Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 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 call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Pranav Ambaprasad. Thank you, and over to you, sir.
Thank you, Rayo. Ladies and gentlemen, good afternoon once again. Welcome you all to the Q2 FY 2024 earnings call. Before we begin, may I remind you of the safe harbor? We may be making some forward-looking statements that have to be understood in conjunction with 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.
The conference call will begin with a brief statement on the performance and outlook of the business by the Chief Investor Relations Officer and Executive Officer, Corporate Planning, Mr. Rahul Bharti, after which we'll be happy to receive your questions.
I would like to invite our Chief Investor Relations Officer, Mr. Rahul Bharti. Over to you, sir.
Thanks, Pranav. Good afternoon, ladies and gentlemen, and thank you for joining us. I'll start with an overview of the industry sales performance, followed by the business performance of the company. Quarter two of this year has been a reasonably good quarter. Industry clocked its highest ever quarterly wholesale volume of over 1.07 million units, with a year-on-year growth of about 5%. Sales volume for the company in the passenger vehicle segment grew by about 8% higher than industry growth. It led to a gain in the market share for the company by about 120 basis points. In the industry, the share of utility vehicle segment continued to expand. In quarter two, the share of SUVs increased to about 50%, which was about 43% during the last financial year.
Together with MUV, the share of UV in the industry is now around 60%. In terms of fuel mix, CNG vehicles continue to see strong demand, and the share of CNG vehicles in the industry has now reached about 15%. Share of diesel vehicles continue to decline and is now about 17% as compared to 19% during the last financial year. Interestingly, hybrid vehicles have seen a good traction, and now the share of hybrid vehicles have increased to about 2%. Let me also share some of the business highlights for the company. During the quarter, the company clocked its highest ever quarterly sales volume of over 552,000 units. After about eight quarters, the company could avoid a production loss, a production volume loss on account of semiconductor shortages.
Going ahead, the company is cautiously optimistic on semiconductor supplies. With the easing of electronic component shortages, production volume improved, and the pending orders at the end of quarter two have come down to about 288,000 units, and further corrected to about 250,000 today. Diverging demand patterns between utility vehicles and the small car segment is continuing. The company is working on increasing the flexibility in operations to produce vehicles as per the evolving market demand. With an overwhelming response to its products in the SUV segment, the company achieved market leadership with a market share of about 23% in SUV segment during the second quarter. The company is already a leader in hatchback, sedan, vans, and MPV segment, and now SUVs also.
All four SUVs, the Brezza, the Grand Vitara, Fronx, and Jimny, have contributed to the company taking the leadership position in SUVs in India. In quarter two, financial year 2023-2024, exports volume for the company grew by about 9.7% over the same period last year. With exports of about 69,000 units, the company continued to be the largest exporter of passenger vehicles from India. SUV models, such as the Grand Vitara and the Fronx, are also contributing to the growth in export volumes. Recently, the company further expanded its product portfolio for exports with the start of exports of the Jimny five-door. The vehicle will be shipped to destinations in Latin America, Middle East, and Africa.
Going forward, the company plans about a threefold increase in exports volume to about 750,000 or 800,000 units by the year 2030-2031. As you are aware, the company is also now integrating SMG, the Gujarat plant with itself. This will help the company enhance its agility and eventually the competitive position in a scenario where the company will be operating at multiple locations through the country and manufacturing vehicles with multiple powertrain technologies. The company has shared a presentation with the stock exchange for investors, proxy advisors, and analysts for better understanding of the proposal. On seventeenth October, the company put up the proposal for shareholders' approval. The voting will remain open until sixteenth November for shareholders to exercise their voting rights. I now come to the highlights of the second quarter of financial year 2023-2024.
In the quarter, the company recorded its highest ever quarterly sales volume, net sales, operating profit, and net profit. The company sold a total of 552,055 vehicles during the quarter, registering a growth of 6.7% over the same period previous year. Out of the total sales volume, 482,731 units were sold in the domestic market, and 69,324 units in the export market. In this quarter, the company registered net sales of INR 355,351 million, a growth of 24.5% over quarter two of last year. Growth in net sales outpaced the growth in sales volume due to a higher contribution of utility vehicles in total sales volume.
The average selling price in this quarter grew by about 15% over the second quarter last year. The net profit for the quarter rose to INR 37,165 million, from INR 20,615 million in the second quarter, a year-on-year growth of over 80%. This was on account of higher sales volume, cost reduction efforts, favorable commodity prices, and higher non-operating income. In this quarter, as you might have observed, that almost all the positive factors combined to give us a good result. Highlights of the H1 now, first half of the year, financial year 2023-2024. For this period, the company also recorded its highest ever half yearly sales volume, net sales, and net profit. For the first time, the company surpassed half yearly sales mark of 1 million units.
Total sales in H1 were 1,050,085 units, a growth of 6.6% over the first half of previous year. Sales in the domestic market were at 917,543 units, and exports were at 132,542 units. The company registered net sales of INR 663,803 million in the first half. The net sales in the previous year, first half, were at INR 538,298 million. The company made a net profit of INR 62,016 million in the first half this year, as against INR 30,743 million in the first half of the previous year.
With this, we are now ready to take your questions, your feedback, any other, any other observations that you might have. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touchtone 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pramod Kumar from UBS. Please go ahead.
Yeah, thanks a lot for the opportunity. The first question is actually a clarification on the quarterly results. Just wanted to check, are there any one-off gains or one-off items which are lumpy, which are kind of lifting our margin profile for the quarter? And second, is a clarification on the change in inventory position. That seems to be quite significant this quarter, and does it have any bearing from accounting standpoint on the margin numbers what have been reported for the quarter?
So, Pramod, there are no one-offs as such, I mean, with the possible exception that commodity cycles and forex keep on varying, that we have to keep in mind. In terms of inventory, the wholesales were at 466,469, about 467,000, and retails were at 432,450. And so wholesales were slightly above retails, and this is expected because we need to build inventories, in the middle of the festive season. We still have--
Sorry, Rahul, sir, sorry to interject. Apologies, but I was more referring to the P&L line item of change in inventories, not the physical inventory at dealer. Basically, there is an INR 800 crore -odd inventory movement item in the P&L, which is reducing your R&D sales ratio. Just wanted to understand the accounting intricacies there, because there is some confusion, because we got some client feedback that this explains a big chunk of the margin expansion, that INR 850 crore. So if you can just help us understand this from an accounting standpoint, whether does it have any one-off impact or any impact whatsoever on the underlying profitability of the company for the quarter?
Pramod, let me answer this.
Yes, sir.
Number one, let's clarify. I think this question is being asked by many investors. Let's clarify that there is no one-off or exception in the results. The movement in inventory is a regular feature. Inventory keeps getting adjusted every quarter, and there are ups and downs, and there are small elements of adjustments that happen, which are very marginal in nature, not very significant in nature. So it's a usual practice that the inventories, which comprises of either the finished goods, work in progress, or yeah, well, basically both finished goods and work in progress, which will keep changing every quarter. And to the extent of absorption of fixed cost incidents, there could be some impact on the inventories, but that's not so significant, you know, and it's a regular feature, it happens every quarter.
So i f we were to see compared to last year, it is flat. If we were to compare, see sequentially, there will be some impact of inventory built up, but that is also not very significant. So let me clarify that the results either do not have any one-offs or have any significant, significant impact of any inventory adjustment on the results.
And Ajay said, Ajay, sir, just thanks a lot for clarification. And just to make it even more clear, so that for the volumes, what you've done, and for the mix, what you've done, and where the commodity and other elements are, this is, this is kind of the margin what one can expect, ceteris paribus, of the 12.9% margin what you reported. Everything remaining constant, everything remaining steady state, this would be the kind of profitability what you would have with this volume and this kind of a mix and whatever discount levels. Is that understanding right?
So let me clarify that given in the current context, given the current mix and the current situation that we are in, on commodities, Forex, and the mix that I mentioned earlier, and the discount trajectory, so yes, the margins are very much what it is. How it will move forward will depend on all the variables that we'll have to see in terms of, commodity costs, foreign exchange, as well as the mix. You know, if they remain constant, as you rightly said, if everything is constant, then, of course, you know, the change would not be there. But if anything changes, then the margins will accordingly move up or down.
Fair enough, sir. And, sir, if you can just help us understand, the discount number for the quarter, average discount and the export revenue, that would be really helpful. And then I had one follow-up question on the demand side, general demand scenario. Yeah.
Discounts for about INR 17,700 per vehicle, approximately, and export revenue was about INR 4,336 crore.
Okay. And, sir, on the demand side, we've heard Shashank Srivastava on the business channels recently. I just wanted to understand if you can provide some regional color on the demand of urban versus rural geographical spread, because what we understand is south is a bit weakish because of the weak monsoon, especially for some other categories. So if you can just help us understand, get some more granularity on the demand, what you're seeing in the festive so far, and also going into Dhanteras and then Diwali, how is the inquiry frequency, booking conversion ratio, or how is the demand scenario looking for the rest of the season, sir?
So demand is has been fairly stable at the current levels for some time. Of course, geographically, mix always exist. The central zone of the country, where, I mean, for example, Delhi, NCR, Rajasthan, Madhya Pradesh, they are doing fine. Even South is doing fine. East has some weakness. Maharashtra, in some parts where there are, you know, the effect of rain, et cetera, there is some weakness. But approximately, across the country, I mean, industry is growing by 5%. We had mentioned in the beginning of the year that we will grow faster than industry this year. So we gave out a projection of about a 10% growth in this year. So that is the outlook.
In the festive season, half of the festive season is generally we define from Onam to, let's say, till about five, six days after Diwali, let's say, Bhai Dooj or. So till now, industry has grown by about 20%, and in the balance, overall festive season should grow by about 18% year-to-date.
Maruti should do better?
In line with industry.
In line with it. Thanks a lot, sir. I'll follow back in again. Thanks a lot.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
Yeah, hi, sir. Could you talk about the various elements or how much was the benefit from each of the elements for the margin, like Forex, commodity, and cost reduction, if you compare to Q1?
So, Kapil, sequentially, as we mentioned, I think the major benefit has come from the commodities and the cost down that, you know, we have been able to achieve. There has been a significant softening in the precious metals commodities, and there we have seen a lot of reduction on the cost, on account of that. Steel also has reduced, but not so significant reduction in steel compared to what we've seen in the precious metals. So that's one major impact that we see compared to, sequentially compared to the first quarter. Plus, the effort of cost reduction, which carries on, adds on to this basket of commodity reduction as well. So that's the most significant portion.
Also, the mix and the volume increases also helped us in terms of both operating leverage as well as achieving higher margins as you see. So that's the second piece. The third piece is, if you remember in the first quarter, we had said that there were some one-offs in the employee costs, as we had given certain retention bonuses, et cetera, which is not there and now it will not be repeated in the next quarters. Therefore, there's a reduction in employee costs as well because of that one-time item going away. Advertisement costs also have been slightly lower than what they were in the first quarter because of launches and also we had our conferences, which added on to the cost. So these are primarily the main reasons.
You know, there's also a sales promotion cost is slightly higher as Rahul had also mentioned that we were about INR 17,692. Now in the second quarter, we were INR 16,214 in the first quarter, so marginally higher. But if you add up these numbers, then this gives you a clear signal of the margin trajectory, where it is gone from first quarter to the second quarter.
Sure, sir, very helpful. And also, how should we think about, you know, interplay between margins and market share from here on? Also, if you could talk about the breakdown for the order book between some of the key models, how much order book is there, and what is the normalized level of order book that we used to carry pre-COVID? Was it used to be about 1.5 months, 1 month? So just some color on that. Are there models where basically trying to understand if there are models where we need to raise production or current supply is sufficient?
Well, on your first, I'll answer the first question, and Rahul will take on the second question. On margin and market share, we continue to work on both sides. I think it's very important for us to grow our market share. I think we've been saying that we are now gradually going up, and we'll surely like to see ourselves recovering to that 50% mark at some point in time. It's a tough task, but we are very committed to work towards that. So that's very important. At the same time, we keep a very close watch on our margins as well. You must have seen that while we have grown our market share, we've also grown our margins. So I think it will be a constant war between margins and market share, and as a company, we work on both sides.
We work on market share improvement as well as ensure that through various initiatives that we need to take, we also keep our margins intact. So there are many, many initiatives also internally that we are taking now to see that in the long term, we are able to also work towards our margin improvement.
On the second part, on the order book, we have about, as of maybe yesterday, about 250,000 units. CNG accounts for about 123,000 out of this. Then it is fairly, like, Ertiga is one major model with about 73,700 units pending orders. Then we have the Brezza, the Grand Vitara, the Jimny, Fronx, Invicto. So, a large part of it is on the new SUVs, which have been recently launched.
Sure. What I was trying to understand is, do we need to raise production for certain models, or broadly, the supply is good enough now? What was the normalized level of invent, sorry, the normalized level of order book that we used to have pre-COVID? You know, was it one and a half months, one month, there it used to be?
See, ideally, in the best interest of the customer, we should not, we should have, well, within some order books, the customer should not have a waiting. Financial investors see it as a positive, but, it's customer inconvenience also. The customer should not be allowed to wait. There are some models which do have a constraint. For example, the Ertiga, the CNG no longer will have a constraint. So we would like to improve along, as we go along, and, the inventory position is also fine. I mean, we are about at 1.1, slightly above 1 month, so that is comfortable.
Thank you so much. I'll come back in the queue.
Thank you. The next question is from the line of Raghunandhan NL from Nuvama Institutional Research. Please go ahead.
Congratulations, sir, on stellar numbers. Sir, firstly, on the 16% growth seen in the festive period so far, can you indicate how the urban versus rural growth was?
Rural was slightly higher than urban, and so far it continues healthy.
Thank you for that. And, recently showcased, near production model of e VX was impressive. There was another model, eWX. When is the global launch expected there?
We have to keep in mind that's a concept. So, and one can never be sure whether it will be launched or not. One can never be sure whether, if at all, there's a production version, it will be close to the concept that is displayed. Generally, in motor shows, you know, it's a concept, a designer's language, a way of expressing his imagination, and to get consumer feedback also. As of now, nothing can be said on that.
Sir, continuing the point on launches, Nexa channel has benefited from several launches. Will there be more focus on Arena channel going forward?
See, both the channels have their brand definitions, and we need to be true to their brand definitions, while ensuring that in terms of economics, both gets both sufficiently utilized and not overloaded. So it's a balancing act that we keep doing all the time, and we have to keep in mind that the model development lead time is about four years. So, at any point of time, there are models in the pipeline, so that planning is a continuous exercise. But yes, we would like to keep both channels healthy.
Can you indicate the CapEx plan, sir, for 2024, 2025? Would it be around INR 7,000 crore -INR 8,000 crore? Because first half, the spending seems to be on the lower side.
Difficult to predict because it depends on the--
No, we have yet to finalize our plans for the next year. So once we do that, we'll be able to give you a better idea. But we--
For the current year, sir?
Sorry?
For the current year, sir.
Current year, we should be above INR 8,000 crore.
Got it. Just a last clarification. On the gross margin, would you see any impact of commodity inflation? Recently, steel prices have gone up. Would that impact Q3?
Steel is something that we are worried about, so we will have to see how the steel pans out. There can be some increase that you can see on account of steel, although the precious metals continue to soften. So we'll have to see overall what impact does steel have and what impact does other commodities have, positive or negative. So steel definitely is going up a little bit compared to what it was this quarter.
Thank you so much, sir. Very helpful. I'll fall back in the queue.
Thank you very much. The next question is from the line of Gunjan from Bank of America. Please go ahead.
Yeah, hi. Thanks for taking my questions. I had two questions. Firstly, a follow-up on the gross margin. Is there any effects, you know, benefit that, you know, that is worth calling out, you know, compared to 1Q to 2Q? And similarly, on the margin, the comment that you made that, you know, we look to, you know, we'll have a closer eye on margin now along with market share. Is the current level of margin is, you know, something that we'll endeavor to maintain, assuming there are not extreme volatilities in commodity, of course, that's something we can't call.
But is this a margin level that we are, you know, focusing to maintain, or you think, you know, the aspiration is to even improve on the current level? So a little bit your, you know, your thoughts on how should we think about the sustainable operating margin in the business.
So on sequential, Forex movement is not significant, it's very marginal. There's some benefit, but very small, so fraction. So that's not any significant number to consider. On the second question, I think, which is very important, is, see, it is very difficult to predict margins for a longer period because so much is changing in the industry. We are talking about capacity expansion in the near future, so there, there will be 4 million capacity that's going to go up. We are also talking about transitioning to EV over the period of next six years, six new models coming in. So one will have to see what is the change in mix that happens over a longer period, how do we cope up, what are the pricing, what is the market at that point in time.
So it all depends on, on all these variables. So to give you any indication, I mean, these are... Other factors are more temporary, like, commodities and all. This will depend on where they move at what point in time and how do you adjust. While we'll continue to work on cost, but these are some major factors that we will have to see how they pan out in the long run and how does- how do they impact the margin. So because what, what's very important is how fast we scale up once we grow to 4 million, and what is our operating leverage at a given point in time? What is the, fallout of the EVs? How are the margins in that trajectory?
So all that will give you a kind of a feeler in the long run in terms of where the margins move. Very difficult to say at this point in time.
Okay, what I was trying to understand is that the current level of margin, you know, of course, there will be this capacity, you know, which will come through and that will affect the margins in the short term. But the idea was that we've seen so much volatility over the last two, three years, and now the business is sort of stabilized. And, you know, underlying margin should, you know, what we've reported in Q2 is something that, you know, is something which is sustainable, is what I'm trying to understand. You know, there's no, you know, capacity is at least a couple of quarters out. But in the interim, as long as the business is at these levels, a double-digit operating margin is sustainable.
We had all the positives in this quarter. We had everything which was, which was positive. It's very unusual in a quarter that you have all that is positive. Every quarter you will have some or the other variable which will not work in your favor.
Sure.
So I think we had an exceptional quarter this time, and there was not a single element which was negative, and that, you know, brought us to the level where we are. So as I mentioned earlier also, when this question was asked, that if everything remains constant, and nothing changes, then of course we are here. But if there are any changes in any of the factors, the margins will accordingly get impacted.
Okay, got it. Fair enough. The second question I had was on these comments on small car market, you know, which has been weak. Now, you know, two-part question here. One is, what is the underlying issue, you know, as per you, what is really driving the decline in this segment? And is it just that the first-time buyer is still not coming back, or, you know, just that the design preference is completely changed and, you know, now the small cars are no longer relevant? What is your reading in that, and how are we trying, you know, incrementally, when I think of next two, three years, how are we trying to still fix the underrepresentation that we have in the SUV segment? You know, we've had good launches, but. How should I think about portfolio panning out over the next two, three years?
Sure. So small cars are a phenomenon of affordability, and affordability means both cost and income. The cost has gone up disproportionately because of regulatory intensity you have seen in the past few years. And the income in this segment of the demography has not taken off. We are hoping that sooner or later, the income growth in India will catch up, and sometime, the small car segment will revive. It's not—there are some explanations that the customer is upgrading. A person who can afford a bigger car would always have bought a bigger car. That would have been true in India for a long time. So it's purely an affordability issue in this segment. And as you rightly mentioned, it has declined.
For us, it used to be about 24% of our portfolio, now it is about 28%. If you look at the customer profiling also, we can see a similar reduction in the first-time buyers. Almost a 10% reduction in the percentage of first-time buyers in the market. So, closely correlated. We are hoping that when income growth in this segment of the population catches up with the increased cost, and the regulatory intensity does not move up further in the next few years, at some point of time, this segment should come back.
Anything on the portfolio, how it pans out, if--
Sorry, I missed your other question. On SUVs? So, you know, we've announced also in our annual report that currently from about 17 models, we'll move up to about 28 by the turn of the decade. So definitely, new model additions have to take place. And, being a market leader, we have to-- and a volume leader, we have to cater to all segments where the market growth is. So wherever the market growth is, we would like to enrich with more model refreshments.
Okay, got it. Thank you so much.
Thank you.
Thank you. The next question is from the line of Binay from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity, and congratulations on good set of numbers. Just a clarification from, just for Rahul.
Please tell me. Tell me, Binay.
I think he's--
Disconnected?
Yes, sir.
We seem to have lost the line for Binay. We'll move to the next question. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Hi, sir. A couple of clarifications on margins. So this quarter, you indicated about benefit of softening in precious metal. Would we be fair to say the full benefit is not yet fully reflected in 2Q, given that write-down was a far more second half phenomenon on 2Q, or and do you expect further benefit on that side?
The majority of the benefit is seen in the second quarter. Benefit has already come in the second quarter, but we still see some softening in the commodity, precious metal commodity prices. If they continue to soften, then, of course, you know, the prices can further go down. But on the contrary, the steel prices are going up. So as we mentioned that we will have to see the basket of commodities, not only just the precious metals, but also steel is almost half the commodity basket.
Right.
Both of them pan out in the second quarter.
Okay, okay. And similarly, on the Forex side, so we have seen a very, smart move on, JPY INR, which, given our, vendor inputs comes with the quarters like. So do you expect that to be a reasonably favorable factor going forward? As you indicated in one, 2Q, we had limited benefit on, from Forex side.
Yeah, so yen continues to depreciate against the dollar and, currently, close to about $150. Last quarter, I think we were at about $140-$145. There could be some benefit of Forex that we can see, depending on how the final rates end up in the second-- in the third quarter.
Right. Right. And last clarification is on CapEx. So you indicated INR 8,000 crore in FY 2024, effectively close to about INR 5,000 crore in second half. Does this INR 8,000 crore also include SMG's CapEx, which they are doing on BEV capacity as well as the battery plant?
No, no. This is purely CapEx of MSIL.
Okay, okay. And now, given that, we are proposing to take over SMG, what kind of CapEx SMG would be doing in FY 2024?
So that has to be taken in account after we've finalized the budgets. That exercise is already on. Once we do that, then we'll know what the CapEx for both the companies should be.
Got it. And in Suzuki's presentation, which was uploaded a couple of days back, there was reference of increasing capacity for a battery electric vehicle at SMG. Any sense on what kind of capacity addition is happening? O r in above 750,000 capacity of SMG?
We'll have to look at the market demand, and then decide.
Okay, because there was INR 3,100 crore CapEx earmarked for that, so I thought that might have been finalized. Okay, no worries. Cool. I'll, I'll come back to you.
Thank you. The next question is from the line of Binay from Morgan Stanley. Please go ahead. Binay, you may go ahead with the question. Binay, can you hear us? You may go ahead with the question.
Hi, team. Thanks for the opportunity. My first question is just out of curiosity, like, when you talk about drivers for good margin, we've not talked about mix, you know, your SUV share going up. So is that implied because or you think that it's actually not a big driver for margin?
So, we talk about blended margins overall for the company, and, you know, these factors keep on changing, depending upon the market conditions, which segment is doing and how much growing and how much demand. So this keeps on changing, so that's the reason we don't look at this factor much.
Secondly, just, you know, when we look at the overall demand environment, we're talking about 18% growth in festive, even 5% growth for the whole year for the industry. So how do you tie up this sort of wide range? Is the festive demand predominantly driven by order books being fulfilled because there was a production issues earlier? Like, you know, because it's a big divergence between the two numbers.
Sorry, what is it that you're trying to reconcile? Which numbers?
Like, for example, the festive Y-o-Y growth we are talking about is 18% for the industry. Whereas the actual whole car demand for the year we are talking about is 5% growth. So in that sense, a huge range, right? Like, 18% is a very good growth number, 5% is more moderate. So how do you sort of-- Because one is obviously that if there were order backlogs, so they are getting exhausted now. But anything else that you think is causing this divergence between these two to be, to be so widely different?
See, it's slightly more complex than it appears because customer behavior it's difficult to model. So they might postpone or prepone their purchases. It might be a geographic issue, it might be a segmental issue. So, but, you're right, the overall annual industry growth of 5% is what is, what is reality. And even though we are saying that all factors were positive this month and industry grew, you have to keep in mind that over a five-year period, we have grown at a CAGR, whether you take Q1 or you take H1, Q2 or H1, our five-year CAGR has been close to 4%.
Right.
It's not something too-- For a developing market like India, it's not something too great. Even this year, industry is growing 5%. If Maruti Suzuki is growing higher, it may be a market share phenomena, but overall growth is not happening much.
Yeah, I know. In fact, coming to the small car segment, you know, as your SUV share is rising, we are seeing that your first-time buyer share is dropping down. So that also sort of addresses the fact that it is a more first-time buyer recovery delay, which is hitting small cars. But as a company, what are you trying to do? Because it's a big segment for Maruti, right? Small car. How are you trying to sort of bring the customer back, anything on, because even the product launch momentum on that side seems more muted versus the SUV side. So what is the company's thought on how to sort of get that segment going again?
So, you know, from our side, we can make exciting products. We can work on the total cost of ownership, both the capital cost and the running cost. We can leverage our network, for example, make it proximate and affordable. But beyond the point, we have to just wait for the market to revive.
Right.
So, I think sooner or later, this segment has to revive. Let's keep in mind that the top 3% of India today owns a car. So if the car market has to grow, more people have to move from the 97% club to the 3% club. Sooner or later, it has to happen. There are crores of people who own two-wheelers, who, at some point of time, will upgrade to cars. It might get delayed by a few years, but it has to happen sooner or later. So, so we are in it for the long term, and fortunately, we have volumes. So, we are committed to all segments.
And just lastly, on discounts in the festive season, any, is it normal levels, like, in Q2, discounts are almost 2.7% of sales? Or are they inching up in Q3? Any last, just last question, any comments on discounts in Q3 versus Q2?
Not the usual.
Okay, great. Great, thanks a lot for that, Rahul. Thank you.
Thank you. We'll be able to take one last question. Last question is from the line of Chandramouli from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my question. My first question is just on the fungibility of capacity. I think the company has close to 2.3 million units of annual manufacturing capacity. As we shift the mix of production towards larger vehicles, more, or SUVs, just want to understand how fungible the production lines are. If we need to make more SUVs, would that have some short-term or medium-term impact on the absolute volume in capacity that you have, the 2.3 million units?
So you're right, we have discovered this in the recent past, and one of the reason our margins had dipped were because we were producing cars that were not selling. And the cars that had demand, we did not have sufficient capacity. So if we had flexibility of, you know, both, whether it is semiconductor supplies or in-house production, we would probably have had lesser of such a problem. It's a conscious move. We are increasing the flexibility of our production operations. It does come at a small cost, because then you are working on a slightly suboptimal format of production.
And one of the reason of CNG integration is also this. One of the reasons is this, that it gives us flexibility and agility to respond to market, you know, changes in demand, et cetera.
Got it. That's helpful. My second question is on the comment you made earlier on the call, that by 2030, we are targeting to do about 75,000 units of export units. That's almost a tripling of what the current annual run rate is. You also mentioned that you are looking at selling more units into slightly higher income economies, Middle East and Latam, in addition to Africa, which is maybe a more moderate income sort of economic area. So would this imply that, versus the current mix, where maybe we sell more small cars in the export market, over time, we are looking to sell more premium vehicles, more SUVs for markets like Latam and Middle East? Just trying to understand how the mix might shift in your export business unit.
The export ASP is only marginally higher than the domestic ASP. The top three selling models, for example, in exports, are not SUVs. They are Brezza, you know, the Dzire, and the S-Presso. It's a very diversified portfolio. We are exporting to about 100 countries of the world. At any point of time, you know, some country or the other would have some problems or some policy barriers, either in some protectionist color or because of some economic weakness. It keeps on changing. It's a very dynamic situation. Our focus continues to be, as you rightly mentioned, Africa, LatAm, South, Southeast Asia, even Middle East. Other than that, I mean, barring U.S., we'll be there everywhere, almost everywhere. Barring U.S. and China.
Got it. Thank you very much, and all the best.
Oh, sorry. Sorry, I made a mistake. It's not-- The first one is Baleno, not Brezza. The highest export model.
Got it. So Baleno, Dzire, S-Presso. That should be the sequence that we should keep in mind. Got it. Thank you so much, and all the best.
Thank you very much. We'll take that as the last question. On behalf of Maruti Suzuki India Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.