Ladies and gentlemen, good day, and welcome to the Q2 FY 2022 earnings conference call of Maruti Suzuki India Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star then zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Pranav Ambaprasad from Maruti Suzuki India Limited. Thank you, and over to you, sir.
Thank you, Vikram. 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. Executive Director, Marketing and Sales, Mr. Shashank Srivastava. From corporate, Executive Director, Corporate Planning and Government Affairs, Mr. Rahul Bharti. Senior Advisor, Corporate Planning, Mr. K. Kasahara, and General Manager, Corporate Strategy and Investor Relations, Mr. Nikhil Vyas. From finance, we have Executive Director, Mr. Pradeep Garg, and Executive Vice President, Mr. Sanjay Mathur. The con call will begin with a brief statement on the performance and the 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 transcript will be available at our website. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Thanks, Pranav, and good afternoon, ladies and gentlemen. I hope you and your families are healthy and safe. Let us start with some of recent business highlights and milestones. The most notable aspect this year was a record growth in exports. Export sales were the highest ever in the company's history, and the figures for the first half of this year exceeds the full year sales of last year. We rolled out Maruti Suzuki Smart Finance across India, an industry-first initiative. It now covers diverse customer group, customer profiles. During the quarter, over 1 lakh loans have been disbursed to customers using this platform. This is a testimony of customer acceptance. With focus to improve customer convenience and experience, Maruti Suzuki rolled out S-Assist, an industry-first AI-based 24x7 virtual car assistant app.
The app is developed by Xane AI , a start-up under the company's MAIL initiative to nurture innovation. We extended advanced intelligent telematics technology, Suzuki Connect, for the vehicles in ARENA channel also. Suzuki Connect offers connected car experience to Maruti Suzuki car owners. The company launched Kam Se Kaam Banega, a campaign to celebrate three decades of leadership in offering country's most fuel-efficient cars. Maruti Suzuki over the years has offered country's most fuel-efficient cars across all segments. Working in close partnership with parent company, Suzuki Motor Corporation, Japan, Maruti Suzuki is committed to promote environmentally friendly products. On employees front, we are happy to share that many employee families have started living at a newly constructed housing project. Over 180 of those 350 plots were offered for possession. 151 plots of these have already been occupied.
The company organized multiple vaccine camps for employees and family members. We are confident that by the end of this month, we will be covering 100% of the workforce. Besides, the company is also facilitating the 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 been in these difficult times. Coming to the business performance, Q2 FY 2021-2022 was a challenging quarter because of unprecedented global supply crisis of electronic components. As a result, the company witnessed a significant disruption in its production operations. An estimated 116,000 vehicles could not be produced owing to electronic component shortage, mostly corresponding to the domestic models.
Coming to the demand environment, post the disruptions caused by second wave of COVID in quarter one, financial year 2021-22, the demand started to recover. The inquiry bookings and retails in quarter two of this financial year has shown an improvement. However, lack of vehicles because of electronic component shortage has impacted the whole ecosystem and hence the wholesale volumes are down. The company had more than 200,000 pending customer orders at the end of the quarter, for which the company is making all efforts to expedite deliveries. In quarter two, financial year 2021-2022, sales in rural markets improved in comparison to the urban markets. As a result, the penetration of overall sales in the rural market increased to over 43% in quarter two of this year.
The customer acceptance towards CNG vehicles have increased, and in this quarter, the penetration of sales from CNG vehicles in overall sales stands at 17.8%, up from 11.2% in the same period previous year. The quarter was also marked by an unprecedented increase in the price of commodities like steel, aluminum and precious metals within a span of one year. The company made maximum efforts to absorb input cost increases, offsetting them through cost reduction and pass on minimum impact to customer by way of car price increase. The company sold a total of 379,541 units during the quarter, constrained by a global shortage of electronic components. Sales in the domestic market stood at 320,133 units. Exports were at 59,408 units, the highest ever in any quarter.
During the same period previous year, the company clocked total sales of 393,130 units, including 370,619 units in domestic market and 22,511 units in the export market. During the quarter, the company registered net sales of INR 192,978 million compared to net sales of INR 176,893 million in quarter two of previous financial year. The net profit came down to INR 4,753 million in this quarter compared to that of INR 13,676 million in the same quarter previous year. Coming to the highlights for the first half, the company sold a total of 733,155 units during this period.
Sales in domestic market stood at 628,228 units. Exports in this half year were at 104,947 units. During the same period previous year, the company clocked the total sales of 469,729 units, including 437,646 units in domestic market, and 32,083 units in the export market. During the period of first half of this year, the company registered net sales of INR 360,965 million compared to net sales of INR 213,668 million in previous year first half. The sales of financial year 2021 were affected due to COVID-related disruptions.
The company made a net profit of INR 9,161 million in this first half of this financial year, compared to that of INR 11,222 million in the first half of 2021. Having given you a brief on the financials and the overall company strategy, we are now ready to take any questions, feedback and any other observation that you may have. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone now. 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. We have our first question from the line of Pramod Kumar from UBS. Please go ahead.
Yeah. Thanks a lot for the opportunity, sir. A couple of questions relating to the P&L, basically. If you can help us understand what has been the hit to the P&L from the Gujarat arrangement wherein we kind of compensate them for the fixed cost as well. If production volumes have taken a knock and there is a new capacity which has got added there, how much has been the excess burden what Maruti is carrying at this point of time, which is purely because of the Gujarat arrangement? If you can just help us understand. How do you see that kind of reversing out as the production ramps up?
Sure. The impact on account of Gujarat is on two accounts. One is basically the new plant which has come up and was capitalized in April. There's an impact of depreciation that's being charged on that plant. The second is also the fixed cost that's been incurred on that plant. Obviously, because of chip shortage, the utilization has not been to what we had expected. Therefore, the fixed cost that we are carrying on these two accounts, which is depreciation, where the run rate of the new plant depreciation would be about INR 500 crore a year. You can divide it to take a quarterly figure.
The fixed cost, I don't have the fixed cost number right away with me, but there will be a moderate amount of fixed cost also which is being incurred there. These two impacts are ones that will negate once the volumes pick up.
Sir, just to clarify, this, both these expense lines will be sitting for you at the operational level, right? In terms of the EBITDA or the depreciation, ideally should be billed back to you, right? In terms of of cost of the car. How does the depreciation accounting work here? Does it come above EBITDA or below EBITDA?
Depreciation comes under the other expenses that you see.
Okay.
Because the way accounting is done is all other costs, which is material and overheads, they are part of material cost. But depreciation is treated as lease expenses, which is part of other expenses, as you see in this AB format. We club it under manufacturing and other expenses in our overall report.
Sir, second question pertains to demand. In that context, where would you put your dealer inventory? Because I'm assuming that dealer inventory should be next to nothing. I just want to confirm that. The order backlog of 200,000 +, by when do you see that kind of getting kind of fulfilled? Maybe I'm also trying to get at as to how do you see the production for the second half of this year in terms of this is what happened or what went wrong in the September quarter.
We fortunately have our Senior Executive Director, Mr. Shashank Srivastava. I request him to answer this.
Yeah. The current dealer inventory is roughly around 60,000 cars, including our commercial vehicles. Of course, it's expected with the festive retail going up, it will probably come down a little bit from there. As regards the second half, it's a little uncertain from the supply side perspective, and therefore we are unable to give you an exact number of what the production or the sale would be in the second half. Yes, you are right, we have more than 250,000 bookings pending, but because of uncertainties in terms of supply, it's difficult to predict both the production as well as the exact retail. Thank you.
Shashank, sir, related to that, will it have further delay in our launch pipeline? Because we kind of, thanks to COVID and other developments, we've been running behind on our product launch pipeline. I'm just trying to understand, it was already a busy launch pipeline, what you were supposed to initiate. How should one look at the launch pipeline from here on? Because beyond a point you can't delay the product.
You know, one of the strong points of Maruti Suzuki has been launching new products, which are the, you know, as per the requirement of the consumer, and that is what we intend to do in the future as well. These launches are actually planned three to four years in advance, so it's unlikely that the needles regarding that will move based on short-term supply situation. Having said that, yes, we have a very strong launch plan in the next few months.
Fair enough, sir. Thanks a lot, and wish you all the best. Thank you.
Thank you, sir. We have next question from the line of Kapil Singh from Nomura. Please go ahead.
Good afternoon, sir. I was just trying to understand the improvement in realization per vehicle that we are seeing. Could you give us an indication whether there were a much higher mix of spare part sales or any raw material benefits that we may have got this quarter compared to Q1?
Kapil, sorry. Can you just repeat the question, please? I was a bit distracted, so.
No worries, sir. Basically, I was looking at the realization per vehicle, which has seen a pretty sharp increase. I was just trying to understand whether the spare part mix per, as a percentage of revenue has gone up, in 2Q, which may also be a factor, and whether there was any raw material benefit that came in for the second quarter.
Are you comparing the quarter two of last year with this quarter, or are you comparing sequentially?
Sequentially from 1Q to 2Q.
Sequentially from Q1 to Q2, the increase is not much. It's a small increase. I think it gets a bit camouflaged when you look at it along with the spare parts sales. Because last year, we had a significant impact on the spare parts sales, which was really down. If you add that, then the impact is seen much bigger in terms of realization. I have these numbers here. Q1 domestic sales average realization was INR 427,000. Now in Q2 this year, we have an average realization of INR 431,000.
It's moved up by about INR 4,000, which is also in line with net of discounts, et cetera, in line with whatever pricing changes would have happened or any change in the mix that would have happened.
Got it. Sir, on that, was there any RoDTEP benefit also for the quarter?
Yes, there was.
Will it be possible to quantify?
It's not a very significant amount. There's a road trap benefit that we have got. In terms of quantum, I think it will be not very significant.
Oh, okay, sir. Also second question was relating to you know just on the technology front, if you can throw some light on how do we think of salience of hybrid in India given the current regulatory environment? I mean, will they be a relevant technology over next two to three years? Or do we need more support from the government side for hybrids to be relevant? Just some thoughts on that would be helpful.
Short answer is yes to both. There is some recognition from the government already. There is some preferential rate in the GST and some fringe benefit to strong hybrids and plug-in hybrids. We need more. Your other question, will it be a meaningful mainstream kind of option for the country? Yeah, we believe so. In the next five to 10 years at least, it will be a very potent option for reducing CO2. A hybrid does 40% of the job of an electric, and it is scalable as it does not need charging infrastructure.
Okay. Because of
We need more benefits from the government.
Yeah, my question was more from a cost perspective, whether it will be viable for the customer to go for hybrids at current incentive level.
See, there is a cost to all options which reduce CO2 drastically. Even EVs have a cost. It's only a question of relative cost. Most manufacturers will adopt paths which suit their context, their business segments, their customer segments. Each manufacturer will have his own strategy, and there will be some cost hurdle too for all, for any of the options that you consider.
Got it. Lastly, sir, do you expect that cost pressures are fully through, or should we expect more cost pressures in the coming quarter?
There are two parts to it, Kapil. One is of course it depends on how the volumes now pan out because we've been affected on operating leverage because of volumes. If volumes improve, then definitely we will have the benefit. We have seen some softening of precious metals in Q2, but since we get it with a lag effect, so we're hopeful that in Q3 we will see some softening, at least of the precious metals, if they don't again start moving up. Whatever action we can take in terms of hedging we will be taking. Unfortunately, aluminum and steel doesn't look good at this point in time. We were hoping that that will also soften.
It looks like given the China issue, it looks like the prices will either be here or may rise again for steel and aluminum. We'll have to keep a watch on these things. We continue to make our own efforts in terms of what we can do with other mitigation plans and cost reduction plans. Those efforts are on. Two important things for us would be watch the commodity prices moving forward and also watch the volumes. The other thing that I would like to also mention is that we did a price increase in September. That price increase was done around the first week or around the September 10th, 2021.
That will be fully absorbed in the third quarter because that impact wouldn't have been visible in the second quarter, so that impact will be fully seen in the third quarter as well. That will also help.
Thank you, sir, and all the best.
Thank you. We have next question from the line of Gunjan Prithyani from Bank of America. Please go ahead.
Yeah, hi. Thanks team for taking my questions. Two questions from my side. Firstly, on the follow-up on this, margin, can you give us more color on, you know, what is the impact of commodity, on a sequential basis? Because Gujarat was part of quarter one, cost as well. Incrementally it's essentially commodity hit. You call out this increase in ad and promotional spends in this quarter. What does this pertain to given, you know, we really don't have launches and discounts are very low in the market?
No. Effectively, the significant impact has been on commodities. As we mentioned that our material cost to net sales ratio has moved up by about 6.4%. Now, that is a huge impact in spite of the small price increase that we have taken and also the cost reduction measures that we've taken during the period. You can imagine that the impact of commodities is much more than this 6.4% increase that you see, because this is after offsetting all the other measures that the company has taken. The quarter two impact is also maximum because the precious metal prices were at its peak in quarter one, and we always get a lag effect of these commodity costs.
Therefore, I mentioned that, given the current trend of precious metal costs, quarter three or moving forward looks better if there was not to be an increase in this. We will have to keep watching in terms of where the market moves in commodity. We'll also have to accordingly decide what are the steps the company needs to take if commodities either remain here or go up in terms of corrective measures that are required to be taken.
There are no one-offs of ad and promotional spends that, you know, you've mentioned in the presentation. Is this a recurring increase in the other expenses?
In other expenses, if you see there's a bit of a grouping issue, there are some expenses that you see going up because correspondingly the recoveries are effective in the operating income. Operating income is up by about INR 270 crores, and the expenses are up by about INR 230 or INR 240 crores. It's a grouping issue. Some expenses, which have been recovered, have been grouped in operating income, and expenses as incurred have been shown as other expenses.
Okay. These are the freight related typically which get captured. Okay.
Yeah. It would be development expenses, freight related, these kind of things.
Okay. The second question I have is on the whole emission or CO2 norms, which you briefly touched upon. Now, if you can talk a bit on the CAFE II norms and the RDE norms, which are, you know, more imminent in the next two years in terms of the any clarity on the cost impact or approach to comply with the same. More importantly, if we directionally look at the emission corridor, it is bound to turn more stringent in the next phase as well, you know, whether it's in FY 2027. You know, how are we thinking on our product, you know, be it electric, hybrid? I mean, how should we think about the change in powertrain over the next three to five years with these emission norm changes?
Also given the fuel prices have been rising. You know, some thoughts on this will help us, you know, from the next three- to five-year perspective.
Okay. On the fuel price increase, how is the market responding? I'll request our head of marketing and sales, Mr. Shashank, to respond. On the other two questions, I'll take. See, there are two broad regulations which are coming up. One is the CAFE phase II, and the second is BS VI phase II. BS VI phase II involves a clause on real driving emissions, because of which we think there will be an impact mostly on diesel powertrain cost to comply with that. On CAFE also, different manufacturers will have different strategies of meeting it because there are so many options of reducing your CO2 output. Maruti is positioned the best in terms because we have the least CO2 emission as a portfolio.
Since it is just around the corner, we are expecting it from April 1st, 2022. We have to meet the norms. In terms of the powertrain options that you've mentioned and that you talked about, while there are some EV launches, but the volumes are quite minuscule, and they don't add meaningfully to the CO2 reduction. We need some technology which addresses the mainstream. For example, natural gas, it does a 25% CO2 reduction and is scalable across India, and the government also wants it. That is why it's a gain. There is no particulate matter. It's customer friendly. The market seems to absorb it well. That is why we are pitching on natural gas.
Hybrid electric vehicles are also very good because they don't need charging infrastructure to scale up. They have some cost impact, but it is lesser than that of EVs. Similarly, they have about a 40% CO2 benefit. This churn will happen in most car companies in the next five to 10 years, and we have to work with options which are best for the customer and which gives us good cost efficiency also. On prices, may I request Shashank to kindly...
What was the question?
Market impact because of increasing fuel prices.
Yeah. Directionally, of course, increased fuel prices increase the cost of running, and that's a negative as far as demand is concerned. However, what we have found is that the demand for the CNG vehicles has increased dramatically, possibly because of two reasons. One is this increased gap between the CNG fuel price and the petrol and diesel price, which means that the cost of running for CNG is roughly around INR 1.60-INR 1.70 per kilometer against INR 5 per kilometer for a diesel or a petrol. So that is one reason why it's gone up. The second reason is, of course, because the CNG infrastructure is dramatically spread thanks to support from the government.
Now we are covering almost 250 cities with 3,800-odd stations as against just three to four years back of about 1,400 stations covering 150 cities. Those, directionally, I think that will continue. As Rahul explained, going forward, the mix of hybrid and CNG is going to help Maruti very well as regards that.
Sure. Thank you. This is very helpful. Just if you can share the discount and royalty number, and I'll join that with you.
Royalty for the quarter was at 3.5%. In terms of royalty value, it was at INR 670 crore. Discounts in this quarter were at INR 18,567. It was up compared to the first quarter of this year. First quarter was at INR 13,911. In the same period last year, our discounts were at INR 17,310. Discount was slightly up compared to the first quarter, compared to last year and about INR 4,000-INR 5,000 rupees higher compared to the first quarter.
That must be due to higher retail, I'm guessing. Versus wholesale.
That's right. That's right.
Okay.
That's right.
Thank you. Thank you so much.
Thank you.
We have next question from the line of Pramod Amthe from InCred Capital. Please go ahead.
Sir, a couple of questions. One is, you have seen a very strong export traction. Is there any geography mix change compared to traditionally you used to export because new products are added up?
We've got some very good response in exports. We've more than doubled our volumes. The biggest gainer was Africa. Half of the volume is from Africa, and one-third of the volume is coming from South Africa alone in Q2. This is partially because of the Jimny and partially because of increased
Distribution network there, thanks to our global partner, Toyota's network. The best part is we think it is sustainable. The other markets have also done well. There's a global recovery also from COVID, so that macro tailwind also helped us. Geographies like Latin America were also good. Chile, Bolivia, Colombia, north countries like Egypt, they have performed well.
Thanks, Rahul. Do you see more products joining in a similar queue with this success which you have seen with Jimny in the next three-year, five-year plan?
Let's keep the excitement.
Okay. The second question is with regard to demand. Considering the fact that we are seeing unprecedented price hikes for cars, how are you looking at customer behavior? Are you seeing any bookings being canceled or customers downgrading the same? Or what are the solutions you're planning to offer so that they will continue to remain in your basket?
If you look at the increase in prices, you're right. There has been an increase overall in the industry and for Maruti Suzuki as well. As you know, we have had three price hikes this year. The demand seems to be stable. In fact, if you look at the average inquiry or the booking levels, have actually gone up. I think that got something to do with the changed consumer preference for personal mobility against shared mobility or public transport. What are we going to do about it and have we seen any changes segment-wise? We do see segment-wise changes, but it may not entirely be related to cost of acquisition. The entry hatches have gone down a little bit.
They're now about 10% of the market as against 11%, two years back. SUVs have gone up, especially the entry SUV and the mid SUV. There seems to be a preference not just based on the economics or the cost of acquisition, but also on the design preference, and that's what we see. Going forward also we predict a similar sort of movement in the SUV sector, yes, we are watching that space very carefully. That's one of the spots which we shall look at very carefully going forward.
Sure, sir. Thanks, and all the best.
Thank you. We have next question from the line of Raghunandhan N L from Emkay Global. Please go ahead.
Thank you, sir, for the opportunity. To Shashank, sir, on order bookings, can you speak about customer segments where demand is robust and which segments where demand is relatively on the weaker side?
Yeah. I just mentioned, if you look at the overall industry level, entry SUV, mid SUV, the MPVs, they have gone up. The sedans have come down a little bit. Premium hatches have gone up. Entry hatches have come down just a little bit. That is overall. If you're talking of Maruti Suzuki, we have seen very strong vehicles, not just in terms of the segment, but also in terms of the fuel type. CNG vehicles have, and I mentioned it a little while earlier as well. There the demand surge seems to have been huge. We also continue to have waiting periods actually across the segments, and that's because, as you know, we have had a little bit of erratic production because of the semiconductor issue.
Thank you, Shashank, sir, but I was referring to, you know, like, in terms of, you know, the salaried class, business community or the first-time replacement and, you know, like, recently the IT sector has been doing very well. So, if you can provide any color as to which sets of customers are, you know, like, where you're seeing a better mix or, demand share in the order bookings.
If you divide those segments, of course, the earlier answer pertained to the type of vehicle segment. I think now you are also asking about demographic or the type of buying itself. The first-time buyer have remained pretty steady, it's roughly around 40%, 45%, 46%. That has been the replacement buying, which was earlier 26% a couple of years back, has come down to about 19.6%, but it's slightly up over last year. The additional car buying has gone up from about 30% in 2019, 2020, to about 35.2% in this year. This is by the buyer type. If you want, of course, we have many other types.
I'm not sure whether we can go through the entire list, but the average age has come down a little bit. Used to be about 40.3. For Maruti Suzuki vehicles, about 38.5 now. Average MHSI actually has gone up a little bit. If you are talking about those salaried business, self-employed type of consumers, we have seen a drop as far as the salaried consumers are concerned over last year. Last year, it had gone up suddenly from 43% in 2019-2020 to 49% in 2021 to drop back to that 42-43 level. The business class customers have actually gone down from about 33% in 2019-2020 to about 29% now.
That is roughly the breakup if you want it to be in terms of the occupation. I am sure you would like to know about the gender percentage also. It has remained steady.
Thank you, Mr. Shashank . My second question was to Mr. Ajay Seth. Sir, in first half, the CapEx is around INR 15 billion. Will the full year CapEx be lower than the earlier expectation?
The CapEx will be what we had mentioned earlier, which is INR 4,500 crores. On top of that, we've also put in an additional amount of about INR 2,200 crores, which could be possibly on any further expansion of land that we are contemplating. There could possibly be a total expense of about INR 6,700 crores for the year. Expense CapEx is going as per our plan at the moment.
Okay. If I understand correctly, for full year FY 2022, INR 6,700 crore, of that only INR 1,500 crore has been spent in the first half.
That's right.
Got it, sir.
Which is what was planned in terms of cash flow, and that's been done in the first half. In the second half, we have a plan of spending the balance now.
Thank you, sir. This is very helpful. If you can just share data points from Gujarat production exports and spares, that will be helpful.
Exports in Q1, the realization was INR 2,900 crore. Sorry, in Q2. In H1 it was about INR 55,188 crore.
We're talking about Gujarat production.
Export.
No, no.
Okay.
Gujarat production.
It is 120,000 for this quarter.
Yeah, could you also give the number for Q1?
96,000.
96,000 in quarter one and 120,000 in quarter two.
Thank you, sir. Would we have the spares number, as you said, realization between Q1 and Q2, partly the reason is spares, which has led to the increase.
We'll give you the figure after some time.
Thank you, sir. That's all from my side.
Thank you. We have next question from the line of Amyn Pirani from JP Morgan. Please go ahead.
Yes. Hi, sir. Thanks for the opportunity. First question is more of a clarification. You mentioned royalty of 3.5%-10%. Does this include the royalty for the Gujarat production, or is it just what you, Maruti Suzuki is producing?
When I talk about royalty, it is a combination of both MSIL and Gujarat.
Okay. Because this number has come down quite drastically from 4Q of last year. Even last quarter it was lower. Has there been any significant changes in any of the agreements with Suzuki? Or is that a mix issue? Can you help us understand?
We have been telling you for quite some time that as the models move into the rupee formula, and then they kick in with the discounts that are applicable on completion of certain volumes, the royalty rates will come down, and they have been progressively coming down. Now, all of our models have moved into the rupee formula, and also many of them are now under the discount formula because they have done more than the desired numbers for gaining a lower rate. Hence a combination of the two, the resultant royalty is now lower than 4%. It hovers.
Understood.
It hovers around 3.5%-4%, depending on the mix and depending on the model.
Whenever new models come in, then obviously they will still be on rupee formula, but they will not get the discount benefit whenever, as and when newer model.
Yeah.
Okay.
When we complete certain volumes, we'll start getting discounts from them.
And, and, uh-
Which is why we are saying below 4%.
Sorry, Rahul, I missed that. Which is why we are saying?
Below 4% broadly, 3.5%-4%.
Understood. That's helpful. Second question was, you know, again, some, you know, clarification on the Toyota collaboration. So, the exports, you've mentioned that, you know, there is some benefit from the Toyota dealership network. So, is this being sold under a Toyota branding, you know, in South Africa, like you are giving the Baleno and the Brezza to Toyota here. Is it the same thing that is happening or is it under Suzuki brand?
Basically it's the channel there which is a major advantage in geographies like Africa, particularly South Africa. The major benefit is of the distribution network. Plus there's a global recovery also that has happened in many parts of the world, so that has also helped.
Okay. You know, regarding the India bit of the
There's Suzuki Jimny also. That has also.
Yeah, of course.
Given us some.
Of course. And just one last thing on the Toyota partnership. Based on what we know and please correct me if I'm wrong, you are currently giving Baleno and Brezza, and you will be giving Ertiga and Ciaz models to them in the future. Toyota will be making SUV or MPV in their Indian plant and giving to you. Is that understanding correct?
What we can confirm to you right now is the current, which you mentioned about Baleno and the Brezza.
Okay.
Whenever any new project comes about, we will inform you.
Okay. Thank you. Thanks a lot.
Thank you. We have next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi, sir. My first question pertains to the semiconductor shortage. I mean, today's media article suggests that semiconductor shortage is now getting addressed at Maruti level. Can you confirm that? Or are we still seeing continued challenges like we saw in September and October?
As we had informed the stock exchange, for September, we said production will be down 60% from plan and also for October it got better. We announced at the beginning that it would be around 40% down. I think it's getting better. As we discussed earlier in the day, November would probably be better than October. However, the dynamic is still unclear because it's a global issue and there's a whole lot of supply chain involved in this globally. I think go-forward projection on when it will become normal is a little difficult to state at this moment.
Right. Shashank Srivastava, regarding the CNG being very strong with expected increase in CNG prices due to regulatory changes, do you expect softening coming in, softening in demand on CNG because of price increases? Or, given that gap will still be better, CNG should do better?
Yeah. I think the gap still exists hugely. There's a huge gap. We have petrol, diesel roughly around INR 105-INR 110 range in most of the states. CNG is still in that broad range of about INR 48-INR 57, so there is still a big gap. The efficiencies for CNG is also much better. I think the cost of running around INR 1.70 per kilometer is substantially lower than the INR 5 per kilometer that you get for diesel and petrol. I think that gap is likely to continue, and that means that there would be a positive trend towards CNG even going forward.
Okay. Last question to Ajay Seth. With respect to the commodity cost inflation, in this quarter, vis-a-vis first quarter, impact would be very small, right? I mean about 100- 150 basis points or it's higher than that?
It will be higher than that because there has been an impact compared to the first quarter. It'll not be as steep as it was in the first quarter, but it'll be.
2.25% .
It'll be in the vicinity of about 250 basis points.
Got it. Price increase in September was what, about 1%?
Price increase that we did on an average was about 1.4%.
1.9%.
1.9%.
Okay. Got it. Great, sir. Thanks and all the best.
Thank you. We have next question from the line of Aditya Makharia from HDFC Securities. Please go ahead.
Yeah. Hi, this is Aditya Makharia from HDFC Securities. Just wanted to know on flex fuel, you know, the government is pushing that very aggressively. A, how does that work? Does it need a separate engine, or you can just sort of, you know, customize your existing product? Secondly, on the Jimny, there are some reports that it will be launched in second half. Then that's sort of 12 months away even from here on. Could you give some qualitative comments on the same? Thanks.
Aditya, I'll try to answer the flex fuel question. The Ministry of Road Transport is quite enthusiastic about flex fuel for three reasons. One, it reduces oil import. Second, it reduces carbon emission. Third, it will help to get farmers better realization for their crops. Since the life cycle of biofuels, the life cycle CO2 is very less. We are also looking at this option quite seriously. As of now, we do not know the technology. We are studying it, but we are open about it. How it works is that any fuel you fill into the car, whether it is 100% gasoline or 100% ethanol or anywhere in between, the car runs on the fuel by adjusting itself to the characteristics of the fuel.
It is a mainstream option in Brazil and the only issue is we do not know how much the market will be. It might be limited in some states or some areas. We have to study that option along with the carbon footprint of such vehicles, and accordingly, we will take a call. On your other question was about the Jimny. I'll request Mr. Shashank Srivastava.
Just one, it is still about one to two years away, right? Not in the immediate term.
No, more than that. You cannot see, in the auto sector, any development, any product development lead time is four years. We know that very well. We cannot have something so soon.
Thanks. Yeah.
On the Jimny, Shashank, sir, if you can
Yeah. Jimny, as you know, the SUV segment has been growing dramatically, and one of the segments is the lifestyle type of SUV. This is a segment which we have been studying very closely. If you recall in the Auto Expo, we had displayed a Jimny to get consumer feedback. We are doing that study very closely, looking at the market and also taking some feedback from potential consumers. As and when we finalize that plan, we will definitely let you all know.
Thank you.
Thank you. We have next question from the line of Ronak Sarda from Systematix Shares. Please go ahead.
Yeah, hi. Thank you for the opportunity. The first question to Shashank, sir, on the, you know, CNG side. One, if you can help us understand, you know, I mean, I am assuming the waiting period is one of the highest in CNG variants. So what kind of customer profile are we seeing who are coming to CNG? And related question is, are we planning to, you know, increase the capacity both at Maruti end and the vendor end?
Yeah. We have been studying that consumer profile for CNG. It is not really different. As you know, we have CNG in eight of our models out of the 15 that we have.
Right.
There we haven't seen any big difference in terms of profile across the different criteria.
Mm-hmm.
whether buyer type or, you know, the occupation wise or the usage wise. It does appear that almost all consumers in our country are quite conscious of the running costs, and which is what is the very positive
Right.
Something about CNG usage. So on your second question of the volumes, as you know, the volumes for CNG for Maruti Suzuki have been increasing dramatically, roughly about 75,000 till 2017-2018 every year. 105,000 each, 2018-19, little bit up in 2019-2020. 158,000 in 2021. And this year we are projecting something like 300,000. Yes, you are right. There would be a pressure on the capacity, but I'm sure our supply chain guys are working on it to increase the capacity in line with the projections going forward. Going forward, the projections are even higher.
Right. A related question here, you know, how does the resale value of the existing pool of CNG vehicles have behaved? Because there were earlier concerns, you know, how the deterioration of a vehicle is much larger in a CNG fuel option. If you can just help us understand over the last one year, how has the resale value behaved in this segment?
Yes, it's a great question. The reason I say that is because there seems to be two type of CNG vehicles which are coming for resale. One is the factory-fitted types and the other is the retrofitted types.
Mm-hmm.
The retrofitted CNGs which are coming in the market have that problem that you are referring to.
Okay.
Because there are concerns about safety of retrofitment. There is concern about, the engine, you know, the life and the maintenance cost.
Right.
That was actually also one of the fears which consumers had when the retrofitment was being done. When the factory-fitted CNG, for factory-fitted CNG vehicles, there is no such concern. The used car prices for CNG is actually a little higher, because remember now the gap between a CNG vehicle and a corresponding petrol vehicle is around INR 90,000 in terms of the new car. That is reflected also in the used cars. We do find that for factory-fitted CNG, the used car prices hold quite strongly. Yes, for retrofitment vehicles, it does drop.
Sure. The second question to the team on the production side. I mean, if I study your monthly numbers slightly, I mean, more, you know, on a granular basis, we have seen, you know, in terms of appropriation of volumes, exports and, you know, sales to the other OEM have now remained largely, you know, stable month-on-month, while the overall domestic volumes have seen a very sharp cut as the semiconductor issues have cropped up. If you can help us understand how do we, you know, see the overall vehicle appropriation and how does that change over the next quarter or so?
Different telephone.
Fortunately, the semiconductor issue did not affect export sales much, and we were able to largely meet the market demand because those particular semiconductors were not used in those models with those specifications. That's the reason. OEM is a small volume, I mean, that was in proportion. We hope we don't have. I mean, the larger thing is to try to get more semiconductors so that this problem is behind us.
Sure. Yeah, second part to this was, you know, we have heard the OEMs, you know, they are building its inventory, you know, to ensure, whenever the semiconductor supply ramps up, the overall production numbers could be higher. Is that a feasible option? Or, how does the assembly line change? Or do you think, once the overall issue normalizes, then only the overall production can ramp up? Just a thought on, if we are building up, you know, partly built inventories or something like that.
Actually that's an option if we know that the supply of future supply of components are assured, which in this case is not true. You can theoretically have ABOF vehicles and make them FCOK once you receive the components. You are right, some of the OEMs might be doing it. The thing is that one, you have to store the vehicles for a long period of time. Unless you know that the components will be available definitely, this may not be exactly a feasible option. OEMs may want to take a chance and keep them in that state so that when the component comes they can be FCOKed. That's possible.
Sure, sir. Thank you and all the very best.
Thank you. We have next question from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead.
Yeah. Hi, good evening and thanks for taking my question. Sir, could I get the retail volumes for the second quarter?
For Maruti Suzuki, I mean, remember these are estimates because while the figure for Maruti Suzuki is known, but for the industry it might be an estimate. Yeah. For Maruti Suzuki, Q2, retails were about 385,000.
385,000. Okay. I mean, just from the export point, I mean like, since you're selling a lot through the Toyota network as well, I just want to understand, like, how does the pricing work there in the sense that, one, I guess you're selling to them from India, so we don't really have any FX risk. The second thing is given the huge commodity cost increase, I mean, are we able to pass that on? Or even there you would be seeing that margin pressure and the prices will be revised with a lag.
No, in case of exports, we do take into account any commodity price increase that's taking place, and we do make corrections for that periodically to ensure that the margins are protected. Also the exchange rates will have certain play on the price, depending on what rate we had contracted and what rate we actually end up supplying them at. A combination of the two, but we ensure that we protect the cost increases and the margins in the case of exports.
Right. Just on a longer term, maybe not. I don't think we can sort of tackle this commodity price increase on a one- or two-quarter basis. I mean, like, unless you really expect that commodities will come all the way back down, I mean, we're significantly hit because of these pressures. I mean, like, how do you see that? I mean, do you see yourself gradually taking price increases every quarter 1%-2% and passing all these on to the consumer? Or, I mean, like, what is the way forward here?
If you take the past history, commodity cycles have, you know, been going up and coming down, so they have corrected over a few years. This is not the first time that we are seeing such a peak. There will be corrections. We will have to keep watching it closely and wherever we think we can counter this through our own efforts, we will try to do that. That's our first initiative to work on our own cost reduction programs. If the price continues to rise and if there is a need for correction of price, we'll take appropriate decision at that point in time. We've done that in the past, as you would have seen. Given these price increases, we have taken price increases in the last six months 2x-3x .
Obviously you can't do a very big increase because it really upsets the market in terms of demand.
Okay. Great, sir. Thank you so much. Thanks.
Thank you, sir. Ladies and gentlemen, that was the last question. On behalf of Maruti Suzuki India Limited, that concludes this conference call. Thank you for joining with us and you may now disconnect.