Maruti Suzuki India Ltd

NSE:MARUTI

Earnings Call Analysis

Record Highs and Expansion in Q2 FY24

In Q2 FY24, the automotive industry saw its greatest quarterly wholesale volume ever, growing by 5%. The company outpaced this, growing 8% year-on-year in passenger vehicle sales, thus increasing its market share by roughly 1.2%. Its strength in utility vehicles, specifically SUVs, which now comprise 23% of its market share, contributed to this growth. The company achieved record-breaking quarterly and half-yearly figures in sales volume, net sales, operating profit, and net profit. Notably, quarterly net profit soared over 80% to INR 37,165 million, mainly due to higher sales volume, cost-reduction efforts, favorable commodity prices, and an increase in nonoperating income.

Overcoming Production Challenges to Achieve Record Results

The company has successfully navigated past the semiconductor shortages that have hindered production for the past eight quarters, now reporting a cautiously optimistic outlook regarding future semiconductor supplies. This improvement led to a reduction in pending orders, positioning the company well to meet the diverse and growing demand for its vehicles. Capitalizing on this resurgence, it recorded the highest quarterly and half-yearly sales volume, net sales, operating profit, and net profit in its history during the second quarter and first half of fiscal year 2023-24.

Expanding Product Portfolio and Exports

Exploring new avenues for growth, the company continues to lead as the largest exporter of passenger vehicles from India, with a significant 9.7% increase in export volume year-on-year. The company's SUV models, like the Grand Vitara and the FRONX, are supporting this expansion. The ambition is to triple export volumes by the year 2030-2031. This strategic move is complemented by integrating the Gujarat plant, which is expected to further enhance operational agility and the company's competitive edge.

Achieving Market Leadership in SUVs

The company has achieved market leadership in the SUV segment with a market share of approximately 23%, alongside leadership in Hatchbacks, Sedans, Vans, and MPVs. Notable contributions have come from its four SUVs - Brezza, Grand Vitara, FRONX, and Jimny - underscoring the company's ability to produce vehicles in line with evolving market demand.

Financial Milestones and Cost Efficiencies

A combination of higher sales volume, aggressive cost reduction efforts, more favorable commodity prices, and increased non-operating income propelled the company's net profit growth by over 80% compared to the second quarter of the previous fiscal year. These factors, among others, have played a pivotal role in achieving remarkable financial milestones.

Inventory Management During Festive Demand

During the festive season, the company managed its inventory effectively, with wholesales slightly exceeding retails to ensure product availability. The company maintains a comfortable inventory position, slightly above one month, assuring continuous supply to meet consumer demand.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Maruti Suzuki India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pranav Ambaprasad. Thank you, and over to you, sir.

[Pranav Ambaprasad, executive]

Thank you, Rayo. Ladies and gentlemen, good afternoon, once again. I welcome you all to the Q2 FY '24 earnings call.

Before we begin, 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 audio recording and the transcript will be available at our website. May you please note that in case of any inadvertent error during this live audio call, the transcript will be provided with the corrected information. The con call will begin with a brief statement on the performance and outlook of our business by the Chief Investor Relations Officer and Executive Officer, Corporate Planning, Mr. Rahul Bharti, after which we'll be happy to receive your questions.

I would like to invite our Chief Investor Relations Officer, Mr. Rahul Bharti. Over to you, sir.

[Rahul Bharti, executive]

Thanks, Pranav. Good afternoon, ladies and gentlemen, and thank you for joining us. I'll start with an overview of the industry sales performance, followed by the business performance of the company. Quarter 2 of this year has been a reasonably good quarter. [ Industry ] clocked its highest ever quarterly wholesale volume of over 1.07 million units, with a year-on-year growth of about 5%. Sales volume for the company in the passenger vehicle segment grew by about 8% higher than industry growth. It led to a gain in the market share for the company by about 120 basis points.

In the industry, the share of utility vehicle segment continued to expand. In quarter 2, the share of SUVs increased about 50%, which was about 43% during the last financial year. Together with MUV, the share of [indiscernible] industry is now around 60%.

In terms of fuel mix, CNG vehicles continued to see strong demand, and the share of CNG vehicles in the industry has now reached about 15%. Share of diesel vehicles continue to decline and is now about 17% as compared to 19% during the last financial year. Interestingly, hybrid vehicles have seen a good traction, and now the share of hybrid vehicles have increased to about 2%.

Let me also share some of the business highlights of the company. During the quarter, the company clocked its highest ever quarterly sales volume of over 552,000 units. After about 8 quarters, the company could avoid a production loss -- production volume loss on account of semiconductor shortages. Going ahead, the company is cautiously optimistic on semiconductor suppliers.

With the easing of electronic component shortages, production volume improved and the pending orders at the end of quarter 2 have come down to about 288,000 units and further corrected to about 250,000 today.

Diverging demand patterns between utility vehicle in the small car segment is continuing. The company is working on increasing the flexibility in operations to produce vehicles as per the evolving market demand. With an overwhelming response to its products in the SUV segment, the company achieved market leadership with a market share of about 23% in SUV segment during the second quarter. The company is already a leader in Hatchback, Sedan, Vans and MPV segment, and now SUVs also. All the 4 SUVs, the Brezza, the Grand Vitara, FRONX and Jimny have contributed to the company taking the leadership position in SUVs in India.

In quarter 2 financial year '23-'24, exports volume for the company grew by about 9.7% over the same period last year. With exports of about 69,000 units, the company continued to be the largest exporter of passenger vehicles from India. SUV models such as the Grand Vitara and the FRONX are also contributing to the growth in export volumes.

Recently, the company further expanded its product portfolio for exports with the start of exports of the Jimny 5 door. The vehicle will be shipped to destinations in Latin America, Middle East and the Africa. Going forward, the company plans about a threefold increase in exports volume to about 750,000 or 800,000 units by the year 2030-2031.

As you are aware, the company is also now integrating SMG, the Gujarat plant, with itself. This will help the company enhance its agility and eventually the competitive position in that scenario where the company will be operating at multiple locations through the country and manufacturing vehicles with multiple powertrain technologies. The company has shared a presentation with the stock exchange for investors, top advisers and analysts for better understanding of the proposal. On 17th October, the company put up the proposal for shareholders' approval. The voting will remain open until 16th November for shareholders [indiscernible] their voting rights.

I now come to the highlights of the second quarter financial year '23, '24. In the quarter, the company recorded its highest ever quarterly sales volume, net sales, operating profit and net profit. The company sold a total of 552,055 vehicles during the quarter, registering a growth of 6.7% over the same period previous year. Out of the total sales volume, 482,731 units were sold in the domestic market and 69,324 units in the export market.

In this quarter, the company registered net sales of [ INR 355,351 million, ] a growth of 24.5% over quarter 2 of last year. Growth in net sales outpaced the growth in sales volume due to a higher contribution of utility vehicles and total sales volume. The average selling price in this quarter grew by about 15% over the second quarter last year.

The net profit for the quarter rose to [ INR 37,165 million from INR 20,615 million ] in the second quarter, a year-on-year growth of over 80%. This was on account of higher sales volume, cost reduction efforts, favorable commodity prices and higher nonoperating income. In this quarter, as you might have observed, that almost all positive factors combined to give us a good result.

Highlights of the H1 now, first half of the year, financial year '23, '24. For this period, the company also recorded its highest ever half yearly sales volume, net sales and net profit. For the first time, the company surpassed half yearly sales mark of 1 million units. Total sales in H1 were 1,050,085 units, a growth of 6.6% over the first half of previous year. Sales in the domestic market were at 917,543 units. And exports were at 132,542 units.

The company registered net sales of [ INR 663,803 million ] in the first half. The net sales in the previous year first half were at [ INR 538,000 to INR 98 million. ] The company made a net profit of [ INR 62,016 million ] in the first half this year as against [ INR 30,743 million ] in the first half of the previous year. With this, we are now ready to take your questions, your feedback, any other observations that you might have. Thank you.

[Operator]

Thank you very much. [Operator Instructions] The first question is from the line of Pramod Kumar from UBS.

[Pramod Kumar, analyst]

The first question is actually a clarification on the quarterly results. Just wanted to check in, are there any one-off gains or one-off items which are lumpy, which are kind of lifting our margin profile for the quarter? And second is a clarification on the change in inventory position. That seems to be quite significant this quarter. And does it have any bearing from an accounting standpoint on the margin numbers that have been reported for the quarter?

[Rahul Bharti, executive]

So Pramod, there are no one-offs as such. I mean, with the possible exception that commodity cycles and ForEx keep on varying. That, we have to keep in mind. In terms of inventory, the wholesales were at 466,469, about 467,000. And retails were at 432,450. And so wholesales were slightly above retails, and this is expected because we need to build inventories -- in the middle of the festive season. We still have...

[Pramod Kumar, analyst]

Sorry, Rahul, I'm sorry to interject, apologies, but I was more referring to the P&L line item of change in inventories, not the physical inventory and [indiscernible]. Basically, there is a INR 800-odd crores inventory movement item in the P&L, which is reducing your RM to sales ratio. Just wanted to understand the accounting intricacies there because there is some confusion because we got some client feedback that this explains a big chunk of the margin expansion, that INR 815 crores. So if you can just help us understand this from an accounting standpoint, whether does it have any one-off impact or any impact whatsoever on the underlying profitability of the company for the quarter.

[Unknown Executive]

So Pramod, let me answer this. Let's clarify. I think this question is being asked by many investors, let's clarify that there is no one-off or exception in the results. Movement in inventory is a regular feature. Inventory keeps getting adjusted every quarter. And there are ups and downs, there are small elements of adjusters that happen, which are very marginal in nature and not very significant in nature. So it's a usual practice that the inventories which comprises of either the finished goods, work in progress. Yes, basically both parts and working progress, which will keep changing every quarter.

And to the extent of absorption of fixed cost incidents, there could be some impact on the inventories. But that's not so significant. And it's a regular feature, it happens every quarter. So if we were to see compared to last year, it is flat. We go to see sequentially. There will be some impact of inventory built up, but that is also not very significant. So let me clarify that the results either do not have any one-off or have any significant impact of any inventory adjustment on the results.

[Pramod Kumar, analyst]

And -- I just want to thank you for clarification. And just to make it even more clear, so for the volumes, what we've done and for the mix, what we have done and where the commodity and other elements are, this is kind of the margin what 1 can expect. Sets of parables, the 12.9% margin that we've reported. Everything remaining constant, everything remaining steady state. This would be the kind of probability what you would have with this volume and this kind of mix and whatever discount levels. Is that understanding right?

[Unknown Executive]

So let me clarify that given in the current context, given the current mix when the current reduction that we are in on commodities, ForEx and the mix that I mentioned earlier and the discount trajectory, the margins are very much what it is. How we move forward will depend on all the variables that we'll have to see in terms of commodity costs or exchange as well as the mix. If they remain constant, as you rightly said, if everything is constant and of course, the change would not be there. But if anything changes, then the margins will accordingly move up or down.

[Pramod Kumar, analyst]

Fair enough, sir. And sir, if you can just help us understand the discount number for the quarter, average discount and the export revenue, that would be really helpful. And then I had 1 follow-up question on the demand side. General demand color, yes.

[Rahul Bharti, executive]

Discount for about 17,700 per vehicle, approximately. And export revenue was about INR 4,323 crores.

[Pramod Kumar, analyst]

Okay. And sir, on the demand side, you've heard [indiscernible] on the business channels recently. I just wanted to understand if you can provide some reasonable color on the demand on versus rural geographical spread because what you understand is south is a bit weakish because of the weak monsoon, especially for some other categories. So if you can just help us understand to get some more granularity on the demand, what you're seeing in the [ festive ] so far. And also going into [ Pantera Santam Diwali, ] how is the inquiry of frequency, booking conversion rate? Or how is the demand scenario looking for the rest of the season, sir?

[Rahul Bharti, executive]

So demand has been fairly stable at the current levels for some time. And of course, geographically, mix always exist. The central zone of the country, I mean, for example, Delhi, NCR, Rajasthan, Madhya Pradesh, they are doing fine. Even South is doing fine. East has some weakness. Maharashtra, in some parts where the effects of rain, et cetera, there, there is some weakness. But across the country, I mean, industry is growing by 5%. We had mentioned in the beginning of the year that we will grow faster than industry this year. So we gave out a projection of about 10% growth in this year. So that is the outlook.

In the festive season, in the festive season, half of the festive season is generally we define from [ Onam ] to, let's say, till about 5, 6 days after Diwali, let's say, by the [indiscernible]. So until now, industry has grown by about 20% and in the balance, overall festive season should grow by about 18% day-to-date.

[Pramod Kumar, analyst]

And market should do better?

[Rahul Bharti, executive]

In line with industry.

[Operator]

The next question is from the line of Kapil Singh from Nomura.

[Kapil Singh, analyst]

Could you talk about the various elements or how much was the benefit from each of the elements for the margin like ForEx, commodity and cost reduction? If you compare to Q1?

[Unknown Executive]

So Kapil, sequentially, as we mentioned, I think the major benefit has come from the commodities and the cost down that we have been able to achieve. There has been a significant softening in the precious metal commodities. And there, we have seen a lot of reduction on the cost on account of that steel. Also has reduced but not so significant reduction in steel compared to what we've seen in the precious metals. So that's 1 major impact that we see compared to -- sequentially compared to the first quarter. Plus the effect of cost reduction, which carries on, adds on to this basket of commodity reduction as well. So that's the most significant portion.

Also, the mix and the volume increases also helps us in terms of both operating leverage as well as achieving higher margins, as you see. So that's the second piece. The third piece is, if you remember in the first quarter, we have said that [ Jerabthere ] were some one-offs in the employee costs as we have given some retention bonuses, et cetera, which is not there and now it will not be repeated in the next quarters. And therefore, there is a reduction in employee costs as well because of that onetime item going away.

Advertisement costs also have been slightly lower than what they were in the first quarter because of launches and also we had our conferences, which added all to the cost. So these are primarily the main reason. There's also a sales promotion cost is slightly higher, as Rahul had also mentioned that we were about 17,692. Now in the second quarter, we were 16,214 in the first quarter, we're marginally higher. But if you add up these numbers and give you a clear signal of the margin trajectory, where it has gone from first quarter and the second quarter.

[Kapil Singh, analyst]

Sure, sir. Very helpful. And also, how should we think about interplay between margins and market share from here on? Also, if you could talk about the breakdown for the order book between some of the key models, how much order book is there? And what is the normalized level of order book that we used to carry pre-COVID? Did it used to be about 1.5 months, 1 month? So just some color on that. Are there models where we -- basically trying to understand if there are models where we need to raise production or current supply is sufficient?

[Unknown Executive]

On your first, I'll answer the first question, and Rahul will take on the second question. On margin and market share, we continue to work on both sides. I think it's very important for us to improve our market share. I think we've been saying that we are now gradually going up, and we'll surely like to see ourselves just hovering to that 50% mark at some point in time. It's a tough, tough task. But we are very committed to work towards that. So that's very important.

At the same time, we keep a very close part on our margins as well. You must have seen that while we have grown our market share, we've also grown our margins. So I think it will be a constant war between margins and market share. And as a company involved in work sites, we'll work on market share improvement as well as ensure that through various initiatives that we need to take, we also keep our margins intact. So there are many, many initiatives also internally that we are taking now to see that in the long term, we're able to also work towards our margin improvement.

[Rahul Bharti, executive]

On the second part, on the order book, we have about, as of maybe Investor Day, about 2.5 lakh units. CNG accounts for about 123,000 out of this. Then it is fairly -- flat vertical is 1 major model with about 73,700 units pending orders. Then we have the Brezza, the Grand Vitara, the Jimny, FRONX, in [ Victor. ] So a large part of it is on the new SUVs, which have been recently launched.

[Kapil Singh, analyst]

Sure. And what I was trying to understand is do we need to raise production for certain models or broadly, the supply is good enough now? And what was the normalized level of -- sorry, the normalized level of order book that we used to have pre-COVID? Was it 1.5 months, 1 month where it used to be?

[Rahul Bharti, executive]

Ideally, in the best interest of the customer, we should not -- we should have wherein orderable the customer should not have a waiting -- financial investors see it as a positive, but it's customer inconvenience also. The customer should not be allowed to wait. There are some models which have -- which do have a constraint. For example, the Ertiga, some -- the CNG no longer will have a constraint. So we would like to improve along as we go along. And the inventory position is also fine. I mean we are about slightly above 1 month. So that is comfortable.

[Kapil Singh, analyst]

Thank you so much. I'll come back in the queue.

[Operator]

Thank you. The next question is from the line of Raghunandhan N. L. from Novama Institutional Research.

[Raghunandhan N. L., analyst]

Congratulations on stellar numbers. Sir, firstly, on the 16% growth seen in the festive period so far, can you indicate how the urban versus rural growth was?

[Rahul Bharti, executive]

Rural was slightly higher than urban. And so far, it continues healthy.

[Raghunandhan N. L., analyst]

And recently showcased near production model of EVX was impressive. There was another model, EWX. When is the global launch expected there?

[Rahul Bharti, executive]

We have to keep in mind, that's a concept. So -- and One can never be sure whether it will be launched or not. One can never be sure whether if at all, there's a production version, it will be close to the concept that is displayed. So in -- generally in motor shows, a concept is a designer language, way of expressing this imagination. And to get consumer feedback also. So as of now, nothing can be said on that.

[Raghunandhan N. L., analyst]

Sir, continuing the point on launches, Nexa channel has benefited from several launches. Will there be more focus on arena channel going forward?

[Rahul Bharti, executive]

Both channels have their brand definitions, and we need to be true to their brand definitions, while ensuring that in terms of economics, both gets both sufficiently utilized and not overloaded. So it's a balancing act that we keep doing all the time. And we have to keep in mind that the model development timing is -- lead time is about 4 years. So at any point of time, there are models in the pipeline. So that planning is a continuous exercise. But yes, we would like to keep both channels healthy.

[Raghunandhan N. L., analyst]

And can you indicate the CapEx plan, sir, for '24- '25? Would it be around that INR 7,000 crores to INR 8,000 crores? Because first half, the spending seems to be on the lower side?

[Rahul Bharti, executive]

Difficult to predict because it can...

[Unknown Executive]

We have to finalize our plans for the next year. So once we do that, we will be able to give you a better idea.

[Raghunandhan N. L., analyst]

For the current year, sir?

[Unknown Executive]

Sorry?

[Raghunandhan N. L., analyst]

For the current year, sir?

[Unknown Executive]

Current year, we should be above INR 8,000 crores.

[Raghunandhan N. L., analyst]

Got it. Just a last clarification. On the gross margin, would you see any impact of commodity inflation? Recently, steel prices have gone up. Would that impact Q3?

[Unknown Executive]

Steel is something that we are worried about. So we will have to see how the steel pans out. There can be some increase that you can see on account of steel, although the patient methods continue to factor. So we'll have to see overall what impact does steel have and what impact those other commodities have, positive or negative. So steel definitely is going up a little bit compared to what it was this quarter.

[Raghunandhan N. L., analyst]

Very helpful. I'll fall back in the queue.

[Operator]

The next question is from the line of Gunjan from Bank of America.

[Gunjan Prithyani, analyst]

I had 2 questions. Firstly, a follow-up on the gross margin. Is there any FX benefit that -- that is worth calling out compared to 1Q to 2Q? And similarly on the margin, the comment that you made that we look to -- we'll have a closer eye on margin now along with market share. Is the current level of margin is something that we'll endeavor to maintain, assuming there are not extreme volatilities in commodity? Of course, that's something we can't call. But is this a margin level that we are -- we are focusing to maintain? Or you think the aspiration is to even improve on the current level? So a little bit your thoughts on how should we think about the sustainable operating margin in the business.

[Unknown Executive]

So on sequential ForEx movement, it's not significant. It's very marginal. There's some benefit, but very small -- fraction. So that's not any significant number to consider.

On the second question, I think, which is very important is, see, it is very difficult to predict margins for a longer period because so much is changing in the industry. We are talking about capacity expansion in the near future. So there will be 2 million capacity that's going to go up. We're also talking about transiting to EV over the period of next 6 years, 6 new models coming in.

So one will have to see what is the change in mix that happens over a longer period, how do we cope up, what are the pricing, what is the market at that point in time. So it all depends on all these variables. So to give you any indication, I mean, these are -- other factors are more temporary like commodities and all this will depend on where they move, at what point in time and how do you adjust. While we'll continue to work on cost, but these are some major factors that we will have to see how they pan out in the long run and how do they impact the margin. So as what was very important is how fast we scale up, once we go to 4 million and what is our operating leverage at a given point in time. What is the fallout of the EVs, how are the margins in that trajectory? So all that will give you a kind of a filler in the long run in terms of where the margins move. Very difficult to say at this point in time.

[Gunjan Prithyani, analyst]

Okay. What I was trying to understand is that the current level of margin, of course, there will be this capacity which will come through and that will affect the margins in the short term. But -- the idea was that we've seen so much volatility over the last 2, 3 years, and now the business has sort of stabilized. And underlying profit margin should -- what we've reported in Q2 is something that -- is something which is sustainable is what I'm trying to understand. This is -- there's no -- capacity is at least a couple of quarters out. But in the interim, as long as the business is at these levels, a double-digit operating margin is sustainable?

[Unknown Executive]

So we had all the positives in this quarter. We had everything which was positive. It's very unusual in the quarter that you have all that is positive. So every quarter, you will have some or the other variables which will not work in your favor. So I think we had an exceptional quarter this time, and there was not a single element which was negative. And that brought us to the level where we are.

So as I mentioned earlier also when this question was answered, that everything remains constant and nothing changes, then, of course, we are here. But if there are any changes in any other factors, the margins will accordingly get impacted.

[Gunjan Prithyani, analyst]

Okay. Got it. Fair enough. And the second question I had was on these comments on small car market, which has been weak. Now 2-part question here. One is, what is the underlying issue as per you, what is really driving the decline in this segment? And is it just that the first-time buyer not coming back? Or just the design preference has completely changed and the small cars are no longer relevant? What is your reading in that? And how are we trying -- incrementally, when I think of next 2, 3 years, how are we trying to still fix the underrepresentation that we have in the SUV segment? We've had good launches, but how should I think about portfolio panning out over the next 2, 3 years?

[Rahul Bharti, executive]

Sure. So small cars are a phenomena of affordability. And affordability means both cost and income. The cost has gone up disproportionately because of regulatory intensity you have seen in the past few years. And the income in this segment of the demography has not taken off. We are hoping that sooner or later, the income growth in India will catch up and sometimes, the small car segment will revive.

It's not -- there are some explanations that the customer is upgrading. A person who can afford a bigger car would always have bought a bigger car. That would have been true in India for a long time. So it's purely an affordability issue in this segment. And as you rightly mentioned, it has declined for us. It used to be about 54% of our portfolio. Now it is about 28%. If you look at the customer profiling also, we can see a similar reduction in the first-time buyer, almost a 10% reduction in the percentage of first-time buyers in the market, so closely correlated. We are hoping that when income growth in this segment of the population catches up with the increased cost and the regulatory intensity does not move up further in the next few years. At some point of time, this segment should come back.

[Gunjan Prithyani, analyst]

Anything on the portfolio, how it pans out?

[Rahul Bharti, executive]

Sorry, I missed your other question on SUVs. So we've announced also in our annual report that currently from about 17 models, we'll move up to about 28 by the turn of the decade. So definitely, new model additions have to take place. And being a market leader, we have to -- and a volume leader, we have to cater to all segments where the market growth is. So wherever the market growth is, we would like to enrich with more model refreshments.

[Operator]

The next question is from the line of Binay from Morgan Stanley.

[Binay Singh, analyst]

Congratulations on good set of numbers. And just a clarification from -- just for Rahul...

[Rahul Bharti, executive]

Please tell me. Tell me, Binay.

[Unknown Executive]

I think he's...

[Rahul Bharti, executive]

Disconnected?

[Operator]

We seem to have lost the line for Binay. We'll move to the next question. The next question is from the line of Jinesh Gandhi from Motilal Oswal.

[Jinesh Gandhi, analyst]

A couple of clarification on margins. So this quarter, you look at about benefit of softening in precious metals. Would it be fair to say that the full benefit is not yet fully reflected in 2Q given that [ Mason ] was far more second half phenomenon in 2Q? And do you expect further benefit on that side?

[Unknown Executive]

Majority of the benefit is seen in the second quarter. A bit of it has already come in the second quarter, but we still see some softening in the commodity -- special metal commodity prices. And if they continue to soften, then, of course, the prices can further go down.

But on the contrary, the steel prices are going up. As we mentioned that we will have to see the basket of commodities, not only just the patient metrics but also steel is almost half the commodity basket. Both of them pan out in the second quarter.

[Jinesh Gandhi, analyst]

Okay. Okay. And similarly, on ForEx side, so we have seen a very are smart move on JPY-INR, which, given our vendor inputs coming to the quarter like. So do you expect that to be a reasonably favorable factor going forward? As you indicated in 2Q, we had limited benefit on ForEx.

[Unknown Executive]

The yen continues to depreciate against the dollar, and currently close to about 150. And last quarter, I think we were at about 100 -- between 140 and 145. So there could be some benefit of ForEx that we can see, depending on how the final rates end up in the second -- third quarter.

[Jinesh Gandhi, analyst]

Right. And last clarity question is on CapEx. So you indicated INR 8,000 crores in [ FY '24, ] rather particularly close to about INR 5,000 crores in second half. Does this INR 8,000 crores also include SMG's CapEx, which they are doing on BD capacity as well as the battery plant?

[Unknown Executive]

No, no, no. This is purely CapEx of [indiscernible].

[Jinesh Gandhi, analyst]

Okay. Okay. And now given that we are proposing to take over SMG, what kind of CapEx essentially would be doing in FY '24?

[Unknown Executive]

So that has to be taken in account after we finalize the budgets. That exercise is already on. Once we do that, then we'll know what the CapEx for both the companies would be.

[Jinesh Gandhi, analyst]

Got it. Got it. And then Suzuki's presentation, which was uploaded a couple of days back, there was a reference of increasing capacity for the electric vehicle at SMG. Any sense on what kind of capacity addition is happening over and about 750,000 capacity of SMG?

[Rahul Bharti, executive]

We'll have to look at the market demand, and then we'll decide.

[Jinesh Gandhi, analyst]

Okay. Because there was [ INR 3,100 crore ] CapEx not for that. So I thought that might have been finalized.

[Operator]

The next question is from the line of Binay from Morgan Stanley. Binay, you may go ahead with the question. Binay, can you hear us? You may go ahead with the question.

[Binay Singh, analyst]

My first question is just out of curiosity. Like when you talk about driver of good margin, we've not talked about mix, your SUV share going up. So is that implied? Because -- or you think that it's actually not a big driver for margin?

[Rahul Bharti, executive]

So we talk about blended margins overall for the company, and these factors keep on changing depending upon the market conditions, which segment is -- which segment is doing in -- how much growing and how much demand. And so this keeps on changing. So that's the reason we don't look at this factor much.

[Binay Singh, analyst]

Secondly, just when we look at the overall demand environment, we're talking about 18% growth in festive, even 5% growth for the whole year for the industry. So how do you tie up this sort of wide range? Is the festive demand predominantly driven by order books being fulfilled because there was a production issue earlier? Like -- because a big divergence between the 2 numbers.

[Rahul Bharti, executive]

Sorry, what is it that you're trying to reconcile? Which...

[Binay Singh, analyst]

Like, for example, the festive Y-o-Y growth we are talking about is 18% for the industry, whereas the actual whole car demand for the year, we are talking about a 5% growth. So in that sense, a huge range, right? Like 18% is a very good growth number. 5% is more moderate. So how do you sort of -- because 1 is obviously that if there were order backlog, so they are getting exhausted now. But anything else that you think is causing this divergence between these 2 to be so widely different?

[Rahul Bharti, executive]

I think it's slightly more complex than it appears because customer behavior is difficult to model. So they might postpone or prepone their purchases. They might -- it might be a geographic issue. It might be a segmental issue. So -- but you're right, the overall annual industry growth of 5% is what is reality. And even though we are saying that all factors were positive this month and industry grew, you have to keep in mind that over a 5-year period, we have grown at a CAGR, whether you take Q1 or you take H1 -- sorry, Q2 or H1, our 5-year CAGR has been close to 4%. So it's not something to -- for a developing market like India, it's not something too great. And even this year, industry is growing 5%. Maruti Suzuki is growing higher. It may be a market share phenomenon, but overall growth is not happening much.

[Binay Singh, analyst]

Yes. And in fact, coming to the small car segment, as your SUV share is rising, we are seeing that your first-time buyer share is dropping down. So that also sort of addresses the fact that it is a more first-time buyer recovery delay, which is hitting small cars. But as a company, what are you trying to do? Because it's a big segment for Maruti, right, small car? How are you trying to sort of bring the customer back? Anything on -- because even the product launch momentum on that side seems more muted versus the SUV side. So what is the company's thought on how to sort of get that segment going again?

[Rahul Bharti, executive]

So from our side, we can make exciting products. We can work on the total cost of ownership, both the capital cost and the running cost. We can leverage our network, for example, makes [indiscernible] proximate and affordable. But beyond the point, we have to just wait for the market to revive. So I think sooner or later, the segment has to revive.

Let's keep in mind that the top 3% of India today owns a car. So if the car market has to grow, more people have to move from the 97% club to the 3% level. Sooner or later, it has to happen. There are crores of people who own 2-wheelers who at some point of time will upgrade to cars. It might get delayed by a few years, but it has to happen sooner or later. So we are in it for the long term. Unfortunately, we have volumes. So we are committed to all segments.

[Binay Singh, analyst]

And just lastly on discounts in the festive season. Any -- is it normal levels, like in Q2, discounts are almost 2.7% of sales. Or are they inching up in Q3? Any last -- just last, but any comments on discounts in Q3 versus Q2?

[Unknown Executive]

The usual.

[Binay Singh, analyst]

Great. Thanks a lot for that.

[Operator]

We'll be able to take 1 last question. Last question is from the line of Chandramouli from Goldman Sachs.

[Chandramouli Muthiah, analyst]

My first question is just on the fungibility of capacity. I think the company has close to 2.3 million units of annual manufacturing capacity. And as we shift the mix of production towards larger vehicles [indiscernible], I just want to understand how fungible the production lines are. If you need to make more SUVs, would that have some short-term or medium-term impact on the absolute volume and capacity that you have, [indiscernible]?

[Rahul Bharti, executive]

So you're right. We have discovered this in the recent past. And 1 of the reasons our margins had dipped were because we were producing cars that were not selling. And the cars that had demand, we did not have sufficient capacity. So if we had flexibility of both whether it is semiconductor supplies or in-house production. We would probably have lesser of -- have had lesser of such a problem.

So we -- it's a conscious move, we are increasing the flexibility of our production operations. It does come at a small cost. Because then, you are working on a slightly suboptimal format of production. And one of -- the reason of SMG integration is also this. One of the reasons is this, that it gives us flexibility and agility to respond to market changes in demand, et cetera.

[Chandramouli Muthiah, analyst]

Got it. That's helpful. And my second question is on the comment you made earlier on the call that by 2030, we are targeting to about 750,000 of export units. That's almost a tripling of what the current annual run rate is. You also mentioned that you're looking at selling more units into slightly higher income economies, Middle East and LatAm, in addition to Africa, which is maybe more moderate income sort of economic area. So would this imply that versus the current mix, I mean, do we sell more small cars in the export market? Over time, they're looking to sell more premium vehicles, more SUVs for markets like LatAm and Middle East? Just trying to understand how the mix might shift in your export business unit.

[Rahul Bharti, executive]

The export ASP is only marginally higher than the domestic ASP. And the top 3 selling models, for example, in exports are not SUVs. We have Brezza and the Dzire and the S-Presso. And it's a very diversified portfolio. We are exporting to about 100 countries of the world. At any point of time, some country or the other would have some problems or some policy barriers, either in some protectionist color or because of some economic weakness. So it's -- it keeps on changing. It's a very dynamic situation. But our focus continues to be, as you rightly mentioned, Africa, LatAm, Southeast Asia, even Middle East. But other -- even -- I mean, barring U.S., we'll be there everywhere, almost everywhere. Barring U.S. and China.

[Chandramouli Muthiah, analyst]

Got it. Got it. Thank you very much, and all the best.

[Rahul Bharti, executive]

Sorry, sorry, I made a mistake. It's not -- the first 1 is Baleno, not Brezza. The highest export model.

[Chandramouli Muthiah, analyst]

Got it. Got it. So Baleno, Dzire, S-Presso. That should be the sequence that we should keep in the top 3.

[Operator]

Thank you very much. We'll take that as the last question. On behalf of Maruti Suzuki India Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.