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Maruti Suzuki India Ltd
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Thank you, Janice. 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, we have Executive Director, Mr. Hideki Taguchi; and Executive Vice President, Corporate and Government Affairs, Mr. Rahul Bharti. From Finance, we have Executive Director, Mr. D. D. Goyal; Executive Vice President, Mr. Pradeep Garg; and Vice President, Mr. Sanjay Mathur.The concall will begin with a brief statement on the performance and the outlook of our business by Mr. Seth, after which we will be happy to receive your questions. May I remind you of the safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces. I'd 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.
Thank you, Nikhil. Good afternoon to everyone. Hope all of you and your families are keeping in good health.Owing to an unprecedented global pandemic of COVID-19, it was a unique quarter in the company's history wherein a large part of the quarter had 0 production and 0 sales in compliance with the lockdown stipulated by the government. Production and sales started in a very small way in the month of May. The company accords utmost priority to the health, safety and well-being of all employees and associates across the value chain and, particularly, its customers.The company has implemented stringent controls, which are over and above the government's stipulated guidelines to prevent the spread of COVID-19. Besides continuous education is being imparted to the workforce to observe high degree of self-discipline, they're regularly being reminded of not letting the guard down at any moment, whether at office or outside. The company has adopted work-from-home practice wherever possible.Taking these measures as base, further measures specific to vendors and dealers have been identified and implemented at their facilities to safeguard the employees. For ensuring the safety of customers inside the showroom, the entire customer journey has been redesigned to ensure minimal physical touch points and maximizing the use of digital interfaces to ensure contactless operations. The company is extensively using its flagship services on Wheels program to provide vehicle repair services at customers' doorsteps.Sudden halt of business with start of lockdown put significant pressure on cash flow of some business partners like suppliers and dealers. The company provided them with cash flow support to ensure that they're able to pay salaries to their employees and meet their obligations. The company is also facilitating the suppliers to get access to attractive financing schemes for managing working capital. After lifting of lockdown, fortunately, we saw some demand recovery. Accordingly, the company focused on clearing the stocks at the dealerships and maximize the retail sales.The company has close tie-ups with banks and launched innovative retail financing schemes. However, the biggest challenge is to ramp up production of vehicles amid shortage of manpower and local lockdowns being observed in states or cities, affecting the supply of components and delivery of vehicles at dealerships. It is too early to judge whether demand is only pent-up or it has really started to recover. Investors can also feel proud that your company was able to help in mass production of ventilators, PPE and masks to the expectation of the Government of India despite zero prior experience.Now coming to the highlights of quarter 1 for the financial year 2021, the financial results of the quarter are not comparable with that of the same period previously, and should, therefore, be seen in the context of the ongoing COVID-19 pandemic lockdowns and restrictions required by government for safety.The company sold a total of 76,599 vehicles during the quarter. Sales in the domestic market stood at 67,027 units, and exports were at 9,572 units.During the quarter, the company registered net sales of INR 36,775 million. The company made a net loss of INR 2,494 million in the quarter. It was partially offset by lower operating expenses and higher fair value gain on the invested surplus.We are now ready to take your questions, feedback and any other observations that you may have. Thank you.
[Operator Instructions] We'll take the first question from the line of Kapil Singh from Nomura.
So firstly, sir, I wanted your views on demand outlook. If you could cover whether -- what kind of inquiry levels are we seeing currently? And how are the next few months looking like? I know you mentioned that we can't say whether current demand is pent-up or not, but if you've done any analysis on that, that would also be helpful.
I would request Shashank-san to answer this. So please go ahead, Shashank-san.
Yes. Thank you for the question. If you -- if we see the parameters of consumer demand as reflected in inquiries in bookings and retails, I would say it's around 85% to 90% of the pre-COVID time. That is as far as the consumer demand is concerned as of today in the first 3 months that we have operated in this year. As regards the future, I think that's much more difficult question. And it will -- obviously, the steady state long-term demand depends on the fundamentals of economy because the automobile sale is related to income levels.Also it's related to the sentiments, because it's a discretionary purchase, and I think, going forward, much will depend on how the COVID situation evolves. So if we had -- as I keep saying that you could see a vaccine upside or you could see a virus downside. We are keeping our fingers crossed about the -- about which way the COVID thing will move. And I think it's so difficult, therefore, to make a clear guideline or clear prediction of what the demand is going to be. However, having said that, the bounce-back, as reflected in the consumer parameters I just mentioned, has been encouraging, and we are looking forward with a lot of optimism.
That's good to hear, sir. Secondly, just on financials to Mr. Seth, just one question. I know this quarter is not really comparable. So -- but still, I mean, because we have to look at what we can see in terms of numbers. So if I look at raw material per vehicle, it's seen a sharp increase, up to INR 380,000 compared to like INR 330,000 in the previous quarter. Could you give some color here? What are the factors that have led to this? And on a normalized basis, has there been any cost increase or it is more or less at the same level as previous quarter?
So raw material to net sales in the normal course would be about the same level. I think this quarter was an exception for a couple of reasons. One is that the inventory levels went down significantly, whatever the stocks that we had from March to now and, therefore, there was a fixed cost incidence hit that we take once in a while. So this will get normalized, which was, I think, over INR 110 crores. That in a small base of sales value translates to over 3.5%. So that was one reason.And second is that if you look at the discounts, discounts typically are amortized over the wholesale numbers. Wholesale numbers were much lower than the retail numbers and, therefore, discounts on the face of wholesale numbers looks much bigger. Discounts on an average this quarter were about INR 25,000 -- over INR 25,000, whereas if you were to convert that into retail numbers, they would have been much below INR 20,000. So I think that was the other aberration we had. So if you take away these 2 exceptions, then material cost to net sales ratio is pretty much the same as it was sequentially quarter 4 to quarter 1.
Next question is from the line of Yogesh Aggarwal from HSBC.
Just a couple of questions. Shashank-san, you just mentioned the bookings are back to 85%, 90%, and we know parts of India still locked down and there is a financing issue as well. So like-to-like in areas where there is no lockdown and financing is easier in certain categories, is the demand better off than last year in that sense?
Yes. Even in June, if you see, there were some states where, actually, there was a positive retail over the previous year. So you're right, it is varying hugely across the state. The states, which seem to have been affected currently most in the negative sense are Kerala, Maharashtra and Tamil Nadu.
Right. Okay. And then related to that, see, as you said, pent-up demand is not as tough to guess, but we are also seeing very tight secondhand car market. So does that mean that a large part of it is first-time buyers today, which means they are incremental. And when the market softens for secondhand market, then obviously, the replacement demand will come back as well. So it'll all add up in the coming months, hopefully.
Yes. So you have to distinguish between 2 types: one is the preowned car market and the replacement buying. Because the replacement buying affects the supply of preowned cars, whereas on the demand side, there is a clear reflection that the demand for preowned cars has increased. The supply side, of course, is the issue at this time. So the problem is not selling, it is about buying. And replacement buying is coming down because we believe consumers will hold on to their vehicles a little longer than what they have been in the past, before they upgrade to a bigger or a better vehicle. So I think you will see both, demand going up for preowned cars, at the same time, replacement buying coming down. And that is what we see right now in the current demand scenario.As far as your question about the first-time buyer is concerned, yes, because the replacement buying will come down, there will be an increase, of course, in some additional car buying. But we do expect that the reasons for buying the car purchase, the functionality, would probably take precedence, and that reflects in the increased first-time buyers. It's sort of reflected in the current data of the last 3 months that we have.
And Ajay sir, just quickly on Toyota relationship. Can you provide some update in terms of both exports potential and then in India in terms of model transitions? That's it.
Rahul, would you like to take this up?
Yes. On exports, fortunately, a lot of countries are coming out of their lockdowns, and we are looking at this market also aggressively. The government is also ambitious about exports, and at least in the medium term, we are quite ambitious about our exports. Your other question I missed.
In India in terms of model transition sharing with Toyota.
So whenever we have such -- any such new model plan, we will disclose it at the right time. And at any point of time, we always have models in our -- new models in the pipeline. What I can also mention to you that in exports, the tie-up with Toyota we have because we'll get much deeper market access, particularly in Africa.
We take the next question from the line of Pramod Kumar from Goldman Sachs.
Sir, my first question pertains to the down-trading trend in the market. There's been a strong belief that these prices will result in a lot of the customers really looking at the upgrades or additions and buy cheaper cars instead of what they wanted to buy. So are you -- based on the data you have for the last 3 months, what are the broad trends emerging? Are we seeing more demand for Altos and WagonRs? Or are we seeing a massive variance levels in the purchase from, say, ZXi to LXi or VXi or something like that, if you can share some color there?
Yes. So you're right, the current data in terms of the inquiry levels does indicate that there is an uptick in the demand towards the smaller cars. That's, I think, also intuitive and has been also sort of reflected in our consumer research. Having said that, we have to see the steady state what would be the demand patterns likely to be, because it's also true that in the past we have seen when consumers revert to the original state, the trend in the last few years have been towards the SUV type of vehicles. So I'll say both. At this moment, the data does suggest that in terms of inquiries, the percentage of inquiries for the hatches, which is a small car, seem to be higher than the previous year. Just for information, it's around 65% as against 55%, 56%, which we traditionally had in the past. As regards...
And Shashank-san, how much of this would be -- because the larger top-10 city markets are virtually shut. They're are not kind of operating at the optimum level because people are working from home. How much of this is because of that element? And would you see this ratio reverting to the normal levels once these cities or the larger cities open up?
Yes. So I think it's a wider question because part of the reason for the telescoping of demand downward is not necessarily the lockdowns or this thing, but also probably because the income levels, expectation for the future seems to be a little lower for the consumers, whether it is in terms of their businesses or in terms of their salaries or in terms of employment, et cetera. As far as the number of outlets are concerned, we have -- the number of outlets, which keep opening and closing, are pretty much changing every day because of the local lockdowns being enforced by various state governments in different districts. So at one point of time, we had almost 91%, 92% of our outlets, which are about 3,080 outlets, of those 91%, 92% were open. But it keeps varying and, in fact, on weekends, there are some 10 states who have imposed weekend lockdowns. So then the number varies. So I think if you are looking for a percentage of showrooms which are open, it is varying between 81%, 82% to 91%.
And the second question is for Ajay-san. Ajay-san, as the old adage goes, never waste a good crisis, and we are clearly in the mid of a crisis. And given this, what is the Maruti management doing in terms of any big initiatives to lower its fixed cost intensity? Because if you look at the P&L of Maruti for the last 5, 6, 7 years, we've seen massive surge in some of these cost centers like marketing and advertisement and some of the other expenses which have become fairly fixed and outrun the revenue growth in the last 6, 7 years, which has increased the breakeven level for the company. So are we doing something which is structural, which could reduce the fixed cost intensity of the business?
So we are working on 2 parts. One is that we are definitely working very hard on the fixed cost. You have seen that this quarter, we have worked hard in terms of reducing costs. Some of them are discretionary, which we have deliberately reduced, and others are in various areas, where we have worked very closely to see how we can bring the cost down. So the focus is to bring the fixed cost down throughout the year, and there are targets that we have for all the verticals. We are doing that in a very harmonized manner with all the concerned verticals. This is one part.On the other side, we are also working on the material cost side where we are looking at localization very -- more rapidly localizing the imported components. And second is, how do you further bring the model costs lower by having focus on the model cost down -- reduction program that we run. So I think these are 2 areas where we are working in a very focused manner. And we do recognize and realize that in a crisis or a situation, we need to be very alert and be very careful about both variable as well as fixed cost.
And sir finally, on the strength of the dealer viability -- or our dealership franchise is one of the best in the industry by far. But looking beyond the P&L of the company, if you can share some color on the financial position of your dealers and suppliers in the current environment. And what is Maruti doing to support them in this particular tough time? And related to that is, would you or Shashank expect a reasonable churn or shutdown of the competition dealership, especially in the smaller brands because of what the dealerships are going through, broadly at the industry level, if you can throw a color on that part?
So see, we are keeping a very close watch on all our dealerships ever since the pandemic happened and even before that. We have a concept of a balanced score card of a dealer where we keep monitoring his performance on all parameters, including his financials. And in fact, we have also provided help to dealers during this pandemic by releasing the advances much earlier and ensuring that they have adequate funds. We've also given them interest subsidy where they require. And further, we are working with banks to ensure that there is no stoppage of their facilities, both working capital as well as the industry financing. And on the retail side, I think, Shashank already mentioned that we're working with the banks under various schemes.So I think on the dealers' side, we are, at the moment, pretty much okay. There will be, of course, a few dealers who will have problems, which I will ask Shashank-san to mention. But overall, the dealers' revenue are largely through the workshop where the load now is coming back. And I think the revenue that they earn from there is pretty sizable, because they're all large dealers, and they have a reasonable share of business. So we don't see such a problem with our dealers compared to what it could be otherwise with other players of competition because we are talking of large revenue coming not from just sale of cars, but from the workshop and other parts of business that they do, which is True Value or insurance and financing, et cetera. But I will ask Shashank-san to supplement what I've just said.
Yes. And I think I will add on to what Seth-san said. We have a very robust model for profitability for the dealer. That's also reflected in the fact that if you see the last 3 years, there have -- according to the FADA, the -- there have been about 370 dealer -- dealers who have closed, out of which Maruti had, I think, 14. So that's a very good sign as far as profitability of Maruti Suzuki dealers is concerned. And we are very -- we have a very robust system, where it is not the sales revenue alone, but we have 9 revenue streams, some of which have been mentioned by Seth-san, including the workshop, the body shop, the insurance, the finance, the extended warranty, the accessories business and so on and so forth.And as far as the support to the dealers in this thing, you are right, there would be stress, especially cash flows, especially when there was no retails in April and half of May. But we have made sure -- as Seth-san mentioned about the transfer of funds like accumulated reserve funds, et cetera, scheme payouts. Also, we had given some inventory support, both for the vehicles as well as for accessories and also for True Value cars. So I think, overall, we have made sure that the dealer remains profitable. And going forward, we will continuously keep track of these aspects, which would surely arise when the volumes come down. So we are very confident that we will be successful in keeping the dealers' strength, especially the financial strength quite intact.
We take the next question from the line of Raghunandhan from Emkay Global.
Sir, firstly, for Q1 FY '21, how has been the industry shift towards petrol vehicles? Has it reached 85%, a level at which Maruti can sustain 50% overall market share despite being absent in diesel vehicles?
So while the official SIAM figures are not yet released, but the indications are -- we have a very good idea of what the diesel ratios are. So for the industry, it is now about 20.6% in Q1. Remember, last year, it was 28.5%. So there seems to have -- there seems to be -- 29.5%. There seems to be a downward shift. Maruti, of course, is at 0% because we don't have diesel. And as far as competition is concerned, they are at 36%. So overall, there has been a reduction from 29.5% for last financial year to 20.6% in this quarter. I don't know the calculation of that 18% or 16%, which you made for that 50% market share, but as far as retail is concerned, the market share for Maruti in Q1 was slightly above 52%.
My second question was on RM cost. RM cost per unit was on a higher side. Would Gujarat depreciation -- Gujarat plant depreciation also be one factor contributing to this increase?
So the Gujarat depreciation is part of the manufacturing and other costs. It is not combined with the material cost. The other fixed cost of the Gujarat plant will go in the material cost, but depreciation is a lease expense, which will get merged with the manufacturing and [ lease ] expenses.
We take the next question from the line of Gunjan Prithyani from JPMorgan.
I have 2 questions. Firstly, on the financing environment, if you can speak about it. Is this whole morat issue creating a problem for people to access financing? And also, I do notice that you've done a lot of tie-ups on the financing side. So how has been the response? Or is that really helping in terms of -- enable the financing?
Yes. So as regards the financing, there are 2 parts to it. One part is relating to the inventory financing, which dealers take for offtake from Maruti Suzuki; and the other part is, of course, the retail financing. And I think your question is pertaining to the retail financing. And for retail financing, we have, as you rightly pointed out, now collaborating with various banks for different types of flexible schemes, which consumers have been demanding post this COVID. And the flexibility is in terms of initial down payment being low or such scheme as a step-up EMI payment scheme where initially you pay less EMIs and later on when your income levels are restored or you are feeling more confident, you have a higher EMI. We also have schemes like the balloon scheme, where a large portion of the loan amount is actually towards the last few EMIs.As regards the bank's lending, the bank's lending -- the interest rates have come down in response to the repo rates, which have come down over the past few months, but not as much as we would have thought they would. But nevertheless, it's helping because, although the banks have -- are relooking at the credit ratings of the consumer once again because probably of this COVID situation, they are reassessing the credit ratings of the consumers. But in terms of the penetration of the finance, there doesn't seem to be any difference at the moment. We see the penetration somewhere between 78% to 80%, which is normal percentage of penetration across the last few years.
So we haven't really seen any issue on the financing side. Okay. The second question I had was on this subscription service foray that you made. If you can just talk us through it, what's the thought process and how we are approaching it.
Yes. So again, the subscription process or the demand for subscription has been increasing in the last few years. Of course, it is at a very low level at the moment. But post-COVID, we are expecting when people are shunning shared mobility as also public transport and the demand for personal transport increases, one of the very good options is subscription, and that is the thing which we are trying in 2 of the -- we are doing a pilot in 2 areas: one is Bangalore and the other one is in Gurgaon and Manesar. So there, we have found some very good response. We started it just a few weeks back. And I think going forward, we would see -- we do hope that subscription will also become a pretty big business, because we are doing it on a digital platform, along with one of our partners. And therefore -- and the way we have seen the inquiries and the conversions now coming through, I think it can be a significant game-changer going forward.
Okay. Just last question. If you can share -- the inventory level you did mention has come off very meaningfully. Is there a number that you can share, the [ channel ] inventory?
For the end of -- for the industry, I think the industry level is at around 170,000, according to our information. You can give a few hundreds here and there. The March inventory level for the industry was 250,000, approximately. But...
For Maruti, if you could share.
For Maruti, it's around 25 days, it's roughly about 80,000 inventory end of June.
We take the question from the line of Pramod Amthe from CGS-CIMB.
This is with regard to the diesel segment. I wanted to know if you have done some consumer survey in terms of when the customer comes to look out for diesel with you, and when he doesn't find, what is his behavior? Does it completely shift over to the competition, what proportion, and how much you have been able to convert? And second, linked to the same, how do you look to address this issue in the short to medium term?
Which segment are you referring to? I'm sorry, I didn't...
Sir, diesel segment -- the diesel part of it.
The diesel part. Yes. So just a brief perspective. Actually, if you look at the diesel fuel price compared with the liter of gasoline, these prices have been converging dramatically, actually. Remember, they were just about -- they were about INR 32 difference 6, 7 years back. Last year, it was about INR 7.80 or something. And now in some states like Delhi, Goa, Gujarat, Jharkhand, Pondicherry, Orissa, the diesel and the petrol prices are extremely close. And therefore, now it does not make economic sense to have a diesel car, if the criteria is running cost. Because the running cost is roughly similar, about INR 4 a kilometer for both.And secondly, the initial price, which you pay for a diesel vehicle for a similar type of petrol -- over similar type of petrol vehicle is now ranging between INR 150,000 to INR 200,000. So with this large difference in acquisition cost and a very low difference in -- or none at all in the running cost, there is no economic logic for a diesel vehicle. And that's pretty clear from the diesel percentage, which we have seen decreased -- especially in the smaller car category, where they have now decreased dramatically to less than 5%. Of course, there are some segments like the mid-SUV and above, where the people are still looking for some amount of diesel because there the preference seems to be based on torque requirements rather than on economic requirements. And that is why we have said that Maruti Suzuki is also looking, as far as the larger diesels are concerned, very closely to evaluate whether it requires to be present in the larger diesel category.
And sir, second one is, have you seen as the larger cities -- or do you see any change in consumer profile as the economy is opening up in terms of -- when you say compared to the earlier days, the demand recovery is almost 85%, 90%, have you seen self-employed or corporates, who are the ones who are coming back in a bigger vigor in the customer profile?
Yes. So I would just say that in terms of the profiling, maybe the salaried percentage has gone up roughly -- I'm talking from a Maruti's perspective, because we have some detailed data about our consumers. So our data point suggests salaried customers going up almost 50% from the 45% they were earlier. And in the other categories like self-employed, it's been more or less similar. Business customers has come down a little bit. And government-salaried customers is part of that 49% that I was referring to have gone up slightly. So the average MHI has come down a little bit, but I think it's different for our ARENA and for NEXA. There, we don't see that it's statistically significantly different.
We take the next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Sir, you indicated retails were substantially higher in this quarter. So against domestic wholesales of 67,000, what would be the retail number?
The retail is around 119,000.
Okay. And secondly, on that, beyond this breakup of salaried employees and that way, what was the share of first-time buyers now given the expectation of shift towards private transport?
I didn't get the question. You are saying...
Share of first-time buyers?
Share of first-time buyers, yes, it has gone up. As I said -- mentioned earlier, it's gone up for us by a substantial 5, 5.5 percentage points.
Okay. Okay. And second question is to Mr. Seth. Sir, we have seen sequential increase in realization, simply dividing -- net operating revenues divided by total wholesale. What would have led to this? Have we seen substantial increase in spare sales or any nonvehicular revenues which is driving this?
Not really. I think it's the mix impact to a particular mix that you sell in a quarter, and this is not really comparable this quarter, because the size is so small that it depends on what cars have been sold higher and what cars -- so it's not giving you a really meaningful ASP for this quarter. I think it will be more relevant to see the full year.
Okay. Okay. Got it. Can you share export revenues in this quarter?
Export revenues are at INR 461 crores in this quarter.
And lastly, if you can share the production side, how are we placed now in July current? What are the plans for ramp-up? And any bottlenecks which you've seen?
So we are currently doing a run rate of about 4,000-plus per day. And we currently -- because of increased incidents of the infection in Gujarat, we are only running Gujarat plant on a single shift. Starting mid-August to September maybe first half, we plan to open the second shift in Gujarat, of course, subject to a lot of enabling conditions like availability of manpower, like, the infection should remain within -- should remain checked. So if we add a second shift in Gujarat by about September, we should be able to add about 900 per day more. And as of now, we are not limited by demand, we are limited by supply. So our effort is to increase supply.We also have to be mindful that there are a lot of local lockdowns across cities or states of different kinds being imposed all over the country. So we -- our vendors are located in about 46 districts over 9 states. And sometimes they witness these lockdowns. So our strategy is wherever the vendor is, at whichever point of time he is, let him keep producing to the maximum and keep stocking. We never know when the lockdown will hit him. So at least the stocks and the inventories will help during such lockdowns. So that's the strategy that we are adopting, but it all depends on so many factors, particularly the growth of the infection in the country or whether it remains in check.
Right, right. That's a pretty dynamic situation in which way. So this 4,000 per day is including Gujarat, right?
No, 4,000 is total, Haryana plus Gujarat, 4,000-plus. And if we are able -- and if we are successfully able to have a second shift running in Gujarat, starting the second half of August through September first half, then we should be able to add about 900 more.
900 more. Okay. And any sense what was the production of Gujarat in 1Q?
Sorry?
Gujarat's production in the first quarter or supplies from Gujarat in the first quarter?
See, that will be highly -- first quarter is a highly misleading figure. It all depends on the start date, and it depends on how many days we took to just establish protocols. So even after the plant started, almost a week to 2 weeks was spent in establishing the safety protocols and all the systems that had to be in place, training of people. So quarter 1 would not give a right picture. The current rate from Gujarat is about 900-plus per day.
The next question is from the line of Amyn Pirani from CLSA.
My first question was actually on the financing tie-ups. I'm just trying to understand, I mean, what is new in these tie-ups in the sense that I'm sure that for a Maruti customer, most of the bigger financial institutions were already be empaneled. So is there some kind of like a comfort or a subvention or something else that Maruti is doing with these financiers? Or is it -- so how does the tie-up work for you on a commercial basis?
Yes. So there is no subvention, first of all. However, it's not correct to say that these schemes were available in the normal course as well. So while the different banks might have been doing retail financing with us, doesn't necessarily mean that they were offering these flexible schemes earlier. And they were not, and including, for example, flexibility in terms of down payment. So clearly -- or even in terms of the percentage of the on-road price financing. So I think those are things which come out because together with the bank when we discuss with them, we make them realize that this is the consumer requirement. And that's market input or the consumer insight, I think, is very essential when it comes to those good banks, who listen to the consumer requirement and tailor make their schemes accordingly. That's what you have observed in the last 3 months with those special schemes that we have floated across many banks with our customers.
Okay. Okay. That's helpful. My second question is -- you talked about the fact that discounts per vehicle increased because of the mismatch in wholesale and retail. But if you were to look at like-to-like model level discounts, would they have come down in your opinion or they have remained stable? How would that be?
They would have come down. Of course, it depends, remember, from geography to geography, and it depends from model to model. But generally speaking, model-to-model, it would have come down.
Next question is from the line of Kumar Rakesh from BNP Paribas.
My first question is to Shashank. Last quarter you had said that it's a little early to call out trend. With the advantage of some time behind us, can you share some of the broader insights, your consumer research, your statistics? Some of it you've talked about around down-trading and all. But beyond that, what are you observing? How are the sales pattern and aftersales services like spare parts, is that similar to how the vehicle sales is happening and which are the most impacted segment of consumers or any other area which you have noticed is worth mentioning?
I think, largely, everything follows from those inquiries and bookings that we get for new car sales. And when we have the retails, we do have the business for accessories. We also have the service of the vehicles. Servicing of the vehicles, of course, has come back very strongly. The only difference between -- when the local lockdowns happen and many of the workshops get closed, then it's a little different from sales, because sales you can do a retailing maybe the next day or -- but in service, the capacity, once locked for that day, gets lost. So even if your customer comes the next day, then obviously you have customers of the next day plus the customers of the previous day. So there seems to be more effect there. However, it has been a strong bounce back, and I have mentioned that.And on the first part of your question about the broad customer behavioral change and, of course, I mentioned about the down telescoping of demand, but then there are also -- and also the first-time buyers getting increased, the functionality buying going up. We've also seen people sort of gravitating towards the more established brands like Maruti Suzuki, for example, because when the market becomes a little uncertain, the consumers become less experimentative, that's also something which we have observed. Of course, we have also observed that the -- while the replacement car buying has come down, the additional car buying is going up and as also the first-time buyers, and the reason there is that people are preferring personal transport and sort of avoiding public transport. So those are the other trends which we have witnessed.Apart from the general trend, of course, that is in line with the health consciousness regarding the COVID, people are preferring to go through the digital route for most of the transactions.
My next question is just an extension of that, sir. So based on the trends which you have noticed so far, what would be your best estimate for the festival demand which is upcoming? Not quantifying directly, but would it be higher than last year, similar or lower? Essentially, how will you be preparing your supply side? Of course, keeping the unknown unknowns aside, how would you be looking at the festival demands turning today?
Yes. So as I mentioned, I think, in the first part of this discussion or question-and-answer session, we had -- as I said, going forward, a lot will depend on the COVID sentiment. We really don't know which way it will move. So if suppose you say the vaccine is discovered tomorrow, fine then the thinking becomes totally different. If there is a second wave of virus, then the thinking becomes totally different. And long term, of course, it depends on the fundamentals of the economy. Having said that, the reason why festival demand always seems to be better is because car buying being a discretionary purchase requiring positive sentiment, during the festival season, everybody seems to be having a more proclivity towards expenditure. And that is why -- that is what fuels the demand -- spurt in demand in the festival, generally. So I'm not sure, and I'll still maintain that, I will not take a position on that to how much will it increase, but leave aside, if everything remains common, of course, the festival does bring in positive sentiment.
We take the next question from the line of Binay Singh from Morgan Stanley.
Just like you mentioned that in the near term, production is a problem. Do you -- are you thinking discounts further trending down in July versus the levels that you saw in June?
Sorry, once again, are you seeing...
Seeing discounts down in July versus what you were seeing in June?
Sorry, Shashank-san's question.
Yes. I would say, again, with a caveat that it depends on geography and model. But generally speaking, July discounts are lower than the quarter 1 discounts.
Okay. And secondly, Maruti has this sort of one new model-a-year launch timeline. So a, are you remaining committed to that? And b, because of COVID, is there any change in product strategy that you are planning?
Actually, our product plans, as you know, are made -- product line in auto industry is actually made well in advance because there is a period of incubation of 3 to 4 years before a new car is launched. So those launch plans or the development work doesn't get really changed dramatically if there is a disruption in between for a couple of months as we have seen. What does get disrupted probably is some development work, which is possible to be made up in time later on. As regards the new car introduction, we are launching the S-Cross with the K15 petrol engine, which is extremely powerful and very smooth and sophisticated vehicle, which we'll be launching in the first week of August. Beyond that, I will not be able to give you the specifics of our product plan for the future.
And just last thing on the longer term, on the product side, which segment -- like we've seen SUVs as a percentage rising. So would it be fair to assume that, that will be one of the key focus areas in your product strategy over the next 3 years or so?
So sure, we -- as you know, we keep looking at opportunities and study different segments, the potential. That's the reason why we are able to maintain our market share as we have done in the past, introducing some very successful models at times when people said, why would Maruti Suzuki bring this vehicle, for example, Swift or Baleno or, for that matter, Brezza, the small SUV, or the Ertiga, which was the first MPV, affordable MPV in India. So we will keep looking for those opportunities. Yes, some of the opportunities and the trends which you are saying for the SUV does exist. We keep watching, and at the appropriate time, we will take suitable actions.
We take the next question from the line of Sonal Gupta from UBS.
So first question I had was, could you give us a sense of like for FY '20, what was the share of industry demand coming from top 10 cities and 11 to 20 cities? And related to that, I mean, like, given that these markets would have been more impacted by the shared mobility, I mean, how do you see these markets sort of on a more normalized basis going forward? I mean do you see a big bounce back in demand from these markets? Or is it -- yes.
Yes. So industry contribution in the top 10 cities for 2019/'20 was 36%; 11 to 20 cities -- the 11th rank to the 20th rank is 12.1%; from 21st to 40th cities, 14.2%; and for the rest of the cities, 37.6%.
Sorry, rest of the cities is -- I mean 20th to 50th, right, that's what's 14.2%...
40th. 14.2% is 21st to 40th.
Okay. Okay. And sir, your thoughts on the shared mobility versus now personal mobility, how does that impact this market?
Yes. So actually, there is a little bit of -- even last year when the market went down, there was this thought that it'd be largely because of shared mobility. Shared mobility, the opinion seems to be divided amongst the industry people whether shared mobility was really the cause. But we think it was the cost of acquisition more than the shared mobility thing. The shared mobility percentage is still small.And going forward, I think, post-COVID, we would expect shared mobility actually to decrease dramatically as people shun public transport and shared mobility in favor of personal mobility. So I think going forward, it would have even probably a lesser effect in the short run. Long term effect, yes, people do tend to revert back to the older method. At that time, I think the debate will start again, what will be the effect of shared mobility on the auto demand.
So just on -- you also mentioned that we're seeing a shift towards a good trend in terms of used car market. So could you give some -- I mean share some numbers around that? And are you -- and what sort of increase have you seen in used car prices? Is there an increase in used car prices as well? Any thoughts there?
Yes. So one, I think it's too early to get to those trends. However, as I mentioned, on the demand side, there seems to have been increase because we look at parameters like inquiries. We think we have been doing pretty well in the preowned car market in line with consumer research data is also with the logic and intuition, which we can sort of experience regarding demand towards the used car market.However, as I said earlier, on the demand -- on the supply side, there seems to be an issue because people are holding back on their older vehicles, which means that there are fewer vehicles to buy to be able to be refurbished and sold as preowned cars. So I think that is a supply side issue rather than the demand side. Demand side as reflected in inquiries seems to be pretty strong. On the other hand, the replacement buying has actually dropped. So for Maruti Suzuki, generally, it's around 25%, 26%. In the first quarter, it was about 16% to 17%.
Okay, sir. And just lastly, on the rural -- I mean what is the share of -- I mean how are you seeing the share of rural now? And just could you give us a sense of what is the profile of customers on the rural side?
Yes. So rural markets, as we said, have been bouncing back a little bit more stronger for reasons because the Rabi crop has been pretty good. It's been a record Rabi crop. Kharif crop sowing has been also very good, 20% more than last year at the same time. The COVID sentiment is a little less negative because most of the hotspot areas are in the urban areas. So yes, rural seems to have done better. There is no change really in the profile. The profile difference between rural and urban has remained as such, because I don't think the profile would change so suddenly, especially when we have only one quarter of data to look at.
Next question is from the line of Ronak Sarda from Systematix Shares.
Sir, just continuing on the previous question on the top 10 cities, I mean, if we even look at the top -- or maybe the metros, we are seeing some easing out happening on the lockdown side. The net cases seem to be coming off. I mean -- but based on your discussion with customers here, I mean, do you see the demand recovering quickly? Or do you think the festive season would again be a bit uncertain just purely based on your customer interactions with the sales team? How do you see the demand from the metros in the next few months?
Yes. So I think we do have some data points from June and July. So I think the previous question was relating to the top 10 cities demand as a percentage of the total sales last year, which is about 34%. Actually, in the quarter, first quarter, it was pretty less than that. In fact, in July, since the lockdown has been lifted in many parts, I'm seeing for the last 1 week or so that the demand seems to have come back in the urban areas also. So I think while in the first quarter the demand in the top cities was less than this thing, but in the last few weeks, I have seen there is some upsurge in the demand in the top 10 cities as well. So I think it's too early for us to take a position on how it will pan out in the coming few days, but the response at this time seems to be encouraging for the areas where the lockdown has been completely lifted.
Sure. Sir part 2 of this question is, how do you see competitive intensity right now? I mean how do you think that will shape up given this has been a huge disruption? So do you see -- I mean what kind of implications would this have on the overall competitive scenario? And I mean, July, again, retail sales, would you say it is around 85%, 90% of last year, the current trend?
I'm not able to give you the forward-looking projections for July, but trend seems to be good at the moment.
And on the competitive side, how do you see -- what implications do you feel this would have on the competitive intensity?
Yes. So you will get those numbers in a few days' time, I'm sure. 1st August, we release the numbers for the month of July. But when you're talking of the competition, obviously, they're strong. We are fighting in all segments, as always. We keep trying to maintain our market share. So I really don't know what to say and what exactly is the question regarding competition. It's going to be there. It is there. I'm sure it's lurking out there somewhere.
Sure. Sure. And last question for Ajay, sir. Sir, other expenses, I mean, if we see for this quarter, does this have any exceptional item here or this is something which was all the discretionary which could have been -- has been cut? Or do you see there are some one-offs still there in Q1 numbers as well?
There's no exceptional item except for the fact that we have contained costs this quarter based on much lower production. So a lot of cuts across all verticals have happened this quarter as discretionary expenses have been cut. And if the production goes up, we will see if we need to reinstate some of the advertisement-related expenses, marketing-related expenses later on. But this will all depend on how we pan out in the next few quarters -- how it pans out in the next few quarters. So there is no exceptional item. The only exceptional item, as I mentioned earlier, was in the material cost, where we had this fixed cost incidence of about INR 110 crores or so, which was because of the lowering of inventories, which over the year will get normalized.
Thank you. Well, that was the last question.