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Maruti Suzuki India Ltd
Earnings Call Analysis
Q2-2025 Analysis
Maruti Suzuki India Ltd
Maruti Suzuki's manufacturing facility at Manesar celebrated a significant achievement, reaching a cumulative production of 1 crore units—making it the fastest global facility for Suzuki to achieve this milestone in a remarkable 18 years. This is an impressive feat, particularly as the company achieved a cumulative production of 3 crore units just earlier in the fiscal year, underscoring robust growth and efficiency in production processes.
To enhance customer accessibility, Maruti Suzuki has expanded its sales network significantly. The company inaugurated its 500th NEXA sales outlet, contributing to a vast network of 3,925 sales outlets across approximately 2,600 towns and cities in India. This expansion aims to improve customer engagement and convenience, with over 2.7 million customers already served through the NEXA showrooms. This strategy not only boosts sales potential but also enhances brand loyalty.
In a move to bolster consumer confidence, Maruti Suzuki has upgraded its warranty offerings for all its vehicles. The company has introduced extended warranty options that now cover vehicles for up to 6 years or 160,000 kilometers, whichever comes first. This initiative is likely to attract more customers, particularly those who prioritize long-term vehicle assurance, ultimately aiding in strengthening Maruti Suzuki's market position.
The consumer preference for CNG vehicles continues to rise, with one in three cars sold in the second quarter being a CNG model. Maruti Suzuki's introduction of the S-CNG power train in the fourth-generation Swift aligns with this trend. The company now boasts the most extensive lineup of S-CNG vehicles in the market, available across 14 different models, which positions it well to cater to this growing consumer segment.
Maruti Suzuki's Grand Vitara SUV is registering impressive sales, becoming the fastest vehicle to reach 2 lakh unit sales within the mid-SUV segment since its launch. This reflects not only strong consumer demand in the SUV market but also the effective marketing and product positioning strategies adopted by Maruti Suzuki.
Looking ahead, the company acknowledges an affordability challenge affecting the small car segment, primarily due to income levels and rising vehicle costs. Although the market remains somewhat stagnant, Maruti Suzuki has managed to stabilize the decline, and there are hopes for a recovery in fiscal '26, with some indications of a market uptick starting to appear. This situation requires continuous attention to pricing and product strategy as the market evolves.
During this quarter, Maruti Suzuki faced pressure on gross margins partly due to an increase in discounts, which were influenced by a richer product mix. The company's ability to navigate this changing landscape by balancing discount strategies with efforts to maintain average selling prices will be crucial for its financial health moving forward.
Maruti Suzuki is on track to commission its new plant in Kharkhoda by the end of the financial year. This facility is expected to bolster production capacity by an additional 300,000 units, enhancing the company's ability to meet rising demand and support its growth trajectory.
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Ladies and gentlemen, good day, and welcome to the Q2 FY '25 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.
Thank you, Rituja. Ladies and gentlemen, good afternoon, once again. Welcome you all to the Q2 FY '25 earnings call.
May I introduce you to the management team from Maruti Suzuki? Today, we have with us our Chief Investor Relations Officer, Mr. Rahul Bharti; and CFO, Mr. Arnab Roy.
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 uncertainty and the risks that the company faces.
I also like to inform you that the call is being recorded, and the audio call and the transcript will be available at our website. And 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 Office, Mr. Rahul Bharti, after which, we'll be happy to receive your questions.
I would now like to invite our Chief Investor Relations Officer, Mr. Rahul Bharti. Over to you, sir.
Thanks, Pranav. Good afternoon, ladies and gentlemen, and thank you for joining us. I'll first share some major business highlights in the quarter 2, followed by our business performance of the company.
So some highlights. One, the manufacturing facility at Manesar achieved cumulative production of INR 1 crore units. With this, the Manesar facility became the fastest among Suzuki's global automobile manufacturing facilities to reach this milestone in just 18 years of inception.
Just to recall, the company achieved a cumulative production of 3 core units in April earlier this fiscal. In a constant endeavor to enhance customer convenience, the company keeps augmenting the sales from service network to reach closer to customers across the country. Recently, the company inaugurated its 500 NEXA sales outlets. So far the company has delighted over 2.7 million customers through its NEXA showrooms across more than 300 cities. Maruti Suzuki sales network, ARENA, NEXA and commercial now extends to 3,925 outlets, covering about 2,600 towns and cities.
Third, a refunding company's commitment to offer enhanced customer confidence, the company significantly enhanced its warranty programs for all its vehicles. Additionally, the company has also expanded the scope of its extended warranty packages and has introduced extended warranty option to cover the vehicle for up to 6 years or 160,000 kilometers, whichever is earlier. The consumer preference towards CNG vehicles continues to increase. In quarter 2 of this fiscal year, every -- in every 3 cars, 1 car sold by the company was a CNG vehicle.
Maruti Suzuki introduced S-CNG power train in its fourth generation Epic New Swift. With this, Maruti Suzuki offers the industry's most comprehensive lineup of S-CNG vehicles for 14 models. Next, the Grand Vitara became the fastest to clock 2 lakh unit sales in the mid-SUV segment since its launch. Also, the FRONX SUV has set a new record, reaching the 2 lakh sales mark in just 17.3 months.
The company has commenced export of its made in India FRONX, SUV to Japan. FRONX will be the first SUV from Maruti Suzuki to be launched in Japan. The landmark milestone celebrates the spirit of Make in India and ECOs national drive.
The company also reaffirmed its commitment to gain logistics by supporting a landmark of 2 million cumulative vehicle dispatches using railways. This feat makes Maruti Suzuki India's first automobile company to attain this ECO milestone. Over the last 10 years, this initiative has helped the company to save about 270 million meters of fuel. I now come to the business performance in the second quarter.
The company sold a total of 541,550 vehicles during the quarter, of which, the domestic market volume was 463,834 vehicles, and the export volume was 77,716 vehicles. While the domestic volume declined by 3.9%, the export volume grew by 12.1% compared to the same period of the previous year.
In the domestic market in the second quarter, demand for EVs continue to remain muted. The company continued to create an excitement in the market by introducing limited additions across segments and significantly increased its efforts to reach out to customers. To sweeten the offering for our customers, we raised our discounts, making our products even more attractive.
As a result, despite the less than ideal market conditions, we could achieve retail sales nearly at par with the same period as previous year. In the ongoing festive season, the demand appears to be quite healthy, albeit with higher sales promotion, seasonally because of the festive and the year-end phenomena, the sales effort in quarter 3 to maximize retail sales. With customer-centric events and initiatives, we are further increasing our focus on improving retail sales.
In exports, the company continued to maintain a healthy growth in sales volume. The company commanded nearly 40% share of India's total passenger vehicle exports in quarter 2 and H1.
Coming to the financial results in quarter 2. During the quarter, the company registered net sales of INR 355,891 million against INR 355,351 million in the same period of the previous year. The profit before tax for the quarter grew by 6.3% year-on-year to INR 51,005 million being its highest ever for the company.
The net profit for the quarter declined to INR 30,692 million compared to INR 37,165 million due to a provision of INR 8,376 million resulting from the withdrawal of indexation benefit and change in tax rate on long-term capital gains on debt mutual funds as for the Finance Act 2024. This impact was implemented earlier to the stock exchanges on 17th August this year.
Since investors also look for a sequential comparison, I'll share. On a sequential basis, the operating profit margin EBIT have come down to 10.3% of net sales compared to 11.1% in the first quarter of the same financial year. The adverse commodity prices and higher sales promotion expenses have affected the operating margin performance by about 50 basis points and 80 basis points, respectively.
ForEx was favorable in the quarter. It is to be noted that the bulk of benefit in ForEx of about 60 basis points is accrued due to hedging gains and because of the nature of income, this benefit has accounted in nonoperating income and is not captured in the operating margin.
As explained in the last quarter, there is some seasonality in the employee cost and other operating income. While the employee cost softened by about 50 basis points over first quarter, the other operating income was lower, thus nearly offsetting the benefit of lower employee costs.
Sequentially, the volume has increased by about 4%, the benefit of favorable operating leverage is to the tune of about 30 to 40 basis points.
Coming to the highlights of the financial results in H1. The company sold a total of 1,063,418 units during the period, comprising 915,142 units in the domestic market and 148,276 units in the export market. On the domestic market, sales declined by 0.3%, while export sales volume grew by 11.9% year-on-year.
The company registered its highest ever half yearly net sales of INR 694,644 million in H1 this year, as compared to INR 663,803 million of last year. Net profit in H1 was INR 67,191 million as against INR 62,016 million in last year.
We've also shared about the amalgamation of Suzuki Motor Gujarat Private Limited with Maruti Suzuki. Last year, SMG was acquired to become a 100% subsidiary of MSIL.
The Board considered the structure after the acquisition and gave an in principal approval for the amalgamation of SMG with MSIL. The appointed date for the amalgamation is 1st April 2025, subject to all diesel and regulatory compliances.
And towards my conclusion, I want to give the confidence to all our analysts and investors that auto business has its ups and downs and its cyclicity. But as a market leader, we have all the enablers in place to generate the best value for our shareholders.
We're now ready to take your questions, feedback and any other observations that you may have. Thank you.
[Operator Instructions] The first question is from the line of Pramod Kumar from UBS.
Sir, the first question is on the festive demand outlook, what you guys have shared? If you can just provide some color because I pick up in media articles which have got published post the press meet that you're talking about the period ending with Shradh, start of Navratri till Diwali, but based on whatever insight you have on the booking numbers and the scheduled delivery. The reason I'm asking that is because on Vahan, the cumulative festive retail for the industry is still down around 4% as of this morning.
I understand there's a bit of a lag in counter retails to registration, but it can be that the registration on Vahan is still reasonably mid-single-digit negative, and we are talking about a double-digit growth. So can you just help us understand the period we are looking at and the data you're looking at and also some color on what's the expected retail in this number of INR 3 lakh between today and till the end of Diwali, sir.
Okay. So this time, we have retained the festive period from the beginning of Shradh repeat from the beginning of [indiscernible] till Diwali and the reason we are doing that is because there was a month end in between, we wanted to avoid any impact of month-end sales to come into the picture to have a like-to-like comparison.
So from the beginning of Shradh till Diwali, year-on-year, we have grown by 14% in our retail sales. Retail sales is relevant because in the festive period, that's what the 2 customer interest is. So against the last year figure of 260,000, this year, most likely, we will be closing around 297,000. And I should also give you because sometimes wholesale clouds the picture.
For the full year, April till October this time, we are hoping to clock about 3.9% growth in retail sales.
Sorry, can you repeat that sir, Rahul sir, lost that. Can you repeat that, please?
For the full year, financial year till date -- till date means till month, till October. So April to October, we hope to close at around 3.9% growth in retail sales.
I think till September was a decline so if I'm not wrong of 0.8%...
You're talking about wholesale?
I'm talking about Vahan retail, sir. April to September, Maruti retails are down 0.5% or thereabouts as per Vahan.
Vahan still has -- see, sooner or later, we want to switch over to Vahan. It still has some lag and some, for example, one state is not still a number. So sooner or later, Vahan will converge with our data. But year-on-year, April to October end, I mean I think one day is still left, we hope to do about 3.9% growth in the retail sales. And festive period, which is beginning of Shradh till Diwali, we are expecting it to be about 14% growth, 14%. And not only that, we should end the month with a healthy inventory of just about 1 month or even lower.
The discounting you expect will not be seeing any step-up, which you typically see in a big way during the December quarter during the month of December.
Could you kindly repeat that?
So I'm saying, sir, given that the inventory is going to be not that high, the typical year-end defender discount this year should not see a sharp spike as such? Is that the understanding?
So the pressure on discounts will not be there. Mostly, the pressure on discount comes because of inventory. Fortunately, Maruti is unlike many other companies in the market. We are comfortably placed as far as inventories are concerned.
And on discounting, sir, what's the discount -- average discount per car, what we had in the quarter?
So I'm not -- So the average discount per car in the quarter, this is Arnab speaking is INR 29,300.
INR 29,300. And sir, more color on the demand because the demand going into the season for the industry was not looking good. So what has changed? If you can just help us some color in footfall, inquiry conversion regional flavor, urban versus rural. Anything which you can share, which can help us understand the demand -- the festive demand, which is -- which according to standing out to be better. So if you can just help us understand that, that will be great, sir.
Pramod, I would like to replace a couple of steps. India is now the third largest car market. It does happen once a while that the market takes a breather. So we are not to -- of course, we would like the market to grow faster. But we are not too overly concerned about it. I mean the Indian customer does want to buy. So there are times when he is slightly dormant. There are times when he comes forward. And so this year, if you want to understand the outlook, we are hoping to close this year on retail sales about 3% to 4% growth which is precisely in line with maybe slightly better than the projections that we had at the beginning of the financial year.
Yes, sir. And anything on urban, rural, what is then better for you? Any regions? Any segments which are doing that entry-level cars, are they coming back? I'm sorry, I just kind of pressing on this, but this is actually the most a topical thing on passenger car industry demand right now and for Maruti, sir. So forgive me for this.
So rural is doing better than urban. And it -- so we are expanding our mix outlets in the rural area also other than arena. And of course, we know that SUVs are growing faster. SUVs are now -- from 50%, they have grown to about 54% now. The strength seems to continue for a while. And we are yet to see some strength in the small car segment, it is declining. But I can tell you that we were able to -- arrest the decline in small cars, thanks for a lot of limited additions and giving some excitement in the market.
Fair enough. And the pay commission...
The [ Webinar ] is doing quite well.
When to expect the pay commission benefit to kick in, sir.
See, it's very difficult to understand the Indian customer. It does not happen that today the notification comes out, tomorrow the sales increase. Many people would be doing it ahead of the announcement in anticipation when you would like to defer it or time it according to their family needs. So there's no direct correlation that we can build it to...
And sir, before I fall back in the queue, just a query, there's a clarification. I'm getting message from clients. I just want to clarify again. The 14% growth that you're referring to is point-to-point like-to-like at start of Shradh last year to the festive to start of Shradh this year till festive, right? Or is it start of Shradh...
Let me -- allow me to repeat it. Start of Shradh to -- till Diwali in retail sales year-on-year 14% growth.
So it's the same thing. The confusion was, are you saying end of Shradh last year to festive and start of Shradh this year to festive, it deals with [ additional point ], that's not the case, right?
This time, we are seeing start of Shradh for 2 reasons. One, there was a month end coming in between. So we had to ignore the effect of that, so we included that plus it's so interesting that when we have Shradh in North India, there are some festivals in South India also.
Yes, absolutely. So even in the base here, you're starting from Shradh, am I right?
Yes, of course. It has to be a like-to-like comparison.
That was the confusion. So sorry, sorry for this, but I'm getting queries from clients to clarify this. So I had to do that. Apologies for that. But thanks a lot, and I'll fall back in the queue.
The next question is from the line of Raghunandhan from Nuvama Research.
And congrats on the strong performance in the fiscal period. Sir, on still period, just one question. How do you see the trend in terms of first time and replacement barriers? And are you getting confidence of recovery in hatchbacks given that there's some recovery in first-time buyers? And going forward, there could be benefits of expected interest rate cuts pay commission benefits, how do you say or by when do you see the recovery in hatchbacks? And also relating to hatchbacks, how much would be the inventory in hatchbacks by end of the month?
So no major discernible change in trend that I can share at the moment. And just inventory at the end of the month, we hope to be within 1 month.
Got it. And sir, in the press conference on...
Mr. Raghunandhan may we request you to please speak a bit louder. We are unable to hear you, sir.
Is it better now?
Yes, please go ahead.
On hybrids in press conference, there was indication of 25% road tax rebate. Can you talk about the road tax rebates in Punjab and other states and the benefits you are seeing because of this? On a related note, would you dispense further expanding hybrid product portfolio in UVs and hatchback in future?
Some states are giving benefits in hybrids. For example, Haryana is giving 25% road tax waiver, Chandigarh is giving 50% co-tax waiver, Rajasthan similarly is giving something, Chhattisgarh is giving something. There are some states which have it in their policy, but they are yet to implement it.
Having said that, I think it's -- it's a great technology, which saves CO2 and drastically cut oil consumption and does not have the anxiety of range, no charging infrastructure requirement. So extremely customer friendly. And we think in the immediate onwards for the midterm, it is a potent technology for both national objectives, CO2 and oil import cutting. So we would like to enhance it as much as possible.
Got it, sir. And on electric cars, Maruti's launch is expected to provide the best cost of ownership in the segment in January. Can you talk about the differentiating factor for USB of your upcoming electric, SUV. I mean in some of the media interactions, what we understand is it is based on a new platform. You are working on localization initiatives such as seller manufacturing, you are looking at enabling charging and you also have export plants. So your thoughts will be very helpful here.
Okay. Okay. So thanks for this question. Actually, we are -- we will now be starting a campaign for our EV, it's a high-spec EV because we want to give customers confidence so that he can increase EV adoption without any confirm on range, et cetera. So it's a freshly designed EV. It's not an IC engine converted to an EV with high range. We will be -- there are some changes in the government norms on range, so we'll be specifying the range at an appropriate time, but you can assume that it's a high range, approximately 60-kilowatt hour battery.
And of course, we will be exporting it -- it will be made in India for the world, so many advanced markets like Europe and Japan will be -- customers in these countries will be benefiting from this EV. And I think there will be many milestones where we'll be showcasing it in different markets and Europe and India. In India, we'll have it in the Bharat Mobility Show in January. And you may hear a lot on this in the next few weeks from us.
So all the best on EVs and hybrids. Just one housekeeping question. Can you share the exports for Q2?
The exports for Q2 is -- it is actually the FOB volume. The FOB -- it's about INR 5,261 crores in rupee terms.
Got it, sir. And retails for Q2 will be 420,000?
Approximately.
The next question is from the line of Kumar Rakesh from BNP Paribas.
My first question was on quarter-on-quarter gross margin movement. I noticed that most of the key commodities have been largely benign since April, May, which as steel, iron, copper. Also in the P&L, the line item changes in inventories of finished goods was positive during the quarter. This is probably the first time in the last several years when this was positive. Usually what happens that you build factory inventory ahead of the festival.
Mr. Kumar Rakesh, may we request you to please repeat your question.
Sorry for that. I'll repeat my question. My first question was on quarter-on-quarter gross margin movement. I noticed most of the key commodities have been largely benign since April, May, such as steel, iron and copper. Also in the P&L, the line item changes in inventory of finished goods was positive during the quarter.
So this is probably the first time in the last several years when we saw this to be positive. Usually, there is a factory inventory buildup which happens in this quarter as of festival. This year also, I think you were building inventory for Dzire ahead of the launch. And hence, that shows up as a negative line item and the changes to inventory. So can you just help us understand this movement in gross margin with whatever granularity you can?
Yes, sure. See, there are few factors which has contributed towards it. The first one is as you would have seen that the sales promotion expenses reached slightly higher this quarter. So that is contributing on the gross margin impact. Commodity has some point as Rahul highlighted in the opening statement about 0.5%. So these are the 2 predominant factors which is impacting, which is on the sales promotion as well as the commodities of 0.5%. Of course, we have some favorable impact on the exchange rate and other things.
Got it. I had a second question for you. So I mean it's almost a year since you would have joined 9, 10 months now. And you have experience of working at multiple MNCs in the past to handle business -- which is -- businesses which were spared across we have seen raw material price volatility as well. So now having settled at Maruti, what's your vision? How do you plan to handle the pricing versus margin all those debate, which we will have in the past? I understand Maruti already operates with very rigid cost control measures. But on a big picture basis, how do you plan to handle these debates going forward?
Look, I think it's -- we have to watch the market closely, how it goes. I think none of us have a crystal ball to predict but we have to keep watching the market closely. I think -- I mean what we do is between operations, finance, we keep a very close watch on both commodity and ForEx, take appropriate hedging decisions as and when it is needed because there are several factors which has to be kept in mind.
All we can say -- I can tell you is that we are extremely agile to the market. We are connected to the -- I mean, the day to day movement, the macro things, which keeps happening and take appropriate calls. I mean do we get it right every time. We get it like most of the time, but may not be every time.
The next question is from the line of Binay from Morgan Stanley.
Very encouraging to see the 14% commentary that you are seeing at least some signs of demand recovery. My question is on the discount side. Typically, in Q2, what we see is that we put in inventory, retail sales is big and the accounts run on retail sales and the wholesale is such as a higher. And then in Q3, actually, the discounts are paid out. So when you look at Q2 this year, is it fair to assume that retail number that you get for 20, this time, retail is higher than wholesale for the actual discount will be lower? And secondly, any commentary on how do you see the discount number in Q3 because there has been a big drag in gross margin this year this quarter?
Yes. First of all, commenting on your Q2. Yes, your analogy is right that the retail is higher than in Q2. And Rahul already gave you the October outlook, the festival outlook. So you can see the directional trend, how it is going. Directionally, we are in a position where retail is picking up. Directionally retail picks up and there is no reason why we should have an abnormal behavior at this time.
So the discounts in a way, should be flattish, there to assume quarter-to-quarter because on your...
It goes, but...
Binay, you know, it's not easy to predict but most manufacturers have cut prices drastically. We've had only a limited amount of discount. The good part is that our inventory will be less than 1 month, and we want it to be a month. If it is below a month, then some color, some variant will not be available to the customer because we have a huge range of portfolio of modules. So that should be sufficient indication.
And just a second question, just 2 parts. One is that the 14% number that you are seeing, do you think this is in line with the industry as per your internal insight? Or has Maruti gained share? And lastly, incremental commodity pressure. Any commentary on that with the spot prices the way you are seeing?
We won't be able to comment on competition. But yes, what we can say is the retail sales growth year till month, October included, is almost in line with that of market, maybe slightly lesser. So -- but testing, it will be difficult to comment and commodities is a mixed bag. So it's fairly flattish on an aggregate level, if we talk about there are some going up, some going down. So fairly stable.
The next question is from the line of Kapil Singh from Nomura.
I just want to understand for the growth for this full year, we are talking about 3% to 4% in retail and first half has been flattish. So is it that we are feeling that demand conditions in the second half of the year will be better? Or are there any reasons where Maruti Suzuki will gain share? Also on the CNG mix, if you could comment, we've seen very good improvement, it's at 33% already. Do you see this rising further? And any thoughts here where it could get to in the medium term?
I'll take your second question first. So it's a story across multiple factors. One is the distribution infrastructure in the country. Today, we are at 7,000. It will go up to 17,000 by the time of the decade. And the number of models will also keep going up, it has a lower CO2 footprint. So it's good for the environment also.
Customers in upper segments, premium SUVs are accepting it as a quality fuel, it's not supposed to be an economy fuel any longer. So there are factors going positive for it. We don't have a projection, but it's positive. Obviously, if you do the math, yes, then somewhere the H2 will be as what we discussed because we are projective in retail sales 3% to 4% for the whole year. And we did about 3.9% till October. So that's how we expect it to be.
Yes. No, I was just trying to understand any factors that you feel will be supporting this?
Well, it's the overall strength that you play the network change, the service change, the number of models that you have, the number of powertrain technologies that you have, of course, sometimes we have to sweeten with some -- sweeten the offer for our customers with some discounts also. So it's the combined strength of all factors that helps.
Are the discounts in this section higher than what they were last year?
In quarter 2 numbers, I already told you, we have already seen the quarter 2 numbers, INR 29,300. But I mean -- and we fairly expect it to be stable in the remaining part of the year.
You just have to keep in mind Kapil that last year, some vehicles were in short supply.
Okay. Sure, sure, sir. And just one last thing from my side. We have given a long-term target of having 28 models in our portfolio. Like I'm just trying to understand from a dealership footprint point of view, how do you think about the sales network to accommodate these models, if you understand what I'm trying to say?
So that is the question when we had come to investors for -- during the time of SMG acquisition, we had mentioned how to manage scale with complexity is one of our biggest management thinking points and this is one of them. So of course, we have to do some more thinking on it, and we'll keep updating you as we go along.
Sure, sir. And wish you all the best. The entire team of Maruti Suzuki a very happy Diwali.
The next question is from the line of Chandramouli Muthiah from Goldman Sachs.
My first question is just on the model lineup. So I think we have mentioned that we plan to launch one EV per year over the next 5 to 6 years and potentially...
On an average, don't bind us to it, on an average, because we are talking about 5 to 6 till the end of the decade. So that makes average one a year.
Got it. Got it. Makes sense. So one EV per year on average till the end of the decade, 5 to 6 potentially. We currently have about 20 Maruti Suzuki branded models in the market and we're selling maybe 3 more through Toyota. So just trying to understand that 28 model number over time, is that likely to be mostly EV launches going forward with ICE refreshes? Or do we have completely new ICE models also that can surprise us and excite the market over the medium term?
So we have 18 now, and we want to reach about 28. And so of course, 10 is the net new -- 10 is the net additional numbers. But among the 18 also, there will be some refreshments and we have spoken about 5 to 6 EVs. That's how we look at the model lineup in the future.
Got it. That's helpful. And just trying to understand, for the December quarter, how we're looking at the key commodity prices that might affect our P&L? And also what effect we expect from whatever we've seen in lead lag on the Japanese in our accounts?
See, on the commodity side, as we said earlier, we expect it to be fairly stable. There will be pluses or minus within a particular commodity. But as a basket, we expect it to be fairly stable. Again, it's a good question. I mean we have to see several macroeconomic factors, U.S. elections being one of them. .
So -- but what we are doing is we are consciously stepping up our coverage of the hedging because at the end of the day, we are in the business of making cap. So we have to be conservative in our approach. So we are setting up the hedging to see we have less and less volatility on the exchange side.
Got it. That's helpful. And lastly, if you could just add the royalty number for the quarter, please?
Okay. So overall royalty in absolute value is the royalty is about 3.4% of sales.
The next question is from the line of Gunjan Prithyani from Bank of America.
I just had a few clarifications on the comments that you all made in press around the rural and the urban growth. Rural, you guys mentioned 8% and urban minus 2%. I assume this is for first half of the year. Is that correct?
No, no, it was not minus 2% and 8%. Rural is positive. Urban is negative. On the net, net, it is nearly flattish. On wholesale and about 2.4 -- 3.9% on aggregate.
Okay. So I'm just trying to tie in this, like rural is certainly growing positive for us. And at the same time, you also sort of alluded to small car still being under pressure. So I'm just trying to understand what are the demand trends that you're seeing in the rural? I mean, ideally, I would have expected that if rural starts to come back or grow well, then this would mean good for hatches and small cars as well. But it doesn't seem to be the case. It seems like even in rural market, SUVs are the preferred choice or maybe higher ticket prices are still doing better there. So if you can share some thoughts on what's happening in the consumption behavior in the rural itself?
It's not -- the past is not necessarily holds o what it is today. So rural has changed big time, in fact, we should change using the world. It is more of up-country and there is an increasing amount of convergence in the consumption patterns that we see between the so-called rural and the so-called urban. It's not necessary that rural will buy only small cars or lesser price cars. In fact, we are opening NEXA showrooms in up country. So it means that there is a fair amount of convergence happening.
Okay. Got it. And the -- so what really sort of drives the small car recovery? Or I mean is that something we expect when the first-time buyer demand comes back. How do we think about hatches as a category coming back? I know you all had spoken about fiscal '26 is when we see that recovering. Is there more that you can share? You're seeing green shoots in the market. So outlook for next year for the small car segment.
Still nothing new that we can share at this point of time. There is an affordability challenge that we see both from an income point of view and from the cost of cars point of view. But the only thing I can mention is that we've been able to arrest the decline because of some excitement and some limited models in the market.
Okay. And the other clarification, a quick one, which I had was on the discounts being a drag on the gross margin in this quarter. When I look at ASP and other expenses, the discounts really don't show up in those line items. So I'm just trying to understand, is there -- how is discount really accounted for? Usually, we've netted it off in ASP, right? So any change there or anything that I'm reading wrong there?
No. No, you're not reading anything wrong. It's basically the mix is richer. So there is a higher discount. So that's one reason.
Okay. Got it. And last one on the capacity, if you can update, are we on track for that 300,000 capacity in quarter 4. Any recalibration there?
So our plant in Kharkhoda is on track. We hope to commission it within the end of this financial year.
Ladies and gentlemen, that was the last question for today. With this, we conclude today's conference call. On behalf of Maruti Suzuki India Limited, we thank you for joining us, and you may now disconnect your lines.