Bajaj Auto Ltd. (BAJAJ-AUTO) Q4 FY21 Earnings Call Transcript

Bajaj Auto Ltd. (NSE : BAJAJ-AUTO) Q4 FY21 earnings call dated Apr. 29, 2021.

Corporate Participants:

Rakesh Sharma — Executive Director

Soumen Ray — Chief Financial Officer

Analysts:

Hitesh Goel — Kotak Securities — Analyst

Raghunandan N.L. — Emkay Global — Analyst

Binay Singh — Morgan Stanley — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Kapil Singh — Nomura — Analyst

Chirag Shah — Edelweiss — Analyst

Amyn Pirani — CLSA, India — Analyst

Kumar Rakesh — BNP Paribas — Analyst

Sonal Gupta — UBS — Analyst

Aditya Jhawar — Investec Capital — Analyst

Aditya — HDFC Securities — Analyst

Pramod Kumar — Goldman Sachs — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen, and welcome to Bajaj Auto’s Conference Call to discuss the Fourth Quarter and Fiscal Year 2021 Financial Results. We have with us Mr. Rakesh Sharma, Executive Director; Mr. Soumen Ray, Chief Financial Officer; Mr. Sanjeev Garg, Vice President, Finance; and Mr. Anand Newar, Divisional Manager, Investor Relations. My name is Nerav, and I will be your coordinator. [Operator Instructions]

We will start with the opening remarks from the management. Thank you, and over to you, sir.

Rakesh Sharma — Executive Director

Good afternoon, ladies and gentlemen, this is Rakesh Sharma here. Thank you very much for joining the call and as we have moved from quarter four into the new financial year, the pandemic too has undergone a dramatic change. Many of our near and dear ones have been afflicted and I wish them a safe recovery and I hope everyone keeps safe.

We released our fourth quarter and fiscal ’21 financial results today, I hope you have had the opportunity to have a look. But I’m pleased to inform you that our Board of Directors have recommended a dividend of INR140 per share, which translates into a dividend yield of 3.6% and a payout ratio of 90%, which if you will recall is in line with the dividend distribution policy that we had announced just last month.

I will divide my opening comments into two parts. First, some highlights of our quarter four performance, beyond what has been released and since we have had regular interactions, I’m refraining from going into a commentary of the full year, referring to remain with the recent most events. And the second thing I’ll close with is, near-term outlook.

Before I call out the highlights, it is useful to revisit the two-pronged approach the company has been executing since the beginning of FY ’21, which was number one, to capture the recovery in demand particularly in overseas markets where it was expected to be quicker through strong supply chain management and very focused engagement with the market. Second, to continue to drive premiumization within the segments and across the segments to ensure that in a uncertain demand environment, we are protecting — more than protecting our financial performance.

Coming to the first part which is the highlights of quarter four business. Let me make two quick comments on our domestic motorcycle business first. The most noteworthy aspect of the — this performance is our share of the 125 CC plus segment. If I divide the demand perimeter of the country into two parts, the top half being 125 CC plus portfolio, this — contribution of this start in our total business continued to rise, from 46% in FY ’20 to 60% in Q4. So, now 60% of our motorcycle business volume come from 125 CC plus bikes. Of course, this has been driven by the outstanding success of Pulsar 125 where in the space of 12 months our market share has improved, sharp from 7% in FY ’20 to 19% in quarter four. Indeed we think we have strongly contributed to shifting the industry architecture itself as the 125 CC segment has expanded by 4 percentage points over the year for the whole industry. In the top half, another noteworthy progression, though small in terms of volume, but big implications from a future development point of view is the performance of the Dominar 250. It has made a very confident start and we are surely and steadily trying to build the quarter liter class segment.

We — in the bottom half of the demand pyramid, we continue to play out our strategy of introducing upgraded products and making better products more accessible to the customers there and three upgraded variant of the Platina brands were launched with the electric start and with 110 CC. So, as you recall, we had said we want to convert, people are using kick-start to electric start, people are using drum breaks to disk breaks and people are using 100 CC bikes to 110 CC bikes. This segment requires slow, shot evolutionary steps rather than big leaps and that is what we have been adapting. Of course, overall the market share remained steady, because of our seeding ground at the very entry-level, but this was by design as we want to drive up our market share by upgrading the customer within this segment and across the segment.

Coming to the domestic commercial vehicles business, the three wheeler business started to make a promising return toward normalcy every month climbing by 1,000 units sale and we could see that it was the traffic has gone back to almost 85% level by middle of March, but of course April again, we have seen a halt on that. So, it took a little bit longer, but it was heartening to see that the thrree-wheeler business had started to make a return. But, even though the volumes are much lower in the quarter and across the year, there have been some very significant leadership changes. There are three segments in this market, the largest being the small passenger, which is a small autorickshaw [Phonetic], which is seen. The second one being the large passenger which is generally used in smaller towns and suburban areas. And the third is the cargo segment. We have always enjoyed a very high level of market share in the small passenger segment, 85% level and that is more or less intact.

But in the last three-wheeler segment, also now we have established a sizable leadership share of 48%. We believe this is 12 percentage points ahead of the next competitor in quarter four. So we are now very, very clear leader in the small passenger and the large passenger segment. In the cargo segment we gained 6 percentage points of market share and we are a very strong number two now, with a 34% market share in striking distance of leadership. Why I’m making these points is that, when the business returned, this improvement in competitive position is surely going to give us a lot of benefit.

Coming to the export business. Export business continues to perform robustly with a 200,000 volume performance every month. Quarter four was our finest ever quarter four in our history, and it actually came on the back of a very high quarter three as you know. Within the quarter four in January, we had the highest ever sale month in January. As a result, we have been able to reach the 2 million vehicles export milestone, despite COVID. Our market share in top markets, in top in motorcycles and moved up quite significantly in three-wheelers. In exports also, our share of premium motorcycles, which is the Pulsar and Dominar brand has moved up from 13% in FY ’20 to over 16% in FY ’21 further strengthening the financial performance. We continue to get over 80% of our revenues from markets where we are number one or number two, in fact, 77% of our revenues now come from markets that we are a clear number one. This is an important metric, which we have been monitoring continuously for the last five years or so as it indicates pricing path and our ability to manage competitive threat and actually shape the market itself. Our exports to KTM have grown at a significant pace of 60% plus, powered by surge in demand in the developed markets of North America, Europe and Australia.

Some other highlights. We faced strong headwinds of cost increases of up to 4% of which we could recover only about 1.5%, keeping demand sensitivities in mind. Though I must add, that we believe our price increases both in India and particularly overseas are mostly ahead of what competition has done. Supply chain demonstrated resilience in responding to various disruptions. Those shipping issues which is a frequency of shipping availability still causes an almost 10% to 15% spillover of the exports order book. Finance penetration, particularly from Bajaj Auto Finance has improved in motorcycles and is a very supportive growth driver as well as an enabler in the three-wheeler space for us and going forward we will be leveraging this aspect even more.

Now coming to the second part, which is our immediate term outlook. As we all know the surge in the pandemic has again drawn upon us. We saw some uncertainty, the demand situation in domestic has become ambiguous and it will drop symptomatically with the progression of the pandemic. While certainly we are not facing the nil scenario of last time, but we must wait for some more time to understand the full impact of the current surge on the immediate retail environment of motorcycle LCV in India. Having said this, the supply disruptions — supply chain dirsuptions, the vendor side with our plant are much better manageable this year than the previous year. A better local level dialog with the administration, learning from the past and better preparedness of the vendors and our own teams are helping us deal with this much more confidently and we don’t see this kind of — I mean, interruptions on the supply chain impairing our ability to service the market.

Additionally going by the experience of the last time, we’ve been sort of optimistic that the demand should return swiftly as and when the pandemic is brought under control and the vaccination program advances confidently. We monitor the situation very closely and respond to it. We think that the sign might come around July, but again a lot of this is based on assumptions on how the pandemic moves. But irrespective, we will continue now again with our approach of driving the premium end of our portfolio, which is the 125 CC plus and even within the bottom half of the pyramid, going continuously expanding to upgraded products.

We have refreshed and launched a new color range of Pulsar in April, a new Pulsar 125 has been put out into the market as we speak, upgraded versions of the CT 110 and Platina — a top end Platina are already being dispatched to the market to the dealers in April. These I believe should hold us in good stead as demand recovers. We had planned these to actually be in position for the mini marriage season of the north, but that seems to be a little bit impact now, but as and when demand recovers, we feel that it really make a very strong proposition to the customers.

Internationally, we will continue our momentum and expect to hold the current performance level steady, though we have encountered some new COVID related demand issues in Bangladesh, but hopefully we will be over them and presuming we don’t have any more black swan events or if there is no major services of the pandemic, we think FY ’22 will be our finest ever year for exports.

On the cost front, there is an increase in raw materials, as you know, commodity materials in the coming quarter, we see about 3% and should be able to recover at least 2% through price increases and has already been done, we will continue to work on cost optimization measures and calibrate further price increases based on response of demand growth in the next few months and quarters. In this regard I hope the Government of India will make some announcements around grosses and the outstanding MEIS split. This will significantly help Bajaj Auto because of the large share of our of exports in our business.

Finally, as you may have gathered, we had reopened our booking for the electric scooter Chetak, and we have received that is rounding reception yet again. So we had to close bookings yet again within 48 hours, because we got a tremendous amount of interest. Some of our international partners, vendor partners have told us that they should be able to give us some very clear visibility of availability of components by May and June, based on which we hope that we will be able to maximize the potential opportunity for Chetak and widen our footprint to many, many more cities in this financial year.

With these comments, we can now open the floor to the questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Hitesh Goel from Kotak Securities. Please go ahead.

Hitesh Goel — Kotak Securities — Analyst

Yes. Thank you for taking my question. Sir, my question is on this — the commodity cost pressures that you are seeing right? I think you talked about a 1.5% price increase that you have taken in the domestic and export markets whereas the commodity cost increase has been around 4% right, if I conclude the third quarter and fourth quarter, and it’s going to increase in first quarter. So can you comment on that? Plus also the — if you can comment on the Q-on-Q relation increase of 7%, how much is because of mix, how much price increase and if you can give the export revenues for the quarter?

Soumen Ray — Chief Financial Officer

Okay. Soumen here. Thanks a lot. So as we have mentioned and as Rakesh mentioned, we have seen sequential cost increase of between 6% and 7% between Q4 and Q1. I’m trying to make it simpler. Q3 followed by Q3 or Q4 followed by Q3. The price increase that we have taken in Q4 blended was in the range of about 2% and we have taken another about 1.5%, 2% in Q1. So that is the kind of price increase that we have taken blended between domestic exports and the like. So I hope that answers your first part of the question, which is your price increase and cost increase. As far as export revenue is concerned, this quarter we did shade below INR4,000 crores, so it was INR3,991 crores.

Hitesh Goel — Kotak Securities — Analyst

Great, sir. And if you can — if I can put in one more question. Can you get us some sense on the export volume outlook for next year? I mean, because you have pending orders as well. So how should we look at the export volume growth FY ’22 versus ’21? Any guidance would be very helpful.

Soumen Ray — Chief Financial Officer

Actually I think, if you would have heard Rakesh mention, Rakesh while he was speaking, he mentioned that we expect this year to be one of the best years if not the best year of exports. So he had already mentioned it in his commentary.

Hitesh Goel — Kotak Securities — Analyst

Yes, I mean, best years in the sense it will be any guidance on the volume growth, I mean in terms of absolute increase or range if you can give, so that we can understand that.

Soumen Ray — Chief Financial Officer

You really believed that sitting in April, I can actually give you a range of volume increase that will happen in the next year? We are saying, that it will most likely beat the highest ever that we have done, but beyond that, I don’t think in the first month of the fiscal, I can really predict the numbers.

Hitesh Goel — Kotak Securities — Analyst

Okay, sir. Great. All the best. Sir. Thank you.

Operator

Thank you. The next question is from the line of Raghunandan N.L. from Emkay Global. Please go ahead.

Raghunandan N.L. — Emkay Global — Analyst

Thank you, sir for the opportunity. Congratulations on good numbers. Sir, firstly within models there has been premiumization, the share of top hand vehicles has been increasing. What is your assessment on how the customers are looking at it? What is making the customers shift towards higher variants?

Rakesh Sharma — Executive Director

Okay. What has actually — if I could separate it out, economic context and first, you are understanding of that. Now what has happened in putting the pieces together even from other categories is this last year has seen considerable weakening of the bottom parts of the demand pyramid of consumer sentiment there or purchasing power etc. There is a certain dichotomy which is developing in the industry, not just for our category, for many categories that we are seeing that the top half of the demand of the consumers, they actually come out largely unscathed from the pandemic. The job losses have not occurred. There has been certain savings because the opportunity to spend was not there. And with a little bit of feeling of well-being based on stock market and savings going up has caused actually people to feel much better and that’s also resulting in these partly long waiting period for car etc.

And we are seeing that impact in some of our bikes which are more than INR2 lakh particularly the KTM varieties where you’re fighting to supply demand, but this is — so our strategy actually fairly plays quite nicely, because we started to focus on the 125 CC plus segment and particularly the 125 CC segment, because we did feel that after ABS the 150 CC plus will become a bit more expensive. So there may be a little bit of a drop-down and we wanted to upgrade the better sort of — better off consumer in the 100, 110 CC. Now this strategic approach got — I mean, coincided very well, if I can say that, little bit unfortunate that one part of the economy has taken a big knock, but we were there with the product.

So if you see the Pulsar 125 is the most expensive 125 CC. But still it’s the outstandingly well. I mean its market share has gone from 7% to 19% and it is, if you see the later months and newer and newer variants are being introduced, we expect this to definitely go into the 20s. So the customers in that segment was not as badly impaired as the one just below that segment and has given a big vote of confidence. So that is the most part of significant explanation. Even on the bottom end of the pyramid, where it has been a little bit of a struggle, because the bottom has really fallen out — fallen off. The cheapest products whether it is us or competition, are having a severe beating, are getting a severe beating in the last six months or so and particularly now. And in that our whole approach has been to give better products at similar or slightly higher price.

Now we could have taken the approach of giving the same product at a lower price and then track, but we’ve not got tempted by that direction. So, we have introduced some better products, whether it is more comfortable, more safe, even for the 100 CC bikes and trying to attempt to upgrade them. So they may not want to go all the way to 125 CC, but at least to 110 CC, at least to a more comfortable bike, at least to a more safe bike, and start their journey. This is a more difficult place, but, — and we are encouraged by the results. But we have to wait a little bit more to see how it actually plays out. So I would say that would be the sort of source for the progression in our portfolio.

Raghunandan N.L. — Emkay Global — Analyst

Thanks, sir, for the detailed answer. And my second question was on RoDTEP. What kind of benefits are expected? How does it compare with MEIS scheme?

Rakesh Sharma — Executive Director

Well, this one is really, you have to ask the Finance Minister because we keep hearing news and anything, I’d say would be speculation. What we are hearing directly and also through SIAM is that it is very much there and the announcement is imminent, but whether it will be completely offsetting MEIS is, I personally don’t think it would be. But to what extent it would offset is something which we have to wait for the announcement. But we have been hearing that it is imminent for a while now. But nobody in the ministries of anywhere SIAM tells us — has said that this is not happening. The Pillai Committee has submitted its recommendation, they are with the cabinet, as soon as it gets cleared, I think we’ll hear about it.

Raghunandan N.L. — Emkay Global — Analyst

Thank you. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.

Binay Singh — Morgan Stanley — Analyst

Hi team. Thanks for the opportunity. My first question is that when we look at other expenses as a percentage of sales for the yard and factory even saw it for TVS, the number has come off in the last three, four quarters. So because of COVID in FY ’21 were there some expenses for you which were lower than what normalized would have been either on the sales promotion side or on the advertising side. And linked to that, do you expect them to sort of creep back in as the environment normalizes or do you think this is the new sort of normal for other expenses as a percentage of sales? Thanks.

Soumen Ray — Chief Financial Officer

So, yes, but. So yes, other expenses has kind of come down as percentage of sales for the full year and which is essentially cost-control measures. But at the same time, I must admit that Bajaj Auto finally is a very frugal organization. So there weren’t flat to be cut. So there are projects, which have been deferred and all that. So in all probability, they will come back to the previous levels.

Binay Singh — Morgan Stanley — Analyst

Sir anything on the sales promotion spending in particular or the advertising spending because, is that like when I look at the March quarter, is that now back to like normal levels, because I understand in December quarter that spending was quite lean for companies?

Soumen Ray — Chief Financial Officer

So there are two parts of that spend. One part, which you don’t get to see, because it is netted off against top line, which is if you are giving a scheme for the customer. So it’s a little lopsided and frankly, you will not be able to make it out from the results, because as per accounting standards if you are giving a scheme which is an offer to the customer, it has to be netted off from income. So that is why the yoyo-ing happened. Coming to your question whether Q4 is the right base to take, I would say no, because Q3 would always be the highest, because not only do we have festive in India, but also some of our global markets we have festives because of Christmas and all that. So Q4 is not the base will be there for the next four quarters.

Binay Singh — Morgan Stanley — Analyst

So in summary, you mean that it will go up from Q4 levels. Because the coupon is higher than Q3?

Soumen Ray — Chief Financial Officer

On average it will go up, because as I mentioned, my highest is Q3. So yes, it will go up from the Q4 levels.

Binay Singh — Morgan Stanley — Analyst

And just linked to that do you expect the industry also to be a little more aggressive on these spending, as you know, after wave one also we saw two wheeler was one category, which did not really recover that sharply like cars also. So now with wave two do you foresee higher spending by the industry on these line items in the coming quarters?

Soumen Ray — Chief Financial Officer

You are — this is in the realm of absolute speculation about what the industry will do. But I will try to answer this question since it has come up by logic. Various companies have got various kinds of cost increase numbers. But everybody is saying that they are not being able to recover everything. So in a scenario where the companies are not being able to recover their material cost increases, it will be very unlikely for anybody to go persist on their promotion activity. But what will actually happen frankly sitting here, I’m as wise as you are.

Binay Singh — Morgan Stanley — Analyst

This is very helpful. Appreciate the response. Thanks, Soumen.

Soumen Ray — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Service. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Hi. This question pertains to margin trajectory. So we have seen the benefit of our two-pronged strategies on product side. So I mean excluding this impact of RM cost, how do you see margin trajectory playing out over medium term over next two to three years time?

Soumen Ray — Chief Financial Officer

See the margin trajectory can only go up. I will give you the reasons why. I think commercial vehicles will certainly recover from where it was in Q4. So that will be an upside to margin, because I make more margin in commercial vehicle than the blended amount. The other upside should be depreciating rupee, we have already seen rupee depreciate a bit in Q1. The third upside as was discussed in the previous question, the RoDTEP will finally come, now whether it will recover all 2% of MEIS or it will do less, but there is something that will certainly come. So these are the reasons why we believe that margins will go up. The only headwind of margins, motorcycle as a part of the mix was lower this year. So if it was to recover back to growth of double-digits, then to that extent mix can worsen. But if I keep commodity cost aside, because as you rightly mentioned, Jinesh that this commodity cost is a story of one or two quarters, it is not as that every quarter commodity cost is going to increase by 4%, 5% then we might has well start it at the company. That will play to out over the medium term, but directionally I should see benefits coming, subject to competitive pressures.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Right, right. And what were your spared revenues in USD INR for the quarter?

Soumen Ray — Chief Financial Officer

Yes. So spares revenue for this quarter was about INR1,089 crores.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

And USD-INR?

Soumen Ray — Chief Financial Officer

Pardon.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Currency realization, USD-INR?

Soumen Ray — Chief Financial Officer

Realization in USD-INR. Let me have a look. So this period in Q4 we earned about 72.9%.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay.

Soumen Ray — Chief Financial Officer

Q4 blended average is 72.9%.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Thanks. Sure. I’ll come back in the queue.

Soumen Ray — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.

Kapil Singh — Nomura — Analyst

Yes, hi, sir. Just one follow-up on the sales, I see that run rate for last few quarters has been pretty strong. So could you give some color that are we doing something different over there that’s helping us grow much faster?

Soumen Ray — Chief Financial Officer

See the pandemic does not impact the amount of sales that are required, and anyway, as you know, of the total possible sales of original spares, the actual sales of original spares is nowhere close to even 70%, 80%. So there is a lot of headroom, but there was a backlog, where we did not supply, but in the industry, there was a depletion of stocks at the dealer distributor level. So it’s just the catch-up of that. As a matter of fact, if you look at the full year number, I have marginally declined, last year I did about INR3,100 crores, just a little more than INR3,100 crores, this time I’m a little less than INR3,100 crores.

Kapil Singh — Nomura — Analyst

So directionally, should it be less than the INR1,000 crore kind of number or you would have a sense of what kind of growth could be there?

Soumen Ray — Chief Financial Officer

So I think whatever we have done this year you can take that as the normalized rate and then divide it by four and consider.

Kapil Singh — Nomura — Analyst

Okay. Okay. That’s helpful.

Soumen Ray — Chief Financial Officer

For the full year.

Kapil Singh — Nomura — Analyst

Yes. And certainly sir, could you also talk about KTM’s performance because it is going to be strong, more profit point of [Indecipherable]. So is it sustainable and what’s happening there?

Soumen Ray — Chief Financial Officer

KTM performance.

Rakesh Sharma — Executive Director

KTM — exports to KTM market has been doing very well, as I’ve mentioned, it’s now running at an 8,000 units per month level, up from some 3,700 of last year and we are not being able to service the full demand because of the semiconductor shortage and the large usage of electronics in the bikes. I would say we are falling short by 10%, 15% at least by 15%. We expect this level of performance to continue.

Kapil Singh — Nomura — Analyst

Okay. So I was questioning regarding the profitability as well. So that should also continue around the same volumes?

Soumen Ray — Chief Financial Officer

No, you asked about KTM or profitability, which one?

Kapil Singh — Nomura — Analyst

The profit contributions from associate which is about INR200 crores.

Soumen Ray — Chief Financial Officer

Sorry, yes, mostly, I would like to believe that this is a steady state profit that we are doing. If you look at the full year numbers, they have dropped in Q1, but they have recovered very well. So, Q1 we had actually declared a loss, but for the full year, we are almost back to what we did in FY ’20 where there was calendar year. So yes, I would like to believe that this is reasonably steady state.

Kapil Singh — Nomura — Analyst

Okay. And sir, lastly you also comment on…

Soumen Ray — Chief Financial Officer

I’m sorry, there a lot of people on the queue, we can’t…

Kapil Singh — Nomura — Analyst

Sure, sure. I’ll come back in the queue.

Soumen Ray — Chief Financial Officer

Okay. Thank you.

Operator

[Operator Instructions] The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.

Chirag Shah — Edelweiss — Analyst

Hello. Am I audible?

Operator

Yes, sir.

Soumen Ray — Chief Financial Officer

Yes Chirag.

Chirag Shah — Edelweiss — Analyst

My first question is for Rakesh. Sir, my question pertains to domestic motorcycle demand. If you look at last four year, the domestic industry in the sense, has been in a declining mode. We did around INR12 million, INR12.6 million in ’18, which went to INR13.5 million in ’19 and after that we have been around INR10.5 million, INR11 million range. So how should we look at this demand? Is it — can you change it back to F ’19 peak sooner or that was a slight abnormality and the normalized growth over last so many years that we are seeing should be looked at the current base. How should one look at — because premiumization seems to be picking up, but the volumes are not in the picking up, the general expectation has been?

Rakesh Sharma — Executive Director

Well, I must say the audio was not only clear but I — as I understood, you’re asking about how we should look at how demand for motorcycles unfolds in India when in the last four years, it has been on continuously declining track. I agree with you that the last four years have not been good for the industry, because it has got hit by many things, if you recall. First, there was the BS4 transition and then there was the cost of additional cost of insurance and then the BS6 transition, and then of course COVID has caused disruption which means that we have — we are really back to four or five years ago as an industry. Basic — fundamentally the near-term outlook is not going to suddenly swing things dramatically. We would be happy if we are back at even FY ’20 levels. But if you dive a bit deeper, I think the fundamental drivers of demand are still very much present. So all these hurdles and roadblock — the industry — actually the industry needs a little bit of a smooth run, a little bit of breathing space, a little bit of stability without either regulatory, particularly like ABS came and hit, CBS came and hit, many things have been happening in the industry. So because of the fundamental demand drivers, whether it is the useful population, whether it’s the penetration of roads or Aadhar card led penetration of retail financing, now, I would say, certainly there is a need for independent mobility, all these things, when you put together, we definitely think over a period of three years demand should rise, but it will be a snake in the tunnel thing. It’s not going to be a linear movement as we have seen the last two, three years have been very, very disruptive and hopefully some kind of environmental stability comes and that will allow the industry to breath easier and achieve its potential, which I think is not yet fulfilled.

Chirag Shah — Edelweiss — Analyst

Thank you very much. Sir, just a follow-up on this. On the new product or major upgrade, assuming this COVID scenario normalizes sooner, can you share some light, how should we look at new launches or major upgrades — a major platform change over the next 12 to 18 months and are there any white spaces that you are targeting in domestic market?

Rakesh Sharma — Executive Director

So now we are thinking that this is not a one-off thing, the pandemic situation is in maybe in a more muted form, but it’s going to remain this way of life is going to continue, and we are accelerating our product programs so that it recovers some of the loss ground of last year and we are going to continue with our strategy of putting out product irrespective. Yes, there was a thought in our mind that April and May is not proceeding as well, should we put out some new products. But then it’s very difficult to time this now, because there’s so much of uncertainty. So we have — we are going to be cheering out. We’ve got a full pipeline. I told — described to you that there are three introductions which we have made. Couple of them are absolutely new products like the CT 110X and Pulsar NS125 which expands our 125 footprint. You will see it by in another, let’s say six months and within six months, we will be putting out newer platforms and newer variants, not just variants but new platform. And this is going to be a very significant trust for FY ’22.

Chirag Shah — Edelweiss — Analyst

And sir, 125 CC platform needs more expansion because Pulsar can do limited profiling. Do you need a different type of profiling in 125 CC to further take your market share up from the 19% [Indecipherable]? Is there a thought internally on those lines?

Rakesh Sharma — Executive Director

Yes, of course. Because we are very, very encouraged by the response of the customer in expanding this segment. And you’re absolutely right that one brand cannot achieve everything and particularly because as you know this brand is being drawn from the sport segment. So we don’t want to obviously stretch it too much to cover all types of sub-segment within the 125 CC segment. So yes we are very encouraged that seems to be a very big potential for driving this growth in this segment and we are going to be looking at other pockets within the 125 CC segment. We are also looking at building the 250 CC segment, because we feel that it’s the quarter liter class is something which we the 150 CC customer is ready to move to. It will take time, but slowly and steadily we are attacking that.

Operator

Thank you. Chirag sorry to interrupt you, I request you to come back in the question queue for a follow-up question. [Operator Instructions] The next question is from the line of Amyn Pirani from CLSA, India. Please go ahead.

Amyn Pirani — CLSA, India — Analyst

Yes, hi, good afternoon. Thank you for the opportunity. My question was actually on the Chetak. So it was — just wanted to understand, you mentioned that the new orders were so high that you had to stop taking the orders. Just wanted to get a sense in the cities that you are present today which are as I understand too, what is the kind of demand that you see and what is the kind of capacity that you have in case over the next 12 to 18 months as we move into newer cities and as demand goes up, what is the kind of capacity that you have from your end to supply to this demand if the EV scooter market really takes it?

Rakesh Sharma — Executive Director

We’re taking the capacity point — our capacity is really determined by the ability of the vendors, particularly the international vendors to supply some component. A lot of these are on the electronic side. So we are not capacity limited in our immediate system, but it is from outside the system, particularly outside the country that we are facing issues and more than issues its the uncertainty. We can get more we can get — we are not getting the guarantees of continued supply, which is what is the reason why we are not opening the bookings full-throttle. On the demand side in 48 hours we had to close it, because we can’t supply enough. So we feel that, and this is at the highest level of price. You see we hardly faced any cancellations in the last 12 months. So I guess precise answer will be really known when we go full-throttle with supply and exhaust what is in the pipeline and make all efforts to seek more and more bookings, which will start to happen from July, August, September, I hope that’s the time when we will see what the limits are. Right now, we are not facing any issue. We are working to pickup our dispatches to four figure numbers very quickly in May, June.

Amyn Pirani — CLSA, India — Analyst

Monthly four figure digit kind of number?

Rakesh Sharma — Executive Director

We want to touch 1,000 units deliveries immediately.

Amyn Pirani — CLSA, India — Analyst

Okay. Okay, That’s great. Secondly, this question on the domestic motorcycle pricing in general. So even before the commodity price has increased, we had seen a significant price inflation because of the BS4 to BS6 and at least initially last year, it seems that the market was able to absorb it on an incremental basis that almost all manufactured passed on the pricing in a very judicious manner. I mean, leaving the lockdown aside, is there any sense that you’re getting from the ground in terms of how much of a price hike the customers are able to pay and is there a limit in your mind as to where does it become difficult going forward?

Rakesh Sharma — Executive Director

Well, I must say that we — one of the features of the — despite COVID, the features of the FY ’21 outcome is that the BS6 related price increases has been digested. Before COVID and before we entered FY ’21, there was a compelling regarding the — but and as I said in my previous comments we have not seen a wholesale down-trading. In fact I’m not — just for Bajaj but for the industry also you can see these numbers in the SIAM reported sector. The cheapest variants are the ones which are facing the biggest declines and that is because that section of the customer has got very badly hit, whereas the customer above that in the top half of the demand pyramid seems to be responding much better and is taking the price increases. Otherwise, there is no way the most expensive 125 CC which is there, why should that be the fastest-growing? Of course the proposition is strong. But, it’s coming in a price tag and the customer has understood it. I feel that the customer is going to seek substantive value. They are not going to pay money for some paint and stickers job, but they want a substantive value, if the value is there, they just pay the price for it is the take out for us last year.

Operator

Thank you. Sorry to interrupt you Mr. Amyn. I’ll request you to come back in the question queue. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Kumar Rakesh — BNP Paribas — Analyst

Hi, thank you for taking my question. My question was more around three wheelers and especially in the electric three wheelers. So where are we right now on building our performance product for that? And what is going to be our strategy in ruling out the three wheelers. Will it be the way we have done it for two wheelers restricted to few cities? Or you go across the countries and start cannibalizing our own product. So what is going to be our commercial strategy when we eventually start launching our own product?

Rakesh Sharma — Executive Director

Well as I said last time, also the electric three wheeler is under development. The prototypes are being tested and we will put these out in the market. We feel that the business case, like-for-like is not very supportive of movement from IC to electric. If there is regulatory support or if there is a subsidy support then the matter is different. But like-for-like, if I was a three-wheeler driver, I would not take the electric at this point of time.

But having said that, we don’t think that — we think that this equation will change, because it depends a lot on how the battery costs move and whether there is some outside support from the government whether in terms of regulations or creating a protected space for electric. So we are going to calibrate the expansion of our business with how the industry unfolds. Our primary objective is to be in the forefront — absolute forefront of building capability for this business, but our objective is not to go out there and sell an electric three wheeler at any cost. We want to be the most capable electric three wheeler and electric two wheeler manufacturer and if that requires us to do a certain level of business, because it cannot be just here, we will do it. But we don’t see any reason right now primarily because of the business case, underlying business case. We don’t see any reason right now to move the needle artificially from ICE to electric.

For example, we see the business case in moving the needle from 100 CC to 125 CC, because we feel that it’s something superior for the customer and there is some better margin for us. And in our power to move the needle in that manner. But in electric case, we will calibrate the response to how the market unfolds while investing heavily into building capability and being ahead of competition in that respect.

Kumar Rakesh — BNP Paribas — Analyst

So Rakesh just for clarification, so given that some of the unarchived players and smaller players have already created a large electric three wheeler market. They don’t intend to compete with them and that market and also we don’t expect that disruption by those players getting into the market in which we currently are.

Rakesh Sharma — Executive Director

So the market that they have created is in the lead acid based battery powered three wheelers. This is an area after due thought, we felt that it is not really worth competing in, because it’s a substandard solution. This solution mushroomed more in response to two things and less driven by technology. And those two things were, that there was an artificial restriction placed on IC three wheelers in terms of permit, so people went out. And second thing is the need for intra-city mobility was exploding and in this time this ramshackle contractions imported from China based on very, very poor battery technologies, have made an appearance and they are furring people around. This really is not the kind of solution, because we are not creating good assets over there for the drivers and the users. We vacated that and we felt that our strategy will be built around the proven and the better lithium-ion type of technologies rather than the cheaper lead acid ones. We have to just look at what has happened in China to the entire lead-acid based mobility industry and what kind of problems that has created for the country. We don’t want to participate in making that happen out here.

Operator

Thank you. Sorry to interrupt you Mr. Rakesh, I’ll request you to come back in the question queue. The next question is from the line of Sonal Gupta from UBS. Please go ahead.

Sonal Gupta — UBS — Analyst

Yes, hi, thanks for taking my question. Good evening, everyone. So just Rakesh to follow-up on Chetak, actually just wanted to understand in terms of the pricing strategy like you mentioned you’ve taken a significant increase. I think there was a 15,000 increase and then there were supposedly I mean, from what I saw in Auto Car there was 28,000 increase. So I mean like we seem to have had a very attractive price at INR1 lakh that has substantially changed and also in light of like we are seeing some of the newer start-ups, which are looking to come in the market with an aggressive sort of pricing. I mean like, I just wanted to understand your strategy in terms of the space because, also on the other side like while you’ve announced a new plant for advanced manufacturing, including bikes, I mean we are not putting in a dedicated facility for EVs. So, I mean just putting all that in context, wanted to get your sense on, how do you approach this pricing for EVs. I understand the volumes are currently very low and therefore obviously it’s not profitable. Maybe it’s not profitable even at the current price that you’re charging, but should we take a longer term view and see that potentially this market could be INR0.5 million or INR1 million in five years and base — pricing on that basis, I mean how do you think about it?

Rakesh Sharma — Executive Director

Yes, sure. In fact, that is exactly what we should be doing. We should zoom out and we should take a longer term view and not just take a very short term view. If I today start selling the motorcycels at bicycle prices, motorcycle market is going to explode. There is no doubt, nobody will buy a cycle, people will buy a motorcycle right. But we’re not doing that. I think it is, we are not the complete heir to decide the destiny of this industry. I don’t think anyone is. The key thing is that the battery technology, the battery cost, the cell cost are what is controlling the advancement of the industry. We are wanting to rise that not to artificially bolt ourselves on to something which is not in our control and try to do things just to expand industry is not what we are going to do.

We feel that, yes, over a period of time the battery cost will come down and the industry will expand and we want to write that way, but those costs are not in — that, is going to be singular and fundamental driver of this industry. It is not range anxiety, it is not charging ecosystem. If the battery cost come down the acquisition costs come down, there are enough entrepreneurs in the country and elsewhere to set up charging systems and offer and get consumers rid off this range anxiety. That will happen, we’ve seen it [Indecipherable] mobile unit charging. We have seen it E-rickshaw charging on roadside mechanics, that will occur. The perpetual thing is how the battery cost moves and we want to wait for that. We want to write that and we know that we can’t wait for that to occur and then start our business. So therefore, I said we are going to be very aggressive in terms of capability building, but I’m not going to — we are not going to take it on our shoulders as a machinery to go and [Technical Issues] irrespective. Let the battery manufacturers and the battery technologies do it.

Sonal Gupta — UBS — Analyst

Right. So just on that, I mean, given that the government is giving a INR10,000 per kilowatt hour subsidy, isn’t that substantially reducing the burden of the battery cost?

Rakesh Sharma — Executive Director

It is, but despite that the cost — the architecture is such, but despite that the initial acquisition cost is very high and it’s the same arithmetic for everyone. At our level of players is a very, very marginal difference, little difference between what people are experiencing in terms of cost. But the comment I’m making to you is after factoring in the subsidy and let’s also be clear about one thing that the subsidies may not remain forever. We all know the pressure the government is under and the subsidies may not remain forever. So, the industry has to be able to be over a period of time with the removal of subsidies and its impact on cost, price and therefore consumer demand.

Sonal Gupta — UBS — Analyst

Okay. Sure. Thanks a lot. Rakesh. Thank you so much.

Operator

Thank you. The next question is from the line of Aditya Jhawar from Investec Capital. Please go ahead.

Aditya Jhawar — Investec Capital — Analyst

Hi. Yes, good evening. Thanks for the opportunity. Just some clarification. So, I mean on the opex side, if you see on a sequential basis, there has been an increase, while the volume has come down on a sequential basis. And typically the counting as you also alluded is relatively lower in Q4 versus Q3.

Soumen Ray — Chief Financial Officer

So Aditya in Q3 I earned INR73.6 INR to $1, which has come down to INR72.9 to $1. So sequentially the realization has come down.

Aditya Jhawar — Investec Capital — Analyst

Okay. Okay, fair enough. Now just the final question, some clarification in the comments of our strategy of the economy segment, you mentioned that we are pushing the customer up the value curve. But what we have seen in the last year that since we discontinued some SKUs in the economy segment, we lost some market share. And you also alluded to the fact that the bottom of the pyramid is impacted because of the pandemic. So, is that your thought process that does the discontinued SKUs will come back and that will give us more power to get back the market share in the economy segment?

Rakesh Sharma — Executive Director

We are going to continue to attack the economy segment based on upgraded products, because this strategy of offering a similar product at a lower price, it doesn’t work for us and it doesn’t leverage the innate capability, which we believe which we possess, which is around our R&D and our ability to turn out innovative differentiated products which can bring some kind of a proposition to even the economy segment, whether it is in terms of styling, whether it’s in terms of comfort, whether it’s in terms of safety, etc. So even when demand comes back, our attempt will be only to offer better products at similar prices.

Soumen Ray — Chief Financial Officer

We have crossed 5:00 PM. So we would take the last two questions and then we will wind up.

Operator

Thank you. Sir shall I move to the next participant.

Soumen Ray — Chief Financial Officer

Yes, two more questions and then we will wind up.

Operator

Thank you. The next question is from the line of Aditya from HDFC Securities. Please go ahead.

Aditya — HDFC Securities — Analyst

Yes, hi. The steady set of results in this quarter. I just had a question that we are hearing of a slowdown in tractor sales and this segment is obviously very linked to rural. So how do you see the recovery in two wheelers this year in light of the rural last year was a growth driver in that trend?

Rakesh Sharma — Executive Director

Actually rural was a growth driver only in the period at least that was our from our prism, we could see that was only I would say end of June, July, that period which is traditionally when it occurs. Otherwise, the recovery of the rebound, which occurred apart from the metros, it’s very much was right across the country. I would concede that Delhi and Mumbai, the super metros did have a continued run of depressed demand, but otherwise more or less, in fact, it did well. Towards the end in fact, I would say that the really rural towns were not performing well. It was the market down. The Mandees and those areas of rural, which were doing well. So even there, there are nuances. I think given the fact that there is better monsoon, I mean that is a reasonable monsoon expected and on the back of, hopefully better procurement prices, etc, we will see a repeat of last year. It should be quite evenly spread out.

Aditya — HDFC Securities — Analyst

Okay, thank you. Just another question on EVs, we’ve seen the [Indecipherable] which is clearly if I mean, it could be the Pulsar of the EVs like you guys came in with a Pulsar way back in 2002 created your niche and that’s how our Motorcycles story really began. In that sense the focus today is the fastest scooter around compared to an ICE and EV and it’s really created a certain halo around it. So do you think we may lose mindshare, I understand volumes are not there, but in terms of mindshare right now, it’s all going to a start-up? So how do you just see that playing out?

Rakesh Sharma — Executive Director

Well, as the industry is very nascent right now for us to start sub-segmenting it and launching products for sub-segments, but we deliberately took an opposite point of view. We felt that there is enough customers out there who would be attracted to elegance, style and robustness that’s why and all steel body and very classic design scooter because we felt that was closer home to what the consumer was experiencing. But as the industry unfolds and the electric side becomes larger, there is nothing to say that we will not address emerging sub segments, as you know that we on one end are collaborating very closely with KTM to look at powerful, to look at a high-performance motorcycles which can easily be the platform into the scooter space as well. That project is going on in fact they are going to take the elements of the Chetak and try to see what we can do with it in Europe. So there is a very good collaboration going on, which addresses one end of the spectrum.

You know that we have alliance, we have an engagement with which is into micro mobility, which is linked to these sub 25 kilometers per hour speed, very, very light short distance two wheelers that’s absolutely the other end of the spectrum. So from — we are collaborating with them to see how we can manufacture design cost and introduce stuff at that time. So if you see from that end of the spectrum to the most powerful electric bike end of the spectrum. We are trying to have a very broad interface. And as and when it becomes — makes business sense and becomes meaningful we will sub-segment the market and we will launch products.

Operator

Thank you. We will take the last question from the line of from what Pramod Kumar from Goldman Sachs. Please go ahead.

Pramod Kumar — Goldman Sachs — Analyst

Yes. Thanks a lot for the opportunity. And congrats on good set of numbers Rakesh and Soumen. My question is on the same lines on I think you had too many questions on EVs but Rakesh just wanted to understand there is a bit of a concern in the investor community and even analysts that starters like Ola could really end up disturbing the market on traditional volumes in terms of — and the fact that the traditional OEMs could be lagging behind, especially given the big announcements what they are making on charging infrastructure or capacities. So I just want to understand your perspective because you’re already dealing and you’re seeing good response to Chetak. You have global presence. So you’re doing both the things at the same time. So wanted to understand how worried one should be from these kind of start-up who are setting to disturb this space? And whether the mentioned companies are going to be kind of handicap like what happened in the luxury car market globally on the EV side or do you see things differently?

Rakesh Sharma — Executive Director

Well Pramod, I don’t think that the two wheeler industry which is us and if I may say so my colleagues in other companies are going to face a codec moment. I think all of us have been educated quite well by the events of the disruptive changes, what’s the consequence of disruptive changes and having a myopic view of markets. We have to also thank Mr. Elan Musk and what he has achieved with Tesla opposite the four wheeler industry and those case studies are all tearing us in our Phase. I don’t think it will be out of myopia that the industry — the existing industry will be caught with its times down, I don’t think that is going to occur. I’m sure our competitors also, established OEs and certainly us, we are very serious about the advent of the electric business and the way it will transform, whether it is in manufacturing, it is at the dealership, spare parts, service, how we engage with the customers, what customers will value all those aspects we are very, very alert to and sensitive to.

We have an existing business. I think there are people who don’t have any business. So that’s why they have to make dramatic announcements, they have to invest. We don’t have to invest, because we have the capacity. We have the people. We have the R&D. I mean we started investing in the R&D five years back on electric. We can’t churn out that Chetak in ’19 — in 2020 within a few months. We’ve been working on it three years prior to that. We been assembling teams, talking to vendors. So I don’t think people will be caught unaware. Everyone has moved past that. Some of the startups are following a different business model and we will have to wait and see. I would like to say here that we will not follow that business model which is private equity driven and etc, etc, but I would like to zoom out and I would like to say that the fate of this whole thing is not going to get decided in one quarter, two quarters or three quarters.

This is a change, which will occur over a period of time and that will be forth. It is the same thing like a scooter to motorcycles. So we are getting prepared for that. If there is a disruption, if there is a sudden explosion, if somebody wants to see some eyeballs and all in a frantic manner, we will deal with that situation, but we will — we would like to deal with it in a way, which is more sustainable. And in the end we win. In the end aspire full leadership. So that is our viewpoint. We are quite aware that there may be a position in the marketplace of two different business models, ours and the private equity driven, but there are other factors also which will decide success and failure and this will have to be viewed over a period of time. But one thing I can tell you that certainly at Bajaj Auto, we are very clear and keen that we have to have top end capability.

Pramod Kumar — Goldman Sachs — Analyst

And Rakesh just last one. According to you, given the customer preparedness and the cost curve the way it’s expected to fall, what — which — what will be the period where you think we’ll see an inflection point on EVs right? If it’s like FY ’24, ’25, where do you think is likely inflection point for EVs in India?

Rakesh Sharma — Executive Director

Its a very difficult one to answer, because a lot of it depends on battery cost. A lot of the battery cost coming down depends on how much of supply is coming on stream. Right now what is happening is not only current demand is outstripping supply, but people have also placing future contracts, large contracts and I’m talking about four wheeler manufacturers also who are please too and they are slightly ahead on the curve in terms of the industry development of EV in their case. So that is driving the demand side — overall demand side up. Supply cannot increase linearly as you know, it happens in steps and it has been a bit slow in expanding because there are competing technologies. These things require huge investments and the big technology — cell technology guys, don’t want to be getting caught on the wrong side. Then there are things like hybrids and fuel cells, etc, which are alternate technologies which is sort of impeding supply coming on stream.

Now this matching of demand and supply has to occur before the cost come down. If I take a [Indecipherable] to what the consultants are paying, what different stakeholders are saying, it does appear that it may take about three years for a point of inflection to be truly reached that we think will acquire a very definitive momentum of its own. Till this It will be more of feel and push and somebody will just try to do something artificially and push the agent alone. But generally it is felt between three to five years is when — this is not Bajaj Auto’s view, like I said, this is a pole of pole kind of a thing, but generally speaking in the motorcycle space or the two wheeler space, it may take about three years for the point of inflection to be reached.

Pramod Kumar — Goldman Sachs — Analyst

Great Rakesh. Thanks a ton for the response and wish you all the best and take care. Thank you.

Rakesh Sharma — Executive Director

Thank you.

Operator

Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Soumen Ray for closing comments.

Soumen Ray — Chief Financial Officer

Thank you, Soumen here. Thanks a lot everybody for dialing in. As I say at the end of every call, Anand and myself, we are available. We are available for any questions that you may have. But I’d like to sign off with three, four things that I would like to leave you with. First I think what holds Bajaj Auto in great stead is our ability to mitigate our risk through diversification. So as you can see, exports is coming to the party in spite of all these pressures in domestic we are still rock solid because of our mix of almost half coming from exports and that also across multiple countries. I mean in a year like what has gone by, in Latin America we actually sold more two wheelers than we did in the previous year. So that I think is a very important message.

The next message, I would like to reactivate is the dividend. We came up with the policy of 90%. If we have up to 90%, if we have more than INR15,000 crores, we had about INR17,500 crores, we have announced almost 90% dividend at INR140 a share. So that is how we would like to reward our shareholders and this has been a concern question which we have often faced and now we have replied it.

The last bit is around margin. And I would like you to consider the facts. There is a lot that which as Rakesh explained is going to come. When and in what shape or form, we do not know, but that will be a bolt-on. For us rupee is a depreciating asset. We have bet in the costs, but obviously the products depreciation will help us deliver. Just to give you a sense, last year to this year forex alone has added about INR450 crores to the between FY ’21 and FY ’20. So that’s a big fleet. Commercial vehicles would improve and that mix will improve, which will give us further headwind. So with this, we do have a tailwind. We do have a headwind, which is around the cost increase in Q1 continues, which will be a dampner in Q1, but in near future, I see our margins stabilize.

I mean all of this one must remember that it is very difficult, when you are sitting at 18% to manage headwinds. It’s much easier to manage headwinds, when you have a lower number. So we have really stretched all our leverages, our procurement, our cost optimization and that is how in spite of lower volume, we have delivered a margin which is higher than last year. We continue to focus on margins, but yes, in the near term there could be some headwinds, but as I’ve said between forex, gross debt and CD volume increasing, we should be in directional moving our margin upwards.

With that I wish all of you to be safe and thanks a lot for dialing the call.

Operator

[Operator Closing Remarks]