Bajaj Auto Ltd 532977
Q1 2014 Earnings Call Transcript
Transcript Call Date 07/22/2013

Operator: Thank you for standing by. Welcome to Bajaj Auto Q1 FY'14 Conference Call hosted by Nomura. At this time, all participants are in a listen-only mode.

I would like to hand the conference over to Mr. Kapil Singh now. Over to you, Sir.

Kapil Singh - Nomura Securities: Hello everyone. On behalf of Nomura Securities, I would like to welcome everyone to the post result conference call of Bajaj Auto. We have with us Mr. Kevin D'sa, President, Finance of the Company.

We'll head straightaway to Q&A. So Shweta, can you please start the process?

Transcript Call Date 07/22/2013

Operator: Yakshesh Mukti, Morgan Stanley.

Binay Singh - Morgan Stanley: Binay Singh, calling from Morgan Stanley. My question is firstly could you update us bit on the export hedges? Secondly, could you talk a little about demand and pricing environment in your key export markets like if rupee continues to remain weak or weakens further, what kind of pricing power or retention power do we have in these markets?

Kevin P D'sa - President, Finance: Sure. As far as export hedges are concerned, we have taken up for the balance nine months; approximately $740 million open hedges are there. This represents approximately about 70% of the export for the balance nine months. Most of these exports going forward will be at a lower band of about INR55, INR56 with a higher band of – at about INR64 to INR66. This is for a year ended March 14. What we see is if I see the rate that I've realized in the first quarter, it is in April, because the rupee being where it was. It was an average (duration) for the month of April, a little over INR53. May was INR55 and June was INR57. As a result for the quarter, we got at INR55.56. As we go into the second half -- the second quarter 30% of our exports are hedged at a upper band of INR59 and the balance 70% are hedged at a upper band of about INR67, INR68, so going forward into Q2 and H2. I would see that if the rupee is somewhere in the INR59 band, which is it's currently today, as against INR55.56, I would see our realization of INR58.5 in quarter two and little over INR59 in quarter three. Coming to the export market is concerned, there is no pressure at all in the Company to pass on the benefits, the sales that are taking place, a lot of good field work has been done, so there is no pricing pressure on us per say to reduce the prices, but having said that we may decide to take one or two markets, where we will decided on sort of expanding the market rather than just trying to passing the benefits so wherever we feel that there is a greater potential of expanding the market by making our vehicle more affordable, we will do this.

Binay Singh - Morgan Stanley: So as of now like in the first quarter, did you lower prices or did you pass the benefit in any of the markets?

Kevin P D'sa - President, Finance: Definitely. So for example, if you remember my conversation that was there after the conference call of the annual results, I did say that we have passed on the benefits et cetera to Africa. We have passed on the benefits to Sri Lanka to Egypt and to major markets, but the price benefits that we passed on was like as I mentioned is between INR53 and INR49.5. Everything that is over the INR53 mark has been retained. So when I did the pricing in the current year for the export market, it was on the benchmark rate of INR53 to the $1 as against INR49.5 that we realized last year. That is what I said 50% of the benefit has been passed on, but if the rupee going to INR55 in the current year and going forward to INR59, there is absolutely no pressure on the Company to pass on further benefits.

Binay Singh - Morgan Stanley: Kevin, if you could also comment about demand in these markets in your key…

Kevin P D'sa - President, Finance: In these markets I would say that the demand is okay. The issue basically is most of markets where we are currently exporting, which are the consumer for motorcycles comes from the developing countries and all the developing countries have their share of problem of inflation, of foreign currency, et cetera. So you are seeing many of these countries putting restrictions on consumption or by interest rates hike, et cetera. The main concern and problem that we are facing right now is Egypt, which is a relatively a large market for us. We sell approximately about 7,000 three-wheelers and about 6,000 motorcycles every month. The demand is huge. The dealer over there that is willing to open any amount of (LCs) for the full quantity of about 12,000 to 13,000 three-wheelers. But since the (LC) has not been confirmed by a bank of stature in India, I am not accepting those (LCs). But the demand is very much there. As far as Nigeria goes, one is seeing a little bit of tapering off of demand, again because of the ban of using these vehicles as taxis in certain provinces. But those sales that have come up in a little bit of Nigeria has been more than made up by a growth in Lagos, by growth in Kenya and other markets. So net-net, Africa is flat at this point of time.

Binay Singh - Morgan Stanley: On the outlook, overall, in FY'14 for exports?

Kevin P D'sa - President, Finance: See the way I look at it, I'll give you our outlook story for my side of view, is very clearly I'm extremely bullish on the Company for the outlook for FY'14 and the reason why I'm saying it is like this. If I take the individuals business verticals of the Company, we start with exports, number terms we may grow by about 5%. I correct my earlier stand of 10%, which I was talking about to – since four months are already over, I would say somewhere near the 5% mark. But on account that the export realization is taking place, my profitability and my top line is very, very, very positive and encouraging as what you have seen in the first quarter. In the first quarter we'd have realized somewhere near about close to INR200 crores coming purely from the exchange difference and I would say a further INR100 crores are expected in quarter two and given where the rupees and the situation where we see in the country, I don't see the rupee appreciating below INR58. So for me, rupee depreciation, good export story, that continue and that (forms) today 35% of my business. Coming to the three wheelers, again new permits coming up, upgrades coming into place, pricing power over there, I see this part of the business also growing well. Third is the spares business, which is going as per plan, so 52% of my business is absolutely on a solid (wicket), growing at the desired profit level. So for me, the 48% of the market which is the motorcycle market, which today, we have seen the overall market itself being sluggish, but I look at it in a positive mind and sense that my market share today in the motorcycle domestic business is 24%. I see six more products being launched in the Discover family. I'm hoping H2 becomes better given the monsoon, so one, I expect in the second half, the market will expand and hopefully my market share to expand, so then the balance 48% of my business which is trailing will also do very well, so net-net I see FY '13, '14 being a very good year for us.

Operator: Hitesh Goel, Kotak.

Hitesh Goel - Kotak Institutional Equities: Sir, I just missed your outlook on the African market, because you had said in the last quarter that you were gaining market share in Nigeria, now if I look at the first quarter, there is a decline of 20% in the motor cycle sales…

Kevin P D'sa - President, Finance: And the industry had declined by 22%.

Hitesh Goel - Kotak Institutional Equities: Yeah, so I mean, do you see further market share gains in which markets in Africa you are targeting, even you had said, you are targeting assembly plants in different African countries. So, can you clarify that?

Kevin P D'sa - President, Finance: We are getting into Kenya, we are getting Ivory Coast, we are getting into Uganda, we're getting into Tanzania, in all these markets we are (ceding) these markets et cetera. So currently we may be doing about 150 to 200 per month in each of these markets. But as we go forward, I think this is going to be the growth area. So net-net, if I look at Africa, my market share, let's say, in Nigeria, where the industry declined by 22%, I declined by 12% hence growing the market. This market decline that took place was primarily because of the ban of two stroke vehicles and which the Chinese were the biggest sufferers. Now with the ban of the Chinese and two stroke vehicles, which were selling at about 65,000 Naira, 70,000 Naira, there is a price point that is available where people cannot go all the way up to 115,000 Naira, because of the four stroke vehicles. So therefore there is a business opportunity over there to expand the market by doing a little bit of price making the vehicle little more affordable. That's why in my opening remarks I said that some part of the benefit that we see in the foreign currency, we may pass on not because the market is requiring it or the pressure from the distributor, but we believe internally that it is a nice way of expanding the market to make the market – product much more affordable. Those people who are in the 70,000, 80,000 price point, who can go up to 100, 110, are making our vehicle (indiscernible).

Hitesh Goel - Kotak Institutional Equities: Can you talk about three wheelers in Africa as well, what is the growth there, what is happening? Finally, you've reported INR57 to $1 rate, foreign exports in this quarter. Does it include – no, no, in the number in the press release that you've given, that includes exports incentive as well?

Kevin P D'sa - President, Finance: No, which press release are you talking about?

Hitesh Goel - Kotak Institutional Equities: The press release that you've given, you've given dollar number and you've given the rupee number. So that comes out 57.3?

Kevin P D'sa - President, Finance: No., no, please don't do that. The rupee number that you are talking about was about, I think, INR1,870 crores odd, and the export was about $327 million.

Hitesh Goel - Kotak Institutional Equities: First quarter I have INR1,876 crores and $327 million.

Kevin P D'sa - President, Finance: Correct. Now, now INR1,876 crores includes exports to Iran, which is in rupee payments, includes the exports to Nepal, which is rupee payment. So you cannot divide INR1,876 crores by $327 million, you will come to a wrong figure. You multiply $327 million into (INR55.56) and that's what the export realization is in to these countries. The balance amount that you'll get is purely on account of rupee trade with Iran and Nepal.

Hitesh Goel - Kotak Institutional Equities: Can you just finally give outlook on three-wheelers, what is happening in Africa right now?

Kevin P D'sa - President, Finance: As far as our three-wheelers is concerned, a lot depends on Egypt, which is about 8,000 number. The dealerships are dry. The demand is huge, and therefore, I would say that between domestic and exports, I am quite confident to quote a run rate of about the 45,000 numbers of three-wheelers going forward from August onwards.

Operator: Mahantesh Sabarad, Fortune Equity.

Mahantesh Sabarad - Fortune Equity: Just wanted to understand what are we foreseeing in the domestic market for two-wheelers as well as the three-wheelers ahead.

Kevin P D'sa - President, Finance: As far as three-wheelers is concerned, I am extremely positive, because we've seen permits – 20,000 permits being opened up in Hyderabad which are opened up and which are seeing the benefits. Out of the 20,000, I think 5,000 or so would have been utilized between June and July. So another 10,000 to 12,000 is available over there. As far as Maharashtra government is concerned, the 35,000 permits that are around the corner; so maybe September or maybe October, that should pan out. In all these markets we have 86% market share. So that's the benefit that I see for myself in three-wheeler. When you come to the domestic motorcycles, I think the market remains sluggish. The market in retail segment declined by about 11% in the month of June. I see retails in the month of July being off by about 5%, not necessarily because sequentially there is an improvement, but because the base effect of last July. So July, August, September, I would say, is going to be weak for the industry. My own estimate is for the industry will be minus 2% to 3% at the billing stage, and then October, November, December it's a belief that with the good monsoon and all, there should be an increase. But then I say that's a hope. As of now, the reality is that it's going to be a minus 2% to 3% growth in the second quarter. Having said that, the challenge and the benefit that we see for (ourselves) that we are having a whole range of Discover that are coming out. So between the Discover family, which most of them will come out in, say, September in the third quarter, I should see hopefully at (exit point), my market share from the existing 24% going up by about a 1 percentage or 2 by March end.

Mahantesh Sabarad - Fortune Equity: Kevin, one another question on the sidelines, after this RBI moved to Titan liquidity, we saw short-term interest rates go up and mutual funds saw huge debt redemption. So were you as an investor in certain fronts affected by this?

Kevin P D'sa - President, Finance: Not, at all. See there are two parts of this. One is the MTM and one is the yield. As far as my investment risks were concerned, I don't have any immediate requirements for funds which only adds to the (kitty). So for me while there may be an MTM loss itself, on a yield basis, it makes no difference. For me yield is a most important thing. The second part for me is that basically or most a lot of my money is FMP is already invested so that doesn't make a difference. Thirdly, with the interest rate going up, the fresh funds that I get (generated) will get me higher return.

Mahantesh Sabarad - Fortune Equity: But then your other income for the quarter was a little lesser than what we had seen in the past three quarters?

Kevin P D'sa - President, Finance: That is because of the fact that a lot of the money and that's what I would like you to note that a lot of money inside about INR1,165 crores has been put into FMPs and when you talk in terms of FMPs, our income doesn't get accrued to it every quarter, every month. It gets into a bullet accrual at the time of redemption, so on INR1,165 crores, there is no income flowing into the P&L. That benefit will start accruing in '14, '15 onwards and the full gets into play.

Mahantesh Sabarad - Fortune Equity: Your total investment of about INR6,300 odd crores if – I think I got the number right.

Kevin P D'sa - President, Finance: Yes.

Mahantesh Sabarad - Fortune Equity: How was it split in various investment bucket?

Kevin P D'sa - President, Finance: Most of the investment buckets are in about INR1,165 in FMPs or major part of it would be in one and half year and everything is within three years?

Mahantesh Sabarad - Fortune Equity: In the modes of investments, these are again…

Kevin P D'sa - President, Finance: AAA rated bonds and government securities. If you want to know my yield at pre-tax level is at about 9.55% after adjusting for the tax break that I get on the FMPs.

Operator: Chirag Shah, Axis Capital.

Chirag Shah - Axis Capital: Kevin, I had a question on other expenditure for the quarter, if I remove this INR96 crores, it seems to be on the lower side of their expenditure.

Kevin P D'sa - President, Finance: Correct.

Chirag Shah - Axis Capital: so can you throw some light what – is there any adjustment or how to read this number?

Kevin P D'sa - President, Finance: It's -- number is basically would lot depend on safe example the marketing spends. The marketing spend in the first quarter for the export market was lower.

Chirag Shah - Axis Capital: This may not necessary be the case. How should we look at this – is it right to look at a number of INR330 crores odd in that range, INR323 crores as quarterly run rate for other expenditure given the current level of operation that you have?

Kevin P D'sa - President, Finance: You put it much more – that would be much more comfortably taken into INR350 crores range.

Chirag Shah - Axis Capital: Okay. Fair point. Secondly, Kevin on this realized – if you look at other income, you have given an explanation giving a breakup of, let's say, some portion of investment income and a very small portion with others for INR53 crores or INR52.6 crores. Now is it largely realized forex gains or how – what it is?

Kevin P D'sa - President, Finance: This is other income. You see when you talk of operating income with a figure of INR102 crores. This INR102 crores includes only scrap sales, royalty, drawback. But the Company also does as part of automobile business, it gets interest on its dealers credits. It gets something that is called, say, some provisions that are no longer required and a lot of these items which are, what I would say, relating to the automotive business, but not classified as core operating income. So that's the one that is taking. So if you look at my annual report for the last year which is available, you just minus out from that the drawback, the royalty and the scrap sales, and then you will get an idea of what is the other income that is there, which you'll realize is pure automobiles.

Chirag Shah - Axis Capital: This forex gain that you must be realizing, where would it – (that sit), it would be a part of this INR53 crores?

Kevin P D'sa - President, Finance: It's part of sales.

Chirag Shah - Axis Capital: Okay, so nothing comes over here on that side.

Kevin P D'sa - President, Finance: No, that's why if you see whereas in last year there's the mark-to-market reversal. Now I'll just explain it to you. This INR96 crores that is there reverses over the contract period. So to the extent it reverses over the contract period, that will come into other income.

Chirag Shah - Axis Capital: That will come into other income?

Kevin P D'sa - President, Finance: Yes. But that's why I don't take that other income nor do I take the mark-to-market loss as a part of my EBITDA margin.

Chirag Shah - Axis Capital: But that would not be a part of your – that would be part of just other portion of other income, right?

Kevin P D'sa - President, Finance: It will be a portion of the other portion of the other income. That's right.

Chirag Shah - Axis Capital: Other income…

Kevin P D'sa - President, Finance: If you've seen my press release, if you see the Q1 of the last year, you have INR56 crores of other income, which is pure automobile and you have a mark-to-market gain of INR33 crores which is of other – also is shown in automobile, which I don't consider as part of my EBITDA.

Chirag Shah - Axis Capital: Fair point.

Kevin P D'sa - President, Finance: Because this mark-to-market loss – let me again repeat, this mark-to-market loss is not pertaining to sales or anything of the past. The mark-to-market loss of INR96 crores relates to the valuation of the hedge that have taken an outstanding as of June 30, 2013.

Chirag Shah - Axis Capital: Kevin, second question was on the hedging side. Is it possible for you to share what is the period for which you have hedged now, because Annual Report indicate that second half – in second half you only have a hedge of $300 million odd from September onwards?

Kevin P D'sa - President, Finance: What we do is, as a policy we like to cover approximately about 60% of the total exports in a quarter. It won't hit the 60% on day one, but as that quarter comes closer and closer, that's when we start building up the 60% hedge. I'd tell you that I have covered 70% of my current year, the balance nine months, excluding (favor) of the first quarter and the second quarter, whereas third and fourth quarter there is a little bit chance open still. At the same time, in the ($740 million) what I have not included is the hedges that are taken for '14, '15, which is again for quarter one a part and a little for quarter two. The ($740 million) that I'm talking of the open hedges is only for the current year.

Chirag Shah - Axis Capital: For the current year, so for nine months basically

Kevin P D'sa - President, Finance: The nine months, yes.

Chirag Shah - Axis Capital: You highlighted the rates over there. The second question is on three-wheelers. Just to understand, how does the demand for three-wheelers, especially in the (diesel trade) shaping up for you? What are the drivers for that? Non-permit market, how it is shaping up?

Kevin P D'sa - President, Finance: For the industry, in the current quarter it has been negative 6%, whereas in our case, we've gone negative 3%. The diesel segment is reflection of the commercial activities and the trade in the economy coming off, and that's a reflection of just like you have seen the CV industry go down, you have seen the diesel segment also going up.

Chirag Shah - Axis Capital: On the passenger side, on this non-permit related demand, how big that could be, passenger three-wheeler non-permit demand?

Kevin P D'sa - President, Finance: No figure I can quote right now here. All I can – I am comfortable quoting is which I've mentioned that in quarter two, quarter three, quarter four, I should see an average sale of about 45,000 three-wheelers per month between domestic and exports.

Chirag Shah - Axis Capital: Again, just to deliberate, of the passenger industry demand, a large chunk would be permitted a demand, right, the metered three-wheeler. Is it right way of looking at it?

Kevin P D'sa - President, Finance: The right way of looking at it is that the opportunity is coming in from there basically because of Hyderabad permits and the Mumbai permits. Year '13, '14 the growth is going to be decided by the permit segment.

Chirag Shah - Axis Capital: Just a clarification on tax rate side, given that your investment in FMPs and all that, what would be your effective tax rate? Would it be lower than the current quarter? How should one look at tax rate for you?

Kevin P D'sa - President, Finance: Tax rate for me would be in line with the current quarter, maybe a 0.25% more than the current quarter.

Operator: Sonal Gupta, UBS Securities.

Sonal Gupta - UBS Securities: Kevin, just one on this domestic two-wheeler market share – and, I mean, you were expecting improvement with the new launches, but just wanted to understand as to – I mean, last year also we had a very good product in ST, and then there seems to be sort of market shares come down post – in the last couple of quarters. So I just want to understand as to how – what you're doing differently this time so that – I mean, which gives us the confidence that we will be able to recover more market share than…?

Kevin P D'sa - President, Finance: No, I cannot offer you any confidence because for myself it is only a question of saying that this is what we did last time, the ST 125, the ST 100, but what we see is very clearly is that the customer is also focusing on the low price point product, which is a 100 cc fuel efficient vehicle. So what we are doing is we are revamping the portfolio altogether by offering a much higher degree of technology. That's why I won't be able to share with you what the technology is all about at what I would call reasonable and affordable price points that are taking place. So all this thing is I can say is that we are trying our best in that matter. Whether I succeed or not only time will tell.

Sonal Gupta - UBS Securities: Just again, in terms of the export side, you've have cut it to 5%, but which are the markets that you think will be growing, I mean, out of this?

Kevin P D'sa - President, Finance: It will remain Africa. Primarily, Africa and my own view is that you should see Sri Lanka does bottom out, you'll start growing from here.

Sonal Gupta - UBS Securities: Just in terms of the FX realization, and there is going to be some translation or receivables gain as well, that should go in other income, right or how…?

Kevin P D'sa - President, Finance: That goes into other income.

Sonal Gupta - UBS Securities: Is that the INR53 crores?

Kevin P D'sa - President, Finance: No. INR53 crores is basically on account of interest on dealerships. It is on miscellaneous receipts. So that does take place. It is on vehicle service charges that you make a portion and then you write back or keep in the sync. There are various elements of that, so if you just look at my annual report, you'll see the number of heads, just go to that and you will see what are the different heads that are coming out, because like I mentioned to you the heads are very clearly given in the annual report and the quantum as compared to last year is very clearly mentioned. Just take the (couple) looking at the annual report last year and you'll get the figures matched.

Sonal Gupta - UBS Securities: This MTM loss is purely notional, this is not – there is nothing relating to the current quarter right?

Kevin P D'sa - President, Finance: It is absolutely off the future, like I'm saying it's 740 million or '13, '14, another 66 million of '14, '15 that impact of that – there is a time value which gets reversed. Now to understand what I'm saying is, look at my results for the year '11-'12. The year '11-'12 showed a INR134 crore charge, '12-'13 showed a reversal of INR134 crore by INR131 crores, which is a reversal of INR33 crores that came in quarter one, INR60 crore that came in quarter two and some X, Y, Z in quarter three and quarter four. So this INR96 crores will get reversed over the period. Now, let's us presume that the INR96 crores was pertaining only to the exports of quarter two. At the end of the quarter two, when their export gets translated, INR96 crores will get reversed and come into other income. It's completely a reversal. So, if you look again, as you look at my annual report, and if you look at my press release, I very clearly mentioned the INR134 crore that was the charge in '11-'12 got reversed in '12-'13 by INR131 crores. So this INR96 crore that is there will get reversed over the contract period. Now it also will be that is there are some new contracts coming and there is the further plus or minus that will get reflected automatically in quarter two. This is how not pertaining to the quarter, but it is a valuation of the contracts that we have entered into of 30th June outstanding which is sitting out there.

Sonal Gupta - UBS Securities: Just finally, Kevin, how much of the diesel three-wheelers now for you in terms of domestic volumes?

Kevin P D'sa - President, Finance: 7,000 a month

Sonal Gupta - UBS Securities: 7,000 a month.

Kevin P D'sa - President, Finance: Yes.

Operator: Sahil Kedia, Barclays.

Sahil Kedia - Barclays: I have a question regarding the VAT refund, Sir, was there an amount in this quarter?

Kevin P D'sa - President, Finance: No, it has come on 4th of July, so the figure that you saw is about INR6,391 crores does not include INR840 crores, so if it was on 5th of July, the amount would have been INR6,391 crores plus INR840 crores.

Sahil Kedia - Barclays: Sir, just one question regarding the accounting of this, this is VAT that we have paid to the government, which is recoverable, is that correct?

Kevin P D'sa - President, Finance: It's a balance sheet item, nothing to do with the P&L. The P&L impact only comes on account of the interest that I will earn on the INR840 crores. When I buy material from my vendors, I pay them VAT. That VAT is to be set off when I sell vehicles to my dealers, but since Waluj and Chakan do a substantial amount of exports on which there is no VAT payable, I cannot set off and therefore the refund that is always lying with the government.

Sahil Kedia - Barclays: What is the extent of the refund that is lying with the government at this stage, Sir?

Kevin P D'sa - President, Finance: At this stage, it is INR200 crores, that is therefore put into 31st March and as of 30th June one more quarter gets added, it will be another INR160 crores. The INR160 crores that is outstanding I would hope to receive it by about September end if not October, so unlike the past where we have this whole quantum of outstandings, we have worked with the government, spoken with the government, the government had made necessary changes in (fiscal year) budget where they created a new class of SSCs where SSCs who have got a particular percentage of exports can claim for quarterly refund and we are qualified for that and therefore, I do not see this sort of VAT piling up the way it has piled up in the past.

Sahil Kedia - Barclays: Sir, one more question. Can you give us and get us an update on the Jharkhand strike and what's happening…?

Kevin P D'sa - President, Finance: Currently, there is – hearing is on in the courts, like I had mentioned in press release 22nd. Whatever update comes, we'll be able to share with you at tomorrow morning or if something comes up earlier, we'll definitely giving a press release.

Sahil Kedia - Barclays: Can you give us a sense of what was the loss that you had or I mean the impact in Q1 just to help us understand in terms of...

Kevin P D'sa - President, Finance: In Q1, it would be approximately about 15,000 Pulsars is what we would have loss sales. But if I'm talking of loss sales up to today, I would say it's negligible, because from July we have started switching the production onto Waluj as well. So, currently between Waluj and Chakan, we are producing the desired number of Pulsars. So I would say that there has not been any loss of production that has – or sale that has taken place on account of these vehicles. Fortunately, at the retail level even though I did not sell 15,000 Pulsars in the month of June, there was no loss of retail at the dealer's end because the dealer had stock.

Operator: Pramod Amte, CIMB.

Pramod Amte - CIMB: Kevin, so net-net in terms of total volume for the Company, will this be a flat year or how does you…?

Kevin P D'sa - President, Finance: I won't be able to comment, because I know a vision of what I see happening in H2. But at least cumulative up to H1, I would see it for the industry and for the Company being more or less flattish.

Pramod Amte - CIMB: How are your inventories placed, especially in motorcycles?

Kevin P D'sa - President, Finance: As far as inventories are placed, I would – it is always a question of holding inventory for the next month sales. So I would say that my – as far as the Pulsar goes, we would be holding at about 21 day stock, purely on account of the past problem in Jharkhand. If I'm talking of the Discover stock, it would be close to five weeks.

Pramod Amte - CIMB: With regard to the quadricycle i.e. RE60, post this clearance from the central government, what type of operational hurdles do you see in terms of local RTOs, so when – what is the timeframe…?

Kevin P D'sa - President, Finance: That's a very grey area; I won't like to comment on that.

Pramod Amte - CIMB: So what's the timeline when it can hit the roads…?

Kevin P D'sa - President, Finance: I don't think it'll happen before six to eight months.

Operator: Jinesh Gandhi, Motilal Oswal.

Jinesh Gandhi - Motilal Oswal Securities: Kevin, couple of questions. First, on your hedging for FY '15, have you started that?

Kevin P D'sa - President, Finance: Surpassing that, as of 30th of June, we had taken a INR91 million cover for FY'15 and that will be sequentially increased every quarter. The demand that we are looking at is, at a lower end of 58, so 58 is the lower end. Right now the quotes are coming at 58 to 68.

Jinesh Gandhi - Motilal Oswal Securities: Secondly, in this quarter we had seen increase in our staff cost on Q-o-Q basis, is there any one-off or how should one look at it?

Kevin P D'sa - President, Finance: One is, you have to give me my increment for the year. Well, that is one of the benefit of the increment and another INR5 crores comes in because that our one-time payments like (indiscernible) and all that which you paid lump sum in the start of the year. So to that extend that is the amount. So, if you go into the next quarter, you should see it declining by about INR2 crores to INR3 crores and that will be remaining by and large constant right through the end of the year, where the end of the year the fourth quarter gets just started by the actual valuation of gratuity that takes place.

Jinesh Gandhi - Motilal Oswal Securities: Lastly, in the Annual Report you have mentioned about capacity additions by about 10%?

Kevin P D'sa - President, Finance: We are looking at a capacity of 6 million.

Jinesh Gandhi - Motilal Oswal Securities: Right. So, this incremental 600,000 will be coming up where?

Kevin P D'sa - President, Finance: Waluj.

Jinesh Gandhi - Motilal Oswal Securities: Waluj, okay. And this would be for…?

Kevin P D'sa - President, Finance: Motorcycles and three wheeler including RE.

Jinesh Gandhi - Motilal Oswal Securities: What would be our CapEx overall for this year and next year?

Kevin P D'sa - President, Finance: Our CapEx would be approximately INR400 crores and that would include about a INR100 crore for R&D and balance is for tooling the system for the RE 60, as well as for the capacity expansion.

Jinesh Gandhi - Motilal Oswal Securities: And INR400 crore is for this year?

Kevin P D'sa - President, Finance: Yes. This is budgeted, the cash flow maybe plus or minus, but this is the budgeted work orders that we will be releasing.

Jinesh Gandhi - Motilal Oswal Securities: And next year would be again similar kind of number?

Kevin P D'sa - President, Finance: I think for a company of our size, INR400 crores is what I would say a reasonable figure.

Operator: Jamshed Dadabhoy, Citigroup.

Jamshed Dadabhoy - Citigroup: Just one question Kevin, so on the Pulsar and Discover platform, so you've got in total about 10 variants, right now, between both models?

Kevin P D'sa - President, Finance: Yes.

Jamshed Dadabhoy - Citigroup: And another six I expected to come through…

Kevin P D'sa - President, Finance: No, no, no. Let us put it this way. Right now, for example, if you are talking about Discover variants, six or so that you have existing (having). Many of them, let's say, for example there is 4G and 5G, these are variants, but what sells is a 4G. Primarily the 100T, 125T, ST, and the other Discover 150, the 150 right now that is not selling. So, on paper there are four to six variants, but the vehicles that are contributing to major thing is the 4G, the 100T, 125ST, and the pure Discover 125.

Jamshed Dadabhoy - Citigroup: But even on this four, you'll have an additional six coming through. So would you…

Kevin P D'sa - President, Finance: It should cannibalize probably the four.

Jamshed Dadabhoy - Citigroup: Right.

Kevin P D'sa - President, Finance: So at any point of time, I don't think there will be 10 ranges of Discover selling in the market because it will not be possible for the Company to produce those SKUs. So what you'll see is basically about five or six of the family that we'll be selling.

Jamshed Dadabhoy - Citigroup: Agreed, but then how easy or difficult is it in this current environment for a dealer to really distinguish between – or differentiate between the products at this point in time when consumers are really hanging onto every rupee of theirs? Is this – this varianting strategy would work well in an upturn? But in a downturn have you seen it in the past yield, any results or benefits?

Kevin P D'sa - President, Finance: That is why most of the vehicles are coming out at the latter part when there is a festive season, where if you look at the (process), people like to buy what's new and something exciting. So, therefore, the launch that we are talking about has never been in the months when the markets are actually down. They are always launched in a period where the markets are buoyant. That's what we are planning to do is launching in September with Dussera and Diwali being around October.

Jamshed Dadabhoy - Citigroup: The thrust is going to be more on the fuel-efficient 100 cc space?

Kevin P D'sa - President, Finance: A combination of both.

Jamshed Dadabhoy - Citigroup: Second question related to this, Kevin, your ad spends were up about 40% year-on-year for fiscal years '13?

Kevin P D'sa - President, Finance: I presume you are looking at the Annual Report, and (multiple speaker) right now.

Jamshed Dadabhoy - Citigroup: Is that pace of growth going to continue this year?

Kevin P D'sa - President, Finance: That's why I'm saying that the pace of growth will not continue, because if you look at last year's spend, I would have spent almost about INR45 crores in the advertisement expenses in the foreign markets. So the percentage in total 40% will not necessarily continue at current year.

Jamshed Dadabhoy - Citigroup: What about spend just for Indonesia? They won't be just to this extent, does it?

Kevin P D'sa - President, Finance: That's right. So, therefore, we're not saying the hike that you're talking about and if you see in my opening remarks that were there, is my international expenditure (ex-admin) came down in the quarter, again because of the withdrawal from Indonesia.

Jamshed Dadabhoy - Citigroup: The 5% volume growth in export markets, that includes the 100,000, 150,000 odd which might come through from Indonesia?

Kevin P D'sa - President, Finance: No, no. 100,000, 150,000 will not come from Indonesia at all. Indonesia will be planning only about 15,000 to 18,000 this year, purely because of the fact that I'm launching it only in September.

Jamshed Dadabhoy - Citigroup: Your full year basis you would expect how much in Indo?

Kevin P D'sa - President, Finance: I would say that on a first full year basis if I do 40,000 numbers, it will be a success, because of the 40,000 are Pulsar only.

Operator: Malavika Madgula, NVS Brokerage.

Malavika Madgula - NVS Brokerage: Yes, with RBI taking steps to fight rupee depreciation, interest rates may go up. Could this affect the demand in two-wheeler and three-wheeler segment?

Kevin P D'sa - President, Finance: Yes, as far as I have always looked at it is the industry two-wheeler segment is not so – what shall I say, benefited to interest rates. What happens is that two-wheeler is dependent upon a lot of the things sentiment. So when interest rate goes up, sentiment gets all affected, housing loans become costly, the net take-on-pay get costlier. That's where the effect is out there on the – seen. Otherwise, it's relatively insensitive to the interest rates, purely again because even in the past two-wheeler loans are given at about 24% to 26% IRR and more importantly the amount finance is to be INR35,000 over three years of percentage increase or decrease and the IRR translates to a change of about INR50 to INR100 per vehicle.

Operator: Shailaja Sharma, Bloomberg TV.

Shailaja Sharma - Bloomberg TV: My question was also pertaining to the Chakan work stoppage. I believe the management has had a meeting with the workers union on Saturday. So, first I wanted to know what is the kind of headway that you've made with the sort of demands that they have in terms of what discussions, a progress with discussions that you've had. Secondly, just wanted to cross check in terms of the production loss, the number, I think last week in the press conference. The management mentioned that there has been a cumulative loss of 30,000 units so far collectively across all your branch, so can you also given an update in terms of what is the cumulative loss as on today.

Kevin P D'sa - President, Finance: No, I won't be able to – since I am not the concerned as right person to discuss on the current labor situation, I am quite sure the management will issue a press release of the latest position, so to that extent I won't be able to comment on that on to the labor where we are and whether we made headway or what is the progress of the Saturday discussion, we don't know. As I have mentioned to you there is hearing taking place today which is there in our press release also, so when something comes out on that, we will be able to highlight. As far as the second part is concerned, I understand, I was not there in the press conference, but as you mentioned, management has said there is cumulative loss of about 35,000 motorcycles, I think if you see a press statement even for the month of June, that's when we loss about 20,000 number because of the stoppage of work in the (gloss) in the month of June. In July onwards, we have started making production in Waluj also and therefore cumulative the figure 35,000 sounds reasonable. Having said that, I would say that at the retail level we have lost a single vehicle because the dealer is carrying stock. I would reiterate that management has always mentioned that for us it's not so much a loss of production that is of critical nature to us, but the loss of culture that is what we are feeling more because Chakan was always been, what I would say, the laboratory for the Company, which was full of youngsters, which have creative ideas and we would like that culture which has become a casualty to be brought back to normal.

Operator: Vaishali Jajoo, Aegon Religare.

Vaishali Jajoo - AEGON Religare: Just one general question on the industry trend If you take a long-term view on the industry and if you see the GDP declining, does that – it gives a change in the vehicle market, it's people – ownership cost of the two-wheeler is more affordable and that's why the growth of two-wheeler will be higher in terms of lower GDP growth or something like that? If you can...

Kevin P D'sa - President, Finance: No, in fact, it's the other way around. If you track the last five years trend, you see the higher the GDP, the greater the growth rate.

Vaishali Jajoo - AEGON Religare: So it doesn't shift actually back or postponed the four-wheelers and...

Kevin P D'sa - President, Finance: No. But I would say is that when you have a falling GDP, the growth comes down and again what happens is when the GDP starts coming off and the growth also tapers off, people become much more cautious, much more rational in their purchases and then the premium segment which was earlier 20% of the segment is hurt the most, where today is currently about – just about 14% of the segment.

Vaishali Jajoo - AEGON Religare: It doesn't shift the people actually who are a perspective buyers for four-wheeler can again...

Kevin P D'sa - President, Finance: No, no, no, no. That's why the four-wheeler growth and the two-wheeler growth are completely unrelated.

Operator: (Akil, A'ayan Capital).

Akil - A'ayan Capital: Sir, just going through your Annual Report, in your gross (block) addition, there has been about INR270 crores odd in vehicle and aircraft. What's happening there?

Kevin P D'sa - President, Finance: As far as you are aware, we have been owning aircrafts for the last 25 years. We have a Global 5000, which was – it was acquired in 2007, which is a second-hand aircraft. That completes eight years (indiscernible) and it was best to replace this existing aircraft with a new aircraft and that's why the new Global 5000 was – it's a Global 5000 Vision that has been purchased to replace the existing Global 5000. Unfortunately, the Global 5000 that we imported under NSOP category, there was a little bit of dispute between the custom authority and us, and that is right now under discussion; and legal thing, (as of) 31st July, there is a settlement hearing that is taking place. If that gets settled and we get cleared out of this, then the existing Global 5000 will be sold. The Global 5000 Vision, the new one that is shown as an addition was a replacement, but because of this issue of the custom authorities, we happened to have two aircrafts, but one is supposed to have been sold off and the money utilized partially to purchase the new one. You ask why the need for the aircraft, the aircraft is required definitely because the Company is expanding, there is a need to go – because time has become important; so there are visits to KTM, there are visits to Indonesia, there are visits all over and therefore the need for the aircraft is very much and quite necessary. Just to re-clarify that we've been having an aircraft for the last 25 years.

Akil - A'ayan Capital: Sir, one question. I think a lot of other analysts asked about the confusion regarding other income and you were mentioning about the line items in your Annual Report. So, I am referring to Page 147.

Kevin P D'sa - President, Finance: Can I just pick up one report? Just give me two minutes. You are talking of Page 147.

Akil - A'ayan Capital: Yes. Page 147, the second last line item, which is basically gains on exchange fluctuations.

Kevin P D'sa - President, Finance: Correct.

Akil - A'ayan Capital: Now, where does this come from? Is this restatement of some foreign debtors or something?

Kevin P D'sa - President, Finance: This is gains on foreign exchange comes in on account of the revaluation of the EFC balance and the debtors. But since I just have not seen the other figure were the same, but I think you are looking at the consolidated results.

Akil - A'ayan Capital: Yes. Right.

Kevin P D'sa - President, Finance: Just look at the standalone results, the figures will still be more or less the same. But just to make sure that you are looking at the figure that is there which is the similar figure. (Multiple Speakers).

Akil - A'ayan Capital: This could be devaluation of assets?

Kevin P D'sa - President, Finance: Yes.

Akil - A'ayan Capital: Sir, final question, if it's possible. In your quarterly press release, you've given the M2M gain and loss for Q1 and for – Q1 FY'14, and Q1 FY'13. Can you share the same figures for Q2, Q3 and Q4?

Kevin P D'sa - President, Finance: Q2 is 60.

Akil - A'ayan Capital: 60 would be gain?

Kevin P D'sa - President, Finance: Gain, yeah. So, I think Q3 would be about 25, 30, and the balance I think as far as I know Q4 is 16. '16 and total should be (INR131 crore).

Akil - A'ayan Capital: Yeah, (INR131.9 crore).

Kevin P D'sa - President, Finance: That's perfect.

Operator: Chirag Shah, Axis Capital.

Chirag Shah - Axis Capital: Kevin, just wanted to understand on the conversion costs. Has the pass-through happened in this quarter or – and how (thin) they're looking over there on the raw material side?

Kevin P D'sa - President, Finance: On the raw material side, I don't understand what you mean pass-through?

Chirag Shah - Axis Capital: I mean have been hikes given on the conversion cost increases that the inflationary pressure on the – you have been highlighting that conversion cost is what…

Kevin P D'sa - President, Finance: All costs – for example, let me be clear that all costs of the Company are current and we don't have any backlog in terms of the other companies or whether steel, weather it is aluminium, whether it's conversion costs, there is no retrospective effect of giving data. So whatever costs are there have been factored in. To the extent there has been demand for conversion cost with the labor, et cetera, has been passed on if agreed upon.

Chirag Shah - Axis Capital: Is it possible to indicate what are the kind of inflationary pressure you're witnessing on conversion cost?

Kevin P D'sa - President, Finance: I don't have a figure, but I would say that it should be in the range of about 3% to 4%, not on the material but purely on the conversion costs. So (motor-motor) I would say, for the industry the conversion cost will be about INR100.

Chirag Shah - Axis Capital: INR100. On the metal cost, is there any favorable impact with – our current year has taken away the favorable impact, how one should look at that?

Kevin P D'sa - President, Finance: As far as input costs are concerned, I would say that it is by and large muted. As far as steel is concerned, it is negative, but as far as aluminium has gone positive – I mean steel has gone a positive for us, negative in the price increase; as far as aluminium, quarter two will show an increase. So net-net, because of the rupee where it stands today, there will not be a significant benefit on the material cost to a Indian manufacturer.

Chirag Shah - Axis Capital: Another question I had on the Discover branding, wanted to understand that how is the positioning of Discover in last two years on the so-called rural markets, given the expectation that agrarian economy should do well and hence the rural market, demand should see an uptick on two-wheelers?

Kevin P D'sa - President, Finance: If it's okay we'll take it offline.

Operator: Akshay Saxena, Credit Suisse.

Jatin Chawla - Credit Suisse: This is Jatin. I had a question on the Nigeria market; you mentioned that there is a ban on two-wheelers being used as taxis? Are we seeing a lot of demand coming for three-wheelers in that case?

Kevin P D'sa - President, Finance: Three-wheeler demand is stable. There is no reflection of this band having a positive effect on three-wheelers.

Jatin Chawla - Credit Suisse: So they are not replacing two-wheeler taxis with three-wheelers?

Kevin P D'sa - President, Finance: No.

Jatin Chawla - Credit Suisse: The second question was on what kind of subventions do we have in the domestic market right now and one broadly you know as a strategy you mentioned you wanted to some of forex gains in some markets to develop demand. Any thought process about doing that, the same for the domestic market as well, which is also a very stagnant for a while. So a thought process around using some of these forex gains in their domestic market to boost demand?

Operator: Participants are requested please standby, the (Leader) got disconnected we'll join him shortly, I repeat the participants please standby.

Jatin Chawla - Credit Suisse: Sir, my question was on one on the subvention in the domestic market, and second on your willingness to use some of this forex benefits in the domestic market, because you mentioned you may use them in – to see developed demand in some of the export markets. Are you planning to do the same in the domestic market as well?

Kevin P D'sa - President, Finance: As far as the subvention is concerned, what we are seeing is many other manufacturers i.e., not getting into a price cuts or direct subvention, but what they are doing is by offering a little bit of interest benefit on the finance schemes and that's what Bajaj has done. There was a scheme for the Discover and there is current scheme going on for the Discover as well that is extended up to 31st July. As far as the foreign market is concerned and the exports are concerned, we operate each business vertical, separately with no cross subsidies between each other, so there is no question of the benefit of exports being used for financing are supporting the domestic part of the play. Each business runs independently.

Jatin Chawla - Credit Suisse: One follow-up question on the variance bid was, we have seen – you had introduced the Discover 4G, which in terms of features I think where we had very little difference where the price cut was a big one same we have seen Honda do with the Activa, where the Activa-i has come in, again, with a big price cut. So as manufacturers are not taking big price cuts per se, we are seeing introduction of variants and into this sort of an indirect price cut or discounting in that sense.

Kevin P D'sa - President, Finance: I think what we'll be doing in our case will definitely be adding – offering value, we're offering technology, but may not be able to pass on the full cost and profitability at that. But net-net, I would still predict that my overall Discover EBITDA margins will remain intact as a portfolio, but there may be shifts between a product or so, which one may give a higher margin and one may give a sacrificed margin, but what happens is in the Discover portfolio and brand per se expense, my overall EBITDA margins remain intact, because of the allocation of (arrangement) and the allocation of overheads.

Jatin Chawla - Credit Suisse: The impact of this subvention on margins, there should not be much is that the right way to look at it?

Kevin P D'sa - President, Finance: That's not much, because in any case it's restricted only to the cases that are financed and there is not on the whole range.

Operator: Jiten Doshi, ENAM.

Jiten Doshi - ENAM: Kevin, just wanted to know is there any registration process for the RE60 in any of the other markets apart from India?

Kevin P D'sa - President, Finance: I won't be able to comment on that, because I don't have the knowledge. Right now, for example, we know that Sri Lanka, which is the target market, we can export it without any hindrances, et cetera. But beyond Sri Lanka, I myself am not aware, because I've not checked.

Jiten Doshi - ENAM: Okay. So, basically, this would be primarily targeted for Africa and South Asia right?

Kevin P D'sa - President, Finance: No, Sri Lanka. Right now I'm saying that India, Sri Lanka is the priority right now.

Jiten Doshi - ENAM: Right. At some stage we'll move this into Africa also, right?

Kevin P D'sa - President, Finance: Yes, at some stage. So that roadmap, I don't have.

Jiten Doshi - ENAM: Okay. So you're not familiar what the laws are, et cetera, out there too?

Kevin P D'sa - President, Finance: No. Not at all...

Jiten Doshi - ENAM: What sort of volumes can we see for this, Kevin, in the next 18 months?

Kevin P D'sa - President, Finance: It's a new segment altogether, so I don't know I have a figure, but let's say, for example, in fact, as far as manufacturing is concerned, we have built a capacity of 60,000 numbers per annum.

Jiten Doshi - ENAM: That's this year?

Kevin P D'sa - President, Finance: That's next year, because production has only started sometime in March.

Jiten Doshi - ENAM: That can ramp up very easily right?

Kevin P D'sa - President, Finance: I mean as far as manufacturing and capacities are concerned – what shall I say? The window takes about six to eight months would take out the capacity, so that's not an issue.

Jiten Doshi - ENAM: What sort of – I mean, do you get any feeling from the pricing – do you get any feel as of the pricing in all these markets or – ?

Kevin P D'sa - President, Finance: No comment on pricing.

Operator: Ambrish Mishra, JM Financials.

Ambrish Mishra - JM Financials: Kevin, just had one question on – you spoke about Indonesia numbers, about I think 18,000 to 20,000 for this fiscal and roughly 40,000 for next. Is this what we are looking with the new association with Kawasaki or what's the kind of potential we could have from this relationship over, let's say, two to three year period if just a broad random markets, because we also had plans of going to Brazil and some other markets?

Kevin P D'sa - President, Finance: Correct. So what was – as part of the Kawasaki tie-up is concerned, it would take a three to four year horizon. The potential is huge because we have already succeeded and that means we hope to succeed in Indonesia, we would look at Brazil, may be it will come in '15, '16, those are the opportunities that we see. We see very much that and I think there is no reason why this partnership could not succeed because we have demonstrated a success in the Philippines and just for the information of everybody, we went into the Philippines at the same time we went into Indonesia. We went into Indonesia on our own. We went into Philippines with Kawasaki. Kawasaki's market share in the Philippines was 10%, today Bajaj and Kawasaki have a market share of 45%, of which Bajaj's market share is 35%. So, I think that's – the example is, what has convinced Kawasaki and Bajaj to go the same way in Indonesia and rest of the world. As far as I see it, my figure of 18,000 coming from August onwards is good because of the peak. I never sold more than 22,000 numbers of Pulsars in Indonesia. My belief is that with Kawasaki, on a full year basis of maybe '14, '15, 40,000 numbers would be a right number to target and aspire for.

Ambrish Mishra - JM Financials: Kevin, just last question, any price hikes so that we have taken or we are planning to take in the domestic market?

Kevin P D'sa - President, Finance: No. We have not taken any price hikes. The last price hike we took was in end of April.

Operator: Sonal Gupta, UBS Securities.

Sonal Gupta - UBS Securities: Kevin, just one question on – I mean just for understanding, because last year in Q2, you had, I guess, the full true for the industry as well. There was a significant inventory correction. So, the base is fairly low. I mean you are still guiding towards sort of a de-growth. Is the moment – I mean, is the moment that weak that I mean on a low base, you don't see any growth in that region?

Kevin P D'sa - President, Finance: Again, if you see quarter two last year, when you talk of the destocking, I think the correct has been by Hero. And that also the correction came in August and September. As far as we are concerned, we were never overstocked, right, from April, May and June, and if you remember all my conversations last year, I was mentioning that I am underperforming because competition is putting more inventory into the system. If you look at Hero's numbers also, you will see the drastic fall that took place in August and September because of stock correction at their end; that was last year. In the current year, I'm presuming that that stock correction is not so required, but they will not make the mistake of putting in stocks addition to the system as of now, and to that extent, I'm still maintaining that the industry will show a decline of minus 2% for this quarter.

Sonal Gupta - UBS Securities: Because – no, I mean, of course, Hero was more drastic, but even for you the numbers that I have is like minus 12% for…

Kevin P D'sa - President, Finance: Talk about absolute numbers. What are the absolute numbers?

Sonal Gupta - UBS Securities: Absolute number was to (600 and 1.6 lakh).

Kevin P D'sa - President, Finance: This is what I'm saying that I should not be able to miss it out by less than 2% to 3%.

Sonal Gupta - UBS Securities: Just finally, Kevin, are there any price increases on the three-wheeler side?

Kevin P D'sa - President, Finance: Three-wheeler side, nothing.

Operator: Govind Chellappa, Jefferies.

Govind Chellappa - Jefferies: Quick question. If today you decide to get into scooters; from the time you'd decide to the time you launch, how long will it take?

Kevin P D'sa - President, Finance: Very hypothetical. Scooters, they are just not under the (thing). So we've not done that yet.

Govind Chellappa - Jefferies: But generally, if you have to say develop a new scooter platform, is it very different from in terms of timelines from motorcycles?

Kevin P D'sa - President, Finance: Very hypothetical. Please no comment here.

Govind Chellappa - Jefferies: Secondly, are you seeing any convergence at the retail level on scooter and motorcycle sales?

Kevin P D'sa - President, Finance: As in?

Govind Chellappa - Jefferies: At the growth rates? They have been vastly different so far, but they had been converging for a while, but that's on the wholesale. So on the retail side, are you seeing any convergence on growth rates?

Kevin P D'sa - President, Finance: I think as far as scooter goes, retails will be more or less in line with wholesale. That is, again, primarily because wholesale and retail are decided by Activa. So I think whatever is happening in the retail level is more or less what's happening on the wholesale level.

Govind Chellappa - Jefferies: So there still is a significant divergence on growth rates.

Kevin P D'sa - President, Finance: Yes.

Operator: Srinivas Rao, Deutsche Bank.

Srinivas Rao - Deutsche Bank: Two questions. Any commentary on the rural versus urban demand trends over the last six months, would be helpful?

Kevin P D'sa - President, Finance: No. I think (we're) not being able to track that to really share something new to you yet.

Srinivas Rao - Deutsche Bank: Is there like the urban continues to be slow or you are seeing kind of a --?

Kevin P D'sa - President, Finance: Or else that – we always maintain because of the rural part being less penetrated, rural will grow faster than the urban. But is that pattern changing drastically? The answer is no.

Srinivas Rao - Deutsche Bank: Second, I know you have a cruiser kind of a bike in Avenger, so to say. We have never seen any commentary around that. The reason I ask you is (iShare) with Royal Enfield is kind of doing well in a segment which is, so to say, a lifestyle segment within the motorcycle space. Is that something which you guys have thought about it?

Kevin P D'sa - President, Finance: We very much thought about it. We sell about 4,000. There is demand for that. So I'm saying that we are not looking at a new brand as such, but we are quite happy with the 4,000 production and there we'll produce it. But there is no sort of (I feel) brand to be created and worked on that.

Srinivas Rao - Deutsche Bank: Is it something which you think cannot – when it cannot scale up to like a 10,000 (in it) per month kind of a number.

Kevin P D'sa - President, Finance: I believe not at this stage.

Operator: Sahil Kedia, Barclays

Sahil Kedia - Barclays: I have one follow-up question. Sir, can you give us a little bit of update on KTM, especially after the new launch that we have done?

Kevin P D'sa - President, Finance: Are you talking about KTM India or KTM Austria?

Sahil Kedia - Barclays: KTM production that we are doing from here sir?

Kevin P D'sa - President, Finance: The KTM production that all we do is approximately about 25,000 vehicles per annum of which about 19,000 gets exported to KTM and about 7,000 sold in India. As far as if you look at results between India, Chakan produces close to about 30% of KTM's worldwide requirement and the products that we launched over here is doing extremely well. The new 390 that we launched has priced very attractively and I think that should give significant volumes. My estimate for this product between KTM in India is approximately about 10,000 numbers for the year '13-'14.

Sahil Kedia - Barclays: 25,000 number is last year's number. Is that correct?

Kevin P D'sa - President, Finance: Yes.

Sahil Kedia - Barclays: so this is expected to go up with the new launch to…

Kevin P D'sa - President, Finance: For about 30,000 in total.

Sahil Kedia - Barclays: 30,000 in total, and sir one more question if I may. Has there been any price increase in the quarter, in the domestic market?

Kevin P D'sa - President, Finance: No. Price increase in the domestic market across the board as I had mentioned to you in April we have done it.

Sahil Kedia - Barclays: But nothing post that?

Kevin P D'sa - President, Finance: Nothing post that.

Operator: Kaushal Maroo, Emkay Global Financial.

Kaushal Maroo - Emkay Global Financial: As the most questioned answered, I just wanted to know what reminds a strategy on hedging whether we take range forward covers of your forwards?

Kevin P D'sa - President, Finance: All our range covers because we don't like to play God and decide what the price is. We'd like to make sure that we have range, the price point that we decide is that we do have conversion at whatever INR53 at a $1. We make sure that the lower end of that INR58 and we keep upper cover of about INR68. So one we are looking into – today for example, the rupee is at INR59.4, I have a path forward available at INR64, but we don't want to play the INR64, because we don't know which way the rupee will go. So we're very more happier to lock it at the lower end of the INR58, which just shows me all my desired margins well in excess of my target, at the same time keep the option available to go up to INR68 if the rupee goes one way. Now we are not in a – and when we're seeing a trend of a declining rupee, we're not in a hurry to rush in for hedges, we'll take our time and then only when the INR58 target price is threatened, that's when we may accelerate our covers.

Kaushal Maroo - Emkay Global Financial: Then last question on Sri Lanka. Can you tell me the current two-wheeler and three-wheeler run rates that we are doing there?

Kevin P D'sa - President, Finance: It's about 6,000 of motorcycles and about 5,000 of three-wheelers.

Operator: Thank you, Sir. That does conclude our conference for today. Thank you for participating. You may all disconnect now.