Hero MotoCorp Ltd 500182
Q4 2013 Earnings Call Transcript
Transcript Call Date 04/29/2013

Operator: Ladies and gentlemen, good day and welcome to the Hero MotoCorp Q4 Financial Year 2013 Earnings Conference Call hosted by Nirmal Bang Equities. As a reminder, for the duration of this conference, all participants' line will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation.

Please note that this conference is being recorded. At this time, I would like to hand over the conference to Mr. Hemindra Hazari from Nirmal Bang Equities. Thank you. Over to you, Sir.

Hemindra Hazari - Head of Research: Good morning everybody. On behalf of Nirmal Bang Institutional Equities, I would like to welcome all of you to the Hero MotoCorp fourth quarter and financial year '13 results conference call. I would like to handover the call over to Mr. Ravi Sud, Senior VP and CFO; and Mr. Anil Dua, Senior VP Marketing and Sales of Hero MotoCorp.

Ravi Sud - Sr. VP and CFO: Thank you Hemindra. Since the numbers are already out, maybe I suggest that we start with Q&A straightaway. Keep one thing in mind that we have got to close this conference latest by 11.55 as Anil has to a call – or he has to take a flight. His flight is at 1 p.m. So he has to leave. So we can start with the question-and-answer straightaway.

Transcript Call Date 04/29/2013

Operator: Pramod Kumar, IDFC.

Pramod Kumar - IDFC: Sir, my first question pertains to your full year (phased) revenue in terms of absolute number and the YoY growth. Sir, if you can help us with that?

Ravi Sud - Sr. VP and CFO: Well, you know in the public results we don't mention this, but in the balance sheet this will definitely come. One can say that our (step-up) revenue has grown by about…

Anil Dua - Sr. VP - Marketing and Sales: About 10%.

Ravi Sud - Sr. VP and CFO: About 10%.

Pramod Kumar - IDFC: Fair enough, Sir. Fair enough. What is your volume and margin outlook going forward Sir, because on margin, if I'm not wrong, last quarter you had guided that the margins will remain in the range of last quarter whereas I think there has been a considerable beat or improvement in the margins? If you can just throw some light on what is driving that and how do you see it panning out for FY'14? Also, what's your volume outlook for the industry and for yourself and hence your market share aspirations as well?

Ravi Sud - Sr. VP and CFO: What I'll do is, I'll give you some (indiscernible) our perspective as far as margins are concerned and then I will hand over to Anil. He can talk to you about the industry and the volumes and our market share et cetera. You see, in Q3, conference call would be (indiscernible) that the margin is likely to be more or less stable, but between Q3 and Q4 three, four important things have happened. Number one, you see Japanese yen has depreciated by more than 20% and part of the benefit has come in the material cost. Now, looking at our margins in quarter three, I think we and the Company has worked hard to make sure that wherever there is an opportunity to do the improvement, that gets incorporated in our results in quarter four as well as in the future. Now, the three, four initiatives which we have taken; number one, as far as the material cost is concerned, as you know, which is our most significant part of our cost, I think, has come down by more than 100 basis point in this quarter. There are three factors, which have contributed to that; number one is as I said earlier, the depreciation of yen. Number two, I think we are seeing some softness in the commodity prices, which to a very small extent has been – has come in the quarter four. Number three, we have started very, very comprehensive margin improvement project in the Company with a full time team of over 25 employees from different department and we expect that – results of that should start reflecting in next three to eight quarters.

Pramod Kumar - IDFC: So in that sense there is further room for margin improvement on the gross margin level, given all the initiatives and the currency benefit and RM prices coming down? Is that fair?

Ravi Sud - Sr. VP and CFO: Yes.

Pramod Kumar - IDFC: And you would expect that this should slow down to operating margin level or will you expect the marketing spend incrementally will in a way eat into those..?

Ravi Sud - Sr. VP and CFO: I think what I said is the comprehensive margin improvement program, which doesn't only cover your raw material costs or the input cost. This is overall improvement project looking at all costs in the Company, be it marketing spend, be it our employee spend, be it our logistic, anything. So I think that program has just been initiated, in the first week of April and it's a comprehensive program, which will continue for about eight to 12 quarter, and we'll start seeing the benefits, but we'll start seeing the benefits as far as low-hanging fruits in terms of the logistics or areas where we don't need much effort very shortly, but as far as input costs are concerned, I think we'll start seeing the benefits maybe three quarters down the line.

Pramod Kumar - IDFC: On the market share, so market share and volume outlook?

Anil Dua - Sr. VP - Marketing and Sales: Yeah, Pramod and good morning everyone. I think this has been a tough year for the industry if you look at the growth of the industry in this fiscal grown by only 2%. Now, that's clearly not been seen for a few years now. Last year, it was 15% two consecutive year before that it had been around 25%. So this was really a very depressed year for the industry 2013. Within that, even domestic industry was only 3%. So clearly it was a major slowdown of the industry last year. Now, clearly if you project this into future it's not looking like it's been (quite operating) back to earlier high double-digit kind of growth. It looks like we are going to see single-digit growth, but maybe higher single-digit growth than what we've seen in last year. As far as our market share position is concerned, I think we've done well with a very large base to kind of stay above 50% if you look at the domestic market shares, you know, motorcycle market share is about 53%. Now this is for the year as an average. If you look at Q4, actually our share is 54%. So we've exited at kind of upward trend and we maintain 50% plus kind of a share on a very large base and in motorcycle, which has been a very competitive area. Scooters, our success is well-reported, we have done extremely well in scooters, grown much faster than the industry. Scooter industry had grown by 14% this year. We’ve grown by 23% and as a result our market share is 18.5% for the year with the two scooters, and in fact the (quarter four) share is more than 20%. So two key messages that our market share on motorcycle continues to be above t 53%, on scooters we continue to continuously raise share and quarter four, our share is a percentage point or more, even better than the year as a whole.

Pramod Kumar - IDFC: Are we looking at the option of having a financing arm, Sir, captive financing arm?

Ravi Sud - Sr. VP and CFO: Well, as you would have read in the media, no, we're not making any formal announcement to this impact. The Company Hero FinCorp Limited, which has been in existence for last 20 years was (catering) for captive requirements of some of our dealers and vendors. We were doing working capital financing and their medium-term financing, and also look financing our transporters for their trucks. In the month of September, we have decided that we will also go in for captive – for (peer) financing and I'm very pleased to inform you that we did a very first launch at one of the dealerships in Delhi and the dealership is Pashupati Motors; and with the only one dealership, and we're likely to do in the month of April. I mean they are very, very insignificant numbers, but just to remember this is really one dealership, we should do about 60 numbers. The plan is that by end of May, we should be in NCR, we should be at about 30-35 dealership, by end of July, we should be at about 95 dealership and by end of 2014 fiscal we should be at about 196 dealership, and plan is that FY'15 we should be at about 450 dealership. So I think this is a serious initiative which the Company has taken and we're pursuing it with all the efforts.

Pramod Kumar - IDFC: How much – what that would mean to our balance sheet, Sir, in terms of capital which you'll have to set aside for financing and how does it tie with our CapEx program and also at increased dividend payout?

Ravi Sud - Sr. VP and CFO: There was a rights issue of this company, where Hero MotoCorp owns now about 40.3% of the equity, and the equity of this financing arm which is a separate company as of 31 March, 2013 is about INR200 crores and we can leverage it up to 4 to 5 times. So which mean we can build a book of something like INR1,000 crores to INR1,200 crores. But if our plan is that we should have a book price of close to $1 billion, about INR5,000 crores by FY'17, this is not only the two wheeler trade financing but also SMEs and corporate finance activity, I would feel the total equity required by FY'17 could be about INR1,000 crores, between 40% shares mean around INR400 crores, out of which we have already contributed 40% of INR200 crores. So, which means our requirement for next 3, 3.5 years could be anything between INR300 crores to INR350 crores.

Pramod Kumar - IDFC: What’s the thought process in taking exposure to even SME and corporate, this is outside automobile or it's (indiscernible) anybody or you--?

Ravi Sud - Sr. VP and CFO: No, no. As I said earlier, this company was doing financing for our dealers as well as our vendors, and also the Tier 2, Tier 3, Tier 4 suppliers, that activity will continue, but it was being done very, very (carefully). We were just looking at our own ancillaries and the suppliers. But the idea is to expand this activity into the automobile sector, not only to HMC's flag, but outside also.

Pramod Kumar - IDFC: Sir, on second half – first half balance sheet date, you talked about the receivable days actually – or the receivables actually easing off post-festive season, but I think between then and now I think the received portion hasn’t improved much. So if you can throw some light on that that will be my last question, Sir?

Ravi Sud - Sr. VP and CFO: As far as, receivables are concerned, receivables are a function of the inventory and a dealership. You have March 31 is (indiscernible) in the vicinity of (INR650 crores). One thing I would just like to state here that the days off, two days or three days is (indiscernible) are over, because the more we expand at that point, more dealerships we have. Receivables will go up, but I can say that our dealer inventory will (grow) at about (5.5 feet) as on 31 March. It is now close to 4.5 feet because that (retails) in the month of April had been extremely robust.

Operator: (Rashi Talwar), Ashmore, India.

Rashi Talwar - Ashmore, India: A couple of questions and then one complaint.

Ravi Sud - Sr. VP and CFO: Complaint you can do all night. I think because we are short of time, so you can ask your questions.

Rashi Talwar - Ashmore, India: So basically on your free cash flow, because that was something that I was calculating. We have seen obviously a significant decline in your free cash flow because of the working capital generation for this year as well. My point is where do you expect working capital to stabilize, because one of the key things of this business used to be the negative working capital that you all used to manage, which used to give you the extremely superior ROEs that you had?

Ravi Sud - Sr. VP and CFO: Okay, my answer is very simple. If you do your computation, even I think this is eighth year in running that we are still having a negative working capital. It is still negative.

Rashi Talwar - Ashmore, India: Sir, the delta, I mean, as you know, for us when we look at things, we look at the delta swing, because when you’ve gone – you see your payables have decreased by 18% for the current year. Your receivables have gone up by about 145%?

Ravi Sud - Sr. VP and CFO: I must clarify, as far as payables are concerned, there were lot of holidays, 29, 30, 31 of March were Bank Holidays. So we had about INR250 crore of cash, which was the collection which came. So we paid our vendors which was the payment which I have to go on April 2, we paid them on 29 of March. Hence…

Rashi Talwar - Ashmore, India: So that is a temporary function?

Ravi Sud - Sr. VP and CFO: Yes.

Rashi Talwar - Ashmore, India: Fair enough. Sir, just one more thing, Sir, I think access to you all has become extremely difficult, all of us we’ve been tracking the Company. You’ve known me for an extremely long time. We’ve never had so much difficulty in meeting with the management at Hero and chatting with you all. We do realize it's been an extremely tough year for the industry, but from our side there is just a request that we also track you all and have been looking at the Company for a long time and sometimes we need to just have access to you all through this course of things.

Ravi Sud - Sr. VP and CFO: Well, the only thing I can say is that we are very, very regular as far as our earnings call is concerned; I think number one. Number two, we do participate in some of the conferences that are generally in Bombay. If I don't go or Anil doesn't go, maybe Surender Chhabra goes. I remember very recently he was there in Bombay for one of the conferences. As far as meeting one-on-one is concerned, I think we’ll keep that in mind, but I think you must appreciate that we guys are really in a state in the expansion mode and there are hundreds of activity, which the top management is involved.

Rashi Talwar - Ashmore, India: Totally appreciate it. Just request from our side because as investors we also sometimes need to have regular meetings with the companies we invested. Our investors expect that from us.

Ravi Sud - Sr. VP and CFO: That is appreciated. Only thing requested, in case you have any queries, the mail is always open. You can always send a mail and one will – I can assure you that I always reply on the mail.

Rashi Talwar - Ashmore, India: Fair enough, we'll do that as well.

Operator: (Govind Chellappa, Jefferies).

Govind Chellappa - Jefferies: I have two questions, one, can you explain the recently introduced warranty scheme, one in terms of how many people were taking the extended warranty on your vehicles prior to the announcement of the scheme, what it means to the consumer and to the dealer and to you, and how much it would cost you incrementally in terms of warranty provision. That is a first question. My second question was on other expenses, during the full year, other expenses have gone up INR300 crores. Now this in the year when volume has been slightly negative, so I just wanted to understand other than the ad spend that you spoke about in the last quarter, how much ad spend has gone up by, how much is the recurring royalty on the new products and what explains the rest?

Anil Dua - Sr. VP - Marketing and Sales: Maybe I can start with warranty and then Ravi will take on the spend part. On warranty progress, I think this has been a big initiative from our side, five-year warranty that we have just announced. It is a recommendation in the industry because the first (price) that any manufacture is offering is five-year warranty. We have done it after years of data now available with us on amazing (indiscernible) of our product, amazing durability of our products, reliability of our products, does it people and giving trouble (indiscernible) years, we have testimonials on customers of uses of years without any kind of hassles and that is also evident in the fact that the recent value of our products is the highest in the market after five-years, after four-years and so on. So that is the basis of our confidence of giving this five-year warranty. It has been received extremely well in the market as we just said that the retail in the month of April has been very good and I think it's a lot to do with the fact that people have embraced this initiative with open arms. They are really delighted with this proposal of ours. Coming to your question of what was happening on extended warranty, in fact that's one of the basis why we've gone ahead with this five-year warranty. We found that in our – extended warranty, we were more successful than anyone who has offered paid warranty on a payment basis kind of a warranty earlier. We had got very good response and we said therefore this is something which customer wants and why not to therefore offer it to the customer in any case, so that you know they can really see it as yet another differentiator and yet another indicator of great quality of Hero products. So really the advantage scheme that we had which was the extended warranty scheme, it is a huge success of that scheme that has prompted us to get into this five-year warranty offer. So, it's got a tremendous response and we are as you know kind of in the process of creating awareness around this at the moment. You will see the outdoor across you would have seen different (times) and this is something which we plan to take further in this year to our advantage. Coming to your second question of spend, I will just make one point, and then leave it to Ravi, the marketing spends while we had integrated last quarter that you know we've had marketing spend, I think I had made clear even at that time that it's not a great idea to look at marketing spend year-to-year because our plans coincide with festivals and therefore, certainly sales go up in festival and then they go down in other quarter. For the year as a whole, our marketing spends are still within 2% of sales. So our marketing spend are very much in control. They have not gone up. They are as per our norms and on the rest of the spend, I'll just hand over to Ravi.

Ravi Sud - Sr. VP and CFO: Yeah, you know your question on our other expenses have gone up by about INR300 crores. I think, as Anil said, there are few things which we don't have to look at quarter-on-quarter or year-over-year basis, though there is an increase of more than INR100 crores in our advertisement expenditures compared to previous year, but we have a norm of keeping it within 2% and as he confirmed, it is within 2%. But I think the other items, which have hit the expenses adversely are basically power and transportation. Transportation means outbound logistics. You know that diesel prices had gone up (distinct), that has hit us. I think the third is, during the year we launched these new products, three – two, and volumes of one of the product, which we had launched last year also gone up. So, element of royalty is another thing, which goes to Honda on these four products has gone up significantly. I think these three or four issues or points which I've mentioned cover more than INR250 crores of expenditure.

Govind Chellappa - Jefferies: My estimate is your warranty cost, recurring royalty cost that’s assuming 5% on the new products would be about INR55 crores to INR60 crores. Is that a fair estimate?

Ravi Sud - Sr. VP and CFO: Yes. Against last year, about INR3 crores.

Govind Chellappa - Jefferies: Would you also comment on the incremental spend you'll have to do on the warranty – on the new warranty scheme? I mean you do forego some revenues that you were collecting on Advantage scheme and now you have the warranty on the entire base of (indiscernible)?

Ravi Sud - Sr. VP and CFO: Right. We have done our things, and since we had that extended warranty, we have the experience as to what actually has been the cost of giving this extended warranty for fourth year and fifth year. Our estimate is that our loss of revenue and additional cost of warranty put together will be about INR60 per two-wheeler what we sell. That is why in order to cover that and also rise in logistic cost and the power costs, which have impacted the industry, we took that price increase effective April 26, and which according to us is very, very aggressive price increase which we have taken.

Govind Chellappa - Jefferies: So you mentioned INR60, so that will be about INR35 crores?

Ravi Sud - Sr. VP and CFO: Yes.

Govind Chellappa - Jefferies: It would have probably cost you more to put those ads in Times of India.

Anil Dua - Sr. VP - Marketing and Sales: Not really. (Indiscernible) we do on planning. We do buy certainly one morning, we buy as per our plan and we are very efficient buyers.

Govind Chellappa - Jefferies: I have a few more questions. I will come back in the queue.

Operator: Hitesh Goel, Kotak Institutional Equity.

Hitesh Goel - Kotak Institutional Equity: Sir, I just wanted to get a sense of what is the kind of benefit you are getting on Japanese yen. So basically as far as (declared) the 10% of your sales are imports in terms of Japanese yen. So what is the kind of benefit that you are going to get? On indirect, have you got the benefit already?

Ravi Sud - Sr. VP and CFO: That's what I stated in the beginning. As you know, which we have shared many times our direct import is about 5.5%, our downstream import is about 9.5%. Our direct import is very, very insignificant as far as yen is concerned, because our main imported item is (indiscernible) which come in dollars. As far as the indirect is concerned, about 50% of import is yen denominated. As I said, a small portion of the benefit has come in the last quarter because we work with a lag of one quarter with about 60% of the vendors. So if you say what is the impact per unit to my mind, it could be anything between INR100 to INR125.

Hitesh Goel - Kotak Institutional Equity: So, Sir major part of the benefit, has it come through commodity cost reduction then in this quarter and how do you see commodity costs spending out now?

Ravi Sud - Sr. VP and CFO: You see, as I have stated in the last quarter earning call that we were finding commodities very, very subdued and they remain subdued, and we are seeing some softening of the prices, which have happened in the fourth quarter and also going forward. As we have stated many times, about 60% to 70% of our vendors, we worked with them with a lag of one quarter. So if any increase or decrease has happened in the quarter four, majority of it will come in the subsequent quarter. That position holds.

Hitesh Goel - Kotak Institutional Equity: Sir, also you had said in the last quarter that on the new models that you had launched, the margins are lower. So can you shed some light on that? Also, on your export plans and the new launches that are coming up, if you can shed some light on that?

Anil Dua - Sr. VP - Marketing and Sales: You know, as we had also said last time that when new models are launched, yes they are on higher cost and lower margins, but as we build volumes and that happens with all our brands, as we build volumes, as we get economies of scale, our margins start improving on these products. You'll also remember that we've spoken about the product mix previous quarter. This quarter, I think, even product mix has been favorable. That has also played a role in higher realization per unit. So certainly the answer to your first question is that we are moving in the positive direction. Coming to exports and (brands on) new products; on exports last year has been a very tough year for two-wheeler industry. I think for the first time the exports from India have declined in last many, many years. In fact, there was a decline of 1% last year. So accordingly, seeing the global situation and global conditions, especially in our vicinity, also in some markets, big markets (indiscernible), we have gone a little slow on our international plans, because we want to get our timing right. It is our first entry into many of these markets. We don't want to get at a time when things are really subdued. However, having said that in the last quarter, which is Q4 of the last fiscal, we have initiated our dispatches to several new overseas markets, both in Latin America as well as in Africa. These are products which are being made for these markets and which we worked on, I will talk about these products only closer to the time when we are either launching in these markets which is planned in this quarter, in the first quarter of the new fiscal, we plan to get into both Africa and Latin America and start our retails in new markets. We’ve done our dispatches last quarter, as I said. Coming to the kind of products that we are exporting as a new products that we are launching, so for example – and if recent market requires a taxi product, then we've customized our products to be suitable for our taxi usage. So that kind of customization has been done in-house where R&D tested and doing extremely well competitively, and that's just an example. Similar terms of, let's say, regulations of specific countries or difficult requirements of specific countries, they have also been taken care of before dispatching these products. In terms of new products overall whether domestic market or overseas, as we just said that last year we've launched two completely new products, which are Ignitor which is a new 125cc bike from us and Passion Xpro, which is first 110cc bike from us, and both these products have got excellent response. Besides this, in the last fiscal, we refreshed our entire range. So there has been new news on almost everything. This is not just refreshing in terms of outlook, but also, say, products like Xtreme and Hunk. We've added kick as standard feature and this has really been received extremely well and the results are showing in quarter four. Going forward, again, as in the past, we will look at a combination of absolutely new products as well as variants and refreshes to bring at least seven to eight new news to the customers and even more, now that we are getting into our one product and also getting into overseas markets, this frequency will only go up and this process will only accelerate.

Operator: (Samridh Poddar), Steinberg Asset Management.

Samridh Poddar - Steinberg Asset Management: Yes, I had two questions one was if – is it possible for you to give me the breakdown of your volumes based on your segments like the price segment, deluxe segment and premium segment for the whole year? Also the growth, I mean what it was last year and this year?

Anil Dua - Sr. VP - Marketing and Sales: Okay. I’ll give you some idea, though, you know lot of this stuff is not (public) knowledge, but I’ll give you some idea that you know hopefully should give you direction in which things are moving. So, essentially, you know there are two big segments at the two wheeler level, one is scooter; other is motorcycles. As I said, you know just last year has been a tough year for the industry, so actually if you look at the growth of motorcycles has been flat. It was 0% exactly for the year as a whole and if you look at scooters, it’s been 12%. These are overall figures including exports. If you look at the domestic market than motorcycles have been flat 0%, but scooters have grown slightly better at 14%.

Samridh Poddar - Steinberg Asset Management: At 14%.

Anil Dua - Sr. VP - Marketing and Sales: Right. Now coming to specifically us, as I said scooter is the growing category and the good news is that in the growing category we’ve grown much faster than the industry. As I have said sometime back, again, 14% growth of scooter industry, we’ve grown by 33%.

Samridh Poddar - Steinberg Asset Management: 33% growth.

Anil Dua - Sr. VP - Marketing and Sales: That’s right. So as a result our share has improved from 18% to 20% -- sorry to 18.5% this year from 16% previous year and in the last quarter as I mentioned that’s been 20%. Coming to motorcycles, as I said that our market share is over 53%, there are three key segments there. One is entry segment, you know which is actually in a year when the economy has been subdued, we are talking out of 5% kind of a GDP growth, it is not surprising that entry segment is a segment which has grown the fastest. Again, the good news is that in this segment, entry segment, which is low price 100cc segment, I think there is a high price 100cc segment, which goes into the dealer segment, but the low price 100cc segment where we have HF Dawn and HF Deluxe, this category has grown by almost 5% and we have grown in this category by over 20%. So, overall, if I – (indiscernible) rest of the segment have really either been close to flat or declining like the premium segment, 150cc and above, has actually declined as an industry last year by 7%. You know, therefore, the two main segments which are growing in overall two wheeler industry are scooters, which have grown by 14, we grown by 33 and entry segment low price 100cc, that is, which has grown by 5% and we've grown by 20%. So as a result, as I said, we are at a 53% market share in motorcycle and we'll exit it at 54% in quarter four.

Samridh Poddar - Steinberg Asset Management: So one more question I had, Sir, regarding your tax rate. Right now, your tax rate is roughly about 17%. Will it – can you tell me for how long will it be – this will be a (effective) of tax rate and when is it expected to go on the higher side?

Ravi Sud - Sr. VP and CFO: Well, you know, FY'13 was our last year when we used to get 100% benefit on Haridwar income. Effective FY'14, which is the current year, we'll get the benefit only on 30% of the profits of Haridwar, which you know 70% we will have to pay our normal tax and which I've stated I think last many, many conference calls, our tax rate effective FY'14 will go up from 16% – this year actually FY'13 is 16.25%, it should go up to about anything between 22% to 23%.

Samridh Poddar - Steinberg Asset Management: And for '15 and '16 it will be roughly 30%, then.

Ravi Sud - Sr. VP and CFO: No. For next five year, we will keep on getting benefit on 30% of profits. So for next five years the tax rate maybe between 22% to 24%. It all depends on the profit which you'll derive out of Haridwar plant, and volume which we produced here.

Samridh Poddar - Steinberg Asset Management: Last question if I may ask. Can you just tell us about your CapEx plan for '14 and '15, Sir?

Ravi Sud - Sr. VP and CFO: For '13-'14 or '14-'15?

Samridh Poddar - Steinberg Asset Management: '14-'15, Sir.

Ravi Sud - Sr. VP and CFO: Between you have clarity on '13 and '14, right?

Samridh Poddar - Steinberg Asset Management: Yes, Sir.

Ravi Sud - Sr. VP and CFO: Let me just give you a head up here, because as far as '13-'14 is concerned, we had started Neemrana plant and we expect to commission it by quarter four of the current fiscal. Then we also started Global Parts Centre, which should be official by end of FY'14. So, this Neemrana plant, our capacity will go up close to 7.7 million. Now, as far as the other CapEx which we have initiated that was on our R&D center near Jaipur at Kukas. As you know, we have already acquired the land and part of the expenditure will happen in the current year, but the majority of the expenditures will come in FY'15. As far as plant number five, which is at Gujarat, is concerned, we have already been allotted and we've paid for about 50% of the piece of land and balance land is to be given to us. We expect that to happen in the current fiscal as well as maybe expenditure of around IRN75 crores to INR100 crores will actually come in FY'14 and balance expenditure will go in FY'15. Apart from this, we have routine CapEx which is relating to our existing plant, which is placement or expansion of capacity, particularly for scooters as Anil has said that we have been growing faster than the industry, so that would be ongoing expenditure of anything between INR250 crore to INR300 crore both in FY'14 and as well as FY'15.

Operator: Bhagyesh Kagalkar, HDFC Mutual Fund.

Bhagyesh Kagalkar - HDFC Mutual Fund: Can you be slightly more specific on – means how much extra capacity you are setting up for scooters or is that the case that the new capacitors are flexible? Can you just throw more light on this?

Ravi Sud - Sr. VP and CFO: We have 2,300, know?

Anil Dua - Sr. VP - Marketing and Sales: So on scooters, we have increased our capacity to about right now 60,000. We're increasing it to (60). We have been doing just sort of 60 last three months or so. Going forward, we plan to take it out further. I will say that we have a flexible manufacturing system and, certainly, within motorcycles, within scooters we maintain flexibility, but we do need to create separate capacity for scooters and motorcycles and given scooters are doing well depending upon our new plants on new models in scooters which we'll share in course of time certainly we'll be looking at much higher scooter capacities.

Ravi Sud - Sr. VP and CFO: I can add here that since your question is specific, I'll give you a specific answer. You see from 60,000 a month, we are adding 800 per day of capacity in Neemrana, which will be available to us as I said by the fourth quarter of this year.

Operator: Pramod Amte, CIMB.

Pramod Amte - CIMB: This is with regard to your dividend policy, especially in a year where your dividends, your profits have been on a down, you seem to indicate relatively higher dividend. What is a thought and is it more a confidence on next year or have you changed your dividend payout ratios?

Ravi Sud - Sr. VP and CFO: Pramod our dividend policy has been anything between 35% to 50% and even if last year we were at what 43%, 44% and as we look at last six, seven years, I think we are in the range to 40% to 46%, 47%, 48%. This time the Board of the Company has taken a very, very conscious call and a few initiatives, which the Company has taken like as Anil mentioned on five-year warranty, which is absolutely – where we have got excellent response which has been reflected in our retails and as far our customer is concerned, for customer it's a lifetime warranty, because two-wheeler get changed after 4, 4.5 or 5 years. So it's a life time warranty. So that is one statement of confidence. Second statement of confidence which the Company has made is about the price increases which we took last week. Third statement of confidence, it's the Board has been – it’s look fine. This year the profits are down, but I think as far as next couple of years or three years down are concerned, the management has full confidence and hence to – this is the third statement of confidence. So you may find it in terms of payout, the payout has exceeded 50%, which is generally the stated policy of the Company 40% to 50%?

Pramod Amte - CIMB: You feel these are sustainable?

Ravi Sud - Sr. VP and CFO: That is the statement I think the Board – our Board and the management of our Company has made.

Pramod Amte - CIMB: This is to Anil Dua. In terms of – there have been some rumors about Splendor pricing issues, especially considering the way the competition has priced the product and you taking the price hike last amongst the peers. What is your thought on pricing situation in the two-wheeler industry now and how you will be acting in next couple of quarters?

Anil Dua - Sr. VP - Marketing and Sales: As Ravi said, I think what the market required was to know clearly and squarely that we know what we are doing and we're confident of our business, our products. All these three things that you spoke about are actually trying to aggressively show that confidence to the market and to the customers. You are absolutely right. There has been some competitive launch which is (pegging) itself very close to Splendor. That's not new to us. That's happened at absolutely great frequency again and again. Therefore, we are not stranger to that kind of happenings. Splendor and our 100cc and Hero business has weathered all these competitive launches. We have our own findings from our customers and our surveys, our research, and we felt confident that looking at the overall pricing situation in the market, INR500 price increase that we've taken on Splendor, as you know we've taken price increases from INR500 to INR1500. So Splendor and Passion are at INR500 price increase. We think this has called for in the market and the market will then commit and this is something which is – which customers will not have an issue with and which will be good for business. Therefore that's reflective of the way we are looking at our brands. Going forward, you must have been noticing the brand building going on around Splendor – (indiscernible) quite a catch line. With our customers, it's working very well, it’s truly reflective of the legacy of Splendor this is also by the way 20th year of Splendor and we're celebrating it by launching a special limited edition within price set another INR1000 premium on Splendor range which is Splendor Gold. It's special color limited edition which has been given to celebrate the 20th year of Splendor. So I think there is a huge traction around Splendor and there is a huge customer reference and that is reflective in either this brand building or price activities that we've seen recently.

Operator: Sonal Gupta, UBS.

Sonal Gupta - UBS: Sir, two questions, one was if you could just explain the ASP improvement this quarter? Then I had just a couple of industry related question in terms of if you could talk about your dealer network and expansion plans in there in terms of – and just finally on fuel emission norms which you expected to see in couple of years what sort of technological changes do you see happening if you were just talk about these few things?

Anil Dua - Sr. VP - Marketing and Sales: So Ravi will talk about (ASP) after I answer your two other questions on dealer network and fuel emission. On dealer network, we've had continuous expansion of our network. We have the largest network in the country and we’ll make sure that we get closer and closer to the customers every year. So the good news is that last year, again, we've added more than 500 touchpoints to our network and today we stand at almost 5,500 touchpoints across the country comprising of sales service outlets – sales service parts outlet across the country authorized network of the Hero MotoCorp. Against this 5,500, which is the largest in the country, we're not relenting, we are going forward again planning to add another 500 as we go forward, thereby building further on the sense that we've acquired over the years. Besides this, our rural vertical is doing activities at Service Har Jagah, which is covering the last mile to the customer. So we've done over 1 million of doorstep service in the rural areas last year, where the service is walking all the way to the customers rather than the customer walk into the service shop. So this is one area which has been big focus for us of providing this convenience to the customers of an outlet of a Hero authorized outlet close to the customers and the numbers I have spoken about. Coming to your second question about fuel emission, yes, the whole industry is gearing towards the new emission norms, the BS IV emission norms, which should be effective April 2015 onwards. These are the norms which, of course, require technological changes. They are still couple of years away. I will not be able to at this moment share any specific cost et cetera of this add on, but I can only say that this is something, which is already on our line up and something that our teams are already working on and we are confident of delivering Hero products, meeting the new emission norm well in time. And I’ll hand over to Ravi for ASP.

Sonal Gupta - UBS: Could you just tell me the dealer year end number, how many dealers you have?

Ravi Sud - Sr. VP and CFO: Yes. Did you hear my response?

Sonal Gupta - UBS: No. Sir, I heard – just a follow-up question was on, what is the total number of dealers as of end of FY '13?

Ravi Sud - Sr. VP and CFO: As I was saying out of 5,500, the 4S dealers are around 800 they are close 800 numbers out of this 5,500, which is fully fledged, sales service, spare parts and ASP outlets.

Sonal Gupta - UBS: Sir, on the ASP improvements?

Ravi Sud - Sr. VP and CFO: Now over to our specific question.

Sonal Gupta - UBS: Sir, we’ve seen about 1.7% quarter-on-quarter improvement in ASP and given that there was no change in the price et cetera, what has been the reason for this sharp improvement in mix?

Ravi Sud - Sr. VP and CFO: I think that is basically on account of product mix. As Anil as stated in one of our responses, the product mix in quarter four has been quite favorable. And that is why this average sales relation has gone up. As you know, we have not taken any price increase except a minor one of some INR300 in October 1 which we have taken, but basically it's on account of favorable product mix.

Operator: Sumanta Khan, ICICI Pru Life Insurance.

Sumanta Khan - ICICI Pru Life Insurance: Just wanted to ask, do you say that your current scooter capacity is around 60,000 a month?

Ravi Sud - Sr. VP and CFO: Yes.

Sumanta Khan - ICICI Pru Life Insurance: So if we look at same numbers sort of, you are doing 50,000, 55,000 a month?

Ravi Sud - Sr. VP and CFO: Right.

Sumanta Khan - ICICI Pru Life Insurance: So is it fair to conclude that there can be some constraint in the near term because you are saying your next capacity is coming only in…?

Ravi Sud - Sr. VP and CFO: No. What I said was that 800 scooters capacity will come from Neemrana. We will see a new location. This should be available to us by quarter four, as you know, sometime either December end or January beginning. But as far as existing locations are concerned, the work is already on to increase the capacity.

Sumanta Khan - ICICI Pru Life Insurance: So capacity constraints won't be a problem for...?

Ravi Sud - Sr. VP and CFO: No, not at all.

Operator: (Amin Virani), Deutsche Bank.

Amin Virani - Deutsche Bank: Sir, my first question is on your technology partnerships with Erik Buell and AVL and Engines Engineering. Can we get some update as to how as in what is update on that and what are the things being done, whatever you can share? Is there any timeline for any completely new product from the Hero stable?

Ravi Sud - Sr. VP and CFO: Well, at this point in time, the only thing I can say is that in FY'14, maybe the latter half of the year, you will have a lot of excitement.

Amin Virani - Deutsche Bank: Just something on there I mean, obviously your other Indian peers, all of them have doing some tie-up with some existing global company in two-wheelers whereas you have decided to take on a consultant and do it on your own. So is it – I mean can we see something from your end as well or you are saying that you will completely do it on your own without any partnership with any other global player unlike your peers?

Ravi Sud - Sr. VP and CFO: Well, you see – let me reiterate what I have said earlier, maybe three or four conference calls. I think idea is to build R&D capability. Now the five options which I have stated, I'm repeating once again that we’ll hire people within India and buildup a strength from 271 as on 31 December, 2010. Today we have more than 425 engineers in our R&D, number one. Number two what I stated is that we’ll hire or employ some consultants who are experts in their respective field. I can say it today we have got four experts who are working with us. Number three we have said we’ll do these consulting arrangements which we are done with AVL, Engines Engineering and EBR, number three. Number four, we have said that we will always look around for opportunities either for merger or for acquisition. So I'm not ruling it out even today.

Amin Virani - Deutsche Bank: Just coming back to your CapEx, Sir, this year your CapEx, could you give us the number for your CapEx for fiscal '13?

Ravi Sud - Sr. VP and CFO: I'm already on record that as far as – I have stated as well over INR1,100 crores, that is our cash flow. But in case, there is an opportunity. That is basically for Neemrana plant, Global Parts Centre (cookers) partly for Gujarat purchase of land and maybe building a boundary wall and some existing replacement of CapEx in the existing location and build-up of small capacity for scooters in Gurgaon etcetera. In case there is an opportunity and the deal gets finalized during the course of a year that will be anything extra over this.

Amin Virani - Deutsche Bank: But in fiscal '13, you would have spent something like INR400 crores, right?

Ravi Sud - Sr. VP and CFO: I think it was (450 or something)?

Amin Virani - Deutsche Bank: So just lastly coming back to the pricing thing, actually it was a – a positive surprise that you and your peers took successive price hikes in April, given that demand scenario continues to be weak as you mentioned and competition is obviously increasing. How are these price hikes -- I know it's too early but how are these price hikes being taken in the market, given that the demand environment itself continues to be weaken. How do you see it panning out?

Anil Dua - Sr. VP - Marketing and Sales: I think this price hikes were called for and given the festival and (the fact that) last year were subdued and therefore this price hikes had actually were postponed. So they have finally happened now. They should have actually happened much earlier, but industry and especially us as the market leader seeing the situation of the industry last year decided to postpone it, so that we continue getting whatever little is -- juice is there in terms of demand. Certainly, there is an expectation you know the government has said that the GDP will also (grow) from 5% to 6.5%, so hopefully there are going to be activities in the economy which are going to need to demand (distribution) and are going to help the efforts being put in by industry. So this one the opportune time, I think for us certainly to taste the long awaited time with the price increase.

Operator: Sahil Kedia, Barclays.

Sahil Kedia - Barclays: I have two questions regarding the other expenses. Firstly, there was a piece of news that you are now not sponsoring the IPL teams and that was a pretty large cost with advertising. Could you help us understand what could be the lightly savings in terms of your costs in that? Secondly, Sir, the payments to Honda, are they yearly payments, if yes, is there a benefit of the weaker yen for the previous quarters which has come in to place in Q4 as well?

Anil Dua - Sr. VP - Marketing and Sales: So (indiscernible) payments, so Ravi just addressing your first question on cricket spend. Yes, that news has been right. We've rationalized and relooked at our spots spend, but this is something that we do every year. I will say that this should not be seen as something which is a major strategic shift in our thinking and we've clarified that earlier also, for example if you see current -- the ongoing IPL, we are there on air, this time on IPL with that advertising and that's not diluted at all from the previous editions of IPL that we've had. So sometimes we take on hockey, sometimes we taken on Commonwealth Games, sometimes it's ICC, there are other requirements, we are also into racing, now in (U.S.) certainly and we have plans for India and elsewhere. So certainly, this is something that we look at our full year plan. We look at our next three year plans and these are directions in which our investment should be moving. So it is in line with our long-term plan. I will not say that expect any major savings that this is straightaway going out of advertising spend, so this may get rerouted into some other brand building activities, but what we'll ensure and what we are focused on is that when things may vary from quarter-to-quarter over the year, we stay around 2% of our sales in terms of our marketing spend. Ravi will talk about Honda business.

Ravi Sud - Sr. VP and CFO: Yeah. I've stated many times these are yearly payments. The yearly payments were in March '12, March '13, March '14 and the last payment is in June '14. Yes, to a certain extent if the yen has depreciated, it has given us some benefit and just for your information that March '14 and June '14, the payment, this is about JPY16 billion. We have already covered over 40%, like about (98, 99).

Sahil Kedia - Barclays: Sir, can you quantify what was the benefit that you got in your FY'13 and would it be fair to say that all of that benefit would have come in the Q4 number?

Ravi Sud - Sr. VP and CFO: No, it doesn't happen. You see what happens is if the yen depreciates, so appreciate or depreciates, either it gets capitalized or if it depreciate, it get decapitalized, so then whatever the amounts gets decapitalized or capitalized, only a portion of that for the remaining period comes into the – in that quarter. As far as decapitalization is concerned in the quarter ending March, the total decapitalization because of depreciation on yen is to a tune of around INR48 crores. So, now, if you see the quarter which are remaining, which mean quarter four and four of next year and one, which means, we have six more quarters remaining, so which mean the benefit which would have come in the quarter would be one-eighth over one-sixth.

Sahil Kedia - Barclays: Just to understand this correctly, for the first, second and third quarter of this financial year, you would have made some provision of payments to Honda, considering that the yen is at a different rate at the end of the year versus what it was through the year?

Ravi Sud - Sr. VP and CFO: As I said, if you go back to April 2012, the yen was wobbling at about 76, 77. Every quarter we do the mark to the market and charge it to any increase or decrease, it gets capitalized and relevant impact comes in the particular quarter. Now, our average rate for the FY'13 because we started covering when the yen was at about 80, because from 76 to 80 which was a depreciation of above 5%, we are started covering buy and buy. Our average rate for FY'13 has been about 84.

Sahil Kedia - Barclays: Just about INR48 crore is what amount, Sir, the amount you just mentioned?

Ravi Sud - Sr. VP and CFO: When I do mark-to-market as on 31 March, 2013, correct.

Sahil Kedia - Barclays: So this is the decapitalization for the previous three quarters, is that correct?

Ravi Sud - Sr. VP and CFO: That's right. Absolutely.

Operator: (Vaishali Jajoo, Aegon Religare).

Vaishali Jajoo - Aegon Religare: A few question on, one is on vendor rationalization we had decided for. Could you just give us an indication on what's happening on that front and is there any benefit which has come in the current quarter?

Ravi Sud - Sr. VP and CFO: What is your question, sorry.

Anil Dua - Sr. VP - Marketing and Sales: Vendor rationalization.

Ravi Sud - Sr. VP and CFO: I don't know what is your question is, is it relating to a number of vendors, or rationalization means what?

Vaishali Jajoo - Aegon Religare: No, it is relating to the more localized vendor, and accordingly we were supposed to see if some cost on the vendors which we will be, I mean, taking away the Honda's vendor which are coming from Japan?

Ravi Sud - Sr. VP and CFO: Okay. Example, I had mentioned this to your question in the last or maybe last to last conference call. As far as this exercise is concerned, this is an ongoing exercise. We keep on looking at the vendors and to see what is the impact on our bottom line if you take a new vendor in our business. So this is a continuous exercise. As a second exercise which we emphasize is wherever is an import content, if that can be localized. I won't be able to tell you as to how much of that has happened and what is that impact which we've got, but only thing I can say is that this is a continuous exercise. I have stated at the beginning, there is a very, very comprehensive margin improvement program, which the Company has undertaken now. I think that you'll start seeing the benefits of that maybe in the next couple of quarters.

Vaishali Jajoo - Aegon Religare: One small question on, Sir, how much is your R&D cost as a percentage of sales in the current year?

Ravi Sud - Sr. VP and CFO: Well, I think this year it should be close to 0.4%, but don't go by that because I've got it once something like INR125 crores, which have been given to some of the technology partners and they will take the shape of R&D cost as and when the model starts getting launched.

Vaishali Jajoo - Aegon Religare: How it is expected to flare up in next one or two years?

Ravi Sud - Sr. VP and CFO: Well, I would expect that it should go in the range of 1% to 1.25%.

Operator: Thank you. I would now like to hand the floor back to Mr. Hemindra Hazari for closing comments. Over to you, Sir.

Hemindra Hazari - Head of Research: I would like to thank all of you for attending this call by Hero MotoCorp and, in particular, Mr. Ravi Sud and Mr. Anil Dua. Thank you everybody.

Ravi Sud - Sr. VP and CFO: Thank you. Thank you guys.

Anil Dua - Sr. VP - Marketing and Sales: Thank you.

Operator: Thank you, Sir. Ladies and gentlemen on behalf of Nirmal Bang Equities, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.