Notwithstanding the impact that the second wave of covid-19 will leave on the economy, Nagesh Basavanhalli, Managing Director and Group Chief Executive Officer, Greaves Cotton Ltd is optimistic that the demand for electric and sustainable mobility will continue to grow, thanks to the declining total cost of ownership of electric vehicles when compared to the vehicles powered by the internal combustion engines. The company continues to focus on improving quality and expanding its network besides launching new products. Excerpts from the interview:
How was the last fiscal for Greaves Cotton and how does this year look like given we are witnessing a second wave of covid-19 cases?
There were two phases in the last fiscal, the first half and the second half. While H1 FY21 was dominated by covid-19 and its impact on the economy, H2, which was Q3 and Q4, was better. The March quarter saw strong results based on our diversification strategies.
Q4 revenues were at Rs 520 crore against Rs 386 crore in Q4 FY20. The Ebidta (earnings before interest, taxes, depreciation and amortisation) was at Rs 42 crore against Rs 24 crore in the year-ago period. This has come when the three-wheeler business is down about 60% YoY. So while our core business was down, the new businesses that we have started as part of our diversification strategy, from automotive to non-automotive, have a fuel-agnostic play including diesel, CNG and electric. The new business share went up to 30% (in overall turnover). We finished on a strong cash position of Rs 270 crore. Our cash flow has also improved over the last one year.
Last year we rationalised our business plans. Looking at what I call the traditional businesses, we moved them to forward looking businesses – repair, multi-brand spares and services, e-mobility and finance. Finance is an enabler for our e-mobility business.
We have announced an investment of Rs 700 crore investment over the next 10 years with the Tamil Nadu government for Ampere to build a million two-wheelers. We acquired an electric three-wheeler company last year. Ampere’s revenue went upto Rs 180 crores. This means a 100% volume growth YoY.
Further, we added dealerships through the downturn and our pan-India network stands at more than 358 outlets for electric two-wheelers (under Ampere) and over 165 outlets for the three-wheeler business. On the Greaves retail side, we have a network of more than 200 stores, which also sell portions of the Ampere portfolio. So our retail network is now beginning to take shape.
Our B2B business has also recorded growth. We now have almost 50 tie-ups across food, retail, e-commerce and ride-sharing.
We introduced Magnus Pro (electric scooter under Ampere umbrella) a few months ago, that is doing well, fortunately for us the demand is outstripping supply. We are fixing the supply chain and some of the capacity issues, which should only help us as we go forward. We have also added good talent across our marketing, manufacturing, strategy and engineering teams.
For the current fiscal I would say that the second wave, local lockdowns will hit the supply chain and demand in May, as it did in April. But going forward the demand for personal mobility for electric scooters will remain strong. Even in this environment, our dealers are demonstrating a healthy order input to us, which is a good news. Sustainable mobility in two- and three-wheelers will only get better in the following quarters.
Until the end of April, vehicle manufacturers were holding their production schedules for the June quarter. But several OEMs are shutting down their plants and revising their targets based on the evolving situation. In terms of consumer sentiment, wherein we are witnessing large numbers of casualties, rising medical bills, do you think the road to recovery this year would be longer?
These are very tough times when it comes to people’s matters. While we cannot control the macro narrative, at Greaves we were also hoping that things will come back very quickly. However, the schedules are changing every week as the situation is very dynamic. Clearly Q1 will be impacted, what happens beyond Q1 we will know only by May-end or June first week.
Clearly shared mobility will be under pressure. That includes three-wheelers, public transportation. However, when I look at certain areas where we have invested, Ampere range of personal mobility products look promising as people in these times want to have their own vehicle and want to avoid public transportation. They want sustainable solutions and that will continue to see traction.
In the non-auto engines, we saw a significant uptick of 56% YoY in Q4 FY21 sales leading to one of the highest revenues quarterly. The small engines are used for marine, defense, farms, general applications in hospitals, among other areas. That business will continue to perform because it is about immediate human needs whether you use gensets in construction, infrastructure, or several other areas. We believe that may not be as impacted. We are going to work with the supply chain to pivot and be ready as soon as the market moves.
Do you see electric scooters eating into the market share of petrol scooters, especially at a time when the pandemic has put middle-class families in financial stress?
Firstly, in India the market size of two-wheelers is quite big, in a traditional, non-Covid scenario, and then there are a lot of first time buyers still coming in. When we bought Ampere almost three years ago, the annual revenue was Rs 18 crore. It is at Rs 180 crore today.
Our high-speed electric scooters have recorded a significant uptick in volumes at a time when the demand for overall electric two-wheelers has seen a slight dip YoY because of the pandemic. So our high speed product mix went up, our lithium product mix (against lead acid battery) improved, our average selling price increased and we were one of the fastest growing brands. What does that tell you?
I think it tells you that while we are playing in the Rs 35,000 – Rs 90,000 range, our Magnus Pro e-scooter has a wait list. With more dealers joining us, the value proposition that electric two-wheelers bring is improving by the day. We are working to improve the quality, we are increasingly localising parts with the help of our Indian vendors and we continue to attract a lot of first time buyers, including millennials, high school and college students, housewives. They are looking at the total cost of ownership (TCO), the awareness of using EVs is growing, the technology is not the same as it was when we began nearly 4 years ago.
For an electric scooter with a small sized battery, its charging or battery swapping is not such a big issue as probably compared to the electric four-wheelers. So all of those factors and the confidence building among the consumers, our monthly run rate went up to over Rs 26 crore. That tells you the journey from Rs 18 crore to Rs 180 crore.
On the B2B side, we are increasingly engaging with partners across ecommerce delivery, ride sharing and other areas. They need custom-made, application-specific vehicles. The covid-19 scenario has enabled growth in online orders and deliveries. For these delivery workforce, TCO is very critical.
Can you please share a roadmap to the kind of EV volumes that you are looking at over the next 3-5 years?
In the last three years, we have picked up a significant market share – we are one of the top 3 in the electric two-wheeler market. What we have done is have a portfolio around slow-speed and high-speed electric two-wheelers, wherein we are seeing more demand for the high-speed, lithium battery powered scooters. In FY21, while Q1 was subdued, we grew about 25% in Q2, 35% in Q3 and 63% in Q4 YoY. So we ended FY21 with sales of about 23,000 units of electric scooters across high and low speed. FY20 volumes were about 18,000 units. So despite losing one complete quarter last fiscal, we saw a 23% growth in volume terms and 50% in terms of revenue YoY.
We will continue to improve our products, add capacity and capex, and we will not slow down in times like these and will continue to work with our suppliers and people because we believe that electric two- and three-wheelers have a lot of potential.
While I may not be able to give you the projections for the next year or two, but I can tell you that we will continue on the same trajectory that you have seen in the last 2 years. I say that because I know how the Magnus Pro is being received by the dealers, I know my dealers productivity and throughput is increasing. To add to that, we have started Greaves Finance, which is an enabler to drive electric two- and three-wheeler financing needs, which was not there earlier.
We started with a lot of new initiatives such as additional dealers, product quality, free cash flow, capex, financing, and the access to the 7,000 retailers in the aftermarket, access to the 10,000 mechanics who are also transitioning. That’s the overall ecosystem and that’s how we see this space evolving over time.
How do you look at the incumbents who are also looking at the electric two- and three-wheeler space aggressively?
Clearly our attempt will be to continue to expand our dealer network while improving our products and services. We also launched an Ampere Care, which is an app that ties up all our customer service requirements. We are going to move towards digital.
I don’t want to comment on the traditional players. They are very strong players and have deep pockets. So at some point in time they will all be involved in a very serious manner. But the advantage that I see is that the market size is big enough and the transition from IC engine to EVs is going to happen, sooner or later. The EV adoption is facing an awareness issue. When the traditional players join this space, consumer awareness will improve. So, I look at it as a positive.
Even if 25% of the overall two-wheeler market over the next several years is converted into electric, that’s a good enough market size for all of us. We already have 75,000 customers and we are reaching out to new customers every day. We are focusing on how we can satisfy their requirements without any interruptions.
What would be the capex for this fiscal?
On the Greaves side we have already said we will invest Rs 40-50 crore to spend on the growth projects. On the Ampere side, we have already announced investment of Rs 700 crore over the next 10 years in Tamil Nadu. That will go into setting up the manufacturing plants, capex, working capital, technologies, new products, R&D labs and other areas. You will see us investing in those areas and getting the plant ready. And we will continue to invest in the forward-looking business.
How many new products can we expect from the company over the next 2 years time?
Typically, we don’t talk about our product strategy but here is what I will tell you. Over the last 1 and a half to two years, Ampere has brought in 3 new products, across high and low speed portfolios. Magnus Pro was the last product that we had launched. So you can expect a couple of more new products over the next 18 to 24 months, especially as we move production to our upcoming unit in Ranipet. I won’t be able to share the exact timeline and product details.