last year. We all know about a lot of key markets, which have faced huge headwinds on currency inflation, some of the markets even closing down like Sri Lanka, but obviously these markets will come back and therefore we will scale up.If I were to just sum it up in terms of the 3 legs that if you talked about, on our domestic ICE business, core, we are doing well in the short-term, we do need to recover our 125cc market shares, which the actions have been lined up already by Ranjivjit. Our opportunity lies in building premium portfolio, which multiple launches are lined up, not only coming year, but actually next 3, 5 years, and you will see therefore in the medium term us building meaningful market share of the premium backed up by the portfolio.And on global business it's medium to long term, which is actually scaling up to be a certain percentage of our overall revenue. And on EV clearly it is a geographical expansion, followed by portfolio expansion. So those are broadly, if I were to sum it up strategies for us on the medium-term moving forward on how we are going to grow on our top line and market shares.
The next question is from the line of Kumar Rakesh from BNP Paribas.
My first question was some clarification around the EV impact of 70 bps, which you talked about. Given that the revenue contribution was very small in the quarter and our geographical footprint is also very small, it seems to be a quite large impact, which we are talking about, about 70 odd basis points. As we move into coming quarters when our geographic presence will start expanding and potentially will expand our product portfolio as well, currently, the product is at the premium and possibly we will launch much more lower-priced products as well. Do you see the risk of this impact or the way Niranjan want to put it the investment needs to be higher for the EV business in the coming quarters?
See the -- because these are -- there is a lot of initial expenditures, which are there. And like you said, the contribution to top line has not yet started and therefore the moment your contribution to top line also starts then that starts playing out at the same basis point actually accrues larger amount in terms of what one can spend. So I think this is how we will navigate the space in terms of moving forward. As of now, we feel that we are sufficiently resourced both on CapEx and on our P&L side to fund our investment plans as we move forward, because top line also will accrue.And in fact, on the cost front, like you said, portfolio, remember that the industry gross margins on EV are low to close to being negative and that of course with all the scale and the savings program as an industry and us also, which will deliver that will show a significant improvement. So therefore, you will see the GM improvements coming up with economy of scale and cost reduction plan over the next 2 years for industry as well as for us, which will actually act as a tailwind. So the combination of these 2, which will reflect. We are not concerned about this. These are investments into building category.
Very helpful, Niranjan. My second question was around your new scooter launch, which you recently did XOOM. Can you just take me through the thought process, the areas we wanted to address that this new launch and what corrective measure we are targeting with this launch and potentially other scooter segment launches?
Sure. I can take that. Ranjiv here. So we're very excited about the XOOM launch. And I think it's been very, very well received. I think the industry-first corner bending light was quite a hit in terms of how it's played out and the demonstrations that we've done and showcase has really been taken up very, very well. The fact that in a 110cc segment coming up with such a sporty scooter with bigger wider tires, with the disc brake, with the fastest acceleration in its segment with a very aerodynamic design with a lot of technology built in including things around the Bluetooth and the storage and everything else really ticks all the boxes in terms of what consumers will want from a scooter. And I think that's the level of excitement and anticipation that we're getting for this. So really sets us up and it's radically new design, it's a refresh and re-imagine thinking, which is why we chose to also launch it under a new brand name of XOOM, which is very youthful, very exciting, very thrilling. It takes you from the city and into the other bumpy roads that you might want to go, the gradients that you want to climb. So there's a lot of use cases for this very beautiful scooter and we're excited about it.
The next question is from the line of Amyn Pirani from JPMorgan. Mr. Amyn Pirani, your line has been unmuted. Please proceed with your question. As there is no response, we'll move to the next question from the line of Raghunandhan N. L. from Emkay Global.
Firstly on the entry-level segment and rural demand, how was the demand conditions post the Uttarayan festival and commencement of marriage season. Are you seeing improvement in inquiries and bookings?
Okay. So on the entry segment and rural, we have in fact strengthened our position in Q3 in terms of market shares. You've seen that. And I believe this is a really good time for us to take it even further, the marriage season is on, in fact the marriage season is going to be there for the next 6 months. So we, the auspicious days are there. We are looking at a further strengthening and uptake for our entire -- entry as well as the 100, 110cc segment and that's where our strength is coming from.Rural has been a little bit lower in terms of the uptake compared to urban areas in terms of where we've seen that, but we are seeing green shoots. The marriage markets in UP, Bihar, West Bengal, all of these markets are coming back and it augurs well for overall the demand for the entry and the commuter segment.
Secondly, on the share of profits from associates have seen a strong jump. Would it mainly because of Hero FinCorp?
Yes. Hero FinCorp has improved the profit. As you know last year quarter 3 was a loss and this year quarter 3, they have delivered INR192 crores of profit. Plus of course also there is a one-time gain coming on account of the investment done in Ather by GIC, which came after the initial round and therefore based on the shareholding pattern change there's a onetime gain as per the accounting. It's a combination of the both the factors that have come in into that.
Lastly, if Swadesh sir can speak about order bookings for VIDA, the expected ramp up in production and VIDA has been at the premium end. So would you expect a more range of products across use cases covering various prices going ahead, you spoke about next 18 months.
Yes. So, yes, the response has been great in the 3 cities where we have launched: Delhi, Bangalore and Jaipur. As you might be aware, in Jaipur, we started on 22nd of Jan and Delhi we have started on 25th of Jan. Bangalore we started 30th of December. So there have been bookings quite a lot and we have already registered 250, 300 vehicles in the 3 cities so far. And we have a huge pipeline ahead of us to do the deliveries in the coming weeks of this quarter in these cities. And then as I mentioned, we're already going to launch a few more cities within this quarter and then a much wider nationwide expansion next year will happen with this product.In terms of the product portfolio, as I mentioned, we have an accelerated plan, where we have products coming in other segments as well. The mainstream -- the main mass segment as well. And that will help us cater to the different segments and different geographies. Overall, we have also set up multiple charging stations across these 3 cities, and that was our promise to the customer that when we launch, we'll launch as a complete ecosystem. We have roughly 18 stations in Bangalore and 15 each in Jaipur with multiple chargers at each of these locations. So we are at a very strong position. Also from the feedback point of view on the product and the overall pre-sales and sales experience and we are very well placed to expand through many cities in the next financial.
Thanks, Swadesh. Just to add Raghunandhan on a clarification on the FinCorp, the loss I was referring to was 9 months last year versus a loss of INR260 crores versus 9 months of profit this year of [ INR461 crores ]. As far as 3 months is concerned, it is INR192 crores versus INR131 crores, just to, so that numbers are understood correctly, yes.
Just one more clarification, when you indicated that gross margins would be lower for EVs, this is without counting the PLI benefits. By when would you start approving them?
We will start approving it moving forward, because we've just launched it, but you are absolutely right. We do not incorporate PLI benefits. The other point I was just saying that as we move forward, as scale moves up and cost reduction plans kick in, overall this BOM cost of the EV products as an industry also will come down, because a lot of localization happening, that -- so it's not just PLI, but there would be multiple things that would bring down hopefully the BOM cost of EV products moving forward.
The next question is from the line of Amyn Pirani from JPMorgan.
My question was actually more on the retail and the wholesales. Your retails especially in 3Q were quite strong, but wholesales have been subdued for some time now. So would it be fair to say that the inventory levels are now at a healthier level compared to the last, say, 1 to 1.5 year average and where would they be and how do you see this moving retail versus wholesale over the next 6 to 9 months?
Let me take in general and then I'll ask Ranjivjit to probably add. You're absolutely right. We've been trying to keep a balance and therefore our retail in quarter 3 was strong and we've been keeping an eye on inventories and clearly moving forward as we see industry growing and us growing on market share and relative to that, we would say that we are quite comfortable as far as the inventory levels are concerned.Ranjivjit, would you like to add, amplify anything?
Yes. Definitely Q3 had the benefit of the festival and retails were -- we led the industry in many ways in terms of the growth that we saw on retails. It's also a time for us to just make sure that the transitions like we talked about, we just launched the 200T -- XPulse 200T, which has got off to a great start. We launched the Xtreme 160R Stealth Connected 2.0 and these are important for us just to make sure that the transitions are well managed and therefore our inventory level is about in the region of 7 weeks, which is pretty healthy looking at the future in terms of the marriage season, which I had highlighted earlier in terms of how we're -- how the demand generation and how the demand is going up. So it's looking good in terms of the overall availability and the overall health of the business in terms of inventory.
I mean broadly can you help us understand where would be we like 5 weeks, 6 weeks or lower than that, broadly speaking?
We've always outlined a range of 4 to 6 weeks, when we take our own dealer stock levels and we'll continue to be in that range moving forward. Of course, the higher the growth in terms of number of weeks it will come down. Just I'm talking about the dealer stocks because that's what we usually measure.
The next question is from the line of Gunjan Prithyani from Bank of America.
I have one follow-up question on the gross margin improvement. Could you give us some sense as to what is the benefit of price hikes that is flowing through in this quarter. And I do recall that we've taken more price increases. So some color on that please.
So, I'll, Gunjan, tell you the overall price increases that we have taken, which we have been taking consistently over the last 4 quarters in line also with what the industry has been taking. The last one that we took was on 1st of December, which was close to around INR930 ex-showroom as a price. Other than that, of course, there is also and before that if you look at the quarter, it would be reflective of increase that we took in August, which we took around INR300 and September around INR500. So there will be partial ones that flowing into the quarter as well. Other than that lease savings, for instance if you look at our lease savings over these 9 months, we have delivered close to around 80 basis point of lease savings into that. The combination of those 2 then offset by a bit of mix that's all combination of various factors that is leading to the gross margin improvements.
Okay. The metal correction in my guess then would be somewhere in the range of what 150 basis points, 200 basis points. Does that sound right to you?
Yes.
Okay. And the other question that I have and this is going back to the strategy, I mean, you clearly -- you've spoken a lot about what we're doing on 125cc and premium, but going back to the entry segment, which is really important for us, these been continuing to take price increases and we did see October-November, which sort of did so well because of the Great India Festival that we ran or there was more intervention or excitement created by yourself. When you fundamentally think about next 12, 18 months, I mean, it is on Hero to take the market back, right, to bring the market back in the entry segment. So why are we taking these sort of price increases and not sort of create that excitement schemes, fares and get the market back? I'm just trying to understand the strategy around that segment.
Gunjan, clearly our strategy around entry is to expand that category and therefore convert who do not own a 2-wheeler today to own 2-wheeler, because we are the leaders in that segment and that's our strategy on that part of it. The pricing increases have been necessitated because of the commodity inflation that has been there.Moving forward as we see, as we all know, even the interest rate hikes probably we just saw today morning 25 bps rate hike, which is a softer rate hike, we see U.S. Fed also potentially going now slower so and inflation in direction of cooling off so it therefore allows now pricing to be a much softer in terms of moving forward as we go in. So, I think that's the combination that we've done, and there are lots of actions, which we have done on the front end and let me just talk to Ranjivjit. Ranjivjit, why don't you talk through what we're doing to expand the category and how it's about the product and what we are doing there.
Yes. Thank you for referring to the Great India Festival. Of course, we talked about that in the entry level, we've done campaigns, which have been extremely effective like Mileage Ka Hero, that has really hit a sweet spot, because that is a concern, and people trust Hero for coming up with the fuel-efficient bike, it's key buying factor. So that really helps us to consolidate and strengthen our market share there.When we look at the consumers in terms of first-time buyers and the replacement demand, we're also seeing replacement demand coming back. And we are also driving the exchange market. So we have very scalable do-it-yourself kind of app that people can evaluate within seconds their current vehicle and get a price for that and then we have a system through which -- the Wheels of Trust, through which they can exchange their bike and then we also have Hero Sure outlets where they can buy new and refurbished bikes from there. So we're really doing market-leading initiatives in terms of what the market requires for first-time buyers, as well as for replacement demand to further strengthen and give confidence to our consumers.In addition to that, from a customer service perspective, we're going to wherever the customer is. So we're doing a lot of micro workshop, we are doing mobile workshops to take our service to the consumer wherever he or she is even if it's in the village or wherever. So there's a lot of building of trust that Hero stands for and we continue to work on that very, very strongly.
And in fact, Gunjan, just to also, since you talked about the segment-wise price increases, if you track our price increases over the last 3 years, overall, on the entry, we've taken far less than what we have taken in the other segment, that's also reflective of how we are trying to cushion the impact at the bottom of the pyramid. Offline, you can of course take this numbers from Umang. But overall, far less as compared to the other segments.We've been conscious of that where the combination -- it's also important to note that you look at, 110, you look at 125, you look at all of these. It's also about the product and the features that you actually deliver and that's why in each of these segment variants that is actually at the highest price, commands the highest volume in that. So in a sense, it's not a direct correlation, but we've been conscious of cushioning the impact at the bottom of pyramid and that's reflective on last 3 years how we have softened and taken far less price increase in the entry segment compared to the other segments.
And consumers now moving up to the retail finance schemes as well, so that's making it easier. So we're really again helping our consumers to fight over inflation and acquire the -- and bring home the Hero.
Sure. This is really helpful. I'll join back the queue. Just we can have the spares number for the quarter, spares revenue.
Right. As far as the spares revenue for the quarter is concerned, it's INR1,259 crores for this quarter. Quarter 2 was INR1,244 crores and last year same quarter, quarter 3 was INR1,186 crores.
The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
A couple of clarification. One is, did we indicate inventories get around 7 weeks now?
It is -- Jinesh, it is about looking at whether you're looking at the current sales or looking at the forward sales. So when we are looking at our forward plan, it is at the top end of the 4 to 6 weeks if we take just the dealer count, which is what we measure.
Got it. Got it. And second question pertains to this RM cost savings you indicated 150 basis points to 200 basis points that the saving, which we have seen on Y-o-Y basis or that's sequential saving?
It could be on Y-on-Y basis.
Okay. And sequentially this number would be about close to 7,200 basis points. Would that be correct?
Absolutely. Probably around that and Umang can offline also take you through more details.
Sure, sure. And third question pertains to the BS-VI Phase II transition. So given that we are in season for the marriage season and the BS-VI Phase II transition is required by March 10. So how are we preparing for that transition?
Yes. So we are -- the transition is on manufacturing. In fact, we have some of the models we already started manufacturing. So by March actually we'll be transitioning on the manufacturing. So from 1st April onwards, all our manufacturing will be on OBD to Phase I, which is what the mandate is.
Okay. And we don't expect material price hike over there? I mean under 2% is what we have indicated?
The price hike is not that material on the OBD to Phase I. We would be when we actually put out the product in the market, you will see that is expected to be probably in the range of maybe INR500 to INR800 per vehicle.
Got it. And can you clarify on the other income, we have seen a good spike. Is there any one-off or mark-to-market gains on treasury, which has led that?
So other income is reflective of if you see last couple of quarters, here we were absorbing the MTM loss on Gogoro, which were one-off actually and that's not there anymore in this quarter. The other thing is, of course, if you look at the yields, the treasury income, again, in the last 2, 3 quarters you had the yield hikes, which were there and reflecting in the MTM losses, which are not there. So broadly speaking, those makeup in terms of the other income, essentially the MTM losses, which were accounting in the last few quarters, those are not there and that's what reflective of normalized level in other income.
The next question is from the line of Joseph George from IIFL Capital.
I have a couple of questions on the EV business. So when you launched the VIDA V1 Plus and V1 Pro, the prices that were mentioned were INR145,000 and INR159,000 both ex-showroom Delhi and the numbers in the press release yesterday was INR135,000 and INR147,000 and that too on road. So, is the difference entirely explained by state-level subsidies or have you moderated the prices since you announced it during launch?
No, no, we have not moderated the prices. It will reflect differently in different cities and states, but the prices are same. We have not moderated it. I can't comment you on this separately as well.
But, yes, just to confirm, we have not done any discounting or not changed any prices since launch. So it will be taking into account subsidies, state level, X, Y, Z and Umang will offline share the full details on the ex-showroom to on-road.
Understood. The second question that I had was in relation to the EV business now, for instance this quarter you called out about 70 bps of impact on margins, because of the EV business. Is there any plan to park the EV business in a separate subsidiary? A lot of other OEMs are doing it, makes it easier to continue to measure the profitability of the ICE business on a like-to-like basis rather than you having to call out this number every quarter? So, any thoughts there?
There are, of course, that's why because of in order to ensure and we always do transparency of our P&L. That's why we called out both the numbers, even though they are embedded in the same P&L. As far as corporate structuring is concerned, it's much beyond just the numbers or a segmental reporting. It's about various considerations one has to take into account, at what stage of launch you are, the taxation, your balance sheet, your intent behind doing that. So we continue to evaluate all options and -- as and when anything fructifies, obviously you will know that.
The next question is from the line of Shashank Kanodia from ICICI Securities.
Sir, we do take cognizant of this fact that there is a change in narrative. Till last quarter you used to guide us for double-digit volume growth, which quarter you've seen double-digit revenue growth. So does this guidance hold true for next fiscal as well or we're just talking for FY '23?
This guidance is for the next fiscal, which is FY '24, the double-digit revenue growth for the industry.
Okay. Secondly, sir, it will help us dissect more of a rural demand, because on one hand, we do read about new better rate utilization for the farmers and a double-digit cushion tax sales, but on the other hand, I think 2-wheeler as a segment is not really picking up pace. So is that category will painted in rural India, which is something, which means denying in the past, so how do we report it?
Let me request Ranjivjit to talk about the rural demand and how does he see panning out.
Yes. So we're already seeing somewhat of a recovery coming in in rural, we are seeing the green shoots, which are in markets like UP, Bihar, MP, Rajasthan just we're seeing reasonably good growth there. And we think that this is just the beginning. Like I mentioned, there is a marriage season that's ongoing that's continue for a few months. The crop outlook has been good. Overall, the stability in the system. So we're looking at people really coming out being on the move, the needs for personal mobility. We'll continue to increase and we'll make it easier for them to buy with our retail finance and many other enablers that we continue to work on. So we believe this is a time when there will be positive outlook from a rural perspective specifically and that will play. We will of course play to that.
Sir, can you share some color on penetration levels for 2-wheelers in rural versus urban, if you have some?
So typically it's about 45% is the penetration and that gives a lot of headroom for growth for us in terms of a new benchmark versus other economies in other countries, and that makes it a fertile ground for building out future growth. As Niranjan mentioned in his opening comments, also in terms of the India outlook, I believe that will also play an important role in terms of how the industry will perform and within that, how well placed we are. So overall, it seems like a reasonably good space for us to be in.
The next question is from the line of Jai Kale from Elara Capital.
Sir, my first question is regarding first-time buyers and replacement buyers trend that you're seeing. In the last 1 or 2 years have you seen a lot of replacement buyers kind of postponing their purchases and in the recent festive event and recent issues that you are speaking of, are you seeing that coming back? And also if you could throw some color on what used to be the typical replacement cycle, how has it got elongated to and how do you expect it going forward?
First-time replacement [indiscernible]
Yes. So overall, I think the market is looking -- I mean, we were pleased to see the recovery coming back into the market. After a hiatus of the last 2, 3 years, it was really affected by COVID, so overall volumes are coming back in the industry. First-time buyers are coming back. Replacement is where also people who had delayed their decision in terms of the need to replace the vehicles that second-hand used vehicle market is also quite buoyant right now.We're driving a lot of initiatives to enable people to be able to exchange their bikes through the DIY kind of app that is available now on everyone's mobile phone. They can get a quote from Hero for their old bike through the broker system and it's a first-time phygital kind of thing that anyone in the industry has come up with, and it makes it really easy for someone to get any evaluation, go and then exchange the bike and buy a new one.We also have Hero Sure outlets, which are helping people to buy refurbished bike or even a new bike. And I think these are the things that will really help drive the replacement demand, there is a fairly good double-digit replacement buying around 20% in terms of the customers that are out there. And these are good opportunities for leader brand like Hero to be able to help consumers make their move.
Understood. And just on the scooter demand, I mean you've seen in the last few months scooter demand coming back because opening up of schools, colleges, [indiscernible] backdrop. Going forward, how do you expect this scooterization trend, I mean, do you expect it to kind of largely -- and this, I'm talking about ex of EVs, just the ICE scooters to kind of stabilize at the 30% to 33% range or you expect that there is further room of increasing this contribution for the scooter industry, ICE specifically?
Yes. Great question. I think we've also seen that the overall industry for the scooter demand has been going up. We've been strengthening our position. We grew our market share from 6% to 9% already. And with the launch of XOOM and the launch of the portfolio as we go forward, we will be further strengthening it. What's underlying this is obviously a multi-utility kind of a vehicle, as well as very much this sporty needs and the more thrilling needs that people have to make -- to go out for that exciting ride over the weekend or even the night rides with better lighting systems that we have provided in our scooters. So we see the growth of the scooter industry, it's shown a very resilient growth and we see no reason for it to change. We think it will continue and we are, in terms of our portfolio, well placed to take advantage of that.
Having said that, like what Ranjivjit said, overall, if you look at on a very big picture perspective, over the last 3, 4 years while quarter-on-quarter, the share of scooter was overall has shifted down and up, but it remains between 30% to 35% range as a scooter versus overall 2-wheeler. We do expect it to remain within that range moving forward as well.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments.
Thank you, everyone. Thanks for coming in. Have a lovely day ahead and look forward to speak with you soon. Bye-bye.
Thank you.
Thank you.
Thank you. On behalf of PhillipCapital (India) Pvt Ltd. that concludes this conference. Thank you for joining us and you may now disconnect your lines.