Ladies and gentlemen, good day and welcome to the Q4 FY23 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 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, Tanvi. 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 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. Now, please note that in case of any inadvertent error during this live audio call, a transcript will be provided with the corrected information. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Yes. Good afternoon, ladies and gentlemen. In its fortieth anniversary year, despite the shortages of electronic components, the company recorded its highest ever annual sales volume. The annual turnover of the company surpassed INR 1 lakh crore mark. Financial year 2022 , 2023 was also an action-packed year for the company. It worked on multiple fronts. Amongst other things, it introduced three new models, four product refreshes, one of the world's best strong hybrid electric technology, six-speed automatic transmission technology, and a host of new tech-based technology features. Additionally, the company extended the CNG powertrain to six models, ensured that its entire portfolio complied with new regulations and norms, started construction of a new manufacturing facility, demonstrated an electric vehicle concept, enhanced its manufacturing flexibility to accommodate market fluctuations, maximized the production volumes amidst shortages of electronic components, and expanded the digitalization drive.
The company strengthened its product portfolio in the SUV segment with the launch of Brezza and Grand Vitara, thereby increasing its market share in this segment. Moving forward with Jimny and FRONX, the SUV product portfolio of the company will be further strengthened. With this, the company aims to secure a leadership position in the SUV segment. The Brezza and the flagship SUV Grand Vitara garnered strong bookings since their introduction. The phenomenal success of Brezza and Grand Vitara stands as a testimony of company's ability to command a larger volume in higher price segment vehicles. The company believes in offering products and technologies that are relevant to the Indian market context. Through extensive market research, the company gathered that in the high-priced vehicle segment, customers prefer feature-loaded vehicles. The company offered a flurry of classy features in these new models, which added to their excellent acceptance.
Driven by new model launches, product refreshes, introduction of strong hybrid powertrain, and the expansion of the portfolio of CNG-powered models, the company's new model activity saw a multi-fold increase during the year. On the product regulations, Phase 2 of CAFE norms were mandated from 1st April 2022. The company undertook relevant modifications in products and powertrains to ensure compliance with BS6 Phase 2 norms and to make all the models compatible with E20 fuel. Given the company's wider portfolio comprising 16 models and over 100 variants, carrying out regulatory compliance is not only resource-intensive but also extremely challenging. The company, with meticulous planning and in close collaboration with various stakeholders, ensured timely compliance. The new models and product refreshes introduced during the year, especially in utility vehicles segment, received good market response.
However, the shortage of electronic components has restrained the ability of the company to fully serve market demand. The company could not produce about 170,000 units due to shortage of electronic components during the year. To expand production capacity, the construction of a new manufacturing facility in Kharkhoda, Haryana has started. A plant with a capacity of 250,000 vehicles per annum is to be commissioned within the year 2025. In addition, in light of the estimated market demand, including exports, the Board today, in principle, approved the creation of additional capacity of up to 1 million vehicles per year. Coming to the financial results of quarter four for this financial year.
The company sold a total of 514,927 vehicles during the quarter, higher by 5.3% compared to the same period previous year. In the quarter, the sales in the domestic market stood at 450,208 units, up by 7.1% over that in Q4 of last year. The sales in the export markets were at 64,719 units as compared to 68,454 units in quarter four of previous year. During the quarter, the company registered net sales of INR 308,280 million, an increase of 20.8% compared to the same period the previous year.
The operating profit for the quarter stood at INR 26,111 million, a growth of 46.7% over that of Q4 of previous financial year. On account of higher sales volume, improved realization from the market and favorable foreign exchange movements. Net profit for the quarter stood at INR 26,236 million, higher by 42.7% compared to the same period previous year. Coming to the full year, the company sold a total of 1,966,164 vehicles during the year. This translated to a growth of 19% over previous financial year. In the previous financial year, the sales of vehicles were at 1,652,653.
Sales volume in the year comprised of 17 lakh 6,831 units of domestic market and highest ever exports of 2 lakh 59,333 units. During the period, the company registered net sales of INR 1.12 lakh crores compared with INR 83,798 crores in financial year 2021-2022. The company recorded an operating profit of INR 8,184 crores in financial year 2022-2023 as against INR 2,914 crores in financial year 2021-2022. The company was able to better its operating profit on account of higher sales volume, improved realization from the market and favorable foreign exchange movements.
With this, the net profit for the year rose to INR 80,492 million, which is the highest ever. The net profit in financial year 2021, 2022 was INR 37,663 million. The board of directors recommended highest ever dividend of INR 90 per share, face value of INR 5 per share, compared to INR 60 per share in the previous financial year. 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 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. The first question is from the line of Kapil Singh from Nomura. Please go ahead.
Good evening, sir. Thanks for the opportunity. I wanted to understand the volume outlook for next year, both from demand and supply side, and particularly from supply bottleneck point of view, if you could talk in terms of what are the factors that are causing these. Are these specific to some vendors or powertrains for Maruti Suzuki or is it an industry-wide issue? How do you plan on addressing them so that we can achieve that ahead of industry growth that we are expecting?
Kapil, for the next financial year, 2023, 2024, the industry body, SIAM, estimates passenger vehicle industry to grow by between 5%-7%. Maruti Suzuki thinks we should grow, well, beyond this. We'll be better than industry. I missed your semiconductors, right? Second question.
Yeah, basically, you know, we have seen strong demand even in the current year, but we missed out because of the supply bottleneck. What I'm trying to understand is, are these bottlenecks specific to some powertrains or vendors for Maruti Suzuki, or is it an industry-wide issue? How do you plan to address them in the next year?
Yes, I am fully with you. We feel the loss of production because of supply side bottlenecks, semiconductors. The problem is a global one. Having said that, it is, you know, a particular country, a particular plant, a particular design of a model, the combination works. If it could affect different models, different manufacturers, different modules of the car differently. Of course, all our efforts are to organize supplies through multiple sources. We are also doing depopulation. For example, if there is a particular semiconductor in a particular variant of a model which is superfluous, not required. Sometimes because of commonization, you keep it. We are removing all such needs so that our consumption is the minimum. All those efforts are going in negotiations at global scales. Having said that, we are still vulnerable to supply-side bottlenecks.
Okay, thanks. The second question was on cost and margin. If, sir, you could just talk about, we have seen some increase in raw material to sales this quarter. If you could talk us through in terms of, what were the factors that impacted this? How were the discounts for the quarter? What is the outlook for next year?
Discounts during the quarter was at INR 13,269 per vehicle. They were lower than the third quarter, and they were slightly higher than the previous year. The previous Q4 was INR 11,130. Now we are at INR 13,269. Q3 was higher at INR 18,291. The raw material to net sales is a combination of many factors. The proportion of sales in our case from both SMG as well as from Toyota has gone up. There, the concept of transfer pricing works. All the fixed costs from this is loaded onto the material cost.
While you are seeing absolute profits have gone up, as a percentage, there will be slight change here, because if that proportion is higher, then of course, the load of overhead also goes into the material cost due to the transfer price. That I think is the main reason. Other than that, the raw material prices have pretty much remained constant. There's not been any significant change. Discounts have in fact come down compared to the third quarter. Foreign exchange rates also have been stable. In fact, yen was at JPY 140 in the second quarter. It has now slightly deteriorated to about JPY 132-JPY 134, between that level. There would be some impact of the foreign exchange as well, but not significant. I think these are the factors that have resulted in the ratio that you see, as it reflects in the quarterly account and the full year accounts.
Thank you so much, sir.
Thank you. Next question is from the line of Pramod Kumar from UBS. Please go ahead.
Thanks a lot for the opportunity. Sir, my question is a follow-up to what Kapil asked. If you can just help us understand, because of the kind of changes in the models that you've done, the kind of feature enhancements what you've done and the changes to transmission, what has been the kind of jump in the average consumption of semis for you? Because the market has a difficulty in believing that we've been continuously plagued with semiconductor shortage for more than a full year now, and it's not expected to resolve anytime soon. Just want to understand within Maruti, given the model mix what you enjoy currently, what has been the kind of semi intensity increase what you have seen on a, well, year-on-year basis?
On a pro model basis, if the average semi numbers what you had earlier, what is it now? That we can better appreciate the kind of scale of issues what you're facing. Second question was on the demands of the entry-level car segment. We continue to see that category continues to shrink. According to you, where do you think demand could settle on the lower side for that segment? What will be needed from a macro perspective for that segment of first time buyers and entry-level car buyers to kind of make a comeback?
On the first question, yes, because of higher functionality, premium features, technology, infotainment, the semiconductor content in the car has gone up. It's difficult to put a number because it's a model-wise, variant-wise phenomena. Having said, globally also one of the reasons, one of the drivers of semiconductor consumption increases larger cars and some EVs in Europe also. I think all manufacturers are affected. Everybody complains about semiconductor shortages. Everybody has pending bookings. It's an industry-wide phenomena. One element that sometimes hurts more is that when semiconductor manufacturers, they peg the new year allocations based on past base figures. That sometimes works to disadvantage. Your second question was on?
Entry-level car demand, Rahul san. Yeah.
This year, entry-level cars, in FY 2022-2023 were higher than in previous year with a reasonably, good growth. However, next year we expect it to be at a similar level, as this year. Let's say a flattish growth.
Rahul san, that's actually positive because generally we've been picking up the entry-level demand continues to be under pressure for the industry wide and it's declining even now. You expect that it could be flattish on a full year basis?
In the backdrop of low expectations, this is somewhat positive.
Okay. Last one on the order book status. What is the current order book numbers with, I think still early days, with the FRONX price announcement, but where do we stand on the order book side? If you can give a broad breakup of the order book in terms of CNG and key models, just to understand what the kind of model mix what we enjoy on the order book versus say just 21% volumes of SUV and MPV right now. What is the kind of auto book mix, if you can help us understand. Thank you.
The total order book as of today morning would be 412,000. CNG is about one-third of that. We have the new SUVs that we have launched are also at a good number.
Rahul, and last one. Other expenditure, any comment on the Auto Expo related, lumpy expenses this quarter, because that will probably not reoccur for the next two quarters at least. Any, any color there on, as to how big was that? Thank you.
On the marketing side, I think the exception would be Auto Expo, which happens once in two years. The expenditure was about INR 40 crores that occurred in this year, which I think will not get repeated in the next year.
Thanks a lot, sir.
Auto Expo.
Thanks a lot. Thank you.
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Hi, team. Thanks for taking my questions. Just before I get to my question, I just want to follow up on this semiconductor thing because, I mean, I do understand that, you know, it's vulnerable, but can you just give us some clarity as to, you know, are there any vendor conversations which give you an indication that second half could be normal? I mean, any clarity around when do you see this normalizing? Because I did see some flashes that you all were talking about two, three quarters. Is this some vendor negotiations which are ongoing or capacity increase?
We do not have full year visibility. At least quarter one will be tougher than other quarters. Broadly, the uncertainty continues.
Okay. Okay. The second question I had was on these on the RDE related cost impact. If you can just give us some sense on what was the cost implication, and are we adequately covered up with the price increases that we've taken?
Yeah. Fortunately, BS6 Phase 2 for gasoline doesn't cost much. Now possibly analysts would be able to look back at the decision we made when we decided to exit diesel. Because diesel, RDE, and OBD, On-Board Diagnostics, both are part of BS6 Phase 2, which were mandated from 1st April this year. Diesel has would have seen significant cost jump, diesel models. This year we'll also have ESC, Electronic Stability Control, that will have a minor cost impact. We'll have seatbelt reminders that will also have a minor cost impact. Other than that, we don't see any regulatory impact this year.
We are in CAFE, we are the best, we have the least CO2 in the entire, among all the car manufacturers, we have the cleanest fleet with lowest CO2 value. I do believe that not all are in this, in a similar comfortable position. On regulatory front, Maruti is well-positioned.
Any clarity on the airbag thing that we have since you said we are not expecting any further regulation?
It is still in a draft notification stage, and industry is in discussion with the government. I believe they will, they will arrive at some, at some workable solution.
Okay. The second question I have is a little bit broader one on this whole EV shift, which is becoming more, you know, prominent in the fleet segment, because we've seen some of these shared mobility guys come and, you know, make big commitments on the, on the EV front. How are we thinking about that segment? It's been an important segment for us, particularly at the small car, you know, entry car segment. You know, is there something that is in the works or, you know, how do we position for this, you know, greener shift that even the shared mobility companies are calling out for?
See, sometimes we use terms interchangeably. When we say greener shift, the green is in the CO2 value. Maruti Suzuki has the least CO2 in the entire car among all car manufacturers in India. For the simple reason that it is not just 1% of your portfolio which contributes to the CO2, it's the balance 99 also. The entire portfolio, all the volume of sales have to have a lower total CO2. That's how the green shift happens. Now, coming to your question about shared mobility in electric. We will be launching our EV next financial year, which is 2024-2025. The specs are quite powerful, 550 km range, 60 kWh battery size, and a very competitive charging time also. All the use case patterns we are studying closely, and we'll be there when the market needs us.
Okay. Got it. I'll join back with you. Thank you.
Thanks.
Thank you. The next question is from Raghunandhan N.L. from Nuvama Institutional Research. Please go ahead.
Thank you, sir, for the opportunity. Congratulations on good set of numbers. Sir, my first question was on precious metals. They form more than 5% of your RM cost, and in last two months, rhodium, palladium seem to have taken a fall of anywhere between 10%-30%. Just wanted your thoughts on how are you seeing the commodity basket going forward.
Commodity is a mixed bag. I mean precious metals, of course, you've said, that some of the precious metals have corrected. The impact comes with a lag effect. We, as we mentioned, there's a quarter lag, in the impact that's captured. There are certain other commodities which have also seen an uptick. It's a combination of all that you would have to see. Yes, you're right. rhodium and palladium have seen, some correction from the levels that they were at.
Got it, sir.
I think we, for us, the biggest commodity still remains as steel, where we have been told by our supply chain team that moving forward, they are seeing some increase in prices given the demand is picking up now. That's something that we need to watch because half the commodity basket is steel and the balance half is the other commodities. I think it's a combination of all. The impact of this, if any, will be captured in the next quarter, I mean, the first quarter. But it will have to be seen along with all other commodities put together.
Thank you, sir. Sir, for FY 2023, if you could give some color in terms of customer mix, how has it been for rural versus urban, first time additional buyer and replacement? How has it changed? Which segments are doing well?
The first time buyers is about at 42%, and it is fairly consistent with the past. Replacement buyer at 21%. Additional car in the family is 37%. Rural continues to be strong.
Sir, share of replacement has gone up, sir?
Replacement, well, it's at 20. Ha, marginally gone up from 19% to 21%.
Got it, sir. Going forward, which customer categories do you expect to do better?
See, Of course, the larger shift is the move towards premium cars, towards SUVs. SUVs are now a large part of the overall market. I think we are at 43%. This may increase further. There is clearly a shift towards SUVs. Fortunately, we have also launched a number of very exciting products in this segment. That is the biggest trend that we are seeing as of now.
Thank you for that, sir. I mean, just to clarify, I was trying to ask, in first time replacement, additional buyers, how do you see the trend going forward? That's the last question from my end.
The first time continues to be under some kind of, some kind of pressure, while the replacement and additional buyers can see an upward trend.
Got it, sir. Thank you so much.
The next question is from the line of Amyn Pirani from JP Morgan. Please go ahead.
Yes. Hi. Thanks for the opportunity. My question was on this capacity announcement and the CapEx number. I think this year you spent around INR 6,000 crores. It seems from some press, you know, releases, from the press comments, it's INR 8,000 crores for next year. There's a talk of 1 million capacity. This million capacity will be coming in the same place where you're doing the 250 Haryana and what would be the timeline for that?
No. The 250 Haryana is the first plant in the Kharkhoda site, district Sonipat. Kharkhoda site has room for four such plants going up to 1 million.
Okay. Okay.
What the board approved today in principle was additional to this 1 million. 1 million in addition to what we have in Kharkhoda. It's at a preliminary stage. More groundwork needs. This is an in-principle approval. More groundwork needs to be done. Where, how, what, at what cost? All that needs to be done.
Okay. Would it be fair to say that the 1.3 million that you mentioned that you have in Gurgaon and Manesar remains that, or does this new 1 million also mean that this 1.3 million could also have some reduction, especially in Gurgaon, where you're already, you know, I mean, almost in the middle of the city it seems?
At least Manesar will stay. In fact, Manesar will go up by 1 lakh in the next financial year-
Okay.
-2024, 2025. Because in the intermediate, we will need more capacity, and we might to serve market demand. A lot of this picture will emerge, you know, as time progresses. In the next two, three, four, five years, depending upon how the market grows, we might have to follow a reactive strategy and, you know, keep adjusting ourselves to this. Having said that, we cannot say that Gurgaon will reduce as of now. It depends on the market.
Okay. Just lastly, can you confirm the INR 8,000 crore CapEx number and what it would be spent on, for next year? That's all from my side.
Yeah. INR 8,000 crore is the CapEx number for next year. I think there is this Kharkhoda investment that's gonna happen. There will be also investment in new models, new projects. There is also the regular expenditure on the annual maintenance of all the CapEx that we have. It's a combination of all this. I think the majority of this is towards the new Kharkhoda plant.
Okay, sir. Thank you.
Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Hi, sir. Firstly, can you talk about our realization this quarter was more or less flattish on QOQ basis, despite discounts going down, despite mix improving? Is there any one-off there's, can you talk about that?
No, there's no one-off. I think it's all just to do with the mix that you are selling in a particular quarter. As I think it was earlier mentioned that due to semiconductor shortages, you have to adjust your mix to the available models that you can sell. Depending on what models you afford in a particular quarter, your realizations will vary. I think it should be looked at from a year's perspective. The realizations on a yearly basis have moved significantly higher. Don't go by a quarter basis because it will largely depend on the mix and the availability of semiconductor. I think moving forward, as our focus is on the newer models and also the bigger models, you would see the realization going up.
Sure, sure. Can you share some data points like what was our export revenues for the quarter and the full year? What was the royalty for the quarter and Gujarat production for fourth quarter and FY 2023 for the as a whole?
Exports realization, revenue in Q4 was INR 3,900 crores approximately. For the full year it was, INR 14,652 crores.
Okay. Gujarat production for fourth quarter and full year?
Gujarat production was 186,786 units this quarter. For the full year, Gujarat production was at 671,692 units.
Okay, this is helpful. Lastly, on the CNG side, are we seeing some stability and recovery, given the events on the CNG prices? What was the CNG sales for the full year FY 2023?
Last year, we sold about 330,000 CNG cars. Of course, this year we should grow from that number. Yes, there is positive traction after the government rationalized prices.
Got it. Got it. Great. Thanks, and all the best.
Penetration is for the full year, was at 20%, but in some months it has gone beyond 20% also.
Okay. Okay, great. Thanks.
Thank you. The next question is from the line of Pramod Amthe from InCred Capital. Please go ahead.
Yeah. Hi. The first question is with regard to the sourcing from Toyota. There have been some talks about capacity expansion of 30% happening there. Will it also benefit your sourcing of products from there? Any thoughts?
Of course, since there is a constraint, so we are negotiating all the time. if there is any increase, we'll let you know.
Okay, sure. The second question is with regard to the expansion plans which you're planning. It seems to be pretty aggressive as compared to what initially you thought. Since this is happening more from internal accruals, any thought in terms of your dividend payout policy in the period going up to commissioning of this capacity?
I hope you know this time we had the highest ever dividend payout. sorry, dividend per share.
We were looking for a payout, right? What you ultimately, I mean, you give out. Because the last time the payout policy was announced when the Suzuki set up the plant to give that comfort . Just wanted to get directionally, how are you guys looking at, managing the resource?
You know, of course, as you rightly mentioned, most of this, most of the CapEx on new capacity can be met through internal accruals, and hopefully it should happen through positive free cash flows. The dividend question always remains with us. The last word on technology has not been said. The auto industry is going through a major transformation. It's not just technology, it's business models also. Many areas where we might need investment. We are watching. You would have noticed a calibrated increase in trend in the dividends also.
Sure. The last question is with regard to a couple of new initiatives which you have taken, in terms of the new way of financing the vehicles or to that extent, the digital sourcing. Any update in terms of what's been the benefit of that on the sales? What proportion you have been able to source there?
There is-
See the marketplace that we've been using for financing-
Right.
-I think that's been a very good. It has been welcomed by the customers because they get a platform where they're able to get the best rates given their credit profiles. We have seen a significant uptick in terms of increase in the penetration on through that portal. All the digitization initiatives that have been going on in the marketing are really paying off, and this is one of them in terms of giving them a platform where they can compete. The financiers can compete for offering the best rates to our customer with their credit profiles. I think it's significantly increased from when we started. Virtually all banks are now participating in it.
Okay, sure. Thanks a lot.
Thank you. The next question is on the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
Hi, good evening, thank you for taking my questions. My first question is on the Grand Vitara model. I think the strong hybrid variant mix seems to now be in the mid-20% based on your last update. This is in excess of 40% at the time of the launch last year. Maybe could you just share your thoughts on what could be driving this normalization? Any thoughts you're able to share around the company's plans for the strong hybrid technology for the other utility vehicles in the portfolio would also be helpful.
Okay. See, this is a very normal phenomena across... It's not just to do with the powertrain. Whenever we launch a new model, the first few sales have a higher percentage of the topmost variant or the topmost features or functionality, then it normalizes after that. Because the early adopters, you know, they take the bookings first. It's a very normal phenomena across features, not just the powertrain. You're right, it's in mid-20s. We are the people who drive this car, drive this strong hybrid technology are very happy with it. We've got positive response. We plan to bring it in more models also, as you mentioned. I missed your second question.
Yeah, I know. I think that's helpful. My second question is on the channel inventory numbers. As things stand, maybe if you could just share your channel inventory numbers for the domestic market, export market, factory inventory and sort of discount per vehicle as well, please.
You know, there's a heavy waitlist, so the inventory is below normal. It's about two to three weeks. We would have liked it to be higher.
Got it. Just a discount per vehicle as well, at the end of the quarter. That would also be helpful, please.
Mentioned it earlier. It's, for the quarter, it is at, INR 13,269 per vehicle.
Got it. Got it. Thank you very much, and all the best.
Thank you. Thank you, ladies and gentlemen. That was the last question for today. With this, we 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.
Thank you.