TVS Motor Company Ltd Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Chandramouli Muthiah - Goldman Sachs Financial, Inc. - Analyst : 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.

Question: Chandramouli Muthiah - Goldman Sachs Financial, Inc. - Analyst : I'm just saying the 11.4% other expenses ratio versus top line is not--.

Question: Chandramouli Muthiah - Goldman Sachs Financial, Inc. - Analyst : Got it. That's helpful. Second question is related to the PLI incentives. So I just want to understand, I think most of your peers in the two-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?

Question: Chandramouli Muthiah - Goldman Sachs Financial, Inc. - Analyst : 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.

Question: Chandramouli Muthiah - Goldman Sachs Financial, Inc. - Analyst : Sorry, sir, could you repeat that?

Question: Kapil Singh - Nomura Holdings, Inc. - Analyst : 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 and how much each of these are contributing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 12:00PM, TVSM.NS - Q1 2025 TVS Motor Company Ltd Earnings Call

Question: Kapil Singh - Nomura Holdings, Inc. - Analyst : 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?

Question: Kapil Singh - Nomura Holdings, Inc. - Analyst : 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 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?

Question: Kapil Singh - Nomura Holdings, Inc. - Analyst : I'll just repeat the question. Basically I'm looking for the outlook on CapEx and investment.

Question: Kapil Singh - Nomura Holdings, Inc. - Analyst : And investment?

Question: Kapil Singh - Nomura Holdings, Inc. - Analyst : Also, I was referring to the full year performance of Norton and Swiss e-mobility, if you could share some outlook because we saw a loss of INR240 crores for Swiss e-mobility and close to INR400 crores--.

Question: Gunjan Prithyani - BofA Global Research - Analyst : Just continuing with the same Norton in the earlier question, I see that you've mentioned that there will be still eight quarters of investment yet. How should I think about revenue contribution from Norton, starting to kick in? Should we expect FY '26 is when the product monetization happens or if it is FY '27. And when you look at these right quarters, is it possible to quantify how much more investments in Norton?

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay. And sir, how much has been invested so far in Norton, can you share that number? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 12:00PM, TVSM.NS - Q1 2025 TVS Motor Company Ltd Earnings Call

Question: Gunjan Prithyani - BofA Global Research - Analyst : 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 six products relevant for India as well?

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay. And sir, second question is on the electric pipeline. You did mention in the near term, you will have two launches, one electric, one ICE. The electric launch is on the two-wheeler side or on the three-wheeler side? Because three-wheeler was also something that you had spoken about is due for this fiscal year. So any color on that?

Question: Gunjan Prithyani - BofA Global Research - Analyst : INR 1,200 crores?

Question: Gunjan Prithyani - BofA Global Research - Analyst : 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 12:00PM, TVSM.NS - Q1 2025 TVS Motor Company Ltd Earnings Call

Question: Gunjan Prithyani - BofA Global Research - Analyst : 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.

Question: Pramod Kumar - UBS Group AG - Analyst : 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 end of which year, sir, fiscal year '25 or '26?

Question: Pramod Kumar - UBS Group AG - Analyst : Fiscal year '25. Okay. That's good to hear. And sir--.

Question: Pramod Kumar - UBS Group AG - Analyst : So that will be FY '26, right?

Question: Pramod Kumar - UBS Group AG - Analyst : Okay. And the first question is 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 is it predominantly for domestic?

Question: Pramod Kumar - UBS Group AG - Analyst : But this includes international markets as well?

Question: Pramod Kumar - UBS Group AG - Analyst : Okay. Okay. And sir, 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 --.

Question: Pramod Kumar - UBS Group AG - Analyst : Okay, okay. And a lot of this hiring and even software EV development parts are largely expense because your average capitalization rate is only 30% to 33% of R&D. But how 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 12:00PM, TVSM.NS - Q1 2025 TVS Motor Company Ltd Earnings Call

Question: Pramod Kumar - UBS Group AG - Analyst : Okay. Fair enough, sir. And sir, 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.

Question: Pramod Kumar - UBS Group AG - Analyst : 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?

Question: Pramod Kumar - UBS Group AG - Analyst : 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 12:00PM, TVSM.NS - Q1 2025 TVS Motor Company Ltd Earnings Call

Question: Pramod Kumar - UBS Group AG - Analyst : 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?

Question: Pramod Kumar - UBS Group AG - Analyst : And sir, other expenditure as a percentage, 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?

Question: Arvind Sharma - Citigroup, Inc. - Analyst : Is it possible to share the impact of EVs on the margins in the quarter?

Question: Arvind Sharma - Citigroup, Inc. - Analyst : Sure. And just one more question which is more of a clarification on two cost items. First is on depreciation, the expenses seem to have gone down

Question: Arvind Sharma - Citigroup, Inc. - Analyst : All right. And this is the run rate that one should expect over the coming quarters as well?

Question: Arvind Sharma - Citigroup, Inc. - Analyst : Sir, one final question. The fair valuation gains, which exact entity are these gains on?

Question: Amyn Pirani - JPMorgan Chase & Co. - Analyst : 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 two-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 three years down the line what is the level of exports of 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?

Question: Amyn Pirani - JPMorgan Chase & Co. - Analyst : 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?

Question: Mumuksh Mandlesha - Anand Rathi Institutional. Equities - Analyst : Sir, firstly, on EV two-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?

Question: Mumuksh Mandlesha - Anand Rathi Institutional. Equities - Analyst : 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 additional buyers are doing? And also if you can share the full year domestic volume guidance?

Question: Mumuksh Mandlesha - Anand Rathi Institutional. Equities - Analyst : So would is it fair to say with the higher rural demand, these first-time buyers also seeing better traction from those customers?

Question: Mumuksh Mandlesha - Anand Rathi Institutional. Equities - Analyst : 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?

Question: Jinesh Gandhi - Ambit Capital Private Limited - Analyst : 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?

Question: Jinesh Gandhi - Ambit Capital Private Limited - Analyst : Okay, okay. And in that context, have you taken any price hike in first quarter and second quarter so far?

Question: Jinesh Gandhi - Ambit Capital Private Limited - Analyst : Have you taken any price hikes?

Question: Raghunandhan N. L. - Nuvama Wealth Finance Limited - Analyst : Congratulations on strong numbers. Sir firstly, Q1 EV volume was strong at 52,000, revenue could be around INR600 crores, INR700 crores, assuming 13% PLI rate could INR80 crores to INR90 crores be a fair estimate for PLI incentives? I mean you have not booked in first quarter, but would that be a fair calculation?

Question: Raghunandhan N. L. - Nuvama Wealth Finance Limited - Analyst : 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?

Question: Raghunandhan N. L. - Nuvama Wealth Finance Limited - Analyst : Got it, sir. And sir, also you are working on improving provision in Europe. If you can share your thoughts and strategy there?

Question: Raghunandhan N. L. - Nuvama Wealth Finance Limited - Analyst : Just on the housekeeping side, basically, if you can share the other operating income for Q1 and also TVS Credit network for March '24.

Question: Raghunandhan N. L. - Nuvama Wealth Finance Limited - Analyst : Other operating income for Q1 if you have it handy?

Question: Jinesh Gandhi - Ambit Capital Private Limited - Analyst : Sorry, my line got disconnected. Second question was on Star City. So we 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?

Question: Jinesh Gandhi - Ambit Capital Private Limited - Analyst : Got it. And on the EV two-wheeler side, currently, we have a reasonable spread of credit portfolio covering from city speed to high speed. What are the gaps that you'd like to cover with the upcoming product launches?

Question: Jinesh Gandhi - Ambit Capital Private Limited - Analyst : Got it. And lastly, Mr. Desikan, can you share USD-INR realization for the quarter?

Question: Mukesh Saraf - Avendus Spark - Analyst : 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 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.

Question: Mukesh Saraf - Avendus Spark - Analyst : 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.

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : Just two, three 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 product mix and geographic mix has? And how should one understand the sustainability of this margin?

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : 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

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : And what do you mean by product mix and geography mix. Can you elaborate more?

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : Sir, second question is on the investment. I think in last quarter, you talked about us making a onetime investment in TVS Credit Services--.

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : Am I audible now?

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : Making a onetime investment, 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?

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : And the parent also, in consumer durable space. Just trying to understand, from the perspective, what's the thought process in having two NBFCs competing? And how should one look at in terms of structure between the two?

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : Sorry, can you repeat that?

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : No, I was just trying to understand why you have two 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.

Question: Viraj Kacharia - Simpl Technologies Private Limited - Analyst : Okay. And just last question. You mentioned that you also made an investment of INR30 crores, INR35 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?