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Maruti Suzuki India Ltd
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Ladies and gentlemen, good day, and welcome to the Maruti Suzuki India Limited Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Pranav. Thank you, and over to you, sir.
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 our Member, Executive Board, Mr. R.S. Kalsi; Executive Director, Marketing and Sales, Mr. Shashank Srivastava. From Corporate, we have Executive Vice President, Corporate and Government Affairs, Mr. Rahul Bharti; General Manager, Corporate Strategy and Investor Relations, Mr. Nikhil Vyas. From Finance, we have Executive Director, Mr. D. D. Goyal; Executive Vice President, Mr. Pradeep Garg and Mr. Sanjay Mathur. The con call will begin with a brief statement on the performance and outlook of business by Mr. Seth, after which, we'll be happy to receive your questions.May I remind you of the safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces. I also like to inform you that the call is being recorded, and the transcript will be available at our website.I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Thanks, Pranav. Good afternoon, ladies and gentlemen. Let us start with some of milestones, which our products have achieved recently. Alto, India's #1 selling car for 16 consecutive years, with over 4 million proud owners and preferred choice of first-time car buyers in India, celebrated 20 years of setting unmatched industry benchmarks. Baleno, the best-selling premium hatchback since 2016, has achieved a milestone of 800,000 sales in record time of 59 months. Vitara Brezza, India's #1 compact SUV, achieved a milestone of 550,000 sales within a short span of 4.5 years. This is by far the fastest by any compact SUV.In addition to these, our contract manufacturing company, Suzuki Motor Gujarat Private Limited, or SMG, has achieved accumulated automobile production of 1 million units on 21st October 2020. SMG becomes the fastest production site of Suzuki to reach 1 million units in just 3 years and 9 months, since starting production in February 2017. These milestones speak about the strength of the company in the Indian passenger vehicle market.Now let us come to the quarter 2. This quarter saw a good demand recovery after significantly low sales in quarter 1. Though the local lockdowns during the quarter in various parts of the country affected the sales operations, the sales momentum did not slow. In addition to the past deferred demand, the sales were also driven due to increased preferences for personal mobility in wake of pandemic. The share of first-time buyers has increased, while the share of replacement buyers has come down. Also, the demand has seen shift towards small cars, which is evident from the change in product mix of the company. Rural markets continue to see higher growth compared to urban markets. The festival period in Kerala and in West was good and saw growth. The attractive vehicle financing schemes also played an important role in maintaining the sales momentum.CNG, a cleaner and affordable alternate fuel for vehicles, continue to see increased acceptance with increase in CNG distribution network. During the quarter, the sales of CNG models posted a growth and now commands a penetration of 11.2% in overall sales of the company compared to 7.1% during the same period last year.In export markets, the demand condition improved gradually, and accordingly, the export volumes increased month-on-month. The deferred demand appears to be one of the main reasons for improvement in sales. And so the sustainability of demand needs to be carefully watched.During the quarter, the supply condition also improved progressively. The company could overcome challenges and improved average throughput per day from 3,100 vehicles at the start of the quarter to nearly rated capacity by the end of the quarter. The timely start of second shift in Gujarat plant helped improve the supply situation. Though the local lockdown affected the supplier operations in some part of the country, the company was able to manage and avoid disruption in the manufacturing of vehicles. As a countermeasure, during the uncertain times, the company also relaxed some component inventory norms to ensure business continuity. Cost pressure due to lower capacity utilization, increase in commodity prices and adverse foreign exchange movements remained during the quarter. In commodities, precious metals like palladium and rhodium saw significant price increases. Due to uncertainty about the stability of demand, the necessary price increase to offset the cost impact could not be taken. The company accelerated cost reduction efforts and reduced operational expenses. In addition to reduction in material cost, lower sales promotion, coupled with aggressive cost-reduction efforts helped improve the margins.Now coming to financial results. The company sold a total of 3,93,130 vehicles during the quarter, higher by 16.2% compared to the same period previous year. Sales in the domestic market stood at 3,70,619 units, higher by 18.6%; and exports were at 22,511 units, lower by 12.7%.During the quarter, the company registered net sales of INR 1,76,893 million, higher by 9.7% compared to the same period previous year. The operating profit for the quarter was INR 11,677 million, a growth of 71.7% over the same period previous year on account of higher sales volume, lower sales promotion expenses, lower operating expenses and cost reduction efforts, partially offset by increase in commodity prices and adverse foreign exchange movement. Net profit for the quarter stood at INR 13,716 million, higher by 1% compared to the same period previous year.The net profit in quarter 2 of the previous year, financial year '19/'20, was higher due to mark-to-market gains on the invested surplus and lower tax provision. As a result of this, while the operating profit increased by 71.7% during the same period previous year, the net profit increased by 1%.Coming to the highlights for the first half. Company's performance needs to be seen in conjunction with COVID-19 related disruptions. The company sold a total of 4,69,729 vehicles during the period, lower by 36.6% compared to the same period previous year. Sales in the domestic market stood at 4,37,646 units and exports were at 32,083 units.During the period, the company registered net sales of INR 2,13,668 million, lower by 38.7% compared to same period previous year. Net profit for the same period stood at INR 11,222 million, lower by 59.8% compared to same period previous year.After quarter 2, looking at good demand conditions during Navratras festival, the demand outlook for Diwali festival until December appears to be good. However, there is not sufficient visibility beyond that. There are positive factors like rural economy strength, and there is uncertainty around how the COVID scenario progresses. In several countries, the second wave of COVID has started disrupting the economy. In India, if people movement during festival period increases, it may have some bearing on the levels of COVID infection.Overall car demand has a strong correlation with the economic growth of the country. And so it will depend upon the Indian economic growth and job creation. On margins, the cost pressures continue to remain high with further likely increase in commodity prices.Finally, we would like to say that unprecedented crisis call for extraordinary efforts. Your company's management will leave no stone unturned to deliver best results and maintain the safety of its people through the entire value chain and customers at the same time.We are now ready to take your questions, feedback, any other observations that you may have. Thank you.
[Operator Instructions] The first question is from the line of Kapil Singh from Nomura.
Congrats on a good set of performance under very challenging conditions. Your commentary covered a lot of aspects. I'll just pick up firstly from the demand side. You mentioned that there is some deferred demand also coming back. Could you talk a little bit more about it? Give some color. Are these customers who wanted to buy who are coming back? Or are these -- are they a new set of customers who are looking to buy cars now because of personal mobility? And how do you think this evolves going ahead? And also, if you could share rural and urban growth and the rural contribution. That would be the first question.
I would ask Shashank-san to answer the question.
Thank you for the question. Regarding the first part of your question, which is the demand pattern, I think it's a mix of both. We have a lot of pent-up demand. As you know, after the lockdown -- the hard lockdown, which we saw in the last week of March, it continued through April and, in fact, part of May. April sale was 0. May was very little sale. It was, I think, only about 13,000 or so. So I think there is a lot of element of pent-up demand. Also, you are right that we have observed from consumer interactions and from consumer research that a lot of consumers are now preferring personal mobility instead of using public transport or shared mobility. So I think there is that element as well. And we have seen a lot of buying, therefore, is for utility and functionality rather than aspiration. And that's one reason why replacement car buying has actually come down and first-time buyers have gone up. Regarding the second part of your question, which is the rural-urban demand. Yes, it does appear that the rural demand has bounced back a little better than the urban one. And I think there are many reasons for it. Monsoon has been fairly widespread across the country. Except a little bit in the north, it's positive about 7%. Kharif sowing is plus about 7%. And Rabi crop, as you know, has been a record 6% above last year. So I think -- and also the negative effect of COVID sentiment is actually not so much in the rural areas. As a result, what we have seen is that the rural bounce back, especially in Q2, the rural growth was about -- just around -- just about 10%. And as a result, the -- there was increase in the retail share of the rural areas in our portfolio to almost 41%. This was about 38.5% last year. Thank you.
Secondly, I just wanted to check on the model cycle. Is there any delay in the model cycle because of the pandemic? And when should we expect the first joint product of Toyota and Maruti to get launched? Any color on that would be helpful.
Regarding the delay in model launch or a change of model launch plan, the answer is no, because the -- as you know, in automobile, the cycle of introduction of new cars from the point it is decided to have a new model is around 36 to 48 months. So events such as -- even in the extreme events like the pandemic, which has been here for some time, would not significantly alter those plans.Because remember, a model is introduced not just for 1 year, but for a long period of time. So the answer is no. There could be delays in development. However, that is something which can be made up as we go along.On your second question, which is about the joint car with other -- I'm sorry, we will not be able to give you a forward guidance on product plan as per our guidelines. Thank you.
Next question is from the line of Jinesh Gandhi from Motilal Oswal.
Can you throw light on how were our retail sales during Navratras and Dussehra put together?
Yes. So I can give you a sense of what has happened in the Navratra period. But can't give you the entire October expectation because that's forward-looking. But for the Navratra period, the deliveries which we have had is about 96,700, and we have bookings of about 85,000. It's pretty good compared with last year, which the number was 76,000 deliveries.
76,000 deliveries. Okay. Okay.
For the last year.
Right, sir. For the same period, right?
Yes, sir.
Okay. Second question is to Seth sir. Would you be able to share discount data as well as exports number?
Yes. Jinesh, discounts in this quarter were at INR 17,300 average. And they were much lower than what they were last year because last year, we were clearing the BS-IV stocks. So therefore, we had high schemes running. Discounts last year were over INR 25,000. This quarter, it is INR 17,300. So that's for the discounts. On the exports, our export sales were at INR 1,011 crores this quarter compared to INR 1,230 crores same quarter last year.
Got it. And sir, just clarification on the other expenses. Were there any one-off expenses or any mark-to-market of royalty and other expenses because on a Y-o-Y basis there is a reasonable increase, especially considering our cost-cutting initiatives, which should -- that has been lower?
So Jinesh, there's always an issue of regrouping because we've mentioned earlier also that the uniform rate recovery, that gets built both in sales and expenses. And expenses -- sorry, it gets build in operating income and expenses. So there's a difference of INR 150 crores increase because of that. So INR 150 crores has got added on to the operating income, and INR 150 crores has also got added on the expenses. So if you take that off, then the comparison will become more meaningful.
Right, right, right. But were there any mark-to-market on royalty?
No, there was no mark-to-market on royalty.
The next question is from the line of Gunjan Prithyani from JPMorgan.
Sir, could you share what was -- you mentioned that retail growth for rural was 10%. Would it be possible for you to share what was it overall for quarter 2, retail growth?
It was about 4%.
Okay. Got it. And sir, the second question is on the royalty. If you can share what was the royalty percentage in this quarter?
Royalty was at 5% this quarter compared to 5.3% last year.
Okay. And, sir, last question from my side before I get back in the queue is, if you can talk about the inventory levels. How are they placed in the market going into the festive season? If you can give some sense on that?
You mean for the industry, Gunjan?
No, no, for Maruti, the channel inventory?
So then you want to know about the network inventory, right?
Yes.
So network inventory for Maruti, we started off the month with about 120,000. And we have to wait till the end of October to see what the inventory level would be.
The next question is from Raghunandhan from Emkay Global.
Congratulations on good set of numbers. Sir, my first question was on the diesel mix for industry and company. Can you indicate? Also, you had been evaluating reentry into diesel segment. Any updates there? And my second question. Has there been any improvement in replacement and urban demand? And by when do you expect things to normalize there?
So first of all, your question about the diesel contribution. So the industry diesel contribution dropped to 17.8% so far in this year. And for Q2, it was 17% for the industry. As far as the Maruti Suzuki is concerned, you know we have 0% diesel. So if you look only at the competition, the competition diesel percentage was about 34%.As regards to our plan for diesel, we have already mentioned that we are watching the situation, we are collating data to see what is the consumer preference. So far, because of the convergence of the fuel prices between the petrol and the diesel, as you know, there are many states where the price of fuel -- of diesel and a liter of petrol is almost same.We have -- what we have found is for hatches and sedan, there is hardly any diesel percentage now. In fact, it is 1.5% for passenger cars. It's only in the upper SUV segment, the mid SUV segment that there seems to be a certain amount of traction for diesel. So we are watching the situation, and we will take an appropriate decision once we conclude whether in such a segment such a diesel vehicle is required or not.What was your second question? I forgot that.
Sir, has there been any improvement on the replacement and urban demand during the festive season? By when do you expect things to normalize in these 2 categories?
So replacement buying actually has been coming down, while there is a good demand for pre-owned cars. The replacement demand is just around 18 -- in the H1 was about 18.8% against 26.4% last year. There does seem to be a little bit of improvement in this month. I don't have the final figures for this month, which I will be able to give only in November. And also, yes, urban demand also has been a little better in this month so far.
The next question is from Pramod Kumar from Goldman Sachs.
My first question is to Shashank sir. Shashank sir, it's kind of not related exactly to Maruti, but more on the rural economy and the divergent behavior this time around. Because historically, rural economy does well, all the categories of autos in rural economy tend to do well. But this time around, what we've seen is significant demand for tractors and cars in the rural economy, and 2-wheeler demand seems to be languishing. So if you have any read there in terms of what is working for the Maruti -- or the passenger car customers and not for 2-wheelers, if you have any color on that divergent behavior, will be helpful? Also related to that is just to check, are you seeing that even within your customer profile, there is some bit of a stress on the first-time buyers in terms of people who earlier planned and inquired to buy a car and who are probably going and settling for a used car, which probably could be related to the or kind of linked to the consumer pyramid or the earning profile of the consumers? If you can spare some thought on that, that will be really helpful, sir.
So I will take the second part of the question first. As regard the lowering of consumer demand because of the expectation of a lower income levels or a loss of income or a loss of job or whatever, yes, we do find there seems to be a telescoping of demand downwards in terms of the choice of the consumer. And therefore, what we believe is that there has been a turn from the conspicuous consumption to more conscious spending. And therefore, there is more functionality buying rather than aspirational buying. And that is reflected in first-time buyer actually going up. So in our portfolio, for example, and I think that's true for the industry as well, there has been a 5% jump as far as the first-time buyers are concerned, from about 43.4% last year to slightly above 48% this year.As regards to your first part of the question, about the divergence in demand in different categories in rural areas, I think even for 2-wheeler, so far, as far as we know, because we don't have the exact data for rural demand for 2-wheeler. But I think overall, the rural demand for 2-wheeler also has been strong. It's only in this month, I am told by, I mean the industry observers, that there seems to be a softening of demand for 2-wheelers in the rural areas. But so far, if you see, in Q2, both passenger cars as well as 2-wheelers have grown. 2-wheelers grew 7% overall, and passenger vehicles grew 17% overall for Q2. And I think -- sorry.
You are referring to the wholesale here, right?
That's right.
No, no. I was talking more about the retail performance, sir, sorry. I mean the retail data is something very different.
Not really, especially for passenger vehicles. And as I said, I don't have the exact information on the retail sales of rural 2-wheelers. But what I gather from people in the industry, that except for this month, the retail demand for 2-wheeler even in the category of 2-wheelers have been pretty strong.As regards the other question which you asked about the pre-owned cars, yes, there seems to be a huge jump as far as the pre-owned car demand is concerned. And the pre-owned car actually demand -- I mean, inquiries were up close to 40%. However, it is not reflected in the actual sale. And one of the reasons is because there are fewer vehicles in the market for replacement, because people are holding on, I guess. From our research also shows that people are holding on to their vehicles for a longer time before they bring it to the market for replacement buying. And that means that there is a shortage of vehicles in the market as far as pre-owned cars is concerned.
My second question is to Ajay-san. Ajay sir, on the -- you talked about incremental cost headwinds, which you are facing in third quarter. But I believe given the demand what you've had so far and the inventory situation of the dealers, is it fair to assume that the third quarter should be -- from a directional perspective should be a tailwind in terms of production volume of the company?
Yes. In terms of production volumes, we have already said that now we have been able to reach our peak capacity. And so therefore, if the demand outlook continues to be good in the third quarter and we are also able to continue to produce at a pace at which we have been producing in the last couple of weeks, almost at full capacity, then, of course, we'll be able to have a significant operating leverage in our business. So I think it will all depend on the next 3 months demand outlook, which so far seems to be good, as Shashank-san has indicated. And on production also, we are now virtually working on our full capacity on -- in both the plants, Haryana as well as Gujarat.
And finally, can you share the Gujarat sourcing, sir? And that will be the last question, Gujarat sourcing numbers for the quarter?
Gujarat production numbers?
Yes, the sourcing. Yes, production or sourcing done by Maruti Suzuki from the SMG plant?
Just give us a minute. We'll just give you the numbers. Gujarat was 96,835 units that we sourced during the quarter, 96,835 units.
Next question is from the line of Binay Singh from Morgan Stanley.
Just a clarification on the previous question. So you're running now at around 100% utilization rate, right?
We are close to 100%. I mean we are now almost about between 85%, 90% of our capacity. And we are -- so we are kind of inching up based on what the outlook for demand is and accordingly gearing up for what is required for the market.
And even when you said 120,000 units of inventory at the start of October, fair to assume that, that is lower than what you typically have at the start of festive?
Yes. So -- yes, inventory, et cetera, is something that we're slowly considering. I think one important thing that also an issue we looked at is that production will also depend on the number of working days. And unfortunately, November will be a month where you have holidays because of Diwali festival and so on. So that gives us -- that puts a little bit of constraint in terms of the elbow room we have for those 4 or 5 days that we will have to essentially shutdown because of the festival. But other than that, I think we will, for the remaining parts of the days, we will go full honk in terms of our supply chain.
And lastly, just on the model cycle. As you know, there are a lot of media articles talking about Suzuki launching -- Maruti launching 5 to 6 SUVs in the next 3 years. I know the company won't comment on it. But could you directionally comment a little bit about the ASPs? Between FY '15 to '18, we saw 8% CAGR growth in ASP, which was a key driver for your EBIT per unit. But in the last 2 years, your ASPs have been almost flattish. So could you guide a little bit about how do you see the ASPs going from a 3-year time frame?
So ASPs have been rising because we had a considerable mix change, and the SUV segment has been growing in our portfolio and that increased the ASPs across models, which halted because our mix was pretty much constant last year and discounts were very high last year. So that was the reason why ASPs did not increase. This year, we are without diesel, and diesel was almost about 100,000 more than petrol. And so that's impacting the ASPs. Though the discounts, as I have mentioned to you, is about almost INR 8,000 lower than same period previous quarter, yet the ASPs have been lower because of this impact of diesel. And also, I think in the beginning, Shashank-san mentioned that there is some shift towards the hatches and smaller cars. So that also has some impact on the average realization per vehicle.Moving forward, what would be our ASP will largely depend on our new model launches and our mix, the way it will change. And based on that, it will determine whether it will go up and by how much.
Yes. Yes. So my question was that I know Maruti will not share details on model cycle, but you guys would know what you are planning to launch in the next 3 years or so. So looking at that directionally, do you think would you be in a higher single-digit range? Or like we -- the company has been flat on ASP for last 2 years. So just trying to sort of see where in the range will you be.
I think, Binay, let's keep it for the future because these are all interlinked things in terms of ASPs or model launches. And sooner than later, I think you will all know about our plans as and when we release them, and you will get to know. But one thing we can always ensure you, as we mentioned, I have mentioned right at the beginning in my speech that we -- our endeavor is to maximize the interest from all the shareholders and ensure that we -- on all parameters, we try and improve wherever required. But I will not be able to comment on specific numbers at this point in time.
The next question is from Kumar Rakesh from BNP Paribas.
My first question is for Mr. Seth. You have earlier talked about volume being a key margin driver for us. And we used to do 11% to 12% EBIT margin when the quarterly volume used to be around 480,000 to 500,000. Now for the last year or so, our quarterly volume has been around 400,000 units. So to get back to that 11% to 12% EBIT margin, will we need the volume to go back to 480,000 and 500,000, in between those levels? Or we are working on lowering our cost structure to reduce our operating leverage and get that earlier than reaching 480,000?
So operating leverage is one of big factors for margin improvement because your fixed cost, if, let's say, is constant, it's only going -- getting absorbed in the numbers, even if you are able to sell those extra units, it all go on the marginal cost because your fixed cost is constant. So I think that's one big driver. And I've said in the past -- last year, when I commented, I said we are losing about 4% margin on sort of operating leverage. So once that volume comes back, there can be significant play in the market. But there are many other factors that needs to be considered. There are some positive factors and some negative factors. Positive being last year discounts were very high. This year, discounts are much lower than last year. So that's a positive. On the contrary, there is some pressure on the mix. So mix is a bit negative because of change in mix that we have seen, diesel going away, et cetera. The third important factor also is the commodity prices. That hit us very badly this year, especially the precious metals. And just to give you a number, almost 1.2% or 1.3% margin impacted between last year and this year just on account of the commodity prices. And foreign exchange is an additional impact of about 0.5%. So these are some of the factors that will have the adverse impact and there are factors which will have a favorable impact. So when we look at our margins, we work on all these factors. Some are controllable. Some are not controllable. And then accordingly, try and build our margins. Unfortunately, we have not been able to do any price correction for a very long period of time, given the market conditions, et cetera. So at some point in time, when we believe markets have stabilized and there is a scope, that will also help us correct our margins at that point in time.
That's helpful. Sorry for asking the question again on model launches. I'll try asking in a different way and hope to get an answer. Can you guide us on number of refreshes and new nameplates you would be targeting in near to medium term? I'm not looking for specific models, but number of refreshes and new nameplates?
Yes. So let me try to give the same answer in a different way. Actually, we have -- as you know, we have always been very strong as far as product portfolio is concerned. We have always been launching new models every year. Even last year when market was down 18%, we did launch 2 absolutely new models, the S-Presso in September and also the XL6. So going forward also, we have a very aggressive plan for our product portfolio. And you will soon know as soon as we are ready to launch those products.
The next question is from Amyn Pirani from CLSA.
I just wanted to go back to an earlier question which you answered on the other expenses. The INR 150 crores that you mentioned on the sales recovery. I mean even last year, there would have been some number. So is INR 150 crores is a Y-o-Y change? Or is it the absolute number in the other expenses?
This is the Y-o-Y change. The numbers last year was INR 410 crores. And this year, it's INR 560 crores. So this INR 150 crores we have mentioned is the Y-o-Y change, not an absolute number.
Okay. And this number would keep changing in line with volume growth. Is that a correct understanding?
That's right. And therefore, we will -- one will need to regroup the numbers to understand it better in terms of how the overheads have actually moved during the period.
Okay. Okay. That's helpful. And just on the Gujarat capacity. Can you confirm the time line of the third line of 250,000? Is it January of next year? Or is there a change in that? Hello?
Yes. Sorry, on Gujarat capacity, we see -- requirement would all depend on what demand do we have for our products and accordingly, when do we need to actually get to a plant utilization. So it will depend on that. And we will closely keep monitoring the demand and then decide on when do we need to get into the third plant.
Okay. And just to clarify, as of now, only Baleno and Swift come from SMG, right? Or are there any other models?
Yes, as of now...
Yes.
The next question from Ronak Sarda from Systematix Shares.
The first question for Ajay-san. Sir, you called out commodity cost increases as a headwind. Would you be able to help us how much of an impact has come in Q2? And what kind of increase are we seeing over the next 6 months?
We have mentioned to you that on commodities, there has been an impact of about 1.4% or thereabouts between quarter 2 of last year and quarter 2 of this year. So if you add this with the sales numbers, you'll get the value. That's one.And second, we are now seeing the impact on account of other commodities where we could negotiate till now on the old basis, have increased, especially steel, where now all the steelmakers are kind of pitching for some increase on prices. Rhodium has been a trouble making commodity for us all throughout. We've had -- rhodium prices have tripled over the last year, 3x. And that is where we are very concerned because that's giving a large impact. This is largely because most of the mines are now working with very less manpower because of COVID. And therefore, there's a problem of output. But we believe that as and when the situation gets okay, the production gets normalized, the prices will also come back to a reasonable level. So till then, I think, we will have to live with it, and we will have to bear the increase. So we see some more headwind on commodities in the third quarter -- third and fourth quarter, especially because of the reasons I just mentioned, steel and precious metals.
Sure, sure. Okay. Would you like to quantify it? I mean, could it maybe another 1%, 1.5%? Or that would be too much?
Difficult to quantify because it's still under negotiation. Most of these commodities are also negotiated and then we arrive at a final price. So difficult at this point in time to quantify.
Sure. Sure. And the second question for Shashank-san. I mean last quarter, you highlighted how the industry volumes have shifted for top 10 markets. I mean would you be -- would you have the same number for, let's say, Q2? And maybe October is still going on, but are we seeing the top 10 markets coming back? Is the share increasing in that sense?
I can give you some sense of the top 10 cities, if that helps you.
Yes, sure.
So in the top 10 cities, the -- if you look at '19/'20, the industry contribution was 36%. And it was similar in the same period the previous year, which was in '18/'19 as well. But if you are now talking of, let's say, of '20/'21 or, let's say, till September, then it's a little lesser, at around 31.4%.
Okay. But my point was Navratra being a sharp growth, almost 25%, what you have highlighted, is this -- the contribution from top 10 coming back in this? I mean do the numbers reflect or is still stable at around 31%, 32%, and the bottom below 10?
I'll not be able to give you the October numbers because it's still going on. But I would expect around 32%, 33%.
Okay. So it's still more stable and the other markets are contributing. Okay. And sir, last, on the financing side, are we seeing easing of financing for Maruti and overall, I mean, on the industry side as well from what it was, let's say, in the first quarter? So are the financing -- how is the financing behaving?
Yes. So it's like similar. If you look at it in terms of the penetration level, it's 80% this year. September was around also 80%. So it was 80.1% last year. So I think it's also reasonably stable. Now I think the liquidity is much better, and even the interest rates have come down to about 8.4%, I think, for SBI rate -- loan. So I think it's getting better, I would say. However, I -- still I believe it takes a little longer for loans to be disbursed, probably because banks are a bit more careful and doing their checks a little more.
The next question is from Chirag Shah from Edelweiss.
Sir, my first question is more of a housekeeping. So when you refer to deliveries, it is equal to retail, right? So there is no major difference between deliveries and retail sales for you?
Yes. So actually, at the time of delivery, you need to have the registration also in most states to be in place. Therefore, there could be a small lag between retail reported and the delivery.
And sir, secondly, last year, the 76,000 number, how was it last festive? If you can just share some light? Was it flattish or was is a big decline, or was it a growth, the 76,000 number that you indicated of last year?
Last year and the year previous were similar. The previous year was around 74,800. But remember, there is a little bit of difference in the dates, and I'm referring to not the actual dates, but the days of the Navratra period.
Yes, of the festive period.
'18/'19, the Navratra period was from 10th October till 19th October. Last year, it was from 29th September to 8th October whereas this year, it was 17th October to 26th October.
Sir, it's a slightly longer-term question. So we are seeing probably for the first time a sharp jump for the entry-level category, and you have explained it very well, the reason for that. Because never in the past we have seen that the entry-level shares jumped over the -- versus the previous year. Now is it a temporary phenomena? Or this could be a new normal, should the income level start reviving? And how much time do you think it will take? It's a 3, 6 months phenomena? Or it could take slightly longer based on your assessment?
So actually, we are not so sure because it all depends, I suppose, on the COVID situation. You are right. Over the last -- if you take a long-term past, then, of course, there has been a decline in the hatches -- hatch segment and it's been coming down. However, actually, if you look at Q2 of this year as well as for this whole financial year, it has gone up. And I suppose it's got to do with that shift towards more functionality buying that I referred to at the earlier part of this session. As also the telescoping of demand, which some of you have rightly pointed out.
What would change it? Is it -- because ultimately, replacement buyer has to come back to the market, right, for this dynamic to change?
Which buyer will come back to the market?
The replacement customer has to come back or even the first-time buyers are in a sense down-trading because in the past, even the first-time buyers were looking to upgrade rather than just buy the base version of a car. Is it more of an income issue? Is it more of a sentimental issue? How do you look at it? And in your best estimate, when things could actually turn for the industry?
Yes. So I think it's a mix of both. People are expecting lower income levels. There is also a stress on businesses. So I suppose the choice of moving downwards is reflected in that buying. As also psychologically, I think consumers are now looking at avoiding public transport and shared mobility, and hence, the demand for personal mobility. That is one. As regards when it would come back to replacement? Now replacement buying, you are right, has come down. But remember, the first-time buyer has more or less been -- has been remarkably constant in the industry for the last 20 years. In fact, I've been observing that range of 44% to 47%, 48% of first-time buyers has been there probably because of our demographics. So I think long term, you will still have that large percentage of first-time buyer. Yes, there seems to be a difference between the -- I mean the switch between replacement buying and additional car buying. Right now, the additional car buying has increased, whereas replacement car buying has reduced. But if you look at the long-term trend, I think the replacement buying should also come back.
Sir, and the first-time buyer is basically a person who doesn't have any car in his name, right? It may be there in their family? Maybe say, in somebody else's name in the family, but in his name, it is the first car. That is what we define as first-time buyer?
It is an industry standard of definition. It is not Maruti's standard. The percentages which I'm referring to is first car in the household.
In the household? Yes. And just a follow-up for Ajay-san, sir. Sir, would it directionally be correct that higher the product profiling, the upgrading, better the margin profiling also? Not in terms of percentage, the more Brezzas you sell versus more Altos you sell, the margin profiling will also be different, for Brezzas would be a higher-margin profile versus Altos? Directionally, would it be a right statement?
We have -- I think we have been answering this question in virtually every con call that the margin profiling of all products will vary depending on how you position them in the market. Sometimes the smaller model can give you better margins, sometimes the bigger model can give you better margins. It all depends on how you've been able to position and how over a period the model, cost out has happened on a model, and what is the discount profile on a model. So all these factors will determine what the margins are on each model. And we work on a basis of blended margin every month. And that determines how our margin trajectory is moving. And the impact of mix is depending on the little shift here and there, depending on -- it's not only just the product. It also depends on the variant that you sell. So there are a variety of factors, it's just not one, which will depend -- which will derive the margin trajectory. And what -- for us, what's very important is that on the blended basis, it should kind of be as per our expectations. The only big change that has happened is that we have moved out of diesel last year. And to that extent, there will be an impact on the mix because of the shift from diesel to petrol now.
Yes. Sir, just one clarify on the discount. You said it's INR 17,000, right, broadly, around -- for the quarter?
INR 17,300 for the quarter compared to about INR 25,000 last year, so there is a difference of...
And directionally, can it go down further given that demand momentum is strong at least in the near term? Can it go down further for us?
Can we give the chance to more analysts, please? You had a good share of questions.
The next question is from Sonal Gupta from UBS.
Sir, could you tell us, one, what was the Q2 retail number? And also just -- I mean like the discussion that we are having on first-time buyer share increasing and replacement sort of going down, I understand that, that might be holding true for Maruti. But if you look at the first half data for the industry, we are actually seeing a share increase especially from like mid-size hatchback -- I mean like SUVs, et cetera. So I mean would it be correct to say that, at an industry level, the replacement share is going down? I mean how would you look at that?
Yes. For the first part of your question, for Maruti Suzuki, quarter 2 retails were about 320,000 against last year of 308,000. So there was an up of about 4%. As regards the your question about the SUV percentage going up. It's true, SUVs have gone up. But it's also because some of the new models have been introduced in the industry in this -- and the industry is also quite sensitive to the new model introduction. SUV, by the way, the trend has been for the last few years going up. In fact, it was just about 12%, about 5, 6 years back. It's about 26% last year and about 30% this year. As regards the type of buyer, which you asked -- the first time buying in the SUV segment has actually increased. About 5 years back or 4 years back, according to the NCBS data, first-time buyer in SUVs were 12%; additional car buying was 60%, it had gone up to 28% last year; and additional buying had come down to 42%. So that is the -- if you look at it the other way, for SUVs, among the first-time buyers, 7% in 2015/'14 used to buy SUVs, among the first-time buyers. That has increased to 13% -- that has increased to 14% last year. So there seems to be a traction for first-time buyer also to go into, especially, the entry SUVs.
Yes, yes. And sir, just the other question was on -- I mean like on the used car side, like -- I mean just wanted to get your broad thoughts on, not from a COVID perspective or something, but at a -- do you think that, in a way, used cars would be competing with the entry-level segment? Or I mean like how do you look at used car in terms of the buyer profile versus, say, the entry-level buyer profile?
Yes. So I would like to clarify straight away because I think your earlier question also had a hint of that understanding, which is, this is not about evaporation of demand when we call -- when we say that the demand is moving downwards, doesn't mean evaporation of demand in any segment. It could actually -- it is just, what we mention in marketing terms, telescoping of demand, which means, for example, somebody was buying, let's say, a large sedan, let's say, a Mercedes may go down to a Audi, an Audi guy may buy, let's say, a Camry, a Camry guy may buy a Ciaz, a Ciaz guy may buy a Dzire, and so on and so forth downwards. So it doesn't really mean that any segment has evaporated. It's just that the demand shifts from the upper segment to the next lower segment. That observation is actually what pertains to the next question, which you asked, which is regarding the pre-owned cars competing with the entry-level car. So surely, there would be customers in the entry-level cars who might be considering a lower or more value car in terms of the pre-owned car. So similarly, pre-owned car guys might be considering a 2-wheeler, for example. So I think that is how the demand would shift downwards in the current scenario. On long-term, apart from the pandemic that you mentioned that it's not -- your -- this question is not with reference to the pandemic, specifically. Yes, the pre-owned car demand actually has been about 1.4, 1.5x the new car demand. And that, I suppose, will continue in the future as well.
The next question is from Satyam Thakur from Crédit Suisse.
Sir, I had 2 questions. Just to get a status update on the 2 new schemes that you had launched some time back. Firstly on the financing. You had come out with this Buy Now Pay Later kind of schemes. And you mentioned in your opening remarks that this year, the current strength in sales also is driven by one of the factors being innovative financing schemes. So can you share what kind of offtake or adoption we have taken for this financing scheme? And also, can you just reconfirm that are we doing any subvention in the scheme? Or partaking any of the risk attached to this kind of a scheme?
So I think from time to time, we have been floating schemes to ensure that we get good quality credit customers who may, because of the strict norms of either the banks or the NBFCs, do not qualify by a small margin. And therefore, we've been getting into those schemes with some of the banks. And we've been pushing that because we've had a very good business with all of them, and our NPAs virtually have negligible as far as these banks and NBFCs have been concerned. So that's one part where we've worked very closely with all the banks and NBFCs. The second is that some of these schemes, like the ballooning scheme, as you mentioned, is very apt in the current context, where we have seen that people have cash flow problems now. And they would -- it will be much easier as things improve that they will be able to pay their EMI at a later date. So they're very comfortable with these kind of schemes, and that also helps us promote our business much more by promoting these kind of schemes. There have been a few schemes where we have virtually given very -- we have taken a very small share of risk, but that's almost negligible where we said that a very small portion of risk that we will take but I think that's also mitigated with the schemes that we run on the sales promotion side. So in fact, if you ask me, there is no impact in terms of any subvention being given to the banks or the NBFCs. And these schemes are more to promote our business in a much bigger way moving forward.
Sir, any rough sense you can share of how much of your finance sales is happening on these new schemes that you launched at the beginning of this fiscal?
Actually, no, because we have schemes of different regions for different models for different type of customers. All we know is that these schemes have added a good 5% or 6% to our total volumes as far as finance is concerned. Also, I must tell you, the schemes is not just about a step-up or a balloon type of scheme. It's also about, for example, doing the financing of on-road price rather than the ex-showroom price as earlier many banks were doing. So that was the feedback we got from consumers. And we are very happy that after our discussions with the bank and with our CFO, we have been able to get some really good schemes going with the banks. And we are looking forward to getting more volumes from these schemes.
Okay. And second question was on the leasing plans that you have announced for cars in many of the bigger metros now. So what kind of again offtake we are taking for that? Like in the cities in which you have these monthly payment plans on which people can get these cars on the lease, there how much of our sales now is happening under this kind of a plan, a ballpark? If you could share something on that. And again, lastly, how is this -- how is the accounting treatment of this, just to confirm that? So for you, it remains an outright sale and the leasing partner again bears all the risk. Is that a safe assumption?
Yes. That is true. This is basically a subscription scheme that you are referring to. As you know, subscription schemes are of 2 types. One is a white plate type and another is the black plate type. So in -- when we launched this scheme, we did it as a pilot in 2 cities, Bangalore and Gurgaon. And then we did -- which was a white plate. And black plate, we launched in Hyderabad and Pune. Now we have extended it to -- across the other cities. We're just about to. So I think at the moment, it's just a couple of cities where we have actually launched the scheme for a very short time so far. It's in a pilot stage actually. And now we'll be expanding to the other regions. As the next step, we will be doing it in 20 other cities [Audio Gap] forward.The response has been pretty good. We have had a huge number of inquiries. I think today morning, I was looking at the figure of about 1,000 plus. And we are in the process of conversion because it takes a little bit of time to do the documentation and then convert it to sales. And you are right, this sale will be directly to the leasing company, and that risk is not borne by us.
Okay. That's great. So if I can just try one more question. So on the future products on the electrification side, hybrids and EVs, there -- will the arrangement remain the same that Suzuki basically gets the technology from Toyota, and then they -- and you get the platform or the model directly from Suzuki and you just pay the royalty. And therefore, it will remain the same kind of a royalty deal that we have with Suzuki right now, so even the future models will come on the same royalty formula? Or will these need a new separate royalty agreement with Suzuki for themselves?
We have an overall understanding on royalty. And within that, whatever new agreements will be signed will be within the overall new understanding for new models. That is one. Second is there are EV and hybrid and strong hybrids and plug-in hybrids, it's a very dynamic field where technology, viability, customer segment, taxation and government policy, almost the whole context is changing all the time. So we are studying the context very carefully. And we want to launch products, whenever we do, that should be successful and should get good volumes and customer pull.So there will be several combinations. It could be from Suzuki, as you said, sometimes from outside technology also. So as and when the situation evolves, and we are in a position to -- we are closer to launching a model, we'll inform.
Well, ladies and gentlemen, that was the last question for today. On behalf of Maruti Suzuki India Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.