Maruti Suzuki India Ltd
NSE:MARUTI
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
9 860.45
13 495.6
|
Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Thank you, Margaret. 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; Senior Executive Director, Marketing and Sales, Mr. Shashank Srivastava. From Corporate, Execute Director, Corporate Planning and Government Affairs, Rahul Bharti; Senior Adviser, Corporate Planning, Mr. K. Kasahara; and General Manager, Corporate Strategy and Investor Relations, Mr. Nikhil Vyas. From Finance, we have Executive Adviser, Mr. D. D. Goyal; 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 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 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. Good afternoon, ladies and gentlemen. I hope you and your families are healthy and safe. Quarter 1 of financial year 2021-22 was extremely difficult times for all of us because of the sudden upsurge in the COVID-19 infection across the country. As a responsible corporate citizen, the company is contributing to the best of its ability to support the country in the fight against the pandemic. At the time when the country was battling the second wave of COVID-19 and was facing shortage of oxygen for medical needs, the company temporarily suspended its production operations in quarter 1 to divert the oxygen available from the industrial use for medical purposes. Additionally, the company realized the critical importance of rapidly installing PSA oxygen plants to produce life-saving oxygen. The company decided to collaborate with its supplier partners to help quickly scale up the domestic manufacturing of PSA oxygen generator plants.The company, along with vendor partners also donated 25 PSA oxygen generator plants to various government hospitals in the country. Also, the company together with the help of its parent company, Suzuki Motor Corporation donated 1,000 oxygen cylinders to various government hospitals.The company accords utmost priority towards ensuring the safety of health for all its value chain members. The company collaborated with its value chain partners to quickly revise the standard operating procedure, so as to minimize the risk of infection spread. Also COVID-19 vaccination camps are being organized for employees, including their families. Besides, the company is also facilitating its 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 its bit in these difficult times.Let us start with some recent business highlights and milestones. With its sustained effort and focus, the company has attained the mark of 50 lakh sales cumulatively in nonurban markets, with over 1,700 customized nonurban outlets across the country. The company was first to believe in the potential of up country markets. That does nearly 40% of the total MSIL sales comes from nonurban markets. Nexa channel completed 6 years of offering new and innovative customer experience in July 2021. The company expanded Maruti Suzuki Smart Finance to online end-to-end real-time car financing service facility to pan-India. Thus providing the convenience of financing, Maruti Suzuki cars online from anywhere at any time. The company expanded the subscription service program to 19 cities in the country.Coming to the business performance. Q1 financial year 2021-22 was a challenging quarter, marked with large-scale lockdown restrictions across the country. As a result, the company witnessed a significant disruption in its business operations. During the quarter, the production operations started to recover in June 2021 from the lows of May 2021. With the gradual ease of lockdown restrictions in some parts of the country, the sales operations started to recover in the later part of June 2021. The company also post tie up with financiers to support dealer partners in inventory financing.On demand side, the customer preference towards CNG continued to increase. During the quarter, the company faced supply side issues, including global semiconductor shortages. With a meticulous planning and by closely collaborating with supplier partners, the company was able to effectively manage supply issues during the quarter. The third plant in SMG having an annual production capacity of 250,000 units was made operational. Additionally, the unprecedented and unabated increase in the prices of commodities continued to exert significant cost pressure. The company has stepped up its cost optimization program, lowered the sales promotion and advertisement expenses to limit some of the adverse impact of steep increase in commodity prices, besides taking price increase carefully.Coming to financial results. The second wave of pandemic adversely impacted on the Q1 production and sales. All parameters this quarter were substantially better than Q1 of financial year 2021. The comparison is not meaningful, because Q1 last year had a much higher degree of disruption due to the pandemic. Sales in Q1 remained far below the previous high of Q1 of financial year 2018-19. The company sold a total of 353,614 units during the quarter. Sales in the domestic market stood at 308,095 units and exports were 45,519 units. For reference, the total sales in quarter 1 financial year '18/'19 stood at 490,479 units. During the same period, previous year, the company sold a total of 76,599 units, including sales of 67,027 units in domestic market and exports of 9,572 units.During the quarter 1 of this year, the company registered net sales of INR 167,987 million compared to net sales of INR 36,775 million in quarter 1 financial year 2021. The company made a net profit of INR 4,408 million in the quarter 1 of financial year '21/'22 compared to a loss of INR 2,494 million in quarter 1 financial year 2020-'21. The profit for the quarter 1 financial year '21/'22 was primarily impacted due to lower sales volumes, commodity price increased steeply, but the company continued to make efforts to reduce costs.We are now ready to take your questions, feedback and any other observation that you may have. Thank you.
[Operator Instructions] The first question is from the line of Kapil Singh from Nomura.
Firstly, I wanted to check on the demand environment. How are things shaping up post the second wave? And within this current environment, if you can also comment on how you think the pricing will evolve and how the commodity costs will evolve from where they are? That is first question.The second question is on technology. If you can give your thoughts on the salience of electric, hybrid as far as Indian context or regulatory framework is concerned over the next 5 years, why do you think, for example, hybrid would be a more relevant technology for India? Those are the 2 questions.
Thank you for the questions. I'll answer the first part, which is related to the revival of demand post the lockdown. So the demand in July seems to have picked up once we had the unlock in most of the states. Now except for 2 states of Northeast, Manipur and Mizoram, all other states are open. As a result, we have seen a tick up in the case of inquiries as well as bookings, as also the daily retail. So if you compare it with the peak of last year, which was Q4 average, we are -- inquiries are roughly similar. Although the bookings are about 80%, 85% of the Q4 of last year. If you compare sequentially with June, then we are -- inquiries and bookings are about 122%, that is 20% above last month. And retails -- and the average retails are similar to the June levels. That is the extent of recovery. And we believe this time, the recovery is led by both urban as well as rural, unlike last year, which was mainly led by rural.
Kapil, on commodities, I think we continue to see increase in commodity prices and typically for all of the commodities, we have a quarter lag. So we will see increase in commodities in this quarter as well as the next quarter, beyond which we would have to watch in terms of how the overall commodities move. And we're hopeful that towards the second half of the year, commodities may stabilize from these levels that they're peaking at and -- or may come down a bit. So that is on commodities. Commodities increase has been pretty steep, quite unprecedented. I mean we haven't seen such sort of increase before for many decades. And that's a major impact on our margins.On price increase, I think we have been gradually taking price increases. We've done a price increase as recent as July and prior to that, we have taken an April price increase. So to the extent that we can price into the market we are doing it, but there is also a limitation of how much pricing increase we can take, which does not stub demand at the same time. So we will take a collaborative call between cost and price and accordingly deal with it as we move forward.
Kapil, to answer your third question on technology. For the purpose of crude oil import reduction, for reducing our carbon footprint and for the environment, we will be working on all technologies that help us towards this objective, which means, one, at the bare grassroot level, IC engine improvements. Two, electrification and hybrids, and they are part of the same family, hybrid electric and battery electric. And natural gas and biofuels also recently. We'll be working on all. Now some segments have a higher propensity or faster absorption of some of these technologies. So different segments will respond to different technologies differently. And we will be pursuing all of them in a manner that it gives us highest returns. You might have heard the recent news that we -- there is a joint testing program of some electric vehicles. These prototypes will be tested starting next month, along with Toyota and -- that we are planning to get more consumer feedback on usage pattern, et cetera. And on electric, till the time charging infrastructure grows in India, and you will need self-charging machines, so towards that, we will be using hybrid electric vehicles. We are also very hot on the way natural gas is progressing in the country. The Prime Minister has a mission to increase the energy -- in the energy markets, usage of natural gas from 6.3% to 15%. And CNG and PNG are 2 major pillars of that. So we will be wholly participating in that program. Many new cities have come up and the penetration of CNG cars, you would have seen have gone up dramatically. And Mr. Shashank Srivastava will just show some very interesting statistics about CNG soon.And we are also responding to a government program on ethanol. The government has mandated E20 by 2025, and they are talking about biofuels. The good part about biofuels is that they are carbon neutral or even carbon negative. So we'll be seriously evaluating them. So we'll be firing on all cylinders to reduce carbon and to reduce oil import in the country.
The next question is from the line of Pramod Amthe from InCred Capital.
2 questions. One, specific to Ajay Seth. The employee cost seems to be pretty high considering the volume shrinkage, which has happened on the Q-o-Q basis. Any one-offs because of COVID or any issue and -- which you expect to ease off?
One, of course, is the base effect, because the sales -- overall sales were down compared to Q4, if you see. So that's one impact. Also, there has been some impact on account of COVID-related expenditure that we've incurred during the quarter. Expense with respect to vaccination and number of cases, which were to be hospitalized. So there is an expense to that extent. So I think these are some of these exceptional items, which have come in here, because of which there is a slight increase that you see.Some of that will not be repetitive if COVID situation normalizes, but some may continue if COVID -- we have a third wave of COVID. So in this scheme, I think about INR 30-odd crores of expenditures has been put in, which is not repetitive in nature. Other than that are the normal increments. And this year also, we have a wage settlement. So provision for the wage settlement also is included in the employee cost that you see.
Second is to Shashank sir. Considering that unprecedented commodity costs are leading to quarterly price upward revisions, wanted to check your ground level check in terms of how are consumers adjusting to this reality, one. And considering that this may come to haunt you or the overall industry in coming months in terms of demand challenges, how do you plan to handle to cushion this on the consumer total cost of ownership?
Thank you for that question. And yes, we have to walk that fine line, as I say, between the top line and the bottom line, and that's what we are trying to do. I think Seth-san just mentioned that we have to take a calibrated view that we cannot pass on the entire cost increase due to the material cost going up to the consumers, because you may have -- you may disturb the stability of the demand itself. So yes, we do take segment by segment, the demand patterns and see how much the consumers can absorb of the substantial material costs, which have gone up.And we have calibrated that, and that is why you see, apart from the increase of, I think, 1.3% or so in January, we have taken another increase of 1.6% in April. July, also, we have taken a small increase. And going forward, we will watch how the material costs move to calibrate our further increases in the prices.
The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
My first question pertains to commodities. So can you indicate what kind of commodity price increase -- commodity cost inflation, which we saw in 1Q vis-Ă -vis fourth quarter? And secondly, what is our expectation for our second quarter?
Commodity inflation in the first quarter has been about -- over 3.5%. And it is difficult to predict second quarter, because the rates are still being negotiated for steel. Precious metals we would know, because that comes with a quarter lag and precious metals is also pretty steep. And as I mentioned in the beginning also that the impact on commodities is going to be pretty steep in the first and the second quarter, because that's -- precious metals, more or less we know and for steel, that demand by the steel units is still much higher compared to first quarter, which is being negotiated.I think the commodity impact would continue to be rising till the second quarter, after which we think there will be correction, and we might see that coming down. So second quarter, at the moment, we don't have full negotiated rates available. So we'll not be able to give accurate guidance on that.
Right. And any sense on other recovery on commodity prices, considering the steep increase what we have seen so far and the price increases you have taken, what percentage would be still left to be covered?
Can you repeat the question, Jinesh, I'm not...
What would be under recovery on account of commodity cost inflation? So the gross inflation minus the price increases, which are taken so far. Is there anything still left to be passed on?
So I think that's gradually happening. And as Shashank-san mentioned that it is very difficult to absorb the entire increase and it's quite unprecedented increase in the material cost by price increase. We have been doing it in bits and pieces. We have done increase in January last year, and we did a price increase in April, and we've now again done a price increase in July. We'll keep doing it in small doses. But definitely, we will have to take a very corroborative call in terms of what works well in the market. We can't just say that whatever is a material cost increase, we'll pass on the entire in one piece. So we'll have to take a call based on how the demand is, how the market is and what can be absorbed at what point in time.
Sure, sure. I understand that. And was there any impact of third line on overall cost basis?
Sorry, Jinesh, could you repeat?
The impact of third line at SMG, any cost impact in this quarter?
So third line will have an impact. We don't have a specific number here with us now, but it has an impact on fixed cost, both depreciation and the other fixed cost, because the third line is now operational. Maruti third line has become operational. Some capitalization would also happen during the second half of the year. So there will be impact on increase in depreciation, which is -- it's shown as lease cost in our accounts and other expenses. And the balance would be coming in the material costs, by way of the other fixed expenses. We don't have the breakup separately on the third line.
Okay. Okay. And sir, can you share data on exports revenues and discounts?
So export revenues in quarter 1 were at INR 2,286 crores. And the second question was on discounts?
Right, right.
The discounts were about INR 14,000 in this quarter.
The next question is from the line of Raghunandhan N. L. from Emkay Global.
Sir, my first question was states such as Gujarat has provided incentives for hybrids as well. Would this be attractive enough to consider launch of strong hybrids? Any time line you have in mind?Secondly, to Shashank sir. Sir, can you talk about how you're seeing first time additional and replacement demand currently and replacement which has been very weak? When do you see signs of recovery in this segment?
Yes. So see, individual states are coming out with their hybrid and electric vehicle policies, and many states are providing incentives to hybrids also. But our policy will be -- our launch -- the case and the viability will be more based on national policy. And of course, we have it in our active consideration. It's a very strong technology for the next at least 10 years into the future. So in any case, it makes a lot of sense to bring this to India.
Yes. On the second question of the first-time buyer and so on. Actually, as you know, last year, the first-time buyers went up in the industry from about 43% to 48%. That was a 5% up on the first-time buyer. Replacement car buying came down 8% from about 26% to 18%, 18.5%. There was an 8% drop in the replacement car buying. The additional car buying went up, by about 3%. So that was for last year.The first quarter of this year, we don't have the industry figures yet. Because it's part -- the research is done with the time lag. But for Maruti Suzuki, the first-time buyer came down a little bit in Q1 to about 45.4% against 46.9% in the same quarter last year. Going forward, we do believe that the replacement car buying should increase, because that 25%, 26% has been the percentage of replacement buying pre-COVID for previous 3, 4 years. So I believe that once people are confident enough to replace their old cars with new ones, replacement car buying should again creep up to that range of about 25%, 26%.
Just last question. Can you talk about the CapEx plans? Media reports and Chairman's comment indicate about Haryana capacity 1 million with a CapEx of INR 170 billion.
This is a long-term kind of projection of the total -- whenever you choose a new location or a site, you take adequate future flexibility into account and the entire capacity that, that location or that piece of land can hold. So this is a long-term projection for that. It's an estimate.
The next question is from the line of [ Gunjan Prithyani ] from Bank of America.
2 questions from my side. Firstly, on the chip shortages which you alluded to in your initial remarks. Is there something to call out for -- that we should keep in mind for the next couple of quarters that it can have an impact on the production side?
So see, we are living in this uncertainty -- time of uncertainty. Would you like to?
Go ahead, I'll add.
So there is this element of uncertainty. And fortunately, till now we have been doing well as compared to what we hear about many other auto companies both in India and the world. So the problem will -- is expected to continue for at least a year or so. And so far, we have been doing fine. We have been able to manage, and we'll have to live quarter to quarter and keep studying the situation.
As of now, we don't anticipate, at least in the foreseeable future that we could have a disruption on that account. Is that a fair assessment?
Yes. So to further add to what Rahul just said, actually, Maruti Suzuki has been doing rather better compared with the competitors on this front for the simple reason that we have a wide portfolio. And as you know, different models require different electronics. So what we have been doing is adjusting our production with those variants, which may not require the specific chips, which are in shortage. So I think that is the reason why so far we have done very well as far as production goes. And I think going forward, the situation should improve once the global supplies of the chips also increase.
Okay. And the second question I had was on the -- if you can talk about the inventory levels, the order book that we have now and the royalty number.
So if -- for the order as of today, we have about 170,000 or so pending bookings. That is the total orders which are pending for -- at [ this moment ]. So the stock levels and the net worth, we have roughly about 135,000 to 138,000 stock, which is equal to probably at Q4 levels of retail, about 27 days of stock.
Okay. And the royalty number?
So royalty for the quarter is under 4%.
Okay. Sir, just last thing. I don't know if you can, because there's so many moving parts to the margin, right? There's commodity, there's pricing, there was Phase III and then FX. If you can just talk -- give us some sense on the mapping, maybe quarter-on-quarter or year-on-year as to how each of these elements moved. I mean, of course, you quantified commodity as 3.5%, but some of the other variables, if you can give us some sense, it will be really great.
So if you look at it sequentially, there are 2 big elements. One is, of course, the volumes and therefore, operating leverage, which is -- which itself is about 4%. And the second one is, as we mentioned, is the commodities, which is about 3.5%. So these are the 2 big ones that have impacted us. And as we are able to now get to the capacity utilization level closer to 100% or 90%, whatever the numbers be depending on the market, I think we will get some benefits of operating leverage, if not to full, at least bulk of it. And similarly, when commodity prices correct, I think that also will help us. And second is, as Shashank-san mentioned, whatever is possible in terms of price increase, I think those actions are also being taken, to mitigate whatever extent we can by passing on some of the commodity increase, if not entire, which already has happened in the past few occasions. As we had mentioned, we did one price increase this year in April. And we did another price increase in July.
The next question is from the line of Chirag Shah from Edelweiss.
Sir, one clarification question on accounting of SMG. So raw material -- is classifying raw materials and all of the staff, depreciation, everything is classified in other expenses?
All expenses, except for depreciation is part of material cost. Only depreciation is counted as other expenses, and it is shown in these expenses.
Okay. So depreciation is also part of other expenses?
Yes. Sorry, one more element. Royalty is also counted in royalty. So that is one other thing. Yes.
Okay. The second question is on the chip shortage. You very well articulated the way you are managing it. Is it possible to indicate primarily which are 1 or 2 or 3 key chips or usages, which is really an area of problem and where you are, in a sense, compromising given the situation?
I would prefer not to name our specific partners and how much quantities or where the supply constraints are, but we are working with all of them. And they're also stretching to give auto -- within auto industry, Maruti, some good allocation. So we'll play it by the ear, and we hope the problem subsides soon.
Sir, can you indicate usage wise? Are there more on the communication side or electronic -- what usage is really causing the problem? Is it possible to indicate that? Or that also...
See, the basic problem is because of the pandemic, there have been many alternate uses of semiconductors. The world has digitalized more in the past 12 months. So -- plus people are not sure whether to expand capacities or not. Is it a permanent demand change? Or is it a temporary demand increase? So increasing capacity is also doubtful. That's a fundamental problem.
And sir, CapEx. So what kind of CapEx should we look at for '22? Is that number -- can you guide on this number?
So CapEx plan would be about INR 4,500 crores. I mean some movement did happen, because of COVID, et cetera, some other factors, et cetera, but it is in the ballpark of about INR 4,500 crores this year.
Yes. And sir, one last question if I can squeeze in. The SUV that we were jointly working with Toyota. Any comments, when can we expect that or how it is progressing? Anything on that side?
We can't give you any such guidance, but what we can tell you is it is in our active consideration. It's a strong technology for the next 1 to 10, 15 years. So -- and it has a lot of merit. It can scale up without the dependence on external charging infrastructure. It creates good[Audio Gap]So it has a lot of merits, and we'll let you know when the right time comes.
The next question is from the line of Binay Singh from Morgan Stanley.
Will it be fair to assume that the third line in Gujarat would have added to costs, but not contributed to the top line?
So this has just started, Binay. The third line has just started in April, and the production gradually ramps up. And unfortunately, the first quarter was affected by COVID, and I think even Gujarat had some disruption in the month of May. So they are now gradually scaling up. And as Shashank-san mentioned, as demand seems to be now looking much better, so I think we'll be able to now ramp up capacity there also. But we will gradually go from 1 shift to 2 shifts over a period. So initially, first year, normally, the plant has utilized about half of the total capacity. And in the next year, we can go up to the full capacity. That's how it works.
Sir, the question I was trying to get at is that will -- wouldn't it have a sizable impact on your gross margin? Like any number you would to quantify the costs that came in because of the shifts starting into this quarter?
So, I think this question was asked earlier also. And we said that there is an impact on depreciation and fixed cost. Obviously, any new plant, which is set up, will have a fixed cost and depreciation. So the fixed cost is part of the material cost, which was in there and depreciation is in the other expenses. So obviously, we don't have the exact breakup of the numbers, but this is built in, in both the other expenses, which you see. Although sequentially, if you see Q4 to Q1, other expenses have come down. They are not going up. So there has been control on costs on all fronts. And on material cost, also, there has been an increase, but not so severe in spite of whatever increase that I mentioned on material cost.
Right. And secondly, we've seen that having models with higher ASP, more aspirational portfolio helps companies offset these cost pressures. So any sort of comments on the future model cycle of Maruti?
Future models, we do not comment on any future models when -- there are, obviously, models in pipeline that you will keep seeing year-on-year, but we do not comment on any model before we launch the model. So wait for the model launch and see what comes in this year and next year and thereafter.
Yes. No, we'll keenly await that. Lastly, any comments on the PLI scheme? I know what Suzuki and Toyota are doing in Gujarat. Will that facility qualify for it? How are you guys looking at the PLI on batteries?
Sorry, Binay. You mentioned PLI on?
Batteries.
The PLI scheme, the production incentive scheme for ACC battery. Is the Suzuki-Toyota joint venture -- will their facility be eligible for it? Are they looking to apply for those incentives?
Okay. See, the PLI is on the ACC, advanced chemistry cell, which is a part of a battery. And the first phase of our TDSG plant, we have already put up. It has been commissioned. And we are running trial productions now. So we will -- the scheme is yet to come into force, and we are still discussing the details of the scheme with NITI Aayog and the relevant government departments. But it should be a positive -- it should have a positive impact on industry, and it should bring some capacity into India.
The next question is from the line of Ronak Sarda from Systematix.
So first question for -- is on clarification on the retail booking. So Shashank-san mentioned that July retail booking is largely flat on a month-on-month basis. Is that correct? And why is that so, given production level, obviously, inventories would have picked up? Is it some localized issues, which is hurting the retail sales?
Retail week wise has been going up. So I would guess by the end of this month, we should see actually both retail and wholesale sequentially higher than June. I don't want to give a specific estimate, but it should be quite above the June levels.
Got it. And is it possible to highlight what was the Q1 -- entire quarter 1 retail sales?
Retail sales for the industry you mean or...
Yes...
Industry sale Q1 retail was -- is estimated to about 501,000 and for Maruti was close to 200,000.
200,000. Okay. Sir, the other second question I had was on the SUV segment. If you can help us understand how the company is now looking at the SUV segment, given a sharp expansion across different categories. Lately, all the large SUV launches have also been doing very well. So if you can help us understand based on your customer interactions, the feedback, how do you see the SUV segment now? And where do you see the growth coming essentially in this segment?
Yes. So SUV segment, as you know, has been growing over the years. It was in '19/'20, only about 26% of the industry. Last year, it touched 32%. In this quarter, it was 37.9%, so let's say, 38%. In fact, in May, it was quite large, almost close to 47%, 48%. So clearly, there is a lot of traction in this industry. Mostly, it is in the mid-SUV and the entry SUV. The entry SUV and the mid-SUV are roughly equal in terms of volumes as far as the SUV segment is concerned. So it's about 16%, for example, last year was entry SUV and about 15% was mid-SUV.So you're right, while in entry SUV, we have the Vitara Brezza, which is the class-leading with the 1.5-liter K-Series Euro VI compliant engine. It's the market leader. It is still leading by far. However, in the mid-SUV segment, there seems to be probably a weak spot for us, because we have the S-Cross, which hasn't performed as well as we would like to. Whereas the Creta and the Seltos have done really well. So yes, this is an upcoming segment. And going forward, we will be taking a very close look at this segment as well. In fact, the entire SUV segment. Beyond this, it's difficult for me to comment on the specific products or plan for the SUV segment.
Right, right. But whatever like more we are trying to understand where do you see the segment in next maybe 3 to 5 years? Do you think this can cross, let's say, 50% of the industry? Are the customers, feedback or interactions highlighting that huge shift? Or do you still think compact cars or the premium hatchbacks have an upper -- or deliver a better value versus the mid or compact SUVs?
Yes. So you are right, very right. Because if I answer the first part of your question, we believe the SUV segment growing to around 42%, 43% next 5 years. But that is based on consumer understanding and consumer surveys. And also our look at the other countries, which are seeing a similar pattern, normally it plateaus around 41%, 42%, and that's what we are seeing in India as well. That's the first part.On the second part of your question of the premium hatchback cross-consideration between premium hatchback and the entry-level and even the mid-SUV, you are right there also. There seems to have been a bigger price overlap, especially with the entry-SUV, the sub-4 meter, because of tax considerations. The price overlap is quite large. And we have seen cross-consideration increasing from roughly about 14% a couple of years back to almost 30% between premium hatch and the SUV. So yes, part of those volumes must be -- it is being driven from the premium hatches. But we also believe that a large part of it is coming from the sedan segment, which has seen a dramatic [ negative ] growth, downwards. The sedan segment, as you know, was 23% about 5 years back. It's now just about -- just under 10% in this quarter. So I think the significant shift has happened from the sedan to the SUV.
I look forward to your new launch in the segment.
The next question is from the line of Arvind Sharma from Citi.
Sir, could you please elaborate the exact mechanism of commodity cost transfer? Just when -- what is the periodicity of contract time and after the contracted time, what happens when commodity price increases, especially what's the delay between spot price increase and the impact on Maruti? That's the first part.
So commodity price is impacted on account of -- there are 2 portions to it, one is steel and balance is the other metals which is PGM and other metals, copper, aluminum and so on. So steel is negotiated each quarter and the rates are settled in that quarter. And accordingly, the impact of steel comes in that particular quarter. The other commodity impact is with a quarter lag. So the vendors will be compensated based on the rates that -- average rates that are there for the preceding quarter. So for example, we would have -- now -- we will now be negotiating rates with steel vendors for quarter 2. And we would be also compensating vendors for the other metals including the PGMs for the known rates for quarter 1. That's how it works for -- in terms of the vendor compensation for both metals -- steel and the other metals.
Okay. So what happens is you sign for a quarterly rate and if the steel rates goes up within the quarter, after the contract is signed, but before you've actually procured. So what happens, when there's a big fluctuation during that time? Especially in recent past, we've seen a big monthly sales and then weekly fluctuations.
As I mentioned to you that the steel rate is settled, so that's a settled rate. And for the other metals, especially the rate movement is pretty sharp in precious metals. So there, we take the average of the previous quarter rates, and that average is used for the purposes of compensating. Because it's not just a closing rate of a particular day. These are the average rates for the previous quarter and on the basis of that, we compute what is the compensation for that period.
All right. Sir, my second question will be more an explanatory part. You said operating leverage impact has been 4% Q-o-Q and commodity has been 3.5% quarter-on-quarter. So is it like -- is it the percentage point impact on EBITDA margin, i.e., EBITDA margin could have been almost 7.5% impacted?
No. So this is what I said, are the ones which would have been better if there was no commodity increase and if the volumes were at the same level as we saw in the earlier quarter -- preceding quarter. But there are other measures that we would have taken. For example, we have significantly reduced our fixed cost in this quarter. That's in the wake of -- in the context of the extremely difficult situation, we had to cut costs everywhere. Obviously, when volumes will go up, some of the adverse marketing costs will also accordingly go up. So while -- therefore, I mentioned that while -- I talked about an operating leverage of -- if all other costs remain same, operating leverage of 4%. However, there's also an element of fixed cost that will go up when your volumes go up, especially the marketing cost. We have been very low, for example, on advertisement cost in this quarter. It's likely to go up.So there will be a benefit of operating leverage, whether it is 2% or 3%, it will depend on what is our strategy in terms of our marketing spend and the other fixed costs. But definitely, there is a scope of improvement on our operating leverage, anywhere between 2% to 4%. And speaking on commodities, the commodity will depend on how much is our ability to pass on. As we mentioned, we'll have to take a corroborative call in terms of how much can be passed on. We've done some correction on selling price in April and July. So in April, the selling price that we passed on had some impact, but much smaller. Similarly now, when you see the impact of July price increase and if there's any subsequent increase that happens, then you will see that impact also rolling in to mitigate the commodity price.Then the other important thing also know is that this will also stop at some point in time and all the price increases that we would have done we'll accumulate and we'll give you an exact impact of -- for a particular quarter. So it's just not -- it's a moving average, it's not a constant. So it will depend on all these factors in terms of where commodity ends up, where price increase ends up and where your fixed costs ends up going forward.
Sure. Sir, I was just clarifying because 7.5% seems a big number. If you take that as an underlying number, over 8.3% in fourth quarter EBITDA margin. It becomes quite high. But yes, I've got your point, sir.
The next question is from the line of Nitij Mangal from Jefferies.
I want to understand. So you mentioned that when you're thinking of price hike limitations, and you have to calibrate the expense. I just wanted to understand what are you more worried about? Is that demand? Or is that competition and market shares?And secondly, I mean if it's more on the demand side, with the kind of recovery we have seen both after the first and the second wave, would there be a case to accelerate price hikes to recoup margins?
Yes. Thank you for the question. You are right. Actually, we are -- if you were to choose between the demand side worry or the market share, of course, demand is something, which we are not entirely sure of going forward, because of the doubts about the third wave and so on and so forth. But of course, the market share is a consequence of those volumes. So in that sense, there is a connection between both the volumes, which we are targeting as well as the market share.On the other part of your question, was that -- is that okay or do you want some more elaboration?
Actually, if you could maybe just add a little bit that maybe with the kind of recovery we have seen, and even after the second wave, are you -- I mean, as a company, are you more confident of taking price hikes versus maybe start of the year or how are you thinking about that?
Yes. So surely, of course, we -- quick bounce back, and I must say the bounce back has been better than expected, especially in the urban areas, I mentioned earlier. And while we look at it as a single entity, the price hike and the demand, actually, we have to break it down into segments. And as you know, different segments have different price elasticities. So we have to make estimate, not just with an overall hike, but also specific to the segments where the demand is coming from. So we have to take into account all that. And as Seth-san very rightly mentioned, we then take a calibrated call depending on those segments and the elasticities.
The next question is from the line of Nishit Jalan from Axis Capital.
Sir, you did mention that in 1Q, Maruti retail sold around 200,000 units, for the industry numbers are 500,000 units. Does that mean our retail market share was as low as 40% in the quarter? And this is despite the fact that we had a decent order backlog of 200,000 units. And in this quarter, our production seems to be much higher than retail. So any reason for that?
Yes, great question, actually. Because you're right, the retail market share was lower. So while you see the wholesale market share close to 46%, but retail market share was closer to 40% and there are 3 main reasons for it. One, of course, was the -- while we had pending bookings, we had a mismatch in terms of the CNG availability. And as you know, CNG -- those factors, which impact Maruti disproportionately is what will bring the market share down. So one such factor was the CNG availability. The reason was that, if you remember during the pandemic, starting from mid-April, up until the first week of June, we had the oxygen diverted to the -- from industrial usage to -- for medical usage. And as a result, CNG production cylinders was not there. As you know, in CNG, we have close to a 90% share and that means that we would have been affected disproportionately. Our estimate is that with the CNG availability, we would have added about 5.1% or 5.2% on our market share.The second reason, of course, and I think someone pointed it out. SUVs, where our market share is lower, went up in terms of the overall segment. So if you look at Maruti Suzuki's market share without the SUV, actually in Q1, the market share was 65.4%, up 5.7%. And if you look at the passenger car market share, Maruti Suzuki's market share was 62.9%, up 4.8%. And so even in MPV, our market share was 69.2%, up 14.4% and in vans, 97.2%, up 1.4%. It was in SUVs that we had a problem. And unfortunately, for us, it was the SUVs percentage, which went up. So that disproportionately affected our market share in this quarter.And finally, the third reason is that the stock levels, which we were operating at, if you remember, it closed in April, we had just about 30,000 cars in the network and less than 2,000 cars in our factory. And as a result, once we had the lockdown before we could build up the inventory at the dealership, we had the lockdown and the retail suffered for the next 1.5 months. So I think these 3 factors combined have resulted in that drop in market share that you observed very rightly.
Okay, sir. Sir, my second question is, if I do some calculations based on the discount number that you have shared in the wholesale and retail volumes that we have, our average discount per vehicle on the retail level comes out to be about INR 20,800 in this quarter versus around INR 17,000 to INR 17,500 in last quarter. So the discount levels have gone up sequentially by almost INR 2,000, INR 3,500. In a scenario where basically commodity prices are already rising, people looking to see price increase. And secondly, you had a decent order book and demand environment was improving. So I wanted to understand, what is the key reason for that? Basically, are we focusing too much on volumes, because the demand pool is so low that we have to get so much higher discounts or basically, there is something else that we are missing over here?
If I get the question right, you were saying that there was a very high per unit retail basis, the sales promotion. Actually, I'm not sure where you've got this calculations from, because while we calculate based on wholesale, the wholesale has come down actually to less than INR 14,000, which was about a INR 23,800 in '19/'20 and, INR 18,000 in '18/'19 and so on. So on that basis, it's actually come down dramatically. And on the retail front, also, we have brought down the sales promotion. So I'm not sure where that INR 17,000, INR 18,000 came from.
Maybe I can take it offline just to explain you this quarter the wholesale was closer to 300,000 units, while retail was around 200,000 units and the wholesale discount of INR 14,000. So based on that mathematics, basically the discount at retail level comes closer to about INR 21,000. And similarly, in the last quarter also, you had shared your retails and wholesale numbers. And if I do similar number calculations over there, then the discount that I get last quarter comes out to be about INR 17,500.
I think it will be more appropriate to see that in the year's level, because every quarter, you will have some wholesale and retail gaps that would be there. But I think it will be more appropriate to see what is discount level at the end of the year. And I think we'll get to the numbers, because we are also very tightly controlling the discounts now. And the sales promotion or the discounts that we're giving is totally linked to what's essential and not just throwing away discounts anywhere and everywhere. So please wait and -- I understand what you are saying in terms of retail and wholesale. But let's look at the full year and then see the impact of discounts in terms of the trend in terms of how it moves. So that will give you a more realistic picture. Sometimes you have this mismatch because of certain events and certain situations. But full year will give you a better picture.
Sure, sir. So one just last question from my side. We have -- obviously, you are doing -- working on cost reduction efforts. We have heard from some of the two wheeler OEMs that they have kind of working on reducing costs on the catalytic converter side by changing the mix of PGMs, right, from rhodium to selenium, selenium to platinum or something of that sort. So just wanted to understand your thoughts because PGM has been one of the major worry for the industry and inflation has -- on that front continues to be unabated, right? So anything you can share on that as to where we are on that? Or maybe in the coming quarters, we should see some benefits coming from that kind of an effort that you are making in terms of reducing costs?
Thanks for the suggestion. We have done this change in formulation in the past to reduce cost, but if you think it merits another change, we can look at it again.
Sir, I'm not suggesting anything. I am just asking whether anything is possible on that front, because we had a two-wheeler OEM commenting on that, one of the [indiscernible], that's why I just wanted to hear your thoughts on that.
So this is already in process. This -- it's already an idea which is being worked upon, and it's already in process. And we are working upon it. I should also tell you that because of the FPA that we have, we are being able to import the precious group metals at a lower rate of duty than others.[Audio Gap]