TVS Motor Company Ltd
NSE:TVSMOTOR
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 673.15
2 930
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
TVS Motor Company Ltd
Earnings Call Analysis
Q1-2025 Analysis
TVS Motor Company Ltd
TVS Motor Company reported its highest-ever quarterly revenue, EBITDA, and profits for Q1 FY '25, marking a continued growth trajectory. The operating revenue increased by 16% year-over-year to INR 8,376 crores, driven by a strong sales performance in both domestic and international markets. Notably, the company’s profit before tax grew by 28% to INR 783 crores, while the profit after tax rose by 23% to INR 577 crores.
A significant highlight of this quarter is the robust growth in the company's EBITDA, which increased by 26% to INR 960 crores. Correspondingly, the EBITDA margin saw an improvement of 90 basis points, reaching 11.5%, up from 10.6% in the same quarter last year. This improvement is attributed to better sales, an optimized product mix, and cost reduction initiatives.
The domestic two-wheeler ICE segment saw a 14% increase in sales, while the international market recorded a 16% growth in two-wheeler sales. The company achieved a notable milestone in the electric vehicle (EV) market as well, with sales of 52,000 units compared to 39,000 units in the previous year. However, the three-wheeler segment saw a slight decline in sales volume to 31,000 units.
Despite the overall positive performance, the company is facing challenges in the European market due to economic pressures, which they believe will improve in the medium term. To counteract cost issues and enhance production efficiency, the company is considering centralizing its production, potentially moving some operations to India. TVS is also making strong efforts in expanding its presence in existing and new markets such as ASEAN and Africa.
TVS Motor Company plans to invest significantly in new technologies, marketing, and global brand building. The company’s CapEx and investment plans for the year are projected to be around INR 1,000-1,100 crores. This includes ongoing investments in TVS Credit Services and new ventures like Norton Motorcycles, where they expect to launch six new models over the next three years.
TVS Credit Services recorded a 19% increase in profit before tax at INR 187 crores, with a book size that grew 20% year-over-year to INR 26,351 crores. The company is also making noteworthy progress in the EV segment, particularly with its TVS iQube, which now boasts an expanded portfolio of five variants and is set to launch new models in the near future. These efforts affirm TVS's commitment to leveraging technology and innovation to drive future growth.
Management remains optimistic about capturing market opportunities in Latin America, Asia, Middle East, and Africa. They are focused on providing high-quality and technologically advanced products that align with the needs of new-age customers. This strategic focus is expected to help TVS Motor Company not only maintain but also extend its industry-leading position both domestically and internationally.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to TVS Motor Company Limited Q1 FY '25 Post Results Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Annamalai Jayaraj from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Welcome to TVS Motor Company 1Q FY '25 Post Results Conference Call. From TVS Motor Company management, we have with us today, Mr. K. N. Radhakrishnan, Director and Chief Executive Officer; and Mr. K. Gopala Desikan, Chief Financial Officer.
I'll now hand over the call to Mr. KNR for the opening remarks to be followed by question and answer session. Over to you, sir.
Good evening, everyone, and thanks for joining us today. Q1 of 2024, the company continued its growth trajectory, posted its highest revenue, EBITDA and profits -- this was possible through a continued improvement in sales, better product mix and certain cost reduction initiatives.
When we look at the Q1 quarter, the company's operating revenue grew by 16%, INR 8,376 crores as against last year's corresponding quarter INR 7,218 crores. Two-wheeler domestic ICE sales grew by 14% compared to Q1 of last year. Our - we grew ahead of the industry in retail. Two-wheeler international market company sales grew by 16% over the last year. On ICE, total 2-wheeler ICE sales grew by 14% compared to last year Q1. EV 2-wheeler sales is at 52,000 units as against last year Q1 of 39,000.
Total sales 3-wheeler is at 31,000, slightly lower than first quarter of last year. On profit, during this quarter, the company registered highest ever operating EBITDA of INR 960 crores with a growth of 26% as against EBITDA of INR 764 crores during Q1 of last year. Kindly note that we have not recognized PLI incentive in this quarter. The company's operating EBITDA margin improved by 90 bps at 11.5% as against 10.6% during last year first quarter. And as you know, Q4 last year financial year '24 was 11.3%.
Company posted its highest ever profit before tax of INR 783 crores, recording a growth of 28% during this quarter as against INR 610 crores in the first quarter of last year. PBT for this quarter includes INR 28 crores towards fair valuation of the investments held by the company. Profit after tax grew by 23%, INR 577 crores as against INR 468 crores during the first quarter of last year. Q4, the PAT was INR 486 crores.
On TVS Credit, TVS Credit continued to do very well. Now we have more than 1.5 crores customer base, book size crossed already INR 26,000 crores. Now the book size is INR 26,351 crores, book grew by 20% over last year Q1. TVS Credit PBT for the quarter grew by 19%, INR 187 crores as against INR 157 crores during Q1 of last year.
TVS Credit Services by leveraging cutting-edge technology and analytics offers products and expanded portfolio financing for used car, consumer durables, new and used car, used commercial vehicles with corporate loan, goods loan, apart from 2-wheeler and 3-wheeler financing.
Regarding Norton, we are planning to launch already 6 new products over the next 3 years. So first of these models will be available end of next year, and it will also go on sale India soon after the international launch.
The new range of motorcycles will be more affordable than the current lineup while still retaining the premium positioning that TVS is keen for Norton to command. As you know, Norton is super premium and this brand has got great value. On EV, TVS iQube established as a very strong brand in the EV segment in its technology-led features, best-in-class quality.
During this quarter, company introduced new variants to the iQube portfolio for making electric mobility accessible to everyone. TVS iQube is now available in 3 battery options to choose from 2.2 kilowatts, 3.4 kilowatts and 5.1 kilowatts. TVS iQube now offers an array of 5 variants available in vibrant 11 colors, making this one of the largest and most attractive EV portfolios in the market.
The feedback from the market and the customers are very positive. As you know, we have a well-planned product lineup for electric mobility, and you will be witnessing some of the launches soon. Last year, we started TVS iQube to few ASEAN and Asia markets. We will expand EV product sales to both developing and developed markets.
We strongly believe that India will emerge as a major export hub for 2-wheelers EV. The continuous improvement in the EV supply chain and infrastructure, we are confident that we will continue to be a strong player in the EV segment.
On outlook for Q2, I think the recent budget laid by the Government of India focused on employment generation continued higher commitment to infrastructure and rural economy, this will add to the present momentum. We are expecting rural to recover. If expected normal monsoon, we could witness robust growth in Q2.
For the first time, we are seeing rural doing slightly better than the urban. The road infrastructure and economic environment will drive the demand for two-wheeler mobility. And 2-wheeler has got a huge opportunity in the medium and the long term, given the challenges in mobility as well as also investment from the government on the infrastructure and road development.
During this first quarter, the ICE VAHAN industry grew by 13% over the first quarter of last year. I think this is an excellent comeback on the VAHAN growth. Our international business, there were some challenges in Red Sea that is affecting the transit times and increased also timely availability of vessels containers is a concern. We had some challenges in our dispatches in Q1. We have taken enough countermeasures to mitigate these challenges and situation is likely to improve in Q2.
During this quarter, we added HLX 125 5-gear to our portfolio. The new motorcycle offers features that are powerful yet efficient. It has best-in-class durability, requires minimal maintenance, has a superior engine, provides excellent mileage and performs across the terrain. This will definitely further strengthen our international product portfolio. Certain select African markets are facing challenges due to currency devaluation and persistent inflation.
However, considering the base effect in our assessment, the possibility of further decline in Africa is low. We feel that we will be doing better in Africa this year. LatAm gives us a huge opportunity. We have started exporting to later. Asia, we are seeing some challenges in Bangladesh, but we are hopeful that things will settle down soon. Middle East also a huge opportunity for TVS, and we are strengthening this area.
Our upcoming launches, I want to highlight that there will be one product in ICE and one product in EV, which will be coming soon in this quarter, and that will strengthen -- further strengthen our excellent range of product portfolio. Our strong product portfolio -- our unwavering focus on the consumer, quality, new products and attractive quality and technology with features. We are confident that we will outperform the industry, both in domestic and international market.
Extremely happy that EBITDA has already crossed 11.5%. We will continue to leverage scale benefits, better product mix and sustained effort on cost reduction. This will enable us to further improve our EBITDA going forward.
And we are very confident that all the product brands, portfolio of brands, just starting from brands, starting from Apache, Jupiter, Jupiter 125, IQube, Raider, Ntorq, the Star Range, HLX, Radeon, TVS Kings, TVS Ronin, we are very confident that we will do better than the industry in both domestic and international across ICE and EV segment. Thank you.
[Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.
My first question is just on the other expenses line this quarter, seems to be about 11.4% of the total top line. The last time we had other expenses, this high in ratio versus top line was around the June 2020 quarter during COVID.
So I just want to understand, is there any one-off in the other expenses line item this quarter because we've seen 3% Q-o-Q revenue growth, but other expenses have grown much, much higher.
See, other expenses, you are comparing Q1 of last year to this year Q1?
I'm just saying the 11.4% other expenses ratio versus top line is not...
There are three important things. One is one variable nature, packing, freight, everything has gone up. It's about INR 60 crores, okay, this is primarily because of the increase in turnover and also the investment in brand building activities, which has resulted in increase in marketing expense is almost INR 87 crores, okay?
And as I have highlighted earlier, we are investing in digital technologies and innovation, that is another INR 35 crores. So effectively, it is between variable expenses of almost INR 60 crores and brand building and marketing about INR 87 crores and digital and another innovation activity is about INR 35 crores.
Got it. That's helpful. Second question is related to the PLI incentives. So I just want to understand, I think some of your peers -- most of your peers in the 2-wheeler industry are already booking the PLI incentives and you are also eligible. So I just want to understand what the thinking is behind holding back from booking the PLI incentives in our accounts? And how to think about as and when we book, will it sort of be lumpy for the whole year, particular quarter next year?
One is as informed by KNR, we have not recognized the PLI in the reported numbers. Our products are eligible and are certified and we meet all the requirements of DVA. Only recently, the government has issued an SOP in this regard. We are in the process of finalizing a revenue recognition for this purpose. Conservatively, we have not recognized PLI incentive in Q1.
And second question, you have asked that as and when you recognize it to be a bumpy number. The answer to that is, we will clearly give a note that what is relatable to this quarter and what is relatable to the previous quarters as and when we recognize.
Got it. That's very helpful. And my last question is just around if you could give us the export revenue for the quarter, the spares revenue for the quarter. And also if you could roughly indicate what is your current annual exposure in volume terms to Bangladesh.
Bangladesh is very, very small. I'll answer some of that, okay, as far as we are concerned, because there were some modifications and structuring, we were changing in Bangladesh. So numbers are very, very small. In terms of IV total revenue, INR 1,963 crores for Q1. What was your other question? Parts is about INR 846 crores.
Sorry, sir, could you repeat that?
INR 846 crores.
The next question is from the line of Kapil Singh from Nomura.
Congratulations on a strong performance. Can you talk about we had a good improvement in the gross margins for the quarter, the raw material to sales ratio seen a significant drop. So was there a softening of commodities price increases, if you could give how much -- and how much each of these are contributing?
I think between Q1 to this year Q1 to Q4, primarily if you sustain material cost reduction initiatives and product and geography mix. That is the reason of about 1.4% benefit. Of course, there was a small selling price increase and there was the commodity price increase. I think the selling price increase was about 0.2% and commodity price increase as well as cost increase was also similar.
So primarily, it has come from the material cost reduction and the geography and better product mix. Vis-a-vis last quarter, I think there was a price increase of about 0.5% but there was a strong material cost reduction. And also commodity softening when you compare last year Q1 to this year Q1. So overall, these are the key reasons.
And the staff cost has also seen a strong growth. So is this a sustainable level of staff? Or there are any lumpy items here?
Yes. Staff costs, like I always highlighted, the significant increase. There are 3 or 4 components in that. One is performance appraisal, approximately about 10% is performance appraisal cost. And there were the other additional increases because of the digital and EV and software related, electronic related, we have definitely increased the strength there.
So significant increase has gone to only additional we were in. In ICE, we have not added people. And for a small increase in the production, there are some small numbers, but that will not cost more than INR 5 crores.
Sure, sure. And sir, lastly, just wanted to check on the CapEx plan and investment plan for FY '25? And also, we saw some increases in the loss cost with e-mobility and also Norton. So just some color if you could share like what is the operating environment in both of these companies. And how should we think about the evolution of these losses will be -- will -- because you're going to launch a few more motorcycles in Norton, for example, will the losses increase as we did before they start coming down? And similarly, on e-mobility also if you can share how the business is doing and what is the growth plan?
The majority of the investments in Q1 were Credit services about INR 300 crores. Norton was about INR 100 crores and the electric -- EV cycle business was about INR 30 crores and some small amount in TVS digital. So a significant proportion has gone to TVS Credit Services and about INR 100 crores for Norton.
I'll just repeat the question. Basically I'm looking for the outlook on CapEx and investment.
Outlook on the CapEx. I think CapEx plan for this year will be about INR 1,000 crores, INR 1,100 crores. I think that number remains around that.
And investment?
Investments also will be of the same order, slightly maybe higher, the total investments.
Also, I was referring to the full year performance of Norton and Swiss e-mobility, if you could share some outlook in terms of -- because we saw a loss of INR 240 crores for Swiss e-mobility and close to INR 400 crores...
Norton, we are now designing and developing, like I said, significant proportion is going on in investment behind design and development of the product. So the kind of investments, whatever we are making all are towards the engineering, development, product, all technology investments. So everything related to product is the investment there.
On e-mobility, as you know, Europe has been very slow. This year, economy has been very slow. And what we have seen is the stock levels in the industry has also gone up substantially. So the discounts in the market are very, very high. So that is the biggest reason.
But we are pretty confident that things will better off possibly in a year's time. So we may have to have patience this year, because EV cycles are definitely going to be very good for the future. The market size is big. But unfortunately, this year, given the challenges of Europe, what it is going through, I think that is the biggest problem.
The next question is from the line of Gunjan from Bank of America.
Just continuing with the same Norton in the earlier question, I see that you've mentioned that there will be still 8 quarters of investment yet. So is it -- how should I think about revenue contribution from Norton, starting to kick in?
Should we expect F '26 is when the product monetization happens or if it is F '27. And when you look at these 8 quarters, is it possible to quantify how much more investments in Norton?
See, last -- next year, last quarter, you will start seeing the changes because we are looking at end of 2025. Then after that, possibly every quarter or every 2 quarters, you will see the launches in a series. And investments, similar amount will go up because till we come up with the first model, the revenue will start kicking in. And then possibly, we will see how to cut down the investments. But 6 models we are looking at, and they are going to be completely new.
Okay. And sir, how much has been invested so far in Norton, can you share that number?
Just a minute. Gunjan, I will -- we'll come back to you on this in a minute or so. If you have any other question you can ask or others can. I will come back to you on this.
So on Norton only, sir, you also mentioned that it will eventually be brought to India. So if you can share your thoughts, how should we be thinking about the brand in terms of introducing it in India? And are these 6 products relevant for India as well?
See, India is a huge market. And as you know, India has got super premium customers. So we are very confident that which product, which are applicable to which market so that to launch, I'll share with you. But I'm very sure that we will be launching some of these products in India because they are applicable to Indian market, and we are also looking at this as a huge opportunity in India.
Okay. And sir, second question is on the electric pipeline. You did mention in the near term, you will have 2 launches, 1 electric, 1 ICE. The electric launch is on the 2-wheeler side or on the 3-wheeler side? Because 3-wheeler was also something that you had spoken about is due for this fiscal year. So any color on that?
There is a 2-wheeler, there is a 3-wheeler, there is another ICE 2-wheeler. All you will see between Q2 and Q3.
The Norton investment is around INR 1,200 crores.
INR 1,200 crores?
Yes, INR 1,200 crores.
Okay. And lastly, on this whole CNG as a launch option or as a power chain, is that something we see viable? Is there a use case? And any thoughts that we could see you guys also looking at the CNG product development?
See, we always work on multiple technologies, okay? We have flex fuel, we have EV, we have CNG 3-wheeler now. See, what is most important is we look at -- there is a product plan and delivery plans. Since we have the capability, we will study that, and we will look at it as and when it is required. So it is more on -- at appropriate time, we will look at it what is required. But there is a very clear product cadence and the launch plans we have already planned.
Okay. So it's fair to assume that it will be EV as a priority for now in terms of product pipeline and CNG is something that we have the capability, but we'll revisit at a later time.
I didn't say anything like that. I said there are multiple technologies, we have a very strong R&D. And there is a very clear product plan we have, and we would like to adhere to the product plan and deliver the products to the market because these are all based on the customer understanding and white spaces in the market.
Like I already said, there is CNG 3-wheeler. So we look at fossil fuel, we look at flex fuel, we look at EV, we look at CNG. So as and when it is appropriate, we will look at that market.
The next question is from the line of Pramod Kumar from UBS.
Before I start the question, just a clarification. Norton, I missed that part when you talked about the time line of the first launch. Was it -- end of which year, sir -- fiscal year '25 or '26?
'25.
Fiscal year '25. Okay. That's good to hear. And sir...
Calendar year of 2025.
Yes, calendar year of 2025. For them, yes, it is last quarter of next year, let's put it that way, last quarter of next financial year.
So that will be FY '26, right?
Yes. '25-'26.
Okay. And the first question is on the -- you made a comment on the other marketing expenditure being higher by a significant amount. Just want to understand, does it include international markets in terms of your marketing plans there and launches and foraying to new markets? Or does it -- is it predominantly for domestic?
These are all investments done for future brand building and some of our product-related brand building. So I always say that anything on marketing is an investment, I don't consider it as a cost, because we have to build brand. Like on one side, we invest, we had R&D and technology, we invest behind marketing expenses.
But this includes international markets as well?
Yes, yes, it's a total.
Okay. Okay. And sir, on the -- you talked a lot about digital efforts and the R&D efforts. So can you just help us kind of get a size kind of investments you made in terms of headcount what you've added or how big your digital endeavors are in terms of manpower, how big is your software team right now because we don't hear other OEMs talking about software investments. So if you can just help us so that we get to know that what the kind of areas where the kind of capabilities where we built in terms of team strength. So if you can just help us...
Digital analytics team, we have more than 200 people; software, we have more than 150 people; electronics, we have similar numbers. So all put together, I would say that 450 to 500 people in the new areas of technology we have added.
Okay, okay. And a lot of this hiring and even software EV development parts are largely expense of given -- because your average capitalization rate is only 30% to 33% of R&D. But how would -- would that be the case even with EV investments because some of the other companies have different capitalization in it. So I just want to understand how does your EV and software initial capitalization rates compared to your normal R&D expenses.
No, we simply follow the accounting standards for whether it is revenue recognition or accounting of expenses. We don't unnecessarily capitalize or we don't unnecessarily charge. We strictly comply with the accounting standards.
Okay. Fair enough, sir. And sir, on the -- you talked about multiple launches, but on Raider, the general feedback from dealers is that there are more variants required, because our product is already at a pretty good premium to the underlying competition in terms of price point and even the variants start at much elevated level in terms of features.
So is there any plans of doing more variant mixes there to make the brand more accessible. And also, do you see a necessity for an ABS choice, the 125 could be more subtle category, currently, we don't have it.
This is part of our -- always we look at variants. We look at -- depending upon the customer segments. So I think this is part of our design and development thinking process. So we will cater Raider is a great brand. And we will continue to look at variants and appropriately applicable to the market and segment -- customer segment.
And sir, final question on EVs. If you can help us understand where is our reach now? Because some of your competitors have gone to kind of see the distribution strategy and gone pan India with a lot of the dealers already selling, but where are we in terms of reach on EVs on iQube?
And how should one look at the distribution and consequently, the market share aspirations as go pan India? If you can just help us understand the time line and the expected delta to market. And how is the demand for the overall EV basket? Because generally, we've seen price drops and discounts and freebies and schemes are driving sales for the industry. In that context, how does our pricing and the demand equation work out?
See, we have -- all of you know that currently, we have about 750 dealers, okay? And -- who are giving iQube, okay? This is covering about 450-plus cities. And what is most important is we have also come up with variants in -- I already highlighted that we have now 3 variants, which are added in iQube, and each one brings certain specific customer value, okay?
And that is very, very critical. And the price points are based on the critical value what we had, for example, starting from 2.2 kilowatts, 3 kilowatts and 5.1 kilowatts. So iQube is a very strong brand. And this brand depending upon the type of the customer, type of the usage, this is our price position there. And I'm very confident that this will do very well to the customers and the market. And we want to continue to be a strong player in the EV market.
And by when will you be pan India and in terms of the delta in terms other fuel market, what you will achieve by doing so?
No, month after month we are reviewing and then we are supporting this with their current network. We have a strong network of main dealers and sub dealers in India. So we will keep expanding that.
And the current demand versus supply, sir, are we in balance now or we currently -- because of new variants we see higher demand than supply at this point in time?
Capacity is not a problem. Capacity is not a problem. Only thing is, if -- when you have 3 variants, we have to look at -- there are a lot of common parts, but we have to look at wherever the delta is going up, but it's not a challenge.
And sir, other expenditure as a percentage, how would you -- how should we see that model it then? Because there will be investments, which is all required in the future. But as a percentage, do you expect that to be kind of getting better or getting favorable, from hereon?
See, we treat all this as investments, whether it is marketing investments -- other than the variable nature, whatever I highlighted on packing and freight because that is proportional to the turnover, whether it is marketing expenses or digital investments, okay?
I'm very sure you must be happy with 11.5% EBITDA, okay? We don't look at each and every item and try to optimize each and every item, because many of the investments which are going into marketing or digitization, the benefits of that will come in the future.
The next question is from the line of Arvind Sharma from Citibank.
Is it possible to share the impact of EVs on the margins in the quarter?
No, we looked at only consolidated between the ICE and the EV. Overall, our profitability has moved to 11.5%, which is one of the best, okay? Most importantly, please understand EV has got positive contribution, which I have highlighted okay? But there are investments on product, technology, software, CapEx, okay? And many of these are very, very clear investments for the future.
Sure. And just one more question which is more of a clarification on 2 cost items. First is on depreciation, the expenses seem to have gone down quarter-on-quarter. Any specific reason for that?
No. Probably some of the 100% depreciation item. Because we go strictly by the capitalization and the depreciation percentage is what we consider based on the economic life of the asset.
Some of the -- in Q4 of last year, we had a write-off of some of the slow-moving model tools to the extent of around INR 15 crores. Therefore, that is a one-off item, even otherwise, some of the 100% depreciation, so some slight increase, decrease is bound to happen.
All right. And this is the run rate that one should expect over the coming quarters as well?
No it depends on -- it depends upon the capitalization what we do going forward. There cannot be a static number.
Sir, one final question. This -- the fair valuation gains, which exact entity are these gains on?
This is -- we invested in our TVS supply chain. I think the share market price has gone up between last quarter and this quarter.
The next question is from the line of Amyn Pirani from JPMorgan.
Most of my questions have been answered. My question was actually on the EV exports bid that you mentioned. Now the ASEAN market is a region where most Indian 2-wheeler exporters have not had a lot of success because the Japanese OEMs dominate that market but you have a local presence in Indonesia. I think you've also started some new entity in Vietnam.
So can you give a broad sense as to maybe 3 years down the line what is the level of exports of [indiscernible] that we can expect? And in these markets, would you need to have local production of the EVs to sell them in a meaningful number? Or can you export from India?
See, as far as we are concerned, we will definitely start exporting our EV products to ASEAN markets and already some advanced testing and everything is done there, so it will start. Number two, fortunately for us, there is our own plan and we have some local sourcing.
So we don't see foresee a problem because the moment you have in Indonesia, then there is an ASEAN FDA. So that advantage will help us. So I cannot be able to give you a 3-year road map, but we will definitely leverage our EV products from Indonesia to other markets.
And just as a follow-up to that, if I can ask, would you have to make significant upgradation to your Indonesia facility to achieve that? Or is your Indonesia facility also at a level that it can manufacture EVs as well?
So we have a good plant and facilities are there. There may be some specific investments related to EV. But on the other basic chassis or other things, there may not be a big challenge. So unique to EV if there are somethings required, we will definitely look at it.
The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional. Equities.
Sir, firstly, on EV 2-wheeler market growth has slowed down in recent times despite the new affordable models in the market. I just want to understand how the customer looking at the EV products despite the better price points. What are the challenges you're seeing for the EV penetration?
See, EV, we have to always look at medium to long term. Any new technology initially, there will be a quick uptake. And thanks to the government, there are a lot of benefits also given. But in my opinion, EV will continue to slowly and steadily grow. Because EV has got some unique advantages. But equally, there are other technologies are also having advantages.
So in my opinion, EV will grow. And government is continuing to invest in supporting many of the initiatives in the EV. So I'm pretty confident that -- I know there are some challenges in the last 1 year in terms of suddenly, the same benefits significantly come down. So there is a little bit of slowness. But these are all -- any new technology beyond the point, I always highlight that we cannot be dependent on huge investments from the government.
But they have done the right thing in terms of supporting the initial period, and there is also PLI. So what is most important is, we have to show a little bit of patience because EV technology, EV product, customers will start liking it, the CCO will support. And overall, it will grow. But please remember, I always believe that all these technologies are going to be available in India. It's not that you will see -- I always look at from the customer point of view, customers are technologically agnostic.
They will look at the product, they will look at the benefits what they are getting and the usage. Depending upon that, they will use whether it's ICE or CNG or ethanol or EV, it is a combination of things they will look at it. So that is the way I look at it.
Got it, sir. Sir, secondly, you mentioned the rural doing better than urban markets. Also if you can share some thoughts on how the first time and the replacement buyers -- additional buyers are doing? And also if you can share the full year domestic volume guidance?
See, so far, first quarter, I have seen the VAHAN -- so thanks to VAHAN, now we know exactly what is happening in terms of the sales and the registration. First time, we have seen a double digit. I'm a strong promoter that given the kind of demography, given the kind of infrastructure, what government is trying to build in terms of roads and other connectivity and also the public transport, to population itself.
Given that, I think the single most vehicle for mobility is 2-wheeler. So 2-wheeler will grow. Till 2019, we have seen a CAGR of close to 10%. I'm of the view that medium to long term that kind of growth you can see. Currently, first quarter was 13%, this year could be more than 10%.
And an important positive thing I'm seeing is slowly first quarter, for example, while I said 13%, rural growth has been 17%. This is the way the VAHAN classifies as rural, but some of the classification may not be -- maybe [indiscernible]. But I'm saying from the RTO when I look at the rural, urban, it is 17%.
So even now, even if you take urban as [indiscernible] and let's say, you moderate the rural to some semi-urban and some rural, I'm of the view that first time we are seeing the rural becoming better. Two reasons. According to me, the confidence on the rural side. Rural side, the overall, you can look at rural, urban in India 50-50.
Rural side, the sentiments are positive, we had a very, very bad summer, but the rain, the monsoon seems to be normal. Of course, another 3 more months are there for monsoon, up to September, October, you will see monsoon in India and some part of South India, it will go up to even November. So I'm of the view that the self-employed category in the rural are slowly now looking at new products. When I say new products, they were extending the existing product by service, service, service.
Now they are looking at some replacements, some new products. While I may not be able to give you exact proportion, but I'm of the view that it is a good sign because India strength is rural. I'm not saying that urban is not our strength. But definitely, rural India has to fire for overall economy to do well. Early signals are seen now.
So would is it fair to say with the higher rural demand, these first-time buyers also seeing better traction from those customers?
We have to closely watch it. But according to me, you will see the better and better rural demand going up, I think it will happen.
Got it, sir. And just lastly, sir, is there any plan for doing some production for the e-bikes in the Norton in India, sir, because we have a very good supply chain in India. Is there any plan to do that, sir?
We will always evaluate depending upon the volume, demand, strong supply chain. Of course, India has got very, very strong supply chain. Thanks to our -- the relationship with BMW, all -- most of the suppliers are from India.
So I think we can leverage that. So we will evaluate based on which is the best quality. And we look at which is appropriate depending upon the market. So this is something we constantly evaluate.
The next question is from the line of Jinesh Gandhi from Ambit Capital.
Firstly, on the commodity cost, are you seeing any kinds of inflation going forward, [indiscernible] demand for last few quarters? But are you seeing inflation in any of the key commodities and it resulting in impact on our gross margin going forward?
See, we saw some impact in the Q1. I am of the view that you will see some commodities, there could be some slight increases. See, we saw losing and going up in Q1, but we saw some softening in other material and the precious metals. So I think it will be a mixed view in my opinion. It may not substantially go up, but there could be some marginal cost increases going forward.
Okay, okay. And in that context, have you taken any price hike in first quarter and second quarter so far?
What is that?
Have you taken any price hikes?
Yes, we took about 0.2% in quarter 1. And some small increases we have taken in quarter 2, which is also similar to quarter 1, about 0.2%. Can you hear me?
Sorry to interrupt, sir. The participant has left the queue and has got disconnected. The next question is from the line of Raghunandhan from Nuvama Research.
Congratulations on strong numbers. Sir firstly, Q1 EV volume was strong at 52,000, revenue could be around INR 600 crores, INR 700 crores, assuming 13% PLI rate could INR 80 crores to INR 90 crores be a fair estimate for PLI incentives? I mean you have not booked in first quarter, but would that be a fair calculation?
Once we make the judgment, like Desikan said, we will come back to you, whatever is the Q1 PLI benefit and what will be the next quarter benefits.
But only one thing we want to tell you that only two of our products are now approved.
Significant volume products are approved. So we'll come back to you when we plan to put our PLI.
Got it, sir. Sir, secondly on the exports. Exports have done well with double-digit growth YTD. With a growth expected in Latin America, Asia and flat growth in Africa, can we expect double-digit growth for full year FY '25?
See, this year, like I said, the worst is over is my estimate because we went through some tough times in Africa, which is our strong area. So that, I'm of the view that you will see some improvement going forward. And maybe a little bit challenges maybe there in Bangladesh, which is very, very small in terms of overall volume. We are happy that our Middle East is doing better, it is a big market.
LatAm, we have started doing better than the industry. So I think going forward, we will further strengthen Africa. We'll start investments in LatAm, and we will start building it. Middle East is in between, so we can take it to the next level.
Maybe Bangladesh in a couple of months, we'll -- Asia, Sri Lanka just started a little bit of exports. So -- Nepal is already doing well. So Bangladesh may take a little time, but I'm very confident that these are very strong markets for TVS.
ASEAN might take little, but please always remember that I'm of the view that sometimes you have to be patient -- you have to stay -- and if you stay in the market, keep giving the products to the customers, I'm very confident that we will also -- at some point of time, we will start succeeding in ASEAN.
Got it, sir. And sir, also you are working on improving provision in Europe. If you can share your thoughts and strategy there?
See, Europe, we have started now Italy. We are also now discussing some of the markets in Europe. I think it will -- please remember, these are developed markets and we have to be showing some patience because customers need to understand us. So far, in all these developed markets, we are present through BMW, the relationship, the platform, whatever the 300. The 310 series whatever we are selling in every developed market. Now first time, we are also putting our products into this market and TVS branding.
So I'm very sure, again, these are investments which will take place between next quarter. Definitely, these 3 quarters, you will see some changes in terms of investments and products going there and start identifying dealers and sales. So it is -- it should be treated as a big investment and going forward, this is -- and of course, we will be leveraging our EV product as well.
Just on the housekeeping side, basically, if you can share the other operating income for Q1 and also TVS Credit network for March '24.
Sure. One second. Let me give the net worth of TVS Credit Services as of March '24, it was INR 3,865 and we are at INR 4,033 crores now as far as network is concerned. What was your next question?
Other operating income for Q1 if you have it handy?
Other operating income is around INR 84 crores.
The next question is from the line of Jinesh Gandhi from Ambit Capital.
Sorry, my line got disconnected. Second question was on Star City. So we have -- used to have stopped production of Star City. So is it for an upgrade? Or the thing that pace will not be growing at a reasonable pace?
No, we did not stop Star City. I think we were changing over to certain specific reasons. So Star City is a very strong brand for TVS and we are present in the market. And there is nothing new. But the new Star City, I won't say it's the new Star City, it is the same Star City because the customers -- overall customers in the market is huge for Star City.
So we plan to do a little bit of certain improvements and changes that has been incorporated, and it is back. Customer side, there is no gap. Practically, it is there every month in most of the markets.
Got it. And on the EV side -- EV 2-wheeler side, currently, we have a reasonable spread of credit portfolio covering from mix -- city speed to high speed. What are the gaps that you'd like to cover with the upcoming product launches?
I think you wait for the launch and I can tell you what type of product it is going to be. Because we believe in looking at the customer segments and delivering products for each of the unique customer segments because that is what is very, very critical. So possibly in between Q2 and Q3, you will see some of these best launches from TVS.
Got it. And lastly, Mr. Desikan, can you share USD-INR realization for the quarter?
Exchange realization, USD 83.2.
The next question is from the line of Mukesh Saraf from Avendus Spark.
While most of my questions have been answered. Sir, my question is on your upcoming EV launches. Could you kind of share some aspects about this -- the new generation platforms. So basically trying to look at how are you looking at in-sourcing versus outsourcing of some of the new components. And would the new design or the new platform be a lot more cost effective in terms of your contribution margins, assuming everything else kind of is the same.
As we look at the customer segment and then we look at what kind of platform and the products are required. Then thanks to India, there is a very strong supply chain. So we decide what could be done inside. Sometimes we do inside as well as both make and buy. So these are all strategies depending upon the volume scale and how it is going to be played with.
And definitely, I'll tell you closer to the launch of what kind of products we are looking at in the EV space in the 2-wheeler side. I'm very sure it is going to be an exciting for all products to the market.
Sure, sir. I understand that. So what I was looking for is versus your current iQube platform, how would the new generation platform be different, in terms of, say, would it have integrated motor controller or would there be some other such aspects which would probably be reducing our cost little bit.
It will be exciting. I can promise you and it will connect with the customer segment. Closer to the launch, I will give you all the details.
The next question is from the line of Viraj from SiMPL.
Just 2, 3 questions. First is you talked about product and customer mix as one of the key drivers of gross margin expansion. Can you elaborate a little bit more on this? What elements in customer mix -- product mix and geographic mix has [indiscernible]? And how should one understand the sustainability of this margin?
Margin will be sustainable because there is a very strong focus on the product mix. We also look at the sustainable cost reduction in a big initiative. So these are the 2 levers, which are giving a significant benefit. And based on the commodity cost increase, plus/minus, we also constantly look at -- given the strong brand present, we also look at our selling price increase.
So it's a combination of the product mix, which is fairly good and geography mix. And material cost reduction, I think it is sustainable because that is, again, volume dependent. Also, I have given you that when the volume goes up, we can always look at 1 supplier to 2 suppliers. So the same drive on looking at multiple suppliers, looking at share of business, looking at the product mix, looking at the volume, scale benefits. So all this combination will come in the material cost reduction. And product mix...
Yes, I understand the part on the measures taken to reduce our raw material consumption. What I was just trying to understand is a little more granularity on the product mix and the geographic mix part. So would it be right to think that large part of the improvement would be because of product mix and the geographic mix vis-a-vis the RM cost reduction measures or it will be by equal.
Equal. Between product mix, geography mix and the material cost reduction is almost equal.
And what do you mean by product mix and geography mix. Can you elaborate more?
Product mix, we have -- starting from moped to Apache. So each product, we look at the total portfolio. And -- the pricing -- and even in the pricing, we have also variating. For example, Jupiter, we have an entry product, but we have variants like the Jupiter Grande starting from the entry-level ZX, Grande. So there are 3 variants on the higher price. So depending upon that -- and we always look at why -- there are certain customers who look at the entry-level variant.
But there are many customers who look at the proportion of ZX and connected variants and Grande, so like that. So we always constantly look at, for example, how do we sell more on the variants, which are connected, which are ZX, which are Grande, because that gives us better margin. But equally for the budget customers, we'll look at the entry-level model in -- and I'm giving you an example.
Sir, second question is on the investment. I think in last quarter, you talked about us making a onetime [indiscernible] investment in TVS Credit Services...
Sorry, you are not clearly audible, please.
Am I audible now?
Slightly better. Maybe you should speak to closer to the mic.
Making a onetime investment, [indiscernible] capital requirements in TVS Credit Services. So since that is now done in Q1, do you see any further capital requirement infusion from our side to TVS Credit Services?
No, TVS Credit Services, as of now this year, we may not invest further because of the capital adequacy norms, we are at 18.9%. There are as of now, no plans for further infusion, but the company is doing extremely well. They are growing and profitable.
And the parent also [indiscernible] in consumer durable space. Just trying to understand, from the perspective, what's the thought process in having 2 NBFCs competing? And how should one look at in terms of structure between the 2?
Now as of now, we have -- we are waiting for the regulatory approvals for that new acquisition. It's a small NBFC with INR 5,500 crores of book size. They are not competing with each other. It's a different segment in which they operate. It's a small ticket size where they have a strong market in the areas where TVS Credit Services has not all that presence, a little presence there. And therefore, they will not compete with each other.
Actually, the book price is going to significantly grow with that addition.
Sorry, can you repeat that?
With that addition, the overall book size will significantly go up.
No, I was just trying to understand why you have 2 NBFCs from a parent point of view. I think the similar acquisitions could have probably done through the TVS Credit Services as well, given the kind of balance sheet they have, we could have easily funded it. So just the thought process.
It's a decision of the holding company board to buy the company being a CIC company to house the group-related investments there, the new acquisition. They're waiting for the regulatory approvals, and we will wait for the approvals for the next stage of action on this.
Okay. And just last question. You mentioned that you also made an investment of INR 30 crores, INR 35 crores in e-bike subsidiaries, given the losses they were incurring now. I understand that demand is weak and there are challenges in terms of pricing and discounts and all.
But on the cost side, how are we looking at it? Still bulk of the production still based in those European territories? Is there an avenue where we can kind of shift the production into more centralized setup, say, in India, any thoughts you can give how you're looking at the cost part?
See, these are investments. Unfortunately, I told you, Europe is going through some difficult times or challenging times because of the economy and the other pressures. But I'm very sure that in this businesses 1 year, 1.5 years, this could go through this way, but we have always seen on a medium-term point of view, things will come back.
Ladies and gentlemen, due to time constraints, we have reached the end of our question-and-answer session. I would now like to hand the conference over to the management for closing comments.
All of you have seen -- thanks for joining us in this call. All of you have seen a very strong Q1. Company continued its growth trajectory, recorded highest-ever revenue, EBITDA activity. The quarterly operating revenue grew by 16% over last year, and we are at INR 8,376 crores.
And with our unwavering focus on consumers, quality, we are confident of continuing to grow ahead of the industry, both in domestic IV, across ICE and EV. We will continuing to leverage scale benefits, focused premiumization and sustained cost reduction, material cost reduction, and this will help us in focusing on EBITDA.
But equally, we will invest in technology, we will invest in marketing, we'll invest in building the brand globally. We continuously look at -- the last 5 years, if you look at our EBITDA margin, significantly it has gone up and it has given all the benefits.
And I am very sure some of you would have heard the 32nd AGM of the company. As the Chairman highlighted in his speech, we are gearing up for exciting times ahead as we are transitioning to high-tech, global and smart mobility company.
We have -- do have the ability to delight the new-age customers. We have fostered a passionate, motivated and aligned team, dedicated employees, partners, stakeholders working towards one goal. Again -- once again, thank you. Thank you, everyone, for joining for this meeting -- this call. Thank you.
Thank you. On behalf of B&K Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.