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Maruti Suzuki India Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Maruti Suzuki India Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Pranav Ambaprasad from Maruti Suzuki India Limited. Thank you, and over to you, sir.
Thank you, Vikram. Ladies and gentlemen, good afternoon, once again. May I introduce you to the management team from Maruti Suzuki. Today, we have with us our CFO, Mr. Ajay Seth; from Marketing and Sales, we have Member, Executive Board, Mr. R. S. Kalsi; Executive Director, Marketing and Sales, Mr. Shashank Srivastava; from Corporate -- Executive Director, Corporate Finance, Government Affairs, Mr. Rahul Bharti; Senior Adviser, Corporate Planning, Mr. K. Kasahara; and General Manager, Corporate Strategy and Investor Relations, Ms. Nikhil Vyas; from Finance, we have Executive Director, Mr. Pradeep Garg; and Executive Vice President, Mr. Sanjay Mathur.The con call will begin with a brief statement on the performance and outlook of our business by Mr. Seth, after which, we'll be happy to receive your questions.May I remind you of the safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces.I also like to inform you that the call is being recorded, and a transcript will be available at our website. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Thanks, Pranav, and good afternoon, ladies and gentlemen. I hope you and your families are healthy and safe.Let us start with some of recent business highlights and milestones. The most notable aspect this year was the core growth in exports. Export sales were the highest ever in the company's history and the figures for the first half this year exceeds the full year sales of last year.We rolled out Maruti Suzuki Smart Finance across India, an industry-first initiative. It now covers diverse customer profiles. During the quarter, over 1 lakh loans have been disbursed to customers using this platform. This is a testimony of customer acceptance.With focus to improve customer convenience and experience, Maruti Suzuki rolled out S-Assist, an industry-first AI-based 24/7 virtual car assistant app. The app is powered by Xane.AI, a start-up under the company's MAIL initiative to nurture innovation.We extended advanced intelligent telematic technology, Suzuki Connect, for the vehicles in the ARENA channel also. Suzuki Connect offers connected car experience to Maruti Suzuki car owners. The company launched Kam Se Kaam Banega, a campaign to celebrate 3 decades of leadership in offering country's most fuel-efficient cars. Maruti Suzuki, over the last -- over the years has offered country's most fuel-efficient cars across all segments.Working in close partnership with parent company Suzuki Motor Corporation, Japan, Maruti Suzuki is committed to more environmentally friendly products.On the employee front, we are happy to share that many employee families have started living at the newly constructed housing project. Over 180 of the 350 flats were offered for possession. 151 flats of these have already been occupied.The company organized multiple vaccine camps for employees and family members. We are confident that by the end of this month, we will be covering 100% of the workforce. Besides, the company is also facilitating the value chain partners and business associates in this regard. The company will continue to observe all COVID-19 SOPs and precautions, be sensitive to the human and social element, build an environment of positivity and keep working hard as is fit in these difficult times.Coming to the business performance, Q2 financial year '21-'22 was a challenging quarter because of unprecedented global supply crisis of electronic components. As a result, the company witnessed a significant disruption in its production operations. An estimated 116,000 vehicles could not be produced, owing to electronic component shortage, mostly corresponding to the domestic models.Coming to the demand environment, post the disruptions caused by second wave of COVID in quarter 1 financial year '21-'22, the demand started to recover. The inquiry bookings and retails in quarter 2 of this financial year has shown an improvement. However, lack of vehicles because of electronic component shortage has impacted the whole ecosystem, and hence, the wholesale volumes are down. The company had more than 200,000 pending customer orders at the end of the quarter for which the company is making all efforts to expedite deliveries.In quarter 2 financial year '21-'22, sales in rural markets improved in comparison to the other markets. As a result, the penetration of overall sales in the rural market increased to over 43% in quarter 2 of this year. The customer acceptance towards CNG vehicles have increased and in this quarter, the penetration of sales from CNG vehicles in overall sales stands at 17.8%, up from 11.2% in the same period previous year.The quarter was also marked by an unprecedented increase in the price of commodities like steel, aluminum and precious metals within a span of 1 year. The company made maximum efforts to absorb input cost increases, offsetting them through cost reduction and pass on minimum impact to customer by way of car price increase.The company sold a total of 379,541 units during the quarter, constrained by a global shortage of electronic components. Share in the domestic market stood at 320,133 units. Exports were at 59,408 units, the highest ever in any quarter.During the same period previous year, the company clocked a total sales of 393,130 units, including 370,619 units in domestic market and 22,511 units in the export markets. During the quarter, the company registered net sales of INR 192,978 million compared to net sales of INR 176,893 million in quarter 2 of previous financial year. The net profit came down to INR 4,753 million in this quarter compared to that of INR 13,716 million in the same quarter previous year.Coming to the highlights for the first half. The company sold a total of 733,155 units during this period. Sales in domestic market stood at 628,228 units. Exports in this half year were at 104,927 units. During the same period previous year, the company clocked a total sales of 469,729 units, including 437,646 units in domestic market and 37 -- 32,083 units in the export market.During the period of first half of this year, the company registered net sales of INR 360,965 million compared to net sales of INR 213,668 million in previous year first half.The sales of financial year 2021 were affected due to COVID-related disruptions. The company made a net profit of INR 9,161 million in first half of this financial year compared to that of INR 11,222 million in the first half of 2020-'21.Having given you a brief on the financials and the overall company strategy, we are now ready to take any questions, feedback and any other observations that you may have. Thank you.
[Operator Instructions] We have our first question from the line of Pramod Kumar from UBS.
A couple of questions relating to the P&L basically. If you can help us understand what has been the hit to the P&L from the Gujarat arrangement wherein we kind of compensate them for the fixed cost as well and if production volumes have taken a knock and there is a new capacity that were added there. How much has been the excess burden Maruti is carrying at this point of time, which is purely because of the Gujarat arrangement? If you can just help us understand. And how do you see that kind of reversing out as the production ramps up?
So there are -- the impact on account of Gujarat is on 2 accounts. One is the new -- it's basically the new plan, which has come up and was capitalized in April. So there's an impact of depreciation that's being charged on that plant. And the second is also the fixed cost that's to be incurred on that plant. Obviously, because of chip shortage, the utilization has not been to what we had expected. And therefore, the fixed costs that we are carrying on these 2 accounts, which is depreciation, where the run rate of the new plant depreciation will be about INR 500 crores a year. So you can divide it to take a quarterly figure.And the fixed cost, I don't have a fixed cost number right away with me, but there will be a moderate amount of fixed costs also, which is being incurred there. So these 2 impacts are the ones that we'll negate once the volumes pick up.
And sir, one -- just to clarify, this -- both these expense lines will be sitting for you at the operational level, right, in terms of the EBITDA or the depreciation ideally should be billed back to you, right, in terms of cost of the cost? So how does the depreciation accounting work here? Does it come above EBITDA or below EBITDA?
So depreciation is part of our -- so the depreciation comes under the other expenses that you see because the way accounting of that is all of the cost, which is material and overheads, they are part of material cost, but depreciation is treated as lease expenses, which is part of other expenses, as you see in the statement format. And we club it under manufacturing and other expenses in our overall report.
And sir, second question pertains to demand and in that context, where would you put your dealer inventory? Because I'm assuming that dealer inventory should be next to nothing. I just want to confirm that. And the order backlog of 200,000 plus, when do you see that kind of getting kind of fulfilled? In a way, I'm also trying to get at so how do you see the production for the second half of this year in terms of business, what happened or what went wrong in the September quarter?
So we fortunately have our Senior Executive Director, Mr. Shashank Srivastava in the question to answer this.
Yes. So the current dealer inventory is roughly around 60,000 cars, including our commercial vehicles. So -- and of course, it's expected with effective retail going up, it would probably come down a little bit from there.As regards the second half, it's a little uncertain from the supply side perspective. And therefore, it's -- we are unable to give you an exact number of what the production or the sale would be in the second half. Yes, you are right. We have more than 250,000 bookings pending. But because of uncertainties in terms of supply, it's difficult to predict both the production as well as the exact figures.
And Shashank, related to that, will it have further delay in our launch pipeline because we kind of, thanks to COVID and other developments, we've been running behind on our product launch pipeline. So I'm just trying to understand, it was already a busy launch pipeline what you were supposed to initiate. So how should one look at the launch pipeline from here on? Because beyond the point...
One of the strong points of Maruti Suzuki has been launching new products, which are the -- as per the requirement of the consumer. And that is what we intend to do in the future as well. These launches are actually planned 3 to 4 years in advance. So it's unlikely that the needles regarding that will move based on short-term supply situation. Having said that, yes, we have a very strong launch plan in the next few months.
We have next question from the line of Kapil Singh from Nomura.
I was just trying to understand the improvement in realization per vehicle that you are seeing. Could you give us an indication whether there were a much higher mix of spare part sales or any broader benefits that we may have got this quarter compared to 1Q?
Can you just repeat the question, please? I was a bit distracted. So...
No worry, sir. Basically, I was looking at the realization per vehicle, which has seen a pretty sharp increase. So I was just trying to understand whether the spare part mix per -- as a percentage of revenue has gone up in 2Q, which may also be a factor and whether there was any RoDTEP benefit that came in for the second quarter?
So are you comparing the quarter 2 of last year with this quarter? Or are you comparing sequentially?
Sequentially from 1Q to 2Q.
Sequentially from 1Q to 2Q, the increase is not much. It's a small increase. But I think it gets a bit camouflaged when you look at it now with the spare part sales. Because last year, we had a significant impact on the spare part sales, which was down. So if you add that, then the impact is much bigger in terms of realization.But I had these numbers here. So Q1 domestic sales average realization was INR 427,000 and now in Q2 this year, we have an average realization of INR 431,000. It's moved up by about INR 4,000, which is also in line with net of discounts, et cetera, in line with whatever price increase would have happened or any change in the mix that would have happened.
Got it. And sir, on the -- was there any RoDTEP benefit also for the quarter?
Yes, there was. There was.
But will it be possible to quantify?
It's not a very significant amount. There's a RoDTEP benefit that we have bought. And in terms of quantum, I think it will be not very significant.
Okay, sir. Also, second question was relating to just on the technology front, if you can throw some light on, how do we think of salience of hybrid in India given the current regulatory environment? And I mean, will there be a relevant technology over next 2, 3 years? Or do we need more support from the government side for hybrids to be relevant. Just some thoughts on that would be helpful.
So short answer is yes to both. There is some recognition from the government already. There is some preferential rate in the GST and some fame benefit to strong hybrids and plug-in hybrids. But we need more.And your other question, will it be a meaningful mainstream kind of option for the country? Yes, we believe so. In the next 5 to 10 years, at least, it will be a very potent option for reducing CO2. A hybrid does 40% of the job of an electric, and it is scalable as it does not need a charging infrastructure.
Okay. So -- because...
But we need more benefits from the government.
Yes. My question was more from a cost perspective, whether it will be viable for the customer to go for hybrids at current incentive level.
See, there is a cost to all options, which reduce CO2 drastically. So even EVs have a cost. It's only a question of relative cost. So most manufacturers will adopt parts which suit their context, their business segments, their customer segments. So each manufacturer will have his own strategy. And there will be some cost hurdle, too, for all -- for any of the options that you consider.
Got it. And lastly, sir, do you expect that cost pressures are fully through? Or should we expect more cost pressures in the coming quarter?
So see, there are 2 parts to it, Kapil. One year is, of course, it depends on how the volumes now pan out because we've been affected on operating leverage because of volumes. So if volumes improve, then definitely, we will have the benefit.We have seen some softening of precious metals in Q2. But since we get it with a lag effect, so we're hopeful that in quarter 3, we will see some softening case of the precious metals if they don't, again, start moving up. So whatever action we can take in terms of hedging, we will take it.Unfortunately, aluminum and steel doesn't look good at this point in time. We were hoping that, that will also soften, but it looks like -- given the China issue, it looks like the prices will either be here or may rise again for steel and aluminum. So we'll have to keep a watch on these things.We continue to make our own efforts in terms of what we can do with other mitigation plans and cost reduction plans. So those efforts are on. But 2 important things for us would be watch the commodity prices moving forward and also watch the volume.The other thing that I would like to also mention is that we did a price increase in September. That price increase was done around the first week or around the 10th of September. So that will be fully absorbed in the third quarter because that impact wouldn't have been visible in the second quarter. So that impact will be fully seen in the third quarter as well. So that will also help.
We have next question from the line of Gunjan Prithyani from Bank of America.
Two questions from my side. Firstly, on the follow-up on this margin. Can you give us more color on what is the impact of commodity on a sequential basis? Because Gujarat was part of quarter 1 cost as well. So incrementally, it's essentially a commodity hit.And also, you called out this increase in ad and promotional spends in this quarter. What does this pertain to, given we really don't have launches and discounts are very low in the market?
So effectively, the significant impact has been on commodities. As we mentioned that our material cost to net sales ratio has moved up by about 6.4%. Now that is a huge impact in spite of the small price increase that we have taken and also the cost reduction measures that we've taken during the period. So the impact of -- so you can imagine that the impact of commodities is much more than the 6.4% increase that you see. This is after netting off all the other measures that the company has taken.The quarter 2 impact is also maximum because the precious metal prices were at its peak in quarter 1, and we always get a lag effect from these commodity costs. So therefore, I mentioned that given the current trend of precious metal costs, quarter 3 or moving forward looks better if there was not to be an increase in this.So we will have to keep watching in terms of where the market moves in commodity, but we'll also have to accordingly decide what other steps the company needs to take if commodities either remain here or go up in terms of corrective measures that are required to be taken.
And there are no one-offs of ad and promotional spends that you've mentioned in the presentation? Is this a recurring increase in the other expenses?
So in other expenses, if you see, there's a bit of a grouping issue. There is -- there are some expenses that you see going up because correspondingly, the recoveries are effective in the operating income. So operating income is up by about INR 270 crores, and the expenses are up by about INR 230 crores or INR 240 crores. So it's a grouping issue, some expenses have been -- which have been recovered have been grouped in operating income, and expenses as incurred have been shown in other expenses.
Okay. So these are the freight-related typically which get captured? Okay.
So it would be development expenses, rate-related, these kind of things.
Okay. The second question I have is on the whole emission or CO2 norms, which you briefly touched upon. Now if you can talk a bit on the CAFE-2 norms and the RD norms, which are more imminent in the next 2 years, in terms of the -- any clarity on the cost impact or our approach to comply with the same.And more importantly, if I directionally look at the emission corridor, it is bound to turn more stringent in the next phase as well, whether it's in F '27. So how are we thinking on our product, be it electric hybrid? I mean, how should we think about the change in powertrain over the next 3 to 5 years with these emission norm changes and also given the fuel prices have been rising? So some thoughts on this will help us from next 3- to 5-year perspective.
Okay. On the fuel price increase, how is the market responding? I'll request our Head of Marketing and Sales, Mr. Shashank, to respond. On the other 2 questions, I'll take.See, there are 2 broad regulations which are coming up. One is the CAFE Phase 2. And the second is BS-VI Phase 2. BS-VI Phase 2 involves a clause on real driving emissions because of which we think there will be an impact mostly on diesel powertrain cost to comply with that. So on CAFE, also different manufacturers will have different strategies of meeting it because there are so many options of reducing your CO2 output.Maruti is positioned the best in terms because we have the least CO2 emission as a portfolio. And since it is just around the corner, we are expecting it from 1st of April '22, we have to meet the norms. And in terms of the powertrain options that you -- that you talked about, so while there are some EV launches, but the volumes are quite minuscule, and they don't add meaningfully to the CO2 reduction. So we need some technology which addresses the mainstream.For example, natural gas, it does a 25% CO2 reduction and is scalable across India, and the government also wants it. That is why we are -- it's clean. There is no particulate matter. It's friendly. Customers in the market seems to absorb it well. So that is why we are pitching on natural gas.Hybrid electric vehicles are also very good because they don't need charging infrastructure to scale up. They have some cost impact, but it is lesser than that of EVs. And similarly, they have about a 40% CO2 benefit.So this churn will happen in most car companies in the next 5 to 10 years, and we have to work with options, which are best for the customer and which is -- which gives us good cost efficiency also.So on prices, may I request Shashank to kindly...
What was the question?
Market impact because of increasing fuel prices.
Yes. So directionally, of course, increased fuel prices increase the cost of running, and that's a negative as far as demand is concerned. However, what we have found is that the demand for the CNG vehicles have increased dramatically, possibly because of 2 reasons.One is this increased gap between the CNG fuel price and the gasoline diesel price, which means that the cost of running for CNG, roughly around INR 1.61, INR 1.70 per kilometer against the INR 5 per kilometer for a diesel or a petrol. So that is one reason why it has gone up.And the second reason is, of course, because the CNG infrastructure is dramatically spread, thanks to support from the government. Now we are covering almost 250 cities with 3,800-odd stations as against just 3, 4 years back of about 1,400 stations covering 150 cities.So those -- directionally, I think that will continue. And as Rahul explained, going forward, the mix of hybrid and CNG is going to help Maruti very well as regards to that.
This is very helpful. Just if you can share the discount and royalty number, and I'll join back the queue.
The royalty for the quarter was at 3.5%. And in terms of quality, value, it was at INR 670 crores. And discounts in this quarter were at INR 18,567. It was up compared to the first quarter of this year. First quarter was at INR 13,911. And in the same period last year, our discounts were at INR 17,310. So discount was slightly up compared to the first quarter -- compared to last year and about INR 5,000 higher compared to the first quarter.
That must be due to higher retail, I'm guessing?
That's right. That's right.
We have next question from the line of Pramod Amthe from Incred Capital.
A couple of questions. One is you have seen a very strong export traction. Is there any geography mix change compared to traditionally used to export because new products are added up?
So we've got some very good response in exports. We more than doubled our volumes. The biggest gainer was Africa. So 1/2 of the volume is from Africa, and 1/3 of the volume is coming from South Africa alone in Q2. And this is partially because of the Jimny and partially because of increased distribution network there, thanks to our global partner, Toyota's network. And we think -- the best part is we think it is sustainable.The other markets have also done well. There's a global recovery also from COVID. So that macro tailwind also helped us. And geographies like Latin America were also good, Chile, Bolivia, Colombia, not -- countries like Egypt, they have performed well.
And do you see more products joining in a similar queue with this success, which you are seeing with Jimny in the next 3-year, 5-year plan?
Let's keep the excitement.
Okay. And the second question is with regard to demand. Considering the fact that we are seeing unprecedented price hikes forecast, so how are you looking at customer behavior? Do you -- are you seeing any bookings being canceled or customers downgrading the same? Or what are the solutions you are planning to offer so that they will continue to remain in your basket?
So if you look at the increase in prices, you're right, there has been an increase overall in the industry and from Maruti Suzuki as well. As you know, we have had 3 price hikes this year.The demand seems to be stable. In fact, if you look at the average inquiry or the booking levels have actually gone up. And I think that's got something to do with the changed consumer preference for personal mobility against shared mobility or public transport.What are we going to do about it? And have we seen any changes segment-wise? We do see, segment-wise, changes, but it may not entirely be related to cost of acquisition. The entry hatches have gone down a little bit. They're now about 10% of the market as against 11% 2 years back. SUVs have gone up, especially the entry SUV and the mid SUV. There seems to be a preference, not just based on the economics or the cost of acquisition, but also on the design preference. And that's what we see.Going forward also, we predict a similar sort of movement in the SUV sector. And yes, we are watching that space very carefully. That's one of the spots, which we shall look at very carefully going forward.
We have next question from the line of Raghunandhan from Emkay Global.
To Shashank, on order bookings, can you speak about customer segments the demand is robust, and which segments where demand is relatively on the weaker side?
Yes. So I just mentioned, if you look out at the overall industry level, entry SUV, mid-SUV, the MPVs, they have gone up. The sedans have come down a little bit. Premium hatches have gone up. Entry hatches have come down just a little bit. So that is overall.If you're talking of Maruti Suzuki, we have seen very strong vehicles, not just in terms of the segment, but also in terms of the fuel type. CNG vehicles have -- and I mentioned it a little while earlier as well. There, the demand surge seems to have been huge. And we also continue to have waiting periods actually across the segments. And that's because, as you know, we have had a little bit of erratic production because of the semiconductor issue.
But I was referring to, like, in terms of the salary class, business community or the first time replacement? And, like, the -- recently, the IT sector has been doing very well. So if you can provide any color as to which types of customers are -- like, where you are seeing the better mix or demand share in order bookings.
So if you look at -- if you divide those segments, of course, the 1 -- the earlier answer pertain to the type of vehicle segment. I think now you're also asking about demographic or the type of buying itself.So the first-time buyer have remained pretty steady for -- it's roughly around 40%, 45%, 46%. That has been and -- the replacement buying, which was earlier 26% a couple of years back has come down to about 19.6%, but it's slightly up over last year. The initial car buying has gone up from about 30% in 2019-'20 to about 35.2% in this year. So this is by the buyer type.If you want, of course, we have many other types. I'm not sure whether we can go through the entire list, but the average age has come down a little bit. It used to be about 40, 40.3 for Maruti Suzuki vehicles. About 38.5 now. Average MSI actually has gone up a little bit. And if you are talking about those salaried, business, self-employed type of consumers, we have seen a drop as far as the salaried consumers are concerned over last year.Last year, it had gone up suddenly from 43% in '19-'20 to 49%. In '20-'21 it had dropped back to that 42%, 43% level. And the business class customers have actually gone down from about 33% in 2019-'20 to about 29% now. So that is roughly the breakup, if you want, in terms of the occupation. I am sure you would like to know about the -- the gender percentage also, it has remained steady.
That makes a ton of sense. My second question was to expense you take. Sir, in first half, the CapEx is around 15 billion. Will the full year CapEx be lower than the earlier expectation?
So the CapEx will be what we had mentioned earlier, which is INR 4,500 crores. But on top of that, we've also put in an additional amount of about INR 2,200 crores, which could be possibly on any further expansion of land that we are contemplating. So there will -- there could possibly be a total expense of about INR 6,700 crores for the year. And the expense, CapEx is going as per our plan at the moment.
Okay. So if I understand correctly, for full year FY '22, INR 6,700 crores. Of that, only INR 1,500 crore has been spent in the first half.
That's right. That's right, which is what was planned in terms of cash flow, and that's been done in the first half. In the second half, we have a plan of spending the balance of it.
This is very helpful. If you can just share data points from Gujarat production, exports and spares, that will be helpful.
So exports. In Q1, the realization was INR 2,900 crores -- sorry, in Q2. And in H1, it was about INR 5,188 crores. And export...
He was talking about Gujarat production...
Gujarat production...
It is INR 120,000 crores.
Yes. Could you also give the number for Q1?
INR 96,000.
INR 96,000 in quarter 1, and INR 120,000 in quarter 2.
And would you have the spares number? As you said, realization between Q1, Q2, partly the reason is spares. Is that -- like, the increase?
We'll give you the figure after sometime.
We have next question from the line of Amyn Pirani from JPMorgan.
First question is more of a clarification. You mentioned royalty of 3.5%. Does this include the royalty for the Gujarat production? Or is it just what you, Maruti Suzuki, is producing?
So when I talk about royalty, it is a combination of both MSI and Gujarat.
Okay. Okay. Because this number has come down quite drastically from 4Q of last year. Even last quarter, it was lower. And so has there been any significant changes in any of the agreements with Suzuki? Or is that a mix issue? Or can you help us understand?
We have been telling you for quite some time that as the models move into the rupee formula and -- with the discounts that are applicable on completion of certain volumes, the royalty rates will come down, and they have been progressively coming down.Now all of our models have moved into the rupee formula. And also, many of them are now -- and there's a discount formula because they have done more than the desired number for gaining a lower rate. And hence, the combination of the 2, the resultant royalty is now lower than 4%. So it hovers around 3.5% to 4%, depending on the mix and depending on the model.
Okay. Okay. And whenever new models come in, then obviously, they will still be on rupee formula, but they will not get a discount benefit whenever -- as and when they were bought.
When we complete certain volumes, we will start getting discounts from them.
Which is why we are below 4%.
Sorry, Rahul, I missed that.
Which is why we are saying, below 4%, broadly 3.5% to 4%.
Understood. Understood. That's helpful. Second question was, again, some clarification on the Toyota collaboration. So the exports, you've mentioned that there is some benefit from the Toyota dealership network. So is this being sold under Toyota branding in South Africa, like, you are giving the Baleno and the Brezza to Toyota here? Is it the same thing that is happening? Or is it on the Suzuki brand?
So basically, it's the channel there which is a major advantage in geographies like Africa, particularly South Africa. So the major benefit is of the distribution network. Plus there's a global recovery also that has happened in many parts of the world. So that has also helped.
Okay. And regarding the India bit of the...
Suzuki Jimny also. That has also...
Yes, of course. And just on the -- just one last thing on the Toyota partnership. So based on what we know, and please correct me if I'm wrong, you are currently giving Baleno and Brezza, and you will be giving Ertiga and Ciaz, more the sedan, in the future. And Toyota will be making SUV or NPV in their India plant and giving to you. Is that understanding correct?
So what we can confirm to you right now is the current, which you mentioned about Baleno and the Brezza. And whenever any -- a new project comes about, we will inform you.
We have next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
My first question pertains to the semiconductor shortage. I mean today's media article suggests that semiconductor stoppage is now getting addressed at Maruti level. So can you confirm that? Or are we still seeing continued challenges like we saw in September and October?
So as we informed the stock exchange for September, we said the production will be down 60% from plan. And also for October, it got better, we announced at the beginning that it would be around 40% down. So I think it's getting better. And as we discussed earlier in the day, there would be -- probably November will be better than October.However, the dynamic is still unclear because it's a global issue. And there are a lot of -- there's a whole lot of supply chain involved in this globally. So I think forward projection of when it will become normal is a little difficult to state at this moment.
Right. And regarding the CNG being very strong, but expect an increase in CNG prices due to regulatory changes. Do you expect softening coming in -- the softening in demand on CNG because of the price increases? Or given that gap will still be better, CNG should do better?
Yes. So I think the gap still exists hugely. There's a huge gap. We have petrol diesel roughly around INR 105 to INR 110 range in most of the states. CNG is still in that broad range of about INR 48 to INR 57. So there is still a big gap. The efficiencies for CNG is also much better. So I think the cost of running around INR 1.70 per kilometer is substantially lower than the INR 5 per kilometer that you get for diesel and petrol. So I think that gap is likely to continue, and that means that there would be a positive trend towards CNG even going forward.
Okay. Okay. And last question to state. With respect to the commodity cost inflation, so in this quarter vis-a-vis first quarter, impact would be very small, right? I mean, about 100, 150 basis points. Or it's higher than that?
It will be higher than that because there has been an impact compared to the first quarter. It will not be as steep as it was in the first quarter, but it is -- it will be...
2.25.
It will be in the vicinity of about 250 basis points.
Got it. Got it. And price increase in September was, what, about 20%?
Price increase that we did on an average was about 1.4%.
1.9%.
1.9%.
1.9%.
We have next question from the line of Aditya Makharia from HDFC Bank.
This is from HDFC Securities. So just wanted to know on flex fuel, the government is pushing that very aggressively. So A, how does that work? Does it need a separate engine? Or you can just sort of customize your existing products?And secondly, on the Jimny, there are some reports that it will be launched this year in the second half. So then that's sort of 12 months away even from hereon. So could you give some qualitative comments on the same?
Aditya, I'll try to answer the flex fuel question. So the Ministry of Road Transport is quite enthusiastic about flex fuel for 3 reasons. One, it reduces oil import. Second, it reduces carbon emission. And third, it will help to get farmers better realization for their crops.And since the life cycle of biofuels -- the life cycle CO2 is very less. So we are also looking at this option quite seriously. As of now, we do not know the technology. We are studying it, but we are open about it. If -- how it works is that any fuel you fill into the car, whether it is 100% gasoline or 100% ethanol or anywhere in between, the car runs on the fuel by adjusting itself to the characteristics of the fuel. So we are trying to understand.It is a mainstream option in Brazil. And we will -- the only issue is we do not know how much the market will be. It might be limited in some states or some areas. So we have to study that option along with the carbon footprint of such vehicles. And accordingly, we will take a call.On the -- your other question was about the Jimny, I'll request Mr. Shashank to answer.
Rahul, just one, but it is still about 1, 2 years away, right? Not in the immediate term?
More than that. You cannot -- see, in the auto sector, any development, any product development lead time is 4 years. We know that very well. So we cannot have something so soon.So on the Jimny, Shashank, if you can.
Yes. So Jimny, as you know, the SUV segment has been growing dramatically. And one of the segments is the lifestyle type of SUV. This is a segment which we have been studying very closely. If you recall in the auto expo, we had displayed a Jimny to get consumer feedback. So we are doing that study very closely looking at the market and also taking some feedback from potential consumers. And as and when we finalize that plan, we will definitely let you all know.
We have next question from the line of Ronak Sarda from Systematix Shares.
The first question to Shashank on the CNG side. One, if you can help us understand -- I mean, I'm assuming the waiting period is one of the highest in CNG variants. So what kind of customer profile are we seeing who are coming to CNG? And related question is, are we planning to increase the capacity, both at Maruti and in the vendor end?
Yes. So we have been studying that consumer profile for CNG. It is not really different. As you know, we have CNG in 8 of our models out of the 15 that we have. So here, we haven't seen any big difference in terms of profile across the different criteria, whether buyer type or the occupation-wise or the usage-wise. So it does appear that almost all consumers in our country are quite conscious of the running cost, which is what is the very positive thing about CNG usage.On your second question of the volumes, as you know, the volumes for CNG for Maruti Suzuki have been increasing dramatically, roughly about 75,000 till '17, '18 every year. 105,000 each '18, '19, a little bit up in '19-'20, 158,000 in 2021. And this year, we are projecting something like 300,000. So yes, you are right, there would be a pressure on the capacity, but I'm sure our supply chain guys are working on it to increase the capacity in line with the projections going forward. Going forward, the projections are even higher.
Right. And a related question here, how does the resale value of the existing pool of CNG vehicles have been. Because there were earlier concerns the deterioration of the vehicle is much larger in the CNG fuel option. So if you can just help us understand over the last 1 year, how has the resale value been in this segment?
Yes, it's a great question. And the reason I say that is because there seems to be 2 types of CNG vehicles, which are coming for retail. One is the factory fitted types and the other is the retrofitted types. The retrofitted CNG, which are coming in the market, have that problem that you are referring to because there are concerns about safety of retrofitment. There is concern about the engine, the life and the maintenance cost. And that was actually also one of the fears which consumers had when the retrofitment was being done.But when the factory-fitted CNG -- for factory CNG vehicles, there is no such concern. And the used car prices for CNG is actually a little higher because remember now the gap between a CNG vehicle and the corresponding petrol vehicle is around INR 90,000. And I'm talking of the new car. So that is reflected also in the used cars. So we do find that for factor fitted CNG, the used car prices hold quite strongly. But yes, for retrofitment vehicles, it does drop.
Sure. And the second question to the team on the production side. I mean, if I study your monthly numbers slightly more on a granular basis, we have seen in terms of appropriation of volumes, exports and sales to the other OEM have not remained largely stable month-on-month while the overall domestic volumes have seen a very sharp cut as the semiconductor issue have cropped up. So if you can help us understand how do we see the overall vehicle appropriation. And how does that change over the next quarter or so?
So see, fortunately, the semiconductor issue did not affect export sales much, and we were able to largely meet the market demand because those particular semiconductors were not used in those models with those specifications. So that's the reason.OEM is a small volume. I mean that was in proportion. But we hope we don't have -- I mean the larger thing is to try to get more semiconductor so that this problem is behind us.
Sure. And the second part of this was we have heard the OEMs building inventory to ensure many of the semiconductor supply ramps up, the overall production numbers could be higher. Is that a feasible option? Or how does the assembly line change? Or do you think once the overall issue normalizes, then only the overall production can ramp up? Just a thought on if we are building up -- partly build inventory or something like that?
Yes. Actually, it's an option if we know that the supply of -- future supply of components are assured, which, in this case, is not true. So you can, theoretically, have vehicles and make them once you see the components.And you are right, some of the OEMs might be doing it. But the thing is that, one, you have to store the vehicles for a long period of time. So unless you know that the components will be available definitely, this may not be exactly a feasible option. But if people want to take -- OEMs want to take a chance and keep them in that stage, and so that when the component comes, they can build a few of it. That's possible.
We have next question from the line of Sonal Gupta from L&T Mutual Fund.
Sir, could I get the retail volumes for the second quarter?
For Maruti Suzuki? I mean, the number, these are estimates because while the figure for Maruti Suzuki is known, but for the industry, it might be an estimate. So for Maruti Suzuki, Q2 retails were about 385,000.
385,000. Okay. And just on the export point, I mean like since you're selling a lot through the Toyota network as well, I just want to understand, like, how does the pricing work there in the sense that, one, I guess, you are selling to them from India, so we don't really have any FX risk? And the second thing is, given the huge commodity cost increase, I mean, are we able to pass that on? Or even there, you would be seeing that margin pressure and the prices will revise -- be revised with a lag?
So in case of exports, we do take into account any commodity price increase that's taking place. And we do make corrections for that periodically to ensure that the margins are protected. And also the exchange rates will have certain play on supply depending on what rate we had contracted and what rate we actually end up supplying them at. So a combination of the 2, but we ensure that we protect the cost increases and the margins in the case of exports.
Right. And just, sir, on a -- I mean, longer term, maybe not -- I don't think we can sort of factor this commodity price increase on a 1- or 2-quarter basis. But I mean, like -- I mean, unless you really expect that commodities will come all the way back down, I mean, we are significantly hit because of these pressures. So I mean, like, how do you see that? I mean, do you see yourself gradually taking price increases every quarter, 1% to 2%, and passing these on to the consumer? Or I mean like what is the way forward here?
If you state the past history, commodity cycles have been going up and coming down, so they have corrected over a few years. And this is not the first time that we are seeing such a peak, there will be corrections. But we will have to keep watching it closely. And wherever we think we can counter is through our own efforts, we will try to do that. That's our first initiative, to work on our own cost reduction programs.But if the price continues to rise and if there is a need for correction in price, we will take appropriate decision at that point in time. We have done that in the past, as you would have seen, even the price increases, we have taken price increases in the last 6 months, 2x, 3x. But obviously, you can't do a very big increase because it really upsets the market in terms of demand.
Ladies and gentlemen, that was the last question. On behalf of Maruti Suzuki India Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.