On commodity price inflation - April and May we've had quite a fair degree of commodity price inflation. Does that potentially imply your openness to possibly pass some of that on in future quarters?
On product price going up which is linked to the question on inflation, basically the less sub-4 meters corrected downward by 10%, the more than 4 meter corrected downward by 8%. So far, we have taken 1 plus 1.5, 1.6, so 2.6. There's still headroom, I'm not saying we will exercise that headroom, but there's still headroom to get back to pre-September prices. We don't want to take it because then you are stuck on a high price and if commodity prices suddenly come down, which could happen depending on what happens to West Asia, then you are stuck on high prices beyond what you want. So it's a bit of a wait and watch right now. We are calibrating and we took 1.6. Some of our competitors didn't take anything at all.
On tractors - the volume guidance you've given, could you share some underlying assumptions for the industry? And do you think you'll gain market share in tractors with the transmission and product upgrade?
Rajesh: Why are we saying mid-single digit? Because the first half of last year was still on a relatively low base. So, when you break up the annual volumes, roughly 35%-40% of the annual volumes happen in the first season. So there is a growth opportunity on the first 40%. The third is the government spending on rural and agriculture continues to be positive. So, there's no science to this but just putting all of this together we think 5% is not unreasonable. On rainfall, no one knows. It's 65% probability that it will be below. Anish: We do not push our tractor and LCV teams to grow market share. At 44% and 52%, that's not the right thing to do. If they grow it from an execution standpoint, we're very happy with that but we're not tracking them to say that you have to grow market share. Rajesh: In tractors it takes a lot of time for customers to experience, see value, get word of mouth and multiply into market share.
When you look at the portfolio of companies outside of farm and autos today, if you have to pick one or two, where do you think is the highest incremental value creation potential in the next, say, 1-3 years? And on aerospace as a large potential?
Our approach again is long term. I want to build value in this for the next 15 years, not 1-3 years. Take aerospace - in the last 12 months, we've got a billion dollars of orders as compared to 150 million dollars of orders in 15 years. The aspiration for our aerospace business is to be among the Top5 aero structures companies in the world. Real estate - the profit today is 5X the average of the last 10 years. Holidays, similar. Powerol today is generating Rs. 276 crores of profit for the last year. We are calling it now the new energy business. Our Accelo business, the profit for Accelo this year was Rs. 224 crores. It has roughly a 50% market share in organized recycling. Classic Legends is doing very well today. So, I am not directly answering your question as to which 3 I would pick but if I would pick 3 then the other 7 wouldn't be there.
On the model cycle - 10 ICE SUVs and 6 EVs. How have you thought about increasing this? What does it mean in terms of CapEx, Powertrain? And since we are launching more ICE than EVs, how are we thinking about CAFE targets given the new draft? And on white spaces in 16 new models?
One of the clear white spaces is all the products that will come out of the NU_IQ platform. We really believe that the market in India for core SUVs is defined by a certain kind of ground clearance, seat height, etc., which are really SUV cores in the product DNA. That is roughly about 30%-35% of the total size of the PV pie. So, anyone who wants an SUV should be able to buy a core SUV rather than a crossover SUV. We believe that there is an opportunity for more upgraded rural focused vehicles. So, at an appropriate time we will bring a wider visibility to what the portfolio is and in July we will talk about the next CapEx cycle. We are still within the 3-year cycle that we have announced. Many of these new products will come out from the Nagpur facility as well.
On the tractor cycle - how do we think about the industry? Is it 6-9 months of downcycle and then we are back to normal? Or is it just the base effect that gets us worried about growth in the second half? And the 2-3 years growth outlook on the industry?
Normally cyclicity is also linked to base effects, right. So, the reason you see cyclicity is after you get into base effect. So, there is a perceived saturation and then there's a downcycle that follows for a while. The second half we have to be watchful of for two reasons because if there's a rainfall deficit, it's expected to happen to the later part of the year and not now. I mean, all the projections are talking about a rainfall deficit kicking in August, September. So, if rains are good in the current cycle or the current season, then it's probably not going to affect cycle 1. Now if rains, if actually the 35% probability kicks in, and there isn't a rainfall deficit then the second half only has to worry about base effect. So, we have to wait and watch to see what are these variables play out.
On the SUV launches for F27 - is the understanding right, it's more going to be about capacity debottlenecking and ramping up of 9S? And before NU_IQ, there isn't much for the rest of the calendar year.
All new in the F27? There's nothing all new. But it is more than capacity ramp up, so wait and watch.
On SUV growth guidance - 3rd successive year guiding mid-to-high teens. Back half on heavy base. Risk of fuel price increases and product price increases on commodity inflation. What are the building blocks of the SUV growth guidance?
Anish: The confidence comes from the demand that we've seen for our products. The fact that our capacity also hasn't been at the level we wanted to, even in the last couple of years, there were times we could have actually grown a little faster. We have put capacity in place. Rajesh: We are selling XUV7XO at around 7,000 a month. We're clearly seeing that supply constraint at 9.5, and it can go up further. 9S, which has added a clear new volume of 3,000, 4,000 plus. Bolero, Bolero Neo was tracking at around 7,000 a month before we introduced the refreshes. Thar 3Door and ROXX is also very strong. Scorpio-N is huge demand. We do believe that capacity is a bigger constraint than demand right now. We believe that 15 to 18% is not out of the realm of possibility.
On supply chain - gas supplies and DRAMs. Last quarter you mentioned 3-4 months visibility on DRAMs. How has that progressed? And gas situation for paint shops and manufacturing?
On the supply side, gas has been very difficult but has not caused any disruption. So, we have been able to manage for us and our supplier's availability of gas so far. Things have stabilized a lot in the last 2-3 weeks. It's much better than it was through March and parts of April. The big disruptor for us was manpower, first because of gas and then because of elections. The DRAMs, we were anticipating this 3, 4 months back and we have got aggressively into contracting and buying long, long quantity, whatever we could. There is a huge inflationary impact in doing that. But we have focused on fortifying our supply so far.
Over the past 5-6 years we've spoken about this target of 15-20% EPS growth, 18% ROE. Depending on volume drivers, does pricing represent a lever for us to manage the business within this range irrespective of the base?
I'll just clarify the range first is longer term view, not a view specifically for this year, so if I were to look at the next 5 years again, we'd be very comfortable in saying that we will grow 15%-20% a year for the next 5 years. It's possible one year may be slightly lower, one year may be slightly higher. But we would do not try to manage the quarterly number or the annual number to say it should, therefore, fall into this category. And which is why price decisions are not for that short term period, price decisions are based on what we need to build that category long term.
On BEV growth drivers - if you break it into three aspects: price differential between ICE and BEV, operating cost from fuel prices, charging infrastructure. From consumer sentiment perspective, which is the bigger driver of sustained demand?
EVs for us were not to be sold on economics but to be sold as lifestyle statements. The barriers we had to overcome was range anxiety and what happens to the life of the battery. Part of the range anxiety got overcome because we were going into multi-car households and a 500-kilometre range was a big reassurance. We've seen demand skew significantly to 79 kilowatt hour over 59, which is where we often said that our assumption on how the market will play out. Now our sales story has 'this is the value that you save over a 3-year or a 5-year period', which would go for a heavy user as much as Rs. 7 lakhs. The barrier to charging - within city usage, I don't think there is a worry about charging at all. So, the charging infrastructure is coming up. Competition is actually in the category growth - category penetration was 2% a year back, it's now 6%. We are at 9% plus or 10% plus now.
Whether the expected fuel price increase could be an extremely strong tailwind for EV demand than earlier going forward?
Yeah, it will. So, I'm just coming back to the economic story, that story gets stronger. If the fuel prices were to go up further, so that story gets stronger.
Update on the memory chip issue - are we behind that? Or is there anything that we could see in the coming months?
I don't think there is going to be a behind that on that, it just have to be stay ahead of that. That issue is not going to go away for a while because as we all know the memory chips are being driven into vast AI applications and that is not going to slow down for some point of time. So, it's really a question of building inventory or buying in the aftermarket. And we are aggressively buying in aftermarket to build inventory. But I don't think the issue is going to get behind us for a while. It is like semiconductors who are 4 years back.
On the EV side - could you share what was the PLI incentive you got this quarter? And are you getting it now for all the three models because we were talking about phases last quarter.
Rajesh: We now have, of course, the full 9E was PLI compliant. 9S; all variants are now are also PLI compliant. And B6 also, all variants are PLI compliant. So, basically, the whole portfolio is PLI compliant. Some of them were not ready in Q4, so we're not accrued in Q4. But we now have certification and approval for all the products from a PLI certification. Amar: Yeah, it's around Rs. 500 crores that we took as PLI for the quarter. Most of B6 will come in only in the first quarter.
How soon do you expect to see some listings from the unlisted? And timelines for listing?
One listing, Last Mile Mobility. And I didn't mention that one. That one has created the most amount of value for us. So, there we have gotten a business that outsiders have valued and put money in at that level. And as we put the listing in, we would see a significant value jump from a listing standpoint as well. What we have said publicly is in the sort of F27 end, F28 range. Actually, F28 to be more realistic than F27. So, Calendar Year 2027 is what I would look at.
Just on the EV targets and CAFE as well. How much EV penetration do you need? Over the 5-year block?
They are fungible because you get ICE and EV from the same NU_IQ platform. So, whatever we are doing on the NU_IQ platform is a common platform which enables us to do ICE and EV. So, we actually have a lot of fungibility. So, it is possible that the EV model of that product may do more than the ICE model. So, it is very fungible now. Between 13 to 21. So, we feel very comfortable with that.
On AI - how are we practically implementing this in terms of business leaders identifying opportunities? Are we getting some external vendors to see through the projects? Or developing internal capabilities within teams?
What we did about a year and a half ago is everyone working on AI across the group we put in one team. This is something unique we have done because normally we will have to each business on its own. And that team has been sharing information across all the businesses with regard to what's the best practice. But this space, we believe it has to be leaders of a process or leaders of a business that need to really get into detail to understand how to change that. As I mentioned earlier, I look at it more as Excel. We can't get someone external to come in and implement Excel, you've got to, in some ways, teach everyone Excel. And when we look at our transform projects, today we have only 15 transform projects we're running across the group. So, it's not as if we're running 500 transform projects but those projects will make an impact.
On April numbers - had some supply-side challenges or labor challenges. Is that something we should assume is behind and we are okay with the guidance we are giving out?
I'll explain April in two parts. So, firstly when you look at last year quarter one, that is F26 quarter one over F25 quarter one, we grew 22%, the rest of the industry degrew 4.7%. So, just keep that at the back of your mind when you look at the growth numbers of others, they're on an extremely low Q1 base. We grew 22% in Q1, so we are on a much higher Q1 base than anyone else is. So, when you are comparing X percent of anyone else, they were part of the -5. So, I'm just trying to set in context our number which, of course, was affected by primarily two suppliers, each of whom between PV and CV, fell short of our plan by 7,000-8,000. So, it was specific to suppliers, it wasn't an overall capacity issue. So, we are hoping May will not be like April. April was a huge disappointment for us.