Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Pramod Kumar from UBS. Please go ahead.
MARUTI · FY2025 Q2
Maruti Suzuki India Limited analyst Q&A
Sir, the first question is on the festive demand outlook what you guys have shared. If you can just provide some color because I pick up in media articles which have got published post the press meet that you are talking about the period ending with Shradh or start of Navratri till Diwali. Could you kindly clarify the time period of festive season? And could you provide a colour on the performance during the on -going festive season based on whatever insi ght you have on the booking numbers and the scheduled deliveries. The reason I am asking that is because on Vahan, the cumulative festive retails for the industry is still down to around 4% as of this morning. I understand there is a bit of a lag in reflecting showroom retails to registration on Vahan, but it can't be that the registration on Vahan is still reasonably mid-single-digit negative and we are talking about a double-digit growth. So, if you can just help us understand the sales period we are looking at and the data you are looking at and also could you put some color on what's the expected retail between today and till the end of Diwali?
So, this time we have reckoned the festive period from the beginning of Shradh till Diwali. And the reason we are doing that is because there was a month-end in between. We wanted to avoid any impact of month -end sales to come into the picture to have a like -to-like comparison. So, from the beginning of Shradh till Diwali, we have grown by 14% year-on-year in our retail sales. Retail sales is relevant because in the festive period, that's what the true customer interest is and P a g e 6 | 13 sometimes wholesales clouds the picture. So, against the last year figure of 260,000 units, this year, most likely we will be closing around 297,000 units. . For the full year, April till October, this time we are hoping to close at about 3.9% year-on-year growth in retail sales.
Sorry, sir, can you repeat that. Rahul sir, I lost that. Can you repeat that please?
So, April’24 to October’24 we hope to close at around 3.9% growth in retail sales.
I think till September, in the vahan retail sir, Maruti’s retails were down by 0.5% or thereabout.
See, sooner or later we want to switch over to Vahan. It still has some lag and , one state is not still a member. So, sooner or later Vahan will converge with our data. But year-on-year April to October end, we hope to do about 3.9% growth in the retail sales . In festive period, which is beginning of Shradh till Diwali, we are expecting about 14% growth in retail sales. And not only that, we should end the month with a healthy inventory of just about 1 month or even lower.
Given that the inventory is going to be not that high, the typical year end December discounts this year should not see a sharp spike as such, is that the understanding?
To an extent, the pressure on discounts will not be there. Mostly the pressure on discounts comes because of inventory. Fortunately, Maruti is unlike many other companies in the market, we are comfortably placed as far as inventories are concerned.
And on discounting, sir, what is the average discount per car in the quarter?
Average discount per car in the quarter, is Rs. 29,300.
And sir, can you add some more color on the demand? Because the demand going into the season for the industry was not looking good. So, what has changed? If you can just help us some color on foot fall, inquiry, conversion, regional flavor, urban versus rural, anything which you can share which can help us understand the festive demand which according to you is turning out to be better. So, if you can just help us understand that, that will be great, sir.
I would like to retrace a couple of steps. India is now the third largest car market. It does happen once a while that the market takes a breather. Of course, we would like the market to grow faster, but we are not too overly concerned about it. And the Indian customer does want to buy. So, there are times when the customer is slightly dormant. There are times when the customer comes forward. This year if you want to understand the outlook, we are hoping to close this year retail sales at about 3% to 4% growth.
Yes, sir. And anything on urban, rural, what is doing better for you, any regions, any segments which are doing well, entry level cars, are they coming back? Sorry, I am kind of pressing on this, but this is actually the most topical thing on passenger car industry demand right now and for Maruti. P a g e 7 | 13
Rural is doing better than urban, and we are expanding Nexa outlets in the rural area also, other than Arena. SUVs are g rowing faster and have grown from 50% to about 5 4-55% now. The strength seems to continue for a while, and we are yet to see some strength in the small car segment, which is declining. But I can tell you that we were able to arrest the decline in small cars, thanks to a lot of limited editions, creating some excitement in the market. Wagon R is doing quite well.
When do you expect the pay commission benefits to kick in, sir?
See, it does not happen that today the notification comes out, tomorrow the sales increase. Many people would be doing it ahead of the announcement in anticipation. Many would like to defer it or time it according to their family needs. So, there is no direct correlation.
Sir, before I fall back in the queue, just a query. There is a clarification. I am getting messages from clients. They just want to clarify again. The 14% growth what you are referring to is like- to-like, start of Shradh last year to the festive to start of Shradh this year till festive, right?
Start of Shradh to till Diwali in retail sales year-on-year 14% growth.
The confusion was, are you saying end of Shradh last year to festive and start of Shradh this year to festive which gives you addition. So, that's not the case, right?
This time we are seeing the start of Shradh because there was a month end coming in between. So, we had to ignore the effect of that.
Yeah, absolutely. So, even in the base year, you are starting from Shradh, am I right?
Yeah, of course. It has to be a like-to-like comparison.
Yes, that was the conclusion. Sorry for this, but I am getting queries from clients to clarify this. So, I had to do that. Apologies for that, but thanks a lot and I will fall back in the queue.
The next question is from the line of Raghunandhan from Nuvama Research. Please go ahead.
Congrats on the strong performance in the festive period. Sir, on the festive period, just one question. How did you see the trend in terms of first time and replacement buyers? And are you getting confidence of recovery in hatchbacks, given that there is some recovery in first time buyers and going forward, there could be benefits of expected interest rate cuts, pay commission benefits. How do you see or by when do you see the recovery in hatchbacks ? And how much would be the inventory in hatchbacks by end of the month?
So, no major discernible change in trend that I can share at the moment. And total network inventory of models across all segments put together will likely be within one-month inventory at the end of October P a g e 8 | 13
On hybrids, in press conference, there was indication of 25% road tax rebate. Can you talk about the road tax rebates in Punjab and other states and the benefits you are seeing because of this? On a related note, would you look at further expanding hybrid product portfolio in UVs and hatchbacks in future?
So, some states are giving benefits on hybrids. For example, Haryana is giving a 25% road tax waiver. Chandigarh is giving 50% road tax waiver. Similarly, states such as Rajasthan and Chhattisgarh are also offering some kind of incentives. There are some states which have it in their policy, but they are yet to implement it. Having said that, I think it's a great technology which saves CO2 , and drastically cuts oil consumption, does not have the anxiety of range, and no charging infrastructure requirement. It is extremely customer friendly. And we think in the immediate onwards atleast till the medium term, it is a potent technology for both national objectives, CO2 and oil import cutting. So, we would like to enhance it as much as possible.
On electric cars, Maruti's upcoming EV is expected to provide the best cost of ownership in the segment. Can you talk about the differentiating factor or USP of your upcoming electric SUV? I mean, in some of the media interactions, what we understand is that it is based on a new platform. You are working on localization initiatives such as cell manufacturing. You are looking at enabling charging infrastructure, and you also have export plans. So, your thoughts will be very helpful here.
Thanks for this question. Actually, we will now be starting a campaign for our EV. It is a high spec EV because we want to give customers confidence so that we can increase EV adoption without any concern on range, etc. So, it is a freshly designed EV. It is not an IC engine converted to an EV. It is an EV with high range ., There are some changes in the government norms on range. so, we will be specifying the range at an appropriate time. But you can assume that it is a high range EV, with approximately 60-kilowatt hour battery. And of course, we will be exporting it. It will be made in India , for the world . So, customers from many advanced markets like Europe and Japan will be benefiting from this EV . And I think there will be many milestones where we will be showcasing it in different markets, in Europe, in India. In India, we will showcase it in the Bharat Mobility Show in January , and you may hear a lot on this in the next few weeks from us.
Wishing you all the best on EVs and hybrids. Just a housekeeping question, can you share the exports for Q2 in rupees?
It is about INR 5,261 crores.
And retails for Q2 will be 4,20,000?
Approximately. P a g e 9 | 13
Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas . Please go ahead.
My first question was on quarter-on-quarter gross margin movement. I noticed most of the key commodities have been largely benign since April-May, such as steel, iron, and copper. Also, in the P&L, the line item changes in inventories of finished goods was positive during the quarter. So, this is probably the first time in the last several years when we saw this to be positive. Usually there is a factory inventory build -up which happens in this quarter ahead of festival. This year also I think you were building inventory for Dussehra ahead of the launch and hence that shows up as a negative line item in the changes to inventory. So, can you just help us understand this movement in gross margin with whatever granularity you can?
See, there are few factors which has contributed towards it. The first one is as you would have seen that the sales promotion expenses is slightly higher this quarter. So, that is contributing on the gross margin impact. Commodity has 50 bps impact as Rahul highlighted in the opening statement. So, these are the two predominant factors which has impacted the gross margin.. On the other hand, we have some favorable impact on the exchange rate.
I had a second question for you. So, now it's almost a year since you would have joined, and you have experience of working at multiple MNCs in the past. You have handled businesses which were spread across geographies, have seen raw material price volatility as well. So, now, having settled at Maruti, what's your vision? How do you plan to handle the pricing versus margin, all those debates which we have had in the past? I understand Maruti already operates with very rigid cost control measures. But on a big picture basis, how do you plan to handle these debates going forward?
I think we have to watch the market closely how it goes. I think none of us have a crystal ball to predict, but we have to keep watching the market closely. I think what we do is between operations, finance, we keep a very close watch on both commodity and Forex, take appropriate hedging decisions as and when it is needed , because there are several factors which have to be kept in mind. All we can say, I can tell you is that we are extremely agile to the market. We are connected to day-to-day movements, th e macro things which keep happening and take appropriate calls. Do we get it right every time? We get it right most of the times. Maybe not every time.
The next question is from the line of Binay from Morgan Stanley. Please go ahead.
Very encouraging to see the 14% commentary that you are seeing at least some signs of demand recovery. My question is on the discount side . Typically, in Q2, what we see is that we put in inventory, retail sales are weak, discounts run on retail sales and the wholesale dispatches are higher. And then in Q3, actually the discounts are paid out. So , when you look at Q2 this year, is it fair to assume that retail number is higher than wholesale , so the actual discount will be P a g e 10 | 13 lower? And secondly, any commentary on how do you see this discount number in Q3? Because this has been the big drag in gross margin this quarter.
First of all, commenting on your Q2, retail sales are only slightly lower than the wholesales. And Rahul already gave you the, the festival outlook. So, you can see the directional trend, how it is going. Directionally, we are in a position where retail is picking up. And if directionally retail picks up, there is no reason why we should have abnormal behavior on this term.
So, the discount in a way should be flattish, fair to assume quarter-to-quarter?
Binay, you know, it is not easy to predict , but you know, most manufacturers have cut prices drastically. We have had only a limited amount of discount. The good part is that our inventory will be less than one month, and we want it to be a month. If it is below a month, then some color, some variant will not be available to the customer. Because we have a huge range . We have a portfolio of models. So, that should be sufficient indication.
And just the second question is two parts. One is that the 14% growth that you are seeing, do you think this is in line with the industry as per your internal insight? Has Maruti gained share? And lastly, incremental commodity pressure. Any commentary on that with the spot prices the way you are seeing?
We won't be able to comment on competition for the festive period . But yes, what we can say is, our retail sale growth in this year from April to October is almost in line with that of the market, maybe slightly lesser. And commodities are a mixed bag. So, it is fairly flattish on an aggregate level.
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.
I just want to understand for the growth for this full year, we are talking about 3% to 4% in retail. And first half has been flattish. So, is it that we are feeling that demand conditions in second half of the year to be better? Or are there any reasons where Maruti Suzuki would gain share? Also, on the CNG mix, if you could comment, we have seen very good improvement. It's at 33% already. Do you see this rising further? And any thoughts here where it could get to in the medium term?
I will take your second question first. CNG, is a story across multiple factors. One is the distribution infrastructure in the country. Today we are at 7,000. It will go up to 17,000 by the turn of the decade. And the number of models will also keep going up. It has a lower CO2 footprint. So, it's good for the environment also. Customers in upper segments, premium SUVs are accepting it as a quality fuel. It's not supposed to be an economy fuel any longer. So, there are factors going positive for it. We don't have a projection, but it's positive. Obviously, if you do the math, yes, then somewhere the H2 will be as what we discussed, because we are projecting in retail sales 3% to 4% growth for the whole year. And we did about 3.9% till October. So, that's how we expect it to be. P a g e 11 | 13
No, I was just trying to understand any factor that you feel will be supporting this.
Well, it's the overall strengths that you play . The network strengths, the service strengths, the number of models that you have, the number of powertrain technologies that you have. Of course, sometimes we have to sweeten the offer for our customers with some discounts also. So, it's the combined strength of all factors that helps.
Are the discounts in this festive season higher than they were last year?
Quarter 2 discount was INR 29,300 but we expect it to be fairly stable in the remaining part of the year.
You just have to keep in mind, Kapil, that last year some vehicles were in short supply.
And just one last thing from my side we have given a long -term target of having 28 models in our portfolio. Just trying to understand from a dealership footprint point of view, how do you think about the sales network to accommodate these models?
So, that is a question, we also had w hen we had come to investors during the time of SMG acquisition, we had mentioned manag ing scale with complexity is one of our biggest management thinking points. So, of course, we have to do some more thinking on it , and we will keep updating you as we go along.
Thank you. The next question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
My first question is just on the model lineup. I think we have mentioned that we plan to launch one EV per year over the next five to six years
On an average. Don't bind us to it. Because we are talking about five to six models till the end of the decade. So, that makes average one a year.
Makes sense. So, on average, one EV per year till the end of the decade., five to six potentially, we currently have about 20 Maruti Suzuki branded models in the market and we are selling maybe three more through Toyota. So, just trying to understand that 28 number of models number over time are likely to be mostly EV launches going forward with ICE refreshes, or do we have completely new ICE models also that can surprise and excite the market over the medium term?
So, we have 18 now, and we want to reach about 28. 10 is the net additional numbers. But among the 18 also, there will be some refreshments. And we have spoken about five to six EVs. That's how we look at the model lineup in the future. P a g e 12 | 13
And just trying to understand for the December quarter, how we are looking at key commodity prices that might affect our P&L , and also what effect we expect from whatever we have seen in on the Japanese yen in our accounts.
On the commodity side, as we said earlier, we expect it to be fairly stable. There will be pluses and minuses within a particular commodity, but as a basket, we expect it to be fairly stable. Yen, it's a big question. We have to see several macroeconomic factors, US election being one of them. But we are consciously stepping up our coverage of the hedging because at the end of the day, we are in a business of making car s. So, we have to be conservative in our approach. So, we are stepping up the hedging to see we have less and less volatility on the exchange side.
And lastly, if you could just share the royalty number for the quarter, please.
Royalty is about 3.4% of sales.
The next question is from the line of Gunjan Prithyani from Bank of America. Please go ahead.
I just had a few clarifications on the comments that was made in press conference around the rural and the urban growth. For rural you guys 8% growth was mentioned and for urban minus 2% growth was specified. I assume this is for first half of the year. Is that correct?
Rural is positive. Urban is negative. On the net, it is nearly flattish on wholesale and about 3.9% growth on retail sales on aggregate.
I am just trying to connect this. Rural is certainly growing positive for us and at the same time you also sort of alluded to small car still being under pressure. So, I am just trying to understand what are the demand trends that you are seeing in the rural ? I would have expected that if rural starts to come back or grow well, then this would mean good for hatches and small cars as well, but it doesn't seem to be the case ? It seems like even in rural market , SUVs are the preferred choice or maybe higher ticket price cars are still doing better there. So , if you can share some thoughts on what's happening in the consumption behavior in the rural itself?
The past does not necessarily holds to what it is today. So , rural has changed big time , and in fact, we should change using the word “rural”. It is more of “up-country” and there is an increasing amount of convergence in the consumption patterns that we see between the so-called rural and the so-called urban. It's not necessary that rural will buy only small cars or lesser priced cars. In fact, we are opening NEXA showrooms in up-country. So, it means that there is a fair amount of convergence happening.
So what really sort of drives the small car recovery ? Or is that something we expect when the first-time buyer demand comes back? How do we think about hatches as a category coming back? I know you all had spoken about fiscal '26 is when we see that recoverying is there more that you can share, you are seeing green shoots in the market. So , the outlook for next year for the small car segment? P a g e 13 | 13
Still nothing new that we can share at this point of time. There is an affordability challenge that we see both from an income point of view and from the cost of cars point of view. But the only thing I can mention is that we have been able to arrest the decline because of some excitement created by some limited edition models in the market.
And the other clarification, a quick one, which I had was on the discounts being a drag on the gross margin in this quarter. When I look at ASP and other expenses, the discounts really don't show up in those line items. So, I am just trying to understand is there , how is discount really accounted for? Usually, we have netted it off in ASP , right? So, any change there, or anything that I am reading wrong there?
No, you are not reading anything wrong it's basically the mix is richer . So, there is a higher discount.
And last one on the capacity , if you can update , are we on track for 300,000 units capacity in quarter 4? Any recalibration there?
So, our 1st plant in Kharkhoda with a capacity of 250,000 units per annum is on track. We hope to commission it within the end of this financial year.
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.