Ladies and gentlemen, good day and welcome to the Q3 FY 2023 earnings conference call of Maruti Suzuki India Limited. As a reminder, all participant lines will be in 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 your touch-tone 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, Aman. Ladies and gentlemen, good evening once again. I wish everyone a very happy new year, 2023. May I introduce you to the management team from Maruti Suzuki. Today, we have with us our CFO, Mr. Ajay Seth. From Corporate, we have Executive Director, Corporate Planning and Government Affairs, Mr. Rahul Bharti; General Manager, Corporate Strategy and Investor Relations, Mr. Nikhil Vyas. From Finance, we have Executive Director, Mr. Pradeep Garg; and Vice President, Mr. Dinesh Gandhi. The con call will begin with a brief statement on the performance and outlook of our business by Mr. Seth, after which we'll be happy to receive your questions. May I remind you of the safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces.
I also like to inform you that the call is being recorded and the audio recording and the transcript will be available at our website. May you please note that in case of any inadvertent error during this live audio call, the transcript will be provided with the corrected information. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Thanks, sir, Pranav. Good afternoon, ladies and gentlemen. I wish everyone a very happy new year, 2023. Let me start with some of the recent business highlights. To strengthen our product portfolio, the company launched two new SUVs, Jimny and Fronx, in the Auto Expo 2023. For this, the company is aiming for leadership in SUV segment. The Jimny, powered by Suzuki's ALLGRIP PRO four-wheel drive technology, carries the 50-year strong heritage of Suzuki's off-road prowess. The Jimny comes loaded with safety features such as 6 airbags, brake, limited slip differential, ESP with hill-hold assist, hill descent control, rear-view camera and ABS and EBD. The sporty compact SUV, Fronx, targeted at young aspirational car buyers, will strengthen the company's product offering in compact SUV segment.
In addition to, in addition to host of safety and technology features, the Fronx is also offered with all new 1-liter K-series turbo BOOSTERJET direct injection engine. In the Auto Expo, the concept electric SUV, EVX, was showcased to re-reveal the company's plan towards electric mobility in India. Concept EVX is a mid-size electric SUV concept designed and developed by Suzuki Motor Corporation, Japan. The concept electric SUV, EVX, will be powered by a 60-kW battery pack, offering up to 550 km of driving range. The company plans to bring it to market by 2025. The company's approach with electric vehicles is holistic, with scale and localization. Earlier in March, Suzuki announced investment of INR 100 billion in Gujarat towards production of BEVs and their batteries.
Coming to other product-related highlights, aligned with government's clean and green initiative, the company unveiled India's first mass segment flex-fuel prototype car. The flex-fuel vehicle is designed to run on any ethanol petrol blend between 20% and 85% fuel. Our research shows that ethanol fuel-based Wagon R flex-fuel pro-prototype vehicle operating on E85 fuel will help reduce GHG emissions by 79% in comparison to our conventional gasoline-powered Wagon R car. The company will introduce first flex-fuel vehicle for the compact segment by 2025. The company has already announced its commitment to make its entire product range E20 fuel material compliant by March 2023. Recently, the company further expanded its green car portfolio to NEXA channel by offering CNG powertrain technology in Grand Vitara, XL6 and Baleno. With this, Maruti Suzuki now offers 14 models with factory-fitted CNG technology.
The company believes in exploring a full spectrum of technologies like hybrids, CNG, bio-CNG, ethanol and electric to support Government of India's twin objective of reducing oil import bill and net zero by 2070. Coming to the other recent business highlights, the company inaugurated 3,500 new car sales outlet, having presence across 2,250 cities, makes Maruti Suzuki the only car company to achieve such a wide network across India. The company has achieved cumulative production of over 25 million units. This makes Maruti Suzuki the only Indian company to have achieved this significant milestone in passenger vehicle production. The company has commenced exports of its highly successful premium SUV, Grand Vitara. The company aims to export Grand Vitara to more than 60 countries across Latin America, Africa, Middle East, ASEAN and neighboring regions.
In calendar year 2022, Maruti Suzuki registered an export of over 2.6 lakh vehicles, its highest ever exports in a calendar year. With the addition of Grand Vitara, the company aims to further strengthen its position as India's leading passenger vehicle exporter. Let me move to the business environment during this quarter. The company entered this quarter with adequate network stock in anticipation of good demand in the festive period. During the quarter, as expected, the company could maximize the retail sales. The company has about five days of network stock at the end of quarter three, financial year 23. Pending customer orders stood at about 363,000 vehicles at the end of this quarter, out of which about 119,000 orders were for recently launched models.
In quarter three, financial year 23, the supply shortage of electronic components had marginally increased in comparison with quarter two of financial year 2023. The company could not produce about 46,000 vehicles in quarter three this year. Limited visibility on availability of electronic components is a challenge in planning our production. The electronic component shortages are still limiting our production volumes. Our supply chain, engineering, production and sales teams are working towards maximizing the production volumes from available semiconductors. The supply situation of electronic components continues to remain unpredictable. Coming to the highlights for this quarter, financial highlights for this quarter. The company sold a total of 4 lakh 65,911 vehicles during the quarter. Sales in the domestic market were 4 lakh 3,929 units. Exports were 61,982 units.
This was against total sales of 430,668 units, comprising 365,673 units in domestic, and 64,995 units in export markets in the same period previous year. During the quarter, the company registered net sales of INR 278,492 million. During the same period previous year, the net sales were at INR 221,876 million. The company recorded an operating profit in this quarter of INR 21,230 million, as against INR 9,190 million in quarter three of previous year. The net profit for the quarter rose to INR 23,513 million from INR 10,113 million in quarter three of previous year.
Coming to highlights for the nine-month period. The company sold a total of 1,451,237 units during this period. Sales in the domestic market stood at 1,256,623 units. Exports were at 194,614 units. During the same period in the previous year, the company registered a total sale of 1,163,823 units, including 993,901 units in domestic market, and 169,922 units in the export market. The company registered its highest ever net sales of INR 816,790 million in the period April to December 2022, as against INR 585,828.41 million in the same period in the previous year.
The company made a net profit of INR 54,256 million in the 9-month period this year, as against INR 19,274 million in the 9 months in the previous year. We are now ready to take your questions, feedback and any other observation 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 their 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 on the line of Kapil Singh from Nomura. Please go ahead.
Hi. Good evening, sir. Sir, firstly, I wanted to check on the gross margins. We have seen a good improvement this quarter. If you could just call it out in terms of mix and commodity benefit. How much have you got from both separately? Also going ahead, do you expect significant commodity benefits to come in or most of them have been realized?
Sequentially, I think there has been improvement in virtually all areas, except for the fact that the sales promotion cost is higher this quarter compared to q-q the previous quarter. If we look at our initiatives on the cost side, including the commodity, there has been an improvement there. There has been a significant improvement in exchange rate. Also, there has been, you know, some reduction that we see in the overheads, where we've cut down on some of the expenses. Overall, you see a reduction on various accounts. Mix, of course, has a positive impact because, you know, the proportion of bigger cars have gone up, so there's a favorable mix that we see in our portfolio.
It's a combination of these factors which has resulted in improvement of profit in spite of the fact that the sales promotion are a little elevated in this quarter. That's precisely the answer to your question. The details in terms of exact percentages, increase, et cetera, we can discuss separately.
Sir, you know, are we expecting more commodity benefit to come in, going ahead, or, most of it has been realized?
Commodity benefit also comes with a quarter lag. I think now it's kind of stabilized. I don't think that moving forward, you are gonna see more impact because this has mostly been factored in now. There could be, you know, some small impact that we can see in quarter four, not significant impact. We will have to watch the trend of the commodities moving forward for the next year. I would say that there could be a minor impact in the next quarter, not significant.
Okay. Sir, second question was on demand. Just if you could share the outlook that we are seeing across segments or even rural versus urban. We've launched two new models, would it be possible to share what kind of reception and order books we have on Jimny and Fronx as of now?
Kapil, fortunately, the demand scenario seems to be healthy as of now. Urban rural mix is also same. Urban rural continues to be strong at about 44%-45%. We are happy with the bookings also, the Jimny and the Fronx. Next year, Industry has not come out with a number. I think the FAME looking ahead conclave will be sometime next week. What we are thinking is that we should grow faster than industry.
Okay, great. Any numbers to share on Fronx and Jimny bookings or it's too early?
Too early, but we've got a good response, at least from the Jimny.
Okay, great. I'll come back in the queue. Thank you.
Next question is from Pramod Kumar from UBS. Please go ahead.
Yeah. Thanks a lot for the opportunity, sir. My first question is, if you can help us understand, what are the average discount for the quarter, given that retails were disproportionately higher than wholesale? What is the average discount per car, sir?
Average discount in this quarter is at 18,291 INR. This is higher than Q2. In Q2, our discounts were at 15,200 INR, and I think in the previous year, sorry, previous year discounts were 15,200 INR, and Q2 discounts were at 13,840 INR. Discounts have been higher this year because the retails are much higher than the wholesale. Obviously, therefore, this, you know, combination of discounts depends on what retails are you doing.
Thanks, sir. Given this, the average ASP for the normalized discounting, as in achieve the discounting same quarter on quarter, your average ASP seems to have shot up by 8.5% quarter on quarter. Clearly there was some bit of a push in SUVs, SUV category share went up for your overall volume. If you can just help us understand what is driving this kind of a very, very sharp jump in ASPs. Given that there was not much of pricing action, you've taken prices higher only in January. Can you just help us understand how should one look at this price or average jump in ASPs?
How should look at it as you increase your SUV proportion, closer to the industry standard or closer to the industry average from the current 21%?
I think in the beginning, we talked about the, you know, the kind of traction that we have on the SUV segment and the demand for the newer models and the bigger cars is significantly higher. In fact, there is not so much pull for small cars at this point in time. The mix is gradually changing towards, you know, bigger cars and therefore, the, you know, the price difference between the two is significant. If you are selling one Alto versus one Brezza or Ertiga or XL6, it's almost 2.5x, 3 x higher. I think that mix makes a significant difference. The realization increase that you are seeing now is basically because of that mix change.
In our order booking, I think the bulk of the orders that we have are for the bigger cars.
In a way, this is a positive journey, right? In terms of if you start selling more and more higher, bigger cars, it's good for the ASP, it's good for the percentage profitability and the overall profits as well.
It's good for the ASP. Profits will keep depending on what margins you make on a particular model at a given point in time. Yes, ASP will definitely go up.
There's no discounting pressure on the UCD vehicles at this point of time, right?
Yes. Yes. I mean, for the time being, but you know, as the markets mature in these segments, we will have to wait and watch. What you are saying is correct for the time being.
As a second question on the BOOSTERJET engine, because that's a welcome comeback by you. I understand, picking up interviews of R.S. Kalsi and Shashank Srivastava from Auto Expo, that this one is a localized engine. If you can help confirm that, I think it's more or less confirmed. If you can help understand, does it mean that the cost structure for this is gonna be much better than what you had earlier on the Baleno, which was an imported engine? Also, how should one look at scalability of this engine to the new other models?
If you can have it on Brezza or a Jimny, you can have much lower GST rate, for example, to begin with, because you're paying higher GST than some of your peers in that category. How should one look at the scalability of this BOOSTERJET engine, sir?
So, uh, Pramod, BOOSTERJET engine is, uh, one of the new, um, additions that we have. And obviously our effort always is to localize to the maximum using volumes. So as and when we get, uh, customer response, uh, the volumes will, will scale up, and we'll, uh, um, uh, the, the localization, uh, will also, uh, improve with time. And, uh, I don't think there is any GST difference because it's in the same segment. It both come into small cars.
No, no. I'm talking about if you were to theoretically put this engine in the Brezza, which is a 1.5 liter petrol replaced with a 1.2 sorry, turbo booster 1 liter, your GST rate would definitely come down, right?
This is one of the options that one could explore. Yeah, you're right.
I think that's a pretty good big one, right? Given that Brezza's already doing so well despite the price premium. If you can further improve the competitiveness of the pricing, that's a welcome for both the company and the customers, right?
Thanks for the suggestion.
Sir, CNG finally, how are you seeing the uptake on CNG with elevated price? Because last quarter, if I'm not wrong, you did have a higher intake of higher dispatches of CNG as well, which also probably helped your mix to an extent. Is that right?
So far, CNG penetration is fine, but we are concerned that the prices are abnormally high and industry has represented to the Dr. Kirit Parikh committee. I do not know how much time the government takes on deciding the CNG I mean, accepting the recommendations of the committee. If the recommendations are accepted, then it would provide some breather to the CNG sales. At least in commercial vehicles, sales have been impacted significantly.
Sounds great. Thanks a lot, and I'll come back in the queue. Thanks a lot.
Thank you. Next question is from Raghunandhan N L from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity. Congratulations on good set of numbers. Firstly, sir, considering the large order book and low stock with the dealers, how are you seeing on the ramp-up of production? Q3 was impacted by lower working days, and also the maintenance shutdown and also the supply issues which you alluded to. But can Q4 be better than Q3? What I'm trying to get is that, is there a gradual improvement in terms of supplies and with more working days, would you be seeing a better Q4 compared to Q3?
Thanks. You're absolutely right. The number of working days in Q3 were less because of the maintenance shutdown and because of some level of semiconductor constraints. Production capability, fortunately, we have some headroom. The bottleneck as of now is semiconductors. The situation has improved, but I wish I could give you a better answer. Still there is uncertainty. We also get to know just a month ago how much would be the availability for the next month. We are also hoping and making efforts that semiconductor availability improves and we are able to service demand in the market.
Got it, sir. On the hatchback side, though the share has been reducing, there has been positive growth in the hatchback volumes. Going forward towards the next year, you know, how do you see the segment trending? Do you expect growth to continue? What would be the triggers which would help the hatchback demand? Because what I understand is, you know, the customers have been postponing purchase of entry-level vehicles, and, you know, they could come back if situation improves. How are you looking at, you know, that particular market coming back?
We would still like to put a lot of effort on hatches, because if India has to grow, it's, and with a 3% penetration, we want more people from the 95%, 97% club to come into the 3% club, and chances are, the first car would be a hatch. We would like to facilitate that to the maximum. Unfortunately, whatever increases, cost increases that we have, in percentage terms, the impact is higher on smaller cars. Because the cost increase is fairly constant in absolute terms, but on a lower price of the car, it translates into a higher percentage. We would like hatches to continue. Fortunately, there is positive growth, as you said, but as a segment, the share has come down.
As of now, we are hopeful that hatches should also grow.
Got it, sir. Lastly, on Grand Vitara, there has been a good acceptability. Volumes have been trending higher. Q3 volumes were better than Q2. Though Maruti has only marketing margin, that doesn't seem to have impacted our gross margin. Just wanted to understand, would it be fair to assume that at EBIT margin level, you know, even Grand Vitara would be broadly similar or near to the blended margin?
We as a policy, you're aware, we don't comment on segment or product, specific margins. Our approach is that we should, you know, we should maximize profits, to the extent possible, wherever possible.
Thank you, sir. I'll come back in the queue.
Thank you. Next question is from Gunjan Prithyani from Bank of America. Please go ahead.
Yeah, hi, team. Thanks for taking my questions. Couple of questions. Firstly, you know, just quick bookkeeping numbers. You know, what was the royalty rate in this quarter as well as if you can share the retails done in the quarter as well?
Royalty was about 3.9% because the mix was slightly, you know, the newer models. Retail, we retailed about 4.8 lakh units in the quarter in the domestic market.
Okay. Got it. Now just moving to the questions. I think, first one I have is on these two new launches which you show, you know, which you've showcased. If you can just give us some color on, you know, by when these would be, you know, would be available in the market at dealerships and, you know, what sort of timelines should we be looking at? You know, also, you know, maybe I'm not as clear in terms of positioning of Fronx. If you can help us understand where, you know, where are you looking at this, you know, more in the C-SUV segment or, you know, micro SUV? Where is it positioned in terms of, you know, the market sizing when, you know, when you're, you know, when you're putting this in the market?
Okay. sorry, I missed the first part of your question.
The timelines when we could start.
Timeline.
seeing this. Yeah.
It should be early next financial year. We've mentioned spring, we should, they should be out in the market, and we are collecting bookings as of now. They have got good response from customers. The Jimny, as we say, is purity. It is purity of function, which is it's a true off-roader with many modern features, as Mr. Seth mentioned in his initial remarks. The Fronx is a compact SUV, and the shape is entirely fresh and new. We are calling it the shape of new. It will have its own, you know, own fan following, own set of customers who would like it.
Typically, we've seen that customers take liking to a particular shape, and we are waiting for customer response on this.
Okay. Got it. The second question is on the regulation. Now, there are three sort of regulations which keep cropping up, right? RDE, CAFE, and airbag, you know, which again, you know, is still a few months away. If you can share where we stand on these regulations in terms of transition as well as how should we be thinking about incremental cost pressure because of these regulations. The second part to that will be how, you know, given we did make the diesel exit couple of years back, how does that position us versus the competition? You know, some color on that.
Okay. As far as the safety regulations are concerned, 6 airbags, 3-point seat belt, and seat belt reminder. SIAM is in discussion with industry on the lead time for implementation. That is already under discussion. We are not discussing cost much, but it generally costs about INR 20,000 higher for the entire system for of airbags, including the electronics, the controls. The total delta between in cost between a 2-airbag car and a 6-airbag car. On RDE is actually a subset of BS6 phase II. We have BS6 phase II has RDE and diagnostics. We are very well comfortably positioned to meet it. Not much cost impact either, at least on gasoline.
I do understand on diesel, there would be a sizable impact, this is one of the reasons why we had taken the call on diesel much earlier. With every passing day, the feeling gets reinforced that we took the right decision. The last is CAFE. CAFE, we are fortunately, I do not know how many of us are aware, Maruti has the least fleet carbon dioxide emissions in the entire Indian car industry. Despite all the global players present here, it will get better with time. This year would be better than last year. We are comfortably positioned on CAFE, and we'll support the government's, you know, carbon reduction efforts, also oil import reduction efforts.
The government has been talking about these penalties. I mean, you know, any idea as to, you know, are these already under implementation from F23 onwards, and companies which don't comply will be penalized? Do you have any color on that?
It is still a subject under discussion. Our understanding is that it will need more detailing and more a framework of rules to implement. It is we'll have to understand the details as yet.
Okay.
More details need to be known before we can conclude.
Okay, okay. All right. I'll join back the queue. Thank you.
Thank you. Next question is from Kumar Rakesh from BNP Paribas. Please go ahead.
Hi. Good evening, team. Thank you for taking my question. My first question was around the point which you talked about that Maruti is aiming for SUV market leadership in FY 2024. Now the SUV market has become very different from how the passenger car market is, where you have a very strong market leadership, more than 60% market share, and it's dominated by you, whereas SUVs are higher fragmentation and multiple players with high team market share. How do you see that industry moving forward now with your models coming in and your aspiration of having the market share leadership in SUV and also 50% market share overall in the country? Do you see that you will be able to push the SUV segment as well as consolidated as the passenger car market is?
See, the hatchback, the hatches and the SUVs are a different story. As far as SUVs are concerned, it is good to see that the Indian customer is moving up and is becoming more aspirant, and he has appetite for the latest features and technologies. We are equally happy to provide such technologies and features in our cars. With the latest two offerings that we have recently launched. We have four now, the Brezza, the Grand Vitara, the Jimny, the Fronx, and many of these, you know, are constrained by supply. As and when the supply situation improves, we are quite confident that we'll reclaim the number one position in SUV segment also. There was some delay in the launches, but we are there.
Got it. Thanks for that. My second question was around the impact from the semiconductor shortage. You talked about that in December quarter, there was a production impact of about 46,000 units. This is higher compared to what we had seen in September quarter of about 35,000. Was the impact-
Marginally higher, yes. Marginally higher.
Yeah.
There's a lot of dynamism and uncertainty in this. It's quite random.
Okay.
We are takers in this market, can't do much about it.
it's not-
We are making a lot of efforts in, you know, reducing our requirement of semiconductors to the bare minimum. Sometimes for commonization across platforms, we use a higher spec, a higher, you know, common, the highest common work. There we are going variant-wise and reducing the semiconductor requirement so that the same number of semiconductors can service more cars. All those kind of efforts, depopulation, et cetera, value in, engineering we are doing from our end. Of course, I'm trying to get maximum from the market and our suppliers.
Understood. My reading in that case should be that the situation is not worsening. It's more of a reflection of our mix changing towards SUV and higher need for SUV chips.
Broadly, yes. Once in a while, it does give you a surprise, so I would prefer not to comment.
Fair enough. I'll not push you. Thanks for answering that. That's it.
Thank you. Next question is from Amit, Amyn Pirani from JP Morgan. Please go ahead.
Yes. Hi,
Please go ahead.
Yes. Hi. Thanks for the opportunity. My, most of my questions have been answered. When we, you know, look forward into next year, and I think you partially answered this question. On the hatchback segment, obviously this year we've grown, but, you know, on a 4-5-year basis, you know, it continues to be on the lower side. Where do you think, you know, the trigger could come from? Is it just because rural is also strong as per your commentary? Is it just the cost increase which has happened, or the customer preferences have changed one way and, you know, this is just something that will continue? Is there something which will be a trigger for the car category to actually start growing, especially the segment which is 5 or 6 lakh below?
If the share of first-time buyer does not rise, do you worry that, you know, the momentum for the overall car market or the passenger vehicle market could slow down over the next 12 months?
Not over the next 12 months, because as of now, the outlook seems to be healthy. Yes, it is an area of concern. Possible triggers could be, you know, one is in the income distribution. If that segment, more employment and income creation happens in the economy, it will be very good for us. Because at least in terms of regulatory requirements, there would be some headwinds. The cost of that impacts smaller cars more. Let's wait and watch for some more time how the economy shapes up. We do think in... it's still a large chunk. It's about, well, it's about 35% of the industry.
Okay. Is there, at least in your own, numbers, is there a discrepancy of finance availability and ease of financing in the smaller hatchback versus, you know, the bigger vehicles? Because overall, I think the industry is at, whatever, 80%-85% financing penetration. Is there a discrepancy and can that be a lever or that lever has been used already?
I don't think finance is a hurdle or an impediment. There's very healthy penetration in finance in buying cars. In fact, sometimes the rural penetration is more than urban in cars.
Okay. Okay.
Finance is not a factor.
Okay. Great. Thank you. I'll come back if required.
Thank you. Next question is from Pramod Amthe from InCred Capital. Please go ahead.
Hi, thanks. First question with regard to strong hybrid. What's the type of waiting you have and what type of supply chain challenges you are facing and how are you planning to overcome the same?
It's a new product with a new technology and, we would, since because of its carbon reduction, immense benefit, at some point of time, we would hope that the government also gives it a proportional support as it gives to other technologies.
Sure.
In terms of bookings, et cetera, we have about 23-25% penetration is from is on the strong hybrid, which is positive.
Okay. Is there a supply chain challenge to address the waiting period or what is the effort being?
Semiconductors.
Okay. Nothing on the battery side per se?
No, no, no.
Okay. Second one is, with regard to the flex-fuel product which you displayed. Congrats on that. Wanted to know, since you're talking this for 2025, what's the cost, benefit economics which will play here, one? Second, what type of infrastructure challenges you expect or you want to fall in place, before this rolls out in 2025?
It is, of course, it has a cost impact over a normal gasoline car. Some things in the engine and fuel lines, they need to be changed and some additional sensors and some additional equipment needs to be installed. For heaters, ethanol, what is the % ethanol in the tank, sensor, corrosion resistant pipes, et cetera. There is a cost impact. In terms of, this is for the cost of the car. In terms of running costs, the ethanol has to be at least 35% cheaper than petrol for anybody to start using ethanol, because the energy content is about 35% lesser.
Okay.
That is on the running economics. What we are excited about, ethanol is the carbon benefits because, given the biofuel, the biogenic nature, the carbon, emissions are significantly lower. India, because of its agri-agricultural context, can produce huge quantities. We will support the government in this, in this technology.
Sure. Do you see any infrastructure challenges in terms of this fuel being made available? What's the government thought on the same?
There are a bit for dispensing, et cetera, but they are the normal challenges which India has. The availability is one question mark. How much will be available? Will sufficient quantities be available and what will be the pricing of ethanol? Efforts are on in all directions. On one side, the AT technology, on the second ethanol supply chain, including distribution, production also.
Sure.
So-
The last one on the same. Since you said the carbon benefit, is there any clarity that you will get benefit on the CAFE norms with this product or that is yet to be followed up with the government?
It's not a benefit. It is the right carbon accounting for ethanol as a biofuel.
Right. There is ambiguity, right? In the sense whether they will account it or not yet in the CAFE calculation.
The CO2 is significantly lower for a flex-fuel car. Yes.
Right. Sure. Thanks a lot. All the best.
Thank you.
Thank you. Next question is from Binay from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. Just a clarification on some of the earlier points made, both on gross margins. Firstly, on the Forex side, in quarter two, we had almost a 50 basis point gain on Forex. Because of our JPY weakness. Will that number be similar in Q3? Because that ideally should reverse, right? In my understanding in Q4. If you have any data on that. Secondly, is it fair that Mr. Seth said that commodities and net hedged wind in Q4? Did I hear him correctly?
I made 2 points. Please understand that the commodities and foreign exchange impact comes to us with a quarter lag effect.
Right.
effectively, most of the rates that you see are for the previous quarter. Therefore you have seen there's a significant benefit that you see from quarter two - quarter three. We have captured the quarter two rates, therefore you will see the benefit. Even for quarter four, I think there will be a blended quarter three benefit that you will see. We are completely hedged for the year as well as dollar year is concerned. Therefore, on the dollar rupee side, on the direct imports, we are rupee surplus, I mean, dollar surplus. If you take indirect imports, we have payables, but it's not a very significant portion as it used to be earlier, given the fact that royalty is now paid in rupees.
There will be benefit of foreign exchange in this quarter and it'll be remain stable next quarter. However, moving to the first quarter of next year, we will have to see, I mean, we have partially hedged our exposure. We have taken hedges for the next year as well. We'll have to see what rates, you know, we finally get based on the exposures that we will incur in the first quarter. Definitely the favorable rates that you see in quarter two, three and four will maybe reverse slightly in the next year. On the commodities, I mentioned that commodities have been cooling off. We have seen reduction in steel prices, which have been negotiated for the year. We are very clear that commodities will remain where they are.
The precious metals are also stable at the moment. Barring a few commodities which have shown some inching up like copper, et cetera. We don't see. I said there could be status quo fourth quarter or slight increase or slight reduction depending on how they shape up. For the next year, it's difficult to predict now because it'll depend on how commodities cycles move. We do take hedges from time to time on the metals that can be hedged, and we have positions that we have taken for this year as well as for the next year on, especially on precious metals and a few other commodities.
Yeah. Great. Great, sir. That is very helpful. Just on the Forex side, just to remind us, so it's yen will be around 12%-13% of your sales, yen-denominated direct and indirect imports. Would that be fair?
Our total exposure on yen, now is about, is about close to about JPY 100 billion, which is more direct and indirect put together. That's the kind of exposure that we have on imports of yen. It's largely, I think, largely yen-denominated exposure that we have. Although we have also USD rupee exposure on payables, but I think this is a large piece of exposure that we have.
Great. That's very helpful. Lastly, just on exports, any views on, we've had almost 9-10% growth in exports this year. How do you see exports on growth next year? Thanks.
Fortunately, the traction from the markets is giving good signals. I think we'll be constrained by our supply.
Okay. Okay. That hopefully, results in better pricing. Thanks for that.
Thank you. Ladies and gentlemen, that was the last question for today. With this, we'll conclude today's conference call. On behalf of Maruti Suzuki India Limited, we thank you for joining us and you may now disconnect your lines.
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