Ladies and gentlemen, good day and welcome to the Q2 FY 2025 Earnings Conference Call of Maruti Suzuki India Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on the touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pranav Ambaprasad. Thank you, and over to you, sir.
Thank you, Ritwija. Ladies and gentlemen, good afternoon once again. Welcome you all to the Q2 FY 2025 earnings call. May I introduce you to the management team from Maruti Suzuki? Today, we have with us our Chief Investor Relations Officer, Mr. Rahul Bharti, and CFO, Mr. Arnab Roy. Before we begin, may I remind you of the safe harbor? We may be making some forward-looking statements that have to be understood in conjunction with uncertainty and the risks that the company faces. I also like to inform you that the call is being recorded, and the audio call and the transcript will be available at our website. May please note that in case of any inadvertent error during this live audio call, the transcript will be provided with the correct information.
The call will begin with a brief statement on the performance and outlook of our business by the Chief Investor Relations Officer and Executive Officer of Corporate Affairs, Mr. Rahul Bharti, after which we'll be happy to receive your questions. I would now like to invite our Chief Investor Relations Officer, Mr. Rahul Bharti. Over to you, sir.
Thanks, Pranav. Good afternoon, ladies and gentlemen, and thank you for joining us. I'll first share some major business highlights in the Q2, followed by our business performance of the company. So, some highlights. One, the manufacturing facility at Manesar achieved cumulative production of one crore units. With this, the Manesar facility became the fastest among Suzuki's global automobile manufacturing facilities to reach this milestone in just 18 years of inception. Just to recall, the company achieved a cumulative production of three crore units in April earlier this fiscal. In a constant endeavor to enhance customer convenience, the company keeps augmenting the sales and service network to reach closer to customers across the country. Recently, the company inaugurated its 500th Nexa sales outlet. So far, the company has delighted over 2.7 million customers through its Nexa showrooms across more than 300 cities.
Maruti Suzuki's sales network, Arena, Nexa, and Commercial now extends to 3,925 outlets covering about 2,600 towns and cities. Third, reaffirming the company's commitment to offer enhanced customer confidence, the company significantly enhanced its warranty programs for all its vehicles. Additionally, the company has also expanded the scope of its extended warranty packages and has introduced extended warranty options to cover the vehicle for up to six years or 160,000 kilometers, whichever is earlier. The consumer preference towards CNG vehicles continues to increase. In Q2 of this fiscal year, in every three cars, one car sold by the company was a CNG vehicle. Maruti Suzuki introduced S-CNG powertrain in its fourth-generation Epic New Swift. With this, Maruti Suzuki offers the industry's most comprehensive lineup of S-CNG vehicles with 14 models. Next, the Grand Vitara became the fastest to clock 2,000,000-unit sales in the mid-SUV segment since its launch.
Also, the Fronx SUV has set a new record, reaching the 2,000,000 sales mark in just 17.3 months. The company has commenced export of its Made in India Fronx SUV to Japan. Fronx will be the first SUV from Maruti Suzuki to be launched in Japan. The landmark milestone celebrates the spirit of Made in India and echoes national pride. The company also reaffirmed its commitment to green logistics by surpassing a landmark of 2 million cumulative vehicle dispatches using railways. This feat makes Maruti Suzuki India's first automobile company to attain this eco milestone. Over the last 10 years, this initiative has helped the company to save about 270 million liters of fuel. I now come to the business performance in the second quarter.
The company sold a total of 541,550 vehicles during the quarter, of which the domestic market volume was 463,834 vehicles, and the export volume was 77,716 vehicles. While the domestic volume declined by 3.9%, the export volume grew by 12.1% compared to the same period of the previous year. In the domestic market in the second quarter, demand for PVs continued to remain muted. The company continued to create an excitement in the market by introducing limited editions across segments and significantly increased its efforts to reach out to customers. To sweeten the offering for our customers, we raised our discounts, making our products even more attractive. As a result, despite the less-than-ideal market conditions, we could achieve retail sales nearly at par with the same period as previous year. In the ongoing festive season, the demand appears to be quite healthy, albeit with higher sales promotion.
Seasonally, because of the festive and the year-end phenomena, the sales effort in Q3 to maximize retail sales. With customer-centric events and initiatives, we are further increasing our focus on improving retail sales. In exports, the company continued to maintain a healthy growth in sales volume. The company commanded nearly 40% share of India's total passenger vehicle exports in Q2 and H1. Coming to the financial results in Q2, during the quarter, the company registered net sales of INR 355,891 million against INR 355,351 million in the same period of the previous year. The profit before tax for the quarter grew by 6.3% year-on-year to INR 51,005 million, being its highest ever for the company.
The net profit for the quarter declined to INR 30,692 million compared to INR 37,165 million due to a provision of INR 8,376 million, resulting from the withdrawal of indexation benefits and change in tax rate on long-term capital gains on debt mutual funds as per the Finance Act 2024. This impact was intimated earlier to the stock exchanges on 17th August this year. Since investors also look for a sequential comparison, I'll share. On a sequential basis, the operating profit margin EBIT has come down to 10.3% of net sales compared to 11.1% in the first quarter of the same financial year. The adverse commodity prices and higher sales promotion expenses have affected the operating margin performance by about 50 basis points and 80 basis points, respectively. Forex was favorable in the quarter.
It is to be noted that the bulk of benefit in Forex of about 60 basis points is accrued due to hedging gain and because of the nature of income. This benefit is accounted in non-operating income and is not captured in the operating margin. As explained in the last quarter, there is some seasonality in the employee cost and other operating income. While the employee cost softened by about 50 basis points over the first quarter, the other operating income was lower, thus nearly offsetting the benefit of lower employee cost. Sequentially, as the volume has increased by about 4%, the benefit of favorable operating leverage is to the tune of about 30-40 basis points.
Coming to the highlights of the financial results in H1, the company sold a total of 1,063,418 units during the period, comprising 915,142 units in the domestic market and 148,276 units in the export market. While the domestic market sales declined by 0.3%, the export sales volume grew by 11.9% year-on-year. The company registered its highest-ever half-yearly net sales of INR 694,644 million in H1 this year, as compared to INR 663,803 million of last year. Net profit in H1 was INR 67,191 million, as against INR 62,016 million in last year. We've also shared about the amalgamation of Suzuki Motor Gujarat Private Limited with Maruti Suzuki. Last year, SMG was acquired to become a 100% subsidiary of MSIL. The board considered the structure after the acquisition and gave an in-principle approval for the amalgamation of SMG with MSIL.
The appointed date for the amalgamation is 1st April 2025, subject to all legal and regulatory compliances. And towards my conclusion, I want to give the confidence to all our analysts and investors that auto business has its ups and downs and its cyclicity, but as a market leader, we have all the enablers in place to generate the best value for our shareholders. We're now ready to take your questions, feedback, and any other observations that you may have. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pramod Kumar from UBS. Please go ahead.
Yeah. Thanks a lot for the opportunity. So the first question is on the festive demand outlook for you guys have shared. If you can just provide some color because I pick up in media articles which have got published post the press meet that you're talking about the period ending with Shradh or start of Navratri till Diwali, based on whatever insight you have on the booking numbers and the scheduled delivery. The reason I'm asking that is because on Vahan, the cumulative festive retail for the industry is still down around 4% as of this morning. I understand there's a bit of a lag in retail to registration, but it can't be that the registration on Vahan is still reasonably mid-single digit negative, and we are talking about a double-digit growth.
So if you can just help us understand the period we are looking at and the data you're looking at, and also some color on what's the expected retail in this number of 3 lakh between today and till the end of Diwali, sir?
Okay. So this time, we have retained the festive period from the beginning of Shradh. I repeat, from the beginning of Shradh till Diwali. And the reason we are doing that is because there was a month-end in between. We wanted to avoid any impact of month-end sales to come into the picture to have a like-to-like comparison. So from the beginning of Shradh till Diwali, year-on-year, we have grown by 14% in our retail sales. Retail sales is relevant because in the festive period, that's what the true customer interest is. So against the last year figure of 260,000, this year, most likely, we'll be closing around 297,000. And I should also give you because sometimes wholesales clouds the picture. For the full year, April till October this time, we are hoping to clock about 3.9% growth in retail sales.
Sorry, can you repeat that, sir? Sorry, Rahul, I lost that. Can you repeat that, please?
For the full year, financial year till date, till date means till month, till October. So April to October, we hope to close at around 3.9% growth in retail sales.
Okay. Which I think till September was a decline, sir, if I'm not wrong, of 0.8% as per Vahan.
You're talking about wholesale?
I'm talking about Vahan retail, sir. April to September, Maruti retails are down 0.5% or thereabout as per Vahan.
Vahan still has, sooner or later, we want to switch over to Vahan. It still has some lag and some, for example, one state is not still a member, so sooner or later, Vahan will converge with our data, but year-on-year, April to October end, I mean, I think once they still left, we hope to do about 3.9% growth in retail sales, and festive period, which is beginning of Shradh till Diwali, we are expecting it to be about 14% growth, 1.4%. And not only that, we should end the month with a healthy inventory of just about one month or even lower.
So in a way, it is that the discounting you expect will not be seeing any step up, which you typically see in a big way during the December quarter, during the month of December.
Sorry, could you kindly repeat that?
So I'm saying, sir, given that the inventory is going to be not that high, the typical year-end December discount this year should not see a sharp spike as such. Is that the understanding?
So the pressure on discounts will not be there. Mostly, the pressure on discounts comes because of inventory. Fortunately, Maruti is, unlike many other companies in the market, we are comfortably placed as far as inventories are concerned.
On discounting, sir, what is the average discount per car what we had in the quarter?
I'd love it for.
Yeah. So the average discount per car in the quarter, this is Arnab speaking, is INR 29,300. 29,300.
And sir, more color on the demand because the demand going into the season for the industry was not looking good. So what has changed? If you can just help us some color on input, call, inquiry, conversion, regional flavor, urban versus rural, anything which you can share which can help us understand the demand, the festive demand, which according to you is turning out to be better. So if you can just help us understand that, that will be great, sir.
I would like to retrace a couple of steps. India is now the third largest car market. It does happen once a while that the market takes a breather. So we are not too of course, we would like the market to grow faster, but we are not too overly concerned about it. And I mean, the Indian customer does want to buy. So there are times when he's slightly dormant. There are times when he comes forward. And so this year, if you want to understand the outlook, we are hoping to close this year on retail sales about 3%-4% growth, which is precisely in line with maybe slightly better than the projection that we had at the beginning of the financial year.
Yeah. Yes, sir. And anything on urban-rural, what is doing better for you? Any regions, any segments which are doing well? Entry-level cars, are they coming back? Sorry, I'm kind of pressing on this, but this is actually the most topical thing on passenger car industry demand right now for Maruti, sir. So forgive me for this, but.
Rural is doing better than urban. And so we are expanding our Nexa outlets in the rural area also, other than Arena. And of course, we know that SUVs are going faster. SUVs are now from 50%; they have grown to about 54% now. This trend seems to continue for a while. And we are yet to see some strength in the small car segment. It is declining. But I can tell you that we were able to arrest the decline in small cars thanks to a lot of limited editions and giving some excitement in the market.
Fair. And with the seventh, the Pay Commission.
The rural is doing quite well.
Yeah.
Sorry.
When do you expect the Pay Commission benefits to kick in, sir?
See, it's very difficult to understand the Indian customer. It does not happen that today the notification comes out, tomorrow the sales increase. Many people would be doing it ahead of the announcement in anticipation. Many would like to defer it or time it according to their family needs. So there's no direct correlation that we can build it to a worksheet or an.
Sir, before I fall back in the queue, just a query. There's a clarification. I'm getting messages from clients. They just want to clarify again. The 14% growth, what you're referring to, is point-to-point, like-to-like, start of Shradh last year to the festive to start of Shradh this year till festive, right? Or is it start of Shradh?
Start of Shradh. Let me allow me to repeat it.
Yeah.
Start of Shradh till Diwali in retail sales year-on-year for 14% growth.
So it's the same thing. So the confusion was, are you saying end of Shradh last year to festive and start of Shradh this year to festive, which gives you additional growth? That's not the case, right?
This time, we are seeing start of Shradh for two reasons. One, there was a month-end coming in between. So we had to ignore the effect of that. So we included that. Plus, it's so interesting that when we have Shradh in North India, there are some festivals in South India also.
Yeah. Absolutely. So even in the base year, you're starting from Shradh, right? Am I right?
Yeah. Of course. It has to be a like-to-like comparison.
See, that was the confusion. So sorry. Sorry for this, but I'm getting queries from clients to clarify this. So I had to do that. Apologies for that. But thanks a lot, and I'll fall back in the queue. Thank you.
Thank you. Still in the queue. I thought you had yourself. Anyway, let's go ahead.
Thank you. The next question is from the line of Raghunandan from Nuvama Research. Please go ahead.
Thank you, sir, for the opportunity and congrats on the strong performance in the festive period. Sir, on festive period, just one question. How did you see the trend in terms of first-time and replacement buyers? And are you getting confidence of recovery in hatchbacks, given that there is some recovery in first-time buyers? And going forward, there could be benefits of expected interest rate cuts, Pay Commission benefits. How do you see, or by when do you see the recovery in hatchbacks? And also, relating to hatchbacks, how much would be the inventory in hatchbacks by end of the month?
So no major discernible change in trend that I can share at the moment. And inventory at the end of the month, we hope to be within one month total. Network inventory.
Got it, sir. And sir, in the press conference on hybrids.
Sorry to interrupt you. Mr. Raghunandan may be requested to please speak a little bit louder. We are unable to hear you.
Is it better now?
Yes, please go ahead.
Yeah. On hybrids, in press conference, there was indication of 25% road tax rebate. Can you talk about the road tax rebates in Punjab and other states and the benefits you are seeing because of this? On a related note, would you look at further expanding hybrid product portfolio in UVs and hatchbacks in future?
So some states are giving benefits on hybrids. For example, Haryana is giving 25% road tax waiver. Chandigarh is giving 50% road tax waiver. Rajasthan similarly is giving something. Chhattisgarh is giving something. There are some states which have it in their policy, but they are yet to implement it. Having said that, I think it's a great technology which saves CO2 and drastically cuts oil consumption and does not have the anxiety of range, no charging infrastructure requirement. So extremely customer-friendly. And we think in the immediate onwards for the middle term, it is a potent technology for both national objectives, CO2 and oil import cutting. So we would like to enhance it as much as possible.
Got it, sir. And on electric cars, Maruti's launch is expected to provide the best cost of ownership in the segment in January. Can you talk about the differentiating factor or USP of your upcoming electric SUV? I mean, in some of the media interactions, what we understand is it is based on a new platform. You're working on localization initiatives such as cell manufacturing. You're looking at enabling charging, and you also have export plans. So your thoughts will be very helpful here.
Okay. So thanks for this question. Actually, we will now be starting a campaign for our EV. It's a high-spec EV because we want to give customers confidence so that he can increase EV adoption without any concern on range, etc. So it's a freshly designed EV. It's not an ICE engine converted to an EV with high range. There are some changes in the government norms on range, so we'll be specifying the range at an appropriate time. But you can assume that it's a high range, approximately 60-kilowatt-hour battery. And of course, we will be exporting it. It will be made in India for the world. So many advanced markets like Europe and Japan. Customers in these countries will be benefiting from this EV. And I think there will be many milestones where we'll be showcasing it in different markets in Europe, in India.
In India, we'll have it in the Bharat Mobility Global Expo in January. And you may hear a lot on this in the next few weeks from us.
Got it, sir. Wishing you all the best on EVs and hybrids. Just a housekeeping question. Can you share the exports for Q2 in weeks?
The exports for Q2 is 70. It is actually the FOB volume. It's about 5,000. It's about 5,000 which is INR 61 crores in Rupee terms.
Got it, sir. And retails for Q2 will be 420,000?
Approximately.
Thank you, sir. Thank you so much. I'll fall back.
Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Hi. Thank you for taking my question. Good evening. I'm happy to call you too, all of you. My first question was on quarter-on-quarter gross margin movements. I noticed that most of the key commodities have been largely benign since April-May, such as steel, iron, copper. Also, in the P&L, the line item changes in inventories of finished goods was positive during the quarter. This is probably the first time in the last several years when this was positive. Usually, what happens is that you build factory inventory ahead of the festival. This year also, I think.
We interrupt you, Mr. Kumar Rakesh. May we request you to please repeat your question.
Hi. Sorry for that. I'll repeat my question. My first question was on quarter-on-quarter gross margin movement. I noticed most of the key commodities have been largely benign since April-May, such as steel, iron, copper. Also, in the P&L, the line item changes in inventory of finished goods was positive during the quarter. So this is probably the first time in the last several years when we saw this to be positive. Usually, there is a factory inventory build-up which happens in this quarter ahead of festival. This year also, I think you were building inventory for Dzire ahead of the launch. And hence, that shows up as a negative line item in the changes to inventory. So can you help us understand this movement in gross margin with whatever granularity you can? Thank you.
Yes, sure. See, there are a few factors which have contributed towards it. The first one is, as you would have seen, that the sales promotion expenses is slightly higher this quarter. So that is contributing on the gross margin impact. Commodity had some point around highlighted in the opening statement. That's about 0.5. So these are the two predominant factors which is impacted, which is on the sales promotion as well as the commodity of 0.5. Of course, we have some favorable impact on the exchange rate and other things.
Got it. Thank you, Arnab. I had a second question for you. So I mean, now it's almost a year since you would have joined, nine, 10 months now. And you have experience of working at multiple MNCs in the past. You've handled businesses which were spread across geographies, have seen raw material price volatility as well. So now, having settled at Maruti, what's your vision? How do you plan to handle the pricing versus margin, all those debates which we have had in the past? I understand Maruti already operates with very rigid cost control measures. But on a big picture basis, how do you plan to handle these debates going forward?
Look, I think we have to watch the market closely, how it goes. I think none of us have a crystal ball to predict, but we have to keep watching the market closely. I think, I mean, what we do is between operations, finance, we keep a very close watch on both commodity and forex, take appropriate hedging decisions as and when it is needed because there are several factors which have to be kept in mind. All we can say, I can tell you, is that we are extremely agile to the market. We are connected to the, I mean, the day-to-day movement, the macro things which keeps happening, and take appropriate calls. I mean, do we get it right every time? We get it right most of the time. It may not be every time.
Great. Thanks a lot for that. And happy Diwali again to all of you.
Happy Diwali to you all also.
Thank you. The next question is from the line of Binay from Morgan Stanley. Please go ahead.
Hi team. Thanks for the opportunity. Very encouraging to see the 14% commentary that we are seeing at least some signs of demand recovery. My question is on the discount side. Typically, in Q2, what we see is that we put in inventory, retail sales this week, and discounts run on retail sales, and the wholesale dispatches are higher. And then in Q3, actually, the discounts are paid out. So when you look at Q2 this year, is it fair to assume that retail number that you gave Q2 20, this time retail is higher than wholesale, so the actual discount will be lower? And secondly, any commentary on how do you see this discount number in Q3? Because this has been the big drag in gross margin this year, this quarter.
First of all, commenting on your Q2, yes, your analogy is right, that the retail is higher than the wholesale in Q2. And Rahul already gave you the October outlook, the festival outlook, so you can see the directional trend, how it is going. Directionally, we are in a position where retail is picking up. And if directionally retail picks up, there is no reason why we should have an abnormal behavior on discounts.
So the discounts in a way should be flatish. Fair to assume quarter to quarter? Because on your retail it assumes.
It goes back. You know, it's not easy to predict, but most manufacturers have cut prices drastically. We've had only a limited amount of discount. The good part is that our inventory will be less than one month, and we want it to be a month. If it is below a month, then some color, some variant will not be available to the customer because we have a huge range, a portfolio of models. So that should be sufficient indication.
Yeah. And just a second question, just two parts. One is that the 14% number that you are seeing, do you think this is in line with the industry as per your internal insight, or has Maruti gained share? And lastly, incremental commodity pressure, any commentary on that with the spot prices the way you are seeing? Thanks.
We won't be able to comment on competition, but yes, what we can say is the retail sale growth year till month, October included, is almost in line with that of market, maybe slightly lesser. But that said, it would be difficult to comment. And commodities is a mixed bag, so it's fairly flattish on an aggregate level if we talk about. There are some going up, some going down. So fairly stable.
Perfect. Thanks, team. Thanks.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Hi. Good evening, sir. I just want to understand for the growth for this, who we are talking of, 3%-4% in retail, and for stock has been flattish, so is it that we are feeling that demand conditions in second half of the year will be better, or are there any reasons where Maruti physically will gain share? Also on the CNG mix, if you could comment, we've seen very good improvement. It's at 33% already. Do you see this rising further, and any thoughts here where it could get to in the medium term?
I take your second question, sir. CNG, see, it's a story across multiple factors. One is the distribution infrastructure in the country. Today, we are at 7,000. It will go up to 17,000 by the turn of the decade. And the number of models will also keep going up. It has a lower CO2 footprint, so it's good for the environment also. Customers in upper segments, premium SUVs, are accepting it as a quality fuel. It's not supposed to be an economy fuel any longer. So there are factors going positive for it. We don't have a projection, but it's positive. Obviously, if you do the math, yes, then somewhere the H2 will be as what you discussed because we are projecting in retail sales 3%-4% for the whole year. And we did about 3.9% till October. So that's how we expect it to be.
Yeah, no, I was just trying to understand any factors that you feel will be supporting this. Well, it's the overall strength that you play, the network strength, the service strength, the number of models that you have, the number of powertrain technologies that you have. Of course, sometimes we have to sweeten the offer for our customers with some discounts also. So it's a combined strength of all factors that helps.
Okay. Are the discounts in this fiscal season higher than what they were last year?
I mean, quarter two numbers, I already told you. You have already seen the quarter two numbers, 29,300. But I mean, we fairly expect it to be stable in the remaining part of the year. You just have to keep in mind, Kapil, that last year, vehicles were in short supply.
Okay. Sure. Sure, sir. And just one last thing from my side. We have given a long-term target of having 28 models in our portfolio. Just trying to understand from a dealership footprint point of view, how do you think about the sales network to accommodate these models? If you understand what I'm trying to say.
Yeah, I understood what you're trying to say, so that is a question. When we had come to investors for during the time of SMG acquisition, we had mentioned how to manage scale with complexity is one of our biggest management thinking points, and this is one of them, so of course, we have to do some more thinking on it, and we'll keep updating you as we go along.
Sure, sir, and wish you all the best. The entire team of Maruti Suzuki wishes you a very happy Diwali as well.
Thank you.
Thank you. The next question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my questions. My first question is just on the model lineup. So I think we have mentioned that we plan to launch one EV per year over the next five to six years and potentially.
On an average, don't bind us to it. Because we are talking about five to six till the end of the decade, so that makes average one a year.
Got it. Got it. Makes sense. So one EV per year on average till the end of the decade, five to six potentially. We currently have about 20 Maruti Suzuki branded models in the market, and we're selling maybe three more through Toyota. So just trying to understand that 28 model number over time, is that likely to be mostly EV launches going forward with ICE refreshes, or do we have completely new ICE models also that can surprise and excite the market over the medium term?
So we have 18 now, and we want to reach about 28. And so of course, 10 is a net new 10 is a net addition in numbers. But among the 18 also, there will be some refreshments. And we have spoken about five to six EVs. That's how we look at the model lineup in the future.
Got it. That's helpful. And just trying to understand for the December quarter, how we are looking at key commodity prices that might affect our P&L, and also what effect we expect from whatever we've seen in lead lag on the Japanese yen in our accounts.
Yeah. See, on the commodity side, as we said earlier, we expect it to be fairly stable. There'll be pluses and minuses within a particular commodity. But as a basket, we expect it to be fairly stable. Yen, it's a big question. I mean, we have to see several macroeconomic factors. U.S. elections being one of them. But what we are doing is we are consciously stepping up our coverage with the hedging because at the end of the day, we are in a business of making cars. So we are setting up the hedging to see if we have less and less volatility on the exchange side.
Got it. That's helpful. And lastly, if you could just share the royalty number for the quarter, please.
Overall royalty in absolute value is about 3.4% of sales.
Got it. Thank you very much and all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah, hi. Thanks, team, for taking my question. I just had a few clarifications on the comments that you all made in press around the rural and the urban growth. Rural, you guys mentioned 8% and urban -2%. I assume this is for first half of the year. Is that correct?
No, no. It was not - 2% and 8%. Rural is positive. Urban is negative. On the net net, it is nearly flattish on wholesale and about 3.9% on aggregate.
Okay. So I'm just trying to tie in this. Rural is certainly growing positive for us. And at the same time, you also sort of alluded to small car still being under pressure. So I'm just trying to understand what are the demand trends that you're seeing in the rural? I mean, ideally, I would have expected that if rural starts to come back or grow well, then this would mean good for hatches and small cars as well. But it doesn't seem to be the case. It seems like even in rural market, SUVs are the preferred choice, or maybe higher ticket prices are still doing better there. So if you can share some thoughts on what's happening in the consumption behavior in the rural itself. Yeah.
The past is not necessarily holds true of what it is today, so rural has changed big time. In fact, we should change using the word. It is more of upcountry. And there is an increasing amount of convergence in the consumption patterns that we see between the so-called rural and the so-called urban. It's not necessary that rural will buy only small cars or lesser-priced cars. In fact, we are opening Nexa showrooms in upcountry, so it means that there is a fair amount of convergence happening.
Okay. Got it. And so what really sort of drives the small car recovery? I mean, is that something we expect when the first-time buyer demand comes back? How do we think about hatches as a category coming back? I know you all had spoken about fiscal 2026 is when we see that recovering. Is there more that you can share? You're seeing green shoots in the market. So outlook for next year for the small car segment?
Still nothing new that we can share at this point of time. There is an affordability challenge that we see both from an income point of view and from the cost of cars point of view. But the only thing I can mention is that we've been able to arrest the decline because of some excitement, some limited models in the market.
Okay. Got it. Okay. And the other clarification, a quick one, which I had was on the discounts being a drag on the gross margin in this quarter. When I look at ASP and other expenses, discounts really don't show up in those line items. So I'm just trying to understand, how is discount really accounted for? Usually, we've netted it off in ASP, right? So any change there or anything that I'm reading wrong there?
No, no. You're not reading anything wrong. It's basically the mix is richer. So there is a higher discount. So that's how it is now.
Okay. Got it, and last one on the capacity, if you can update, are we on track for that 300,000 capacity in quarter four? Any recalibration there?
Our plant in Kharkhoda is on track. We hope to commission it within the end of this financial year.
Okay. Got it. Thank you so much.