Thank you, Maruti. Ladies and gentlemen, good afternoon once again. May I introduce you to the management team from Maruti Suzuki? Today we have with us our CFO, Mr. Ajay Seth. From Marketing and Sales, we have Member Executive Board, Mr. R.S. Kalsi . Senior Executive Director, Marketing and Sales, Shashank Srivastava. From Corporate, Executive Director, Corporate Planning and Government Office, Mr. Rahul Bharti. Senior Advisor, Corporate Planning, Ms. Priti Sahara . And General Manager, Corporate Strategy, Investor Relations, Mr. Nikhil Vyas. From Finance, we have Executive Advisor, Mr. Riti Govind. Executive Director, Mr. Sathig Gose. And Executive Vice President, Mr. Sanjay Matta. This phone call will begin with a brief statement on the performance and outlook of the business for Mr. Seth, after which we will 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 would also like to inform you that the call is being recorded and the transcript will be available at the website. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Thank you, brother. Good afternoon, ladies and gentlemen. I hope you and your families are healthy and safe. Quarter one of financial year 2021-2022 was extremely difficult times for all of us because of the sudden upsurge in the COVID-19 infection across the country. As a responsible corporate citizen, the company is contributing to the best of its ability to support the country in the fight against the pandemic. At the time when the country was battling the second wave of COVID-19 and was facing a shortage of oxygen for medical needs, the company temporarily suspended its production operations in quarter one to divert the oxygen available from the industrial use for medical purposes. Additionally, the company realized the critical importance of rapidly installing PSA oxygen plants to produce lifesaving oxygen.
The company decided to collaborate with its supplier partners to help quickly scale up the domestic manufacturing of PSA oxygen generator plants. The company, along with vendor partners, also donated 25 PSA oxygen generator plants to various government hospitals in the country. Also, the company, together with the help of its parent company, Suzuki Motor Corporation, donated 1,000 oxygen cylinders to various government hospitals. The company accords utmost priority towards ensuring the safety of health for all its value chain members. The company collaborated with its value chain partners to quickly revise the standard operating procedures so as to minimize the risk of infection spread. Also, COVID-19 vaccination camps are being organized for employees, including their families. Besides, the company is also facilitating its value chain partners and business associates in this regard. The company will continue to observe all COVID-19 SOPs and precautions.
Be sensitive to the human and social element. Build an environment of positivity and keep working hard as it's fit in these difficult times. Let us start with some recent business highlights and milestones. With its sustainable and focus, the company has attained the mark of 5 million sales cumulatively in non-urban markets, with over 1,700 customized non-urban outlets across the country. The company was first to believe in the potential of up-country markets, and presently, 40% of the total Maruti Suzuki India Limited sales come from non-urban markets. Nexa Channel completed six years of offering new and innovative customer experience in July 2021. The company expanded Maruti Suzuki Smart Finance, the online end-to-end real-time car financing service facility in India, thus providing the convenience of financing Maruti Suzuki cars online from anywhere at any time. The company expanded the subscription service program to 1,950 in the country.
Coming to the business performance, Q1 financial year 2021-2022 was a challenging quarter, marked with large-scale lockdown restrictions across the country. As a result, the company witnessed a significant disruption in its business operations. During the quarter, the production operations started to recover in June 2021, close of May 2021. With the gradual ease of lockdown restrictions in some parts of the country, the sales operations started to recover in the later part of June 2021. The company also forged tie-ups with financiers to support dealer partners in inventory financing. On demand side, the customer purchase towards CNG continued to increase. During the quarter, the company faced supply-side issues, including global semiconductor shortages. With a meticulous planning and by closely collaborating with supplier partners, the company was able to effectively manage supply issues.
During the quarter, the third plant in SMG, having an annual production capacity of 250,000 units, was made operational. Additionally, the unprecedented and uneventful increase in the prices of commodities continued to exert significant cost pressure. The company has tampered with its cost optimization program, lowered the sales promotion and advertisement expenses to limit some of the adverse impacts of steep increase in commodity prices, besides taking price increase carefully. Coming to financial results, the second wave of pandemic adversely impacted Q1 production and sales. On all parameters, this quarter was substantially better than Q1 of financial year 2021, which comparison is not meaningful because Q1 last year had a much higher degree of disruption due to the pandemic. Sales in Q1 remained far below the previous high of Q1 of financial year 2018-2019. The company sold a total of 353,614 units during the quarter.
Sales in the domestic market stood at 308,095 units, and exports were at 45,519 units. For reference, the total sales in quarter one financial year 2018-2019 stood at 490,479 units. During the same period previous year, the company sold a total of 76,599 units, including sales of 67,027 units in the domestic market and exports of 9,572 units. During the quarter one of this year, the company registered net sales of INR 167,987 million compared to net sales of INR 36,775 million in quarter one financial year 2021. The company made a net profit of INR 4,408 million in the quarter one of financial year 2021-2022 compared to a loss of INR 2,494 million in quarter one financial year 2020-2021.
The profit for the quarter one financial year 2021-2022 was comparably impacted due to lower sales volume, commodity price increase steeply, but the company continued to make efforts to reduce costs. We are 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hand signs while asking a question. Anyone who would like to ask a question may press star and one at this time. The first question is from the line of Kapil Singh, from Nomura. Please go ahead.
Hi, sir. Good afternoon. Firstly, I wanted to check on the demand environment. How are things shaping up post the second wave? Within the current environment, if you can also comment on how you think the pricing will evolve and how the commodity prices will evolve from where they are. That's the first question. The second question is on technology. If you can give your thoughts on these salience metrics, hybrids, as far as Indian context or regulatory framework is concerned over the next five years. Why do you think, for example, hybrids would be a more relevant technology for India? Those are the two questions. Thanks.
Hi. Thank you for the question. I'll answer the first part, which is related to the revival of demand post the lockdown. The demand in July seems to have picked up once we had the unlock in most of the states. Now, except for two states of the Northeast, Manipur and Mizoram, all other states are open. As a result, we have seen a pickup in the case of enquiries as well as bookings, as also the daily retail. If you compare it with the peak of last year, which was Q4 average, the enquiries are roughly similar, although the bookings are about 80%-85% of the Q4 of last year. If you compare sequentially with June, the enquiries and bookings are about 22%. That is 20% above last month. Retails and village retails are similar to the levels.
That is the extent of recovery. We believe this time the recovery is led by both urban as well as rural. Unlike last year, it has been led by rural.
Depending on commodities, I think we continue to see increase in commodity prices. Typically, for a lot of the commodities, we have a quarter lag. We will see increase in commodities in this quarter as well as the next quarter, beyond which we will have to watch in terms of how the overall commodities move. Hopefully, towards the second half of the year, commodities may stabilize from these levels that we've seen and/or may come down a bit. That is on commodities. Commodities increased pretty steep, quite unprecedented. We haven't seen such sort of increase before for many years. That's a major impact on our margins. On price increase, I think we have been gradually taking price increases. We had a price increase as recently as July. In time with that, we had the July-April price increase.
To the extent that we can price it in the market, we are doing it. There is also a limitation of how much price increase we can take, which does not disrupt demand at the same time. We will keep it a collaborative call between cost and price and call and deal with it as we move forward.
Coming to answer your third question on technology. For the purpose of crude oil import reduction, for reducing our carbon footprint and for the environment, we will be working on all technologies that help us towards this objective, which means, one, at the bare grassroots level, IC engine improvements, two, electrification and hybrids, and they are part of the same family, hybrid electric and battery electric, and natural gas and biofuels also recently. We will be working on all. Now, some segments have a higher propensity or faster absorption of some of these technologies, so different segments will respond to different technologies differently. We will be pursuing all of them in a manner that it gives us highest returns. You might have heard the recent news that there is a joint testing program of some electric vehicles.
These prototypes will be tested starting next month, along with Toyota, that we are planning to get more consumer feedback on usage pattern, etc., and on electric. In the time, charging infrastructure grows in India, and you will need self-charging machines. Towards that, we'll be using hybrid electric vehicles. We are also very hot on the way natural gas is progressing in the country. The Prime Minister has a mission to increase the energy in the energy basket usage of natural gas from 6.3% to 15%. CNG and PNG are two major pillars of that, so we will be fully participating in that program. Many new cities have come up, and the penetration of CNG cars you would have seen have gone up dramatically. Mr. Shashank Srivastava will just show some very interesting statistics about CNG soon.
We are also responding to a government program on ethanol. The government has mandated E20 by 2025, and they are talking about biofuels. The good part about biofuels is that they are carbon neutral or even carbon negative, so we'll be seriously evaluating them. We'll be spending on all cylinders to reduce carbon and to reduce oil import in the country.
Okay. Thank you so much for the detailed answer.
Thank you. From the line of Pramod, from InCred Capital, please go ahead.
Hi. Two questions. One, specific to, as I said, the employee cost seems to be pretty high considering the war in the same case, which is happening on the Q1 basis. Any one-offs because of COVID or any issue and issue to ease off?
Of course, it's the biggest effect because the sales, overall sales were down compared to Q4, if you see. That is one impact. Also, there has been some impact on the kind of COVID-related expenditure that we've incurred during this quarter. Expense with vaccination and a number of cases referred to be hospitalized. There is an expense to that extent. I think these are some of these exceptional items which have come in here because of which there is a slight increase that we see. Some of them will not be repetitive if the COVID situation normalizes, but some may continue if we have a third wave of COVID. In this scheme, I think about INR 30 crore of expenditure has been put in, which is not repetitive in nature. Other than that, are the normal increments.
This year, also, we have a wage settlement provision for wage settlement attributable also is included in the employee cost that you see.
Excuse me to Shashank Srivastava. Considering the unprecedented commodity costs leading to quarterly price upsurge regions, I wanted to check your ground-level check. How are consumers adjusting to this reality? One, and considering that this may come to haunt you or the overall industry in coming months in terms of demand challenges, how do you plan to handle a decision based on the consumer cost of ownership?
Thank you for that question. Yes, we have to walk that fine line, as I said, between the top line and the bottom line. That is what we are trying to do. I think Seth just mentioned that we have to take a calibrated view that we cannot pass on the entire cost increase due to the material cost going up to the consumer because you may disturb the stability of the demand itself. Yes, we do take segment by segment the demand patterns and see how much the consumers can absorb of substantial material costs which have gone up. We have calibrated that. That is why you see, apart from the increase of, I think, 1.3% or so in January, we have taken another increase of 1.6% in April. July also, we have taken a small increase.
Going forward, we will watch how the material costs move to calibrate for the increase in the prices.
Thanks a lot .
Thank you.
Thank you. The next question is from the line of Jinesh Gandhi , Motilal Oswal Financial Services. Please go ahead.
Hi. My first question pertains to commodity. Can you indicate what kind of commodity price increase or commodity cost inflation we saw in Q1? Secondly, what are our expectations for our second quarter?
Commodity inflation in the first quarter has been about over 3.5%. It is difficult to predict second quarter because the rates are still being negotiated for seeing. Precious metals, we would know because that comes from the quarter lag, and precious metals is also pretty steep. As I mentioned in the beginning also that the impact on commodities is going to be pretty steep in the first and the second quarter because that's for precious metals, more or less, we know and for steel, the demand by the steel units is still much higher compared to first quarter, which is being negotiated. I think the commodity impact would continue to be rising till the second quarter, after which we think there will be correction, and we might see that coming down.
Second quarter, at the moment, we don't have full negotiated rates available, so we'll not be able to give accurate guidance on that.
Okay. Any sense on under-recovery on commodity prices considering the steep increase in what we have seen so far? The price increases, should taken what percentage would be still left to be covered?
Can you repeat the question, Jinesh? I'm not sure.
What would be under-recovery on account of commodity cost inflation? The gross inflation minus the price increases which have taken so far, is there anything still left to be passed on?
I think that's gradually happening. As Shashank mentioned, it is very difficult to absorb the entire increase, and it's quite an unprecedented increase in material costs for our price increase. We have been doing it in some cases. We have done an increase in January last year, then we did a price increase in April, and we've now again done a price increase in July. We'll keep doing it in small doses. Definitely, we will have to take a very collaborative call in terms of what works well in the market. We can't just say that whatever is the material cost increase, we pass on the entire in one case. We'll have to take a call based on how the demand is, how the price is, and what can be absorbed at what point in time.
Sure. Sure. I understand that. Was there any big cost third line on oil cost basis?
Sorry, Dinesh, could you repeat?
Big cost third line at SMG? Any cost reduction this quarter?
The third line will have an impact. We do not have a specific number here with us now, but it has an impact on fixed costs for depreciation and the other fixed costs because the third line is now operational. Part of the third line has become operational. Some capitalization will also happen during the second half of the year. There will be impact on increase in depreciation, which is what are the least cost. Are downsized, other expenses. The balance would be coming in the material cost, primarily the other fixed expenses. We do not have the breakup separately on the third line.
Okay. Can you share data on exports, revenues, and discounts?
Exports revenues in quarter one were at INR 2,286 crore. The second question was on discounts?
Right. Right.
Discounts were about INR 14,000 in this quarter.
Okay. Thanks. I'll come back in here.
Thank you. Next question is from the line of Raghunandan N.L. from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity. My first question was, states such as Gujarat have provided incentives for hybrids as well. Would this be attractive enough to consider launch of strong hybrids? Any timeline you have in mind? Secondly, to Shashank Sir, since you talk about how you are seeing first-time, additional, and replacement demand currently, and replacement has been very weak, when do you see signs of recovery in this segment? Thank you, sir.
Yes. See, individual states are coming out with their hybrid and electric vehicle policies, and many states are providing incentives to hybrids also. Our policy will be our launch, the case and the viability will be more based on national policy. Of course, we have it in our active consideration. It is a very strong technology for the next at least 10 years into the future. In any case, it makes a lot of sense to bring this to India.
Yeah. On the second section of the first-time buyer and so on, actually, as you know, last year, the first-time buyers went up in the industry from about 43%- 48%. There was a 5% up on the first-time buyer. Replacement car buying came down about 8% from about 26%- 18%, 18.5%. There was an 8% drop in the replacement car buying. The additional car buying went up by about 3%. That was for last year. The first quarter of this year, we do not have the industry figure yet because the research is done with time lag. But for Maruti Suzuki, the first-time buyer came down a little bit in Q1 to about 45.4% against 46.9% in the same quarter last year.
Going forward, we do believe that the replacement car buying should increase because that 25%-26% has been the percentage of replacement buying pre-COVID for the previous three- four years. I believe that once people are confident enough to replace the old parts with new ones, replacement car buying should creep up to that range of about 25%-26%. Thank you.
Thank you, sir, for that. Just the last question. Can you talk about the expense, media reports, and the chairman's comment in detail about the Haryana capacity, 1 million with a CapEx of INR 170 million?
This is a long-term kind of projection of the total. Whenever you choose a new location or a site, you take adequate future flexibility into account and the entire capacity that that location or that piece of land can hold. This is a long-term projection for that. It's an estimate.
Thank you, sir. I'll come back in the queue.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Hi, sir. Thanks for taking my question. Two questions for myself. Firstly, on the chip shortages, which you alluded to in your initial remarks, is there something to call out that we should keep in mind for the next couple of quarters that it can have an impact on the production side?
See, we are living in this time of uncertainty. Would you like to?
Yes. I like to.
There is this element of uncertainty. Fortunately, till now, we have been doing well as compared to what we hear about many other auto companies, both in India and the world. The problem is expected to continue for at least a year or so. So far, we have been doing fine. We have been able to manage. We will have to live quarter to quarter and keep studying the situation.
As of now, we don't anticipate at least in the foreseeable future to have a disruption on that front. Is that a fair assessment?
Yeah. To further add to what Raghav just said, actually, Maruti Suzuki has been rather better compared with the competitors on this front for the simple reason that we have a wide portfolio. And as you know, different models require different electronics. What we have been doing is adjusting our production with those variants which may not require the specific chips which are in shortage. I think that is the reason why so far we have done very well as far as production goes. I think going forward, the situation should improve once the global supplies of the chips also increase.
Okay. The second question I had was on the if you can talk about the inventory levels, the order book that we have now, and the royalty number.
Yeah. If we order as of today, we have about 170,000 or so pending bookings. That is the total orders which are pending for today at the moment. The stock levels and the net worth, we have roughly about 135,000 stock-138,000 stock. It is equal to probably at Q4 levels of retail, about 27% stock.
Okay. The royalty number?
The royalty for the quarter is under 2%.
Sir, just last thing. I do not know if you can because there are so many moving parts to the margin, right? There is commodity, there is pricing, there was S3, and then FX. If you can just talk, give us some sense on the mapping, maybe quarter on quarter or year on year, as to how each of these elements move. We can quantify commodity as 3.5%. But some of the other variables, if you can give us some sense, it will be really great.
If you look at it sequentially, there are two big elements. One is, of course, the volumes and the full operating value, which itself is about 4%. The second one is, as we mentioned, the commodities, which is about 3.5%. These are the two big ones that have impacted us. As we are able to now get to the capacity utilization level closer to 100% or 90%, whatever the numbers be depending on the market, I think we will get the benefits of operating value. We've got to pull at least bulk of it. Similarly, when commodity prices correct, I think that also will help us.
Similarly, as Shashank mentioned, whatever is possible in terms of price increase, I think those actions are also being taken to mitigate whatever extent we can by passing on some of the commodity increase, if not higher, which already has happened in the past few occasions. As I mentioned, we did one price increase this year in April. We did another price increase in July.
Okay. Thank you so much. Thank you. Next question is from the line of Raghav Garg from CLSA. Please go ahead.
Sir, just one clarification question on the pricing of SMG. So raw materials, if you are considering raw materials and all others, half depreciation, everything is considered in the depreciation?
All expenses except depreciation is part of material cost. Only depreciation is counted as other expenses, and it is shown as lease expenses.
Depreciation is also part of other expenses?
Yeah. Sorry, one more element. Royalty is also counted in royalty. That is covered in that. Yeah.
Okay. The second question is on this chip shortage. You very well articulated the way you are managing it. Is it possible to indicate primarily which are one or two or three key chips or variants which is really an area of problem and where you are, in a sense, compromising to serve in the situation?
I would prefer not to name our specific partners and how much commodities or where the supply constraints are. We are working with all of them. We are also stretching to give auto within auto industry, Maruti, some good allocation. We will play it by the year, and we hope the problems subside soon.
Any usage-wise, are there more on the communication side or electronic? Usage is really causing the problem. Is it just indicated, or also?
See, the basic problem is because of the pandemic, there have been many alternate uses of semiconductors. The world has digitalized more in the past 12 months. People are not sure whether to expand capacities or not. Is it a permanent demand change or is it a temporary demand increase? Increasing capacities is also doubtful. That is a fundamental problem.
CapEx, should we look at for ASEAN's number? Any guidance on the number?
CapEx plan would be about INR 4,500 crore. I mean, some movement will happen because of COVID, etc., some shifting, etc. But it's in the ballpark of INR 4,500 crore this year.
Yeah. I think it's a lot to keep in even for the SUV that we were jointly booking with Toyota. Any comment when can we expect that or how it is progressing? Anything on that?
We can't give you any such guidance. What we can tell you is it is in our active consideration. It's a strong technology for the next 1 year- 10 years, 15 years. It has a lot of merit. It can scale up without the dependence on external charging infrastructure. It creates good.
It has a lot of merits, and we'll let you know when the right time comes.
Thank you. The next question is from the line of Binay Singh from Morgan Stanley . Please go ahead.
Hi team. Thanks for the opportunity. Would it be fair to assume that the third line in Gujarat would have added to cost but not contributed to the top line?
This has just started. The third line has just started in April, and the production gradually ramps up. Unfortunately, the first quarter was affected by COVID, and I think even Gujarat had some disruption in the month of May. They are now gradually speeding up. As Shashank mentioned, as demand seems to be now looking much better, I think we'll be able to now ramp up capacity there also. We will gradually go from one chip to two chips over a period. Initially, first year, normally the plant is utilized about half of the total capacity, and the next year we go up to the full capacity. That's how it works.
The question I was trying to get is, would it have a sizeable impact on your gross margin? Any number you would want to quantify the cost that came because of the shift happening into this quarter?
I think this question was asked earlier also, and we said that it is an impact on depreciation and fixed cost. Obviously, any new plant which is set up will have a fixed cost and depreciation. The fixed cost is part of the material cost which goes in there, and depreciation is in the other expenses. We do not have the exact example of the numbers, but this is built in in both the other expenses which you see. Although sequentially, if you see Q4- Q1, other expenses have come down. They are not going up. There has been control on cost on all fronts. On material cost, also there has been an increase, but not so severe in spite of whatever increase that I mentioned on material cost.
Right. Certainly, we've seen that having models with higher ASC or aspirational portfolio helps companies offset these costs. Any sort of comments on the future models of Maruti?
Future models, we do not comment on any future models. There are obviously models in pipeline that we will keep seeing year on year. We do not comment on any model before we launch the model. Wait for the model launch and see what comes in this year and next year and thereafter.
Yeah. No, we'll keep the updates there. Any comments on the PLI scheme? I know what Suzuki and Toyota are doing in Gujarat. Will that PLI qualify for it? How are you guys looking at the PLI on battery?
Sorry, Vinay. You mentioned PLI on?
Battery.
The PLI scheme, the production incentive team for ACC
battery,
is the Suzuki Toyota joint venture? Will their facility be eligible for it? Are they looking to apply for those incentives?
Okay. See, the PLI is on the ACC, Advanced Chemistry Cell, which is a part of a battery. The first phase of our TDSG plant we have already put up. It has been commissioned. We are running trial productions now. The scheme is yet to come into force, and we are still discussing the details of the scheme with NITI Aayog and the relevant government departments. It should be a positive, it should have a positive impact on industry, and it should bring some capacity into India.
Great. Thanks for the comment.
Thank you. The next question is from the line of Ronak Sarda from Systematix. Please go ahead.
Yeah. Thank you for the opportunity. First question for clarification on the retail booking. Shashank Srivastava mentioned that the Gujarat retail booking is largely flat on a month-on-month basis. Is that correct? Why is that? Given production and obviously inventories would have taken up, is it some localized issues which is hurting the retail sales?
Retail week-wise has been going up. I would guess by the end of this month, we should see actually both retail and wholesale sequentially higher than June. I do not want to give a specific estimate, but it should be quite above the June level.
Got it. Is it possible to highlight Q1, entire Q1 retail sales?
Retail sales? For the product you mean or?
Yeah. Q1 retail?
Q1 retail was estimated to about 501,000.
For Maruti?
Yeah. Maruti was close to 200,000.
200,000. Okay. The other question I had was on the SUV segment. If you can help us understand how the company is now looking at the SUV segment given a huge expansion across different categories lately. All the large SUV launches are also doing very well. If you can help us understand based on your customer interactions, the feedback, how do you see the SUV segment now? Where do you see the growth coming essentially in the segment?
Yes. SUV segment, as you know, has been growing over the years. It was in 2019-2020 only about 26% of the industry. Last year, it was 32%. In this quarter, it was 37.9%. Let's say 38%. In fact, in May, it was quite large, almost close to 47%-48%. Clearly, there is a lot of traction in this industry. Mostly, it is in the mid-SUV and the entry SUV. The entry SUV and the mid-SUV are roughly equal in terms of volumes as far as the SUV segment% is concerned. It is about 15%, for example, last year was the entry SUV, and about 15% was the mid-SUV. You are right. While in entry SUV, we have the Brezza, which is the class-leading with the 1.5-liter K-Series Euro 6 compliant engine. It is the market leader. It is still leading by far.
However, in the mid-SUV segment, it seems to be probably a weak spot for us because we have the S-Cross, which hasn't performed as well as we would like to, whereas the Creta and the Seltos have done very well. Yes, this is an upcoming segment. Going forward, we will be taking a very close look at this segment as well, in fact, the entire SUV segment. On this, it's difficult for me to comment on these specific products or plan for the SUV segment.
Right. Right. I was more here to understand where do you see the segment in the next three to five years? Do you think this can cross, let's say, 50% of the industry? Are the customers' feedback or interactions highlighting that huge shift? Or do you still think compact cars or the premium hatchbacks have an upper or deliver a better value versus the mid or compact SUVs?
Yes. You are very right because if I answer the first part of your question, we believe the SUV segment is growing to around 52%-50% in the next five years. That is based on consumer understanding and consumer surveys. Also, our look at other countries which have seen a similar pattern. Normally, the plateau is around 41%-42%, and that is what we are seeing in India as well. That is the first part. On the second part of the question of the premium hatchback, cross-consideration between premium hatchback and the entry level and even the mid-SUV, you are right there also. There seems to have been a bigger price overlap, especially with the entry SUV, the sub-4-meter because of tax considerations. The price overlap is quite large.
We have seen cross-consideration increasing from roughly about 14% a couple of years back to almost 30% between premium hatch and the SUV. Yes, a part of those volumes must be being driven from the premium hatches. We also believe that a large part of this is coming from the sedan segment, which has seen a dramatic growth downwards. The sedan segment, as you know, was 23% about five years back. It is now just under 10% in this quarter. I think this significant shift has happened from the sedan to the SUV.
Sure. Thank you for the elaborate answer. I look forward to your new launch in the segment. Thank you.
Thank you.
Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead.
Yeah. Good evening. Sorry for the question. Would you please elaborate the exact mechanism of commodity cost transfer? Just to know what is the periodicity of contract signing to the contract to sign what happens to the commodity price increase, especially what's the delay between cost price increase and the impact on Maruti? That's the first part.
Commodity price is impacted on account of the two portions to it. One is steel, and the balance is the other metals, which is PGM and other metals of platinum and so on. Steel is negotiated each quarter, and the rates are set in that quarter. Accordingly, the impact of steel comes in at that particular quarter. The other commodity impact is with the quarter last. The vendors will be compensated based on the average rates that are there for the steel quarter. For example, we would have now, we will now be negotiating rates with steel vendors for quarter two, and we would be also compensating vendors for the other metals, including the PGMs for the known rates of quarter one. That's how it works in terms of the vendor compensation for both metals, steel and the other metals.
What happens if you sign for a quarterly rate for steel, and it goes up within the quarter? How much has been spent before you actually procure? What happens if there's a big taxation during that time, especially in recent past we've seen a big monthly or even underweekly taxation?
As I mentioned to you, the steel rate is settled, so that's a settled rate. For the other metals, especially the rate movement is pretty sharp in precious metals. There, we take the average of the previous quarter rates, and that average is used for the purposes of compensating because it's not just a closing rate of a particular rate. These are the average rates for the previous quarter. On the basis of that, we compute what is the compensation for that period.
My question would be more of an explanatory part. You said operating leverage impact has been 4% Q2. Commodity has been 3.5% quarter- on- quarter. Is it the percentage point impact on everything? Maybe everything margin could have been almost 7.5% impacted?
Oh, so this is what I said. The other ones which would have been better if there was no commodity increase and if the volumes were at the same level as we saw in the earlier quarter, preceding quarter. There are other measures that we would have taken. For example, we have significantly reduced our fixed costs in this quarter. That's in the wake of, in the context of the extremely difficult situation, we had to cut costs everywhere. Now, obviously, when volumes will go up, some of the advert marketing costs will also accordingly go up. Therefore, I mentioned that while I talked about an operating leverage of if all other costs remain the same, operating leverage of 4%. However, there's also an element of fixed costs that will go up when your volumes go up, especially the marketing costs.
We have been very low, for example, on advertisement costs in this quarter. It's likely to go up. There will be a benefit of operating leverage, whether it is 2% or 3%. It will depend on what is our strategy in terms of our marketing spend and the other fixed costs. Definitely, there is a scope of improvement on our operating leverage anywhere between 2%-4%. The second option is commodity. Commodity will depend on how much is our ability to pass on. As you mentioned, we'll have to take a collaborative call in terms of how much can we pass on. We've done some correction in selling price in April and July. In April, the selling price that we passed on had some impact, but much smaller.
Similarly, now when you see the impact of July price increase, and if there is any subsequent increase that happens, you will see that impact also rolling in to mitigate the commodity pricing. The other important thing to also know is that this will also stop at some point in time when all the price increases that we would have done will accumulate and will give you an exact impact for a particular quarter. It is just not, it is a moving average. It is not a constant. It will depend on all these factors in terms of where commodity ends up, where price increase ends up, and where your fixed costs end up going forward.
Sure. I would just clarify because around percent seems something number. If you think that an underlying number over 8.34%, it seems quite high. Yeah, that's your point. Thank you so much.
Thank you. Next question is from the line of Nitij Mangal from Jefferies. Go ahead.
Hi. Good evening. Thank you for taking my question. One more question. You mentioned that you are thinking of prices, limitations, and you have to calibrate the expense. I just want to understand, what are you more worried about, the demand or is it the competition and market shares? Specifically, if at small and mid-small state, with the kind of recovery that's been both upwards and downwards, would there be a need to accelerate price increase? Thank you.
Thank you for the question. You are right. Actually, if you were to choose between the demand-side worry or the market share, of course, demand is something which we are not entirely sure of going forward because of the doubts about the third wave and so on and so forth. Of course, market share is a consequence of those volumes. In that sense, there is a connection between both the volumes which we are targeting as well as the market share. On the other part of your question, is that okay, or do you want some more elaboration?
Actually, maybe just add a little bit that with the kind of recovery we have seen and even a fixed wave, are you comparing more confidence-checking price rates maybe two or three years, or how are you thinking about that?
Yeah. Surely, of course, the quick bounce back, and I must say the bounce back has been better than expected, especially in the urban areas I mentioned earlier. While we look at it as a single entity, the price hike and the demand, actually, we have to break it down into segments. As you know, different segments have different price elasticity. We have to make an estimate not just of an overall hike, but also specific to the segments where the demand is coming from. We have to take into account all that. As Seth very rightly mentioned, we can take a calibrated call depending on those segments and the elasticity.
Thank you very much.
Thank you. The next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Hi Seth. Thank you for giving me the opportunity. You did mention that in 1 Q, Maruti's retailed for around 300,000 units while industry was at 500,000 units. The steel market share was as low as 40% in the past. Despite the fact that you had a decent order backlog of 200,000 units, this particular production seems to be much higher than retail. Any reason for that?
Great question, actually. Because you're right, the retail market share was lower, while you see the wholesale market share close to 46%, but retail market share was closer to 40%. There are three main reasons for it. One, of course, was while we had pending bookings, we had a mismatch in terms of the CNG availability. As you know, CNG, those factors which impact Maruti disproportionately is what will bring the market share down. One such factor was the CNG availability. The reason was that if you remember, during the pandemic, starting from mid-April up till the first week of June, we had the oxygen diverted from industrial usage for medical usage. As a result, CNG production was not there. As you know, in CNG, we have close to a 90% share. That means that we would have been affected disproportionately.
Our estimate is that with the CNG availability, we would have added about 5.1% or 5.2% on our market share. The second reason, of course, and I think someone pointed it out, SUVs, their market share is lower, went up in terms of the overall segment. If you look at Suzuki's market share without the SUV, actually in Q1, the market share was 65.4%, up 5.7%. If you look at the passenger car market share, Maruti Suzuki's market share was 62.9%, up 4.8%. Even in MPV, our market share was 69.2%, up 14.4%, and in Vans, 97.2%, up 1.4%. It was in SUVs that we had a problem. Unfortunately for us, it was the SUVs' percentage which went up that disproportionately affected our market share in this quarter.
Finally, the third reason is that the stock levels which we were operating at, if you remember it closely in April, we had just about 20,000 cars in the network and less than 2,000 cars in our factory. As a result, once we had the lockdown, before we could build up the inventory at the dealership, we had the lockdown, and the retail suffered for the next one and a half months. I think these three factors combined have resulted in that drop in market share that we observed very directly. Thank you.
My second question is, if I do some calculations based on the discount numbers that you have shared and the retail volumes that you have, the average discount for the retail on the retail level comes up to [inaudible] in this quarter versus around [inaudible ] in last quarter. The discount levels have gone up substantially by almost INR 3,500 in a scenario where basically commodity factors are already raising what people are looking to quite increase. Secondly, you have the decreased order book, decreased order book, and demand environment is increasing. Once again, what is the key reason for that? Are we increasing too much in volumes because the demand pool is so low that we have to make so much cost to actually add discounts, or is it really something else that you are missing over there?
If I get the question right, you were saying that there was a very high per-unit retail basis fee sales promotion. Actually, I'm not sure where you got this calculation from because while we calculate based on the wholesale, the wholesale has come down actually to less than [14,000], which was [23,800] in 2019-2020, 18,000 in 2019, and so on. On that basis, it's actually come down dramatically. On the retail front also, we have brought down the sales promotion. I'm not sure where that 17,000-18,000 came from.
Maybe I can take it up from just to explain to you. Just consider the wholesale was 300,000 units, while retail came down to 200,000 units, and the wholesale discount was INR 14,000. Based on that mathematics, basically the discount at retail level comes closer to about INR 20,000. Similarly, in the last quarter, also you have shared your retail and wholesale numbers. Inside the similar number calculations over there, the discount at retail level for the last quarter comes down to about INR 17,500.
I think it will be more appropriate to see that in years level because every quarter you will have some wholesale retail gaps that would be there. I think it will be more appropriate to see what is the discount level at the end of the year. I think we'll get to the numbers because we are also very tightly controlling the discounts now. The sales promotion or the discounts that we are giving is totally linked to what's essential and not just throwing away discounts anywhere in a free-for-all. Please wait. While I understand what you are saying in terms of retail and wholesale, let's look at the full year and then see the impact of discounts in terms of the trend, in terms of how it moves. That will give you a more realistic picture.
Because sometimes you have this mismatch because of certain events and certain situations. Full year will give you a better picture.
Sure. One just last question from my side. We had, obviously, you are working on cost reduction plans. We have heard from some of the two-wheeler OEMs that they have kind of working on reducing costs on the catalytic converter side by changing the mix of PGMs, right, from rhodium to a minimum palladium to platinum or something of that sort. We just wanted to understand your thoughts because PGM has been one of the major worries for the industry, and inflation has gone back and continues to be unabated. Anything you can share on that as to where we are on that, or maybe in the coming quarters, we could see some benefit coming from that kind of move that you are making in terms of reducing cost. Thank you and good call from my side.
Thanks for the suggestion. We have done this change in formulation in the past to reduce cost. If you think it merits another change, we can look at it again.
I'm not soliciting. I'm asking whether anything is possible on that end because we had a two-wheeler OEM commenting on that one or two. So I just wanted to hear your thoughts on that.
This is already in process. It's already an idea which is being worked upon, and it's already in process. We are working upon it. I should also tell you that because of the FTA that we have, we are being able to import the precious group metals at a lower rate of duty than others.
Oh, okay. Okay. Thank you, sir. Thank you so much.