Maruti Suzuki India Ltd
NSE:MARUTI
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Maruti Suzuki India Ltd
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[Audio Gap] 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, Tanvi. 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 corporate, we have Executive Director, Corporate Planning and Government [indiscernible], Mr. [indiscernible] and General Manager, Corporate Strategy and Investor Relations [indiscernible].
From Finance, we have Executive Director, Mr. Pradeep Garg; and Vice President, Mr. [indiscernible]. The con call will begin with a brief statement on the performance and outlook of our business by Mr. Seth, after which, we'll be happy to receive your questions. May I remind you of the safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainty and the risks that the company faces. I also like to inform that the call is being recorded, and the audio recording and the transcript will be available at our website. But please note that in case of any inadvertent tether during this live audio call, the transcript will be provided with the corrected information. I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Good afternoon, ladies and gentlemen. In its 40th anniversary year despite the shortages of electronic components, the company recorded its highest level annual sales volume. The annual turnover the company surpassed INR 1 lakh crores. Financial year 2022, '23 was also an action pack year of the company. It worked on multiple fronts. Amongst other things, it introduced 3 new models, 4 product refreshes, one of the world's best strong hybrid electric technology, 6-speed automatic transmission technology and a host of new age technology features. Additionally, the company extended the CNG powertrain to 6 models ensure that its entire portfolio complied with new regulations and norms, started construction of a new manufacturing facility, demonstrated an electric vehicle concept. And as its manufacturing [indiscernible] to accommodate market fluctuations, maximize the production volumes amidst shortages of electronic components and expanded the digitalization rise.
The company strengthened its product portfolio in the SUV segment, [indiscernible] and Grand [indiscernible] thereby increasing its market share in this segment. Moving forward with [indiscernible] the SUV product portfolio of the company will be further strengthened. With this, the company aims to secure a leadership position in the SUVs. The Brezza and the flagship SUV Grand [indiscernible] strong bookings since their introduction. The phenomenal success of Brezza and Grand Vitara stands as the testimony of company's ability to come on a larger volume in higher price segment vehicles. The company believes in offering products and technologies that are relevant to the Indian market context. Through extensive market research, the company gathered that in the high-priced vehicle segment as per pretreater loaded vehicles. The company offered a flurry of class features in these new models. -- which added to their excellent acceptance. Driven by new model launches, product [indiscernible] introduction of strong hybrid powertrain and the expansion of the portfolio of CNG-powered models, the company's new model activity saw a multifold increase during the year.
On the product regulations, Phase 2 of CAFE nonshore mandated from first April 2022. The company undertook relevant modifications in products and powertrains to ensure compliance with BS VI Phase II bank and to make all the models compatible with P2 fuel. Given the company's wide portfolio comprising 16 models from over 100 variants, carrying out regulatory compliances not only resource -- is not only resource [indiscernible], but also extremely challenging. The company with meticulous planning and in close collaboration with various stakeholders and show timely compliance. The new models and product refreshes introduced during the year, especially in Utility Vehicles segment received good market response. However, the shortage of electronic components will restrain the ability of the company to fully serve market demand. The company could not produce about 170,000 units with the shortage of electronic components during the year.
To expand production capacity, the construction of a new manufacturing facility in [indiscernible] has started. Our plant with a capacity of 250,000 [indiscernible] per [indiscernible] is to be commissioned within the year 2025. In addition, in light of the estimated market demand, including exports the board today, in principal, approved the creation of additional capacity of up to 1 million vehicles per year. Now coming to the financial results of quarter 4 for this financial year. The company [ sold ] a total of [ 514,927 ] vehicles during the quarter, higher by 5.3% compared to the same period previous year. In the quarter, the sales in the domestic market stood at 450,208 units, up by 7.1% over that in Q4 of last year. The sales in the export markets were at 64,719 units as compared to 68,454 units in quarter 4 of previous year.
During the quarter, the company registered net sales of INR 308,218 million, an increase of 20.8% compared to the same period the previous year. The operating profit for the quarter stood at INR 26,111 million, a growth of 46.7% over that of Q4 of previous financial year. On account of higher sales volume, improved realization from the market and favorable for mix change movements. Net profit for the quarter stood at INR 26,236 million, higher by 42.7% compared to the same period previous year. Coming to the full year, the company sold a total of 19,056,164 vehicles during the year, this translated to a growth of 19% over previous financial year.
In the previous financial year, the sales of vehicles were at 16,052,623. Sales volume in the year comprised of 17,006,831 units of domestic market and highest ever exports of 259,333 units. During the period, the company registered net sales of INR 1 lakh 12,000 -- INR 1.12 lakh crores compared with INR 83,798 crores in financial year '21, '22. The company recorded an operating profit of INR 8,184 crores in financial year '22, '23 as against INR 2,914 crores in financial year '21, '22. The company was able to better its operating profit on account of higher sales volume, improved realization in the market and favorable foreign exchange movements.
With this, the net profit full year grows to INR 80,492 million, which is the highest ever. The net profit in financial year '21, '22 was INR 37,663 million. The Board of Directors recommended highest ever dividend of INR 90 per share, phase value of [indiscernible] INR 5 per share compared to INR 60 per share in the previous financial year. 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 Kapil Singh from Nomura.
I wanted to understand the volume outlook for next year, both from demand and supply side and particularly from supply bottleneck point of view, if you could in terms of what are the factors that are causing these are these specific to some vendors of powertrains for Maruti Suzuki or [indiscernible]? And how do you plan on addressing them so that we can achieve that ahead of industry growth that we are expecting?
So a couple -- for the next financial year '23, '24, the industry body, in estimates, passenger vehicle industry to grow by -- between 5% to 7%. Maruti Suzuki things, we should grow well beyond this. So it will be better than industry. And I missed just semiconductors, right? Second question?
Yes. Basically, we have seen strong demand even in the current year, but we mix-out because of the supply bottleneck. So what I'm trying to understand is are these bottleneck specific to some powertrains or vendors for Maruti Suzuki? Or is it an industry-wide issue? And how do you plan to address them in the next year?
Yes, I'm fully with you. We feel the loss of production because of supply side bottlenecks semiconductors. The problem is a global one. Having said that, it is a particular country, a particular plant, a particular design of a model, the combination works. So if it could affect different models, different manufacturers different modules of the car differently. So of course, all our efforts are to organize supplies through multiple sources. We are also doing the population. For example, if there is a particular semiconductor in a particular variant of a model, which is super fluid not required. Sometimes because of commonization, you keep it. So we are removing all such needs so that our consumption is the minimum. All those efforts are going in negotiations at global scale. Having said that, we are still vulnerable to supply side bottlenecks.
Okay. And the second question was on cost and margins. sir, you could just talk about, we have seen some increase in raw material sales this quarter. So if you could talk us through in terms of what were the factors that impacted this how will the response for the quarter? And what is the outlook for next year?
So discounts during the quarter was at INR 30,269 per vehicle, but they were lower than the third quarter, and they were slightly higher than previous year -- the previous -- Q4 was 11,130. Now we are at 13,269. Q3 was higher at 18,291. So the raw material to net sales is a combination of many factors. -- the proportion of sales in our case from both SMG as well as from Toyota has gone up. And there, the concept of transfusing work, so all the fixed cost of their is loaded on to the material cost. So while you are seeing absolute profits at [indiscernible], as a percentage, there will be a slight change because if that portion is higher, and of course, the node of overhead also goes into the material cost due to the drop of price. So that, I think, is the main reason. But other than that, the raw material prices have pretty much remained constant. There's not been any significant change. Discounts, in fact, come down compared to the third quarter. And foreign exchange rates also have been stable. In fact, yen was at [ 1 40 ] in the second quarter is now slightly deteriorated to about [ 1 32, 1 34 ] between that level. So there would be some impact of the foreign exchange as well, but not significant. So I think these are the factors that have resulted in the ratio that you see as it reflects in the quarterly account and full year accounts.
Next question is from the line of Pramod Kumar from UBS.
Sir, my question is a follow-up to what Kapil asked. Can you just help us understand because of the kind of changes in the models we've done, the kind of feature enhancements, what you've done and the SIs mission. What has been the kind of jump in the average consumption of semis for you because the market has a difficulty in believing that we've been continuously plagued with semiconductor shortage or more than a full year now, and it's not expected to resolve any time soon. But just want to understand, within Maruti, given the model mix what you enjoy currently, what is the kind of [indiscernible] what you've seen on a year-on-year basis on a format basis, if you average number what you had earlier, what is it now?
So that we can better associate the kind of scale of issues that you're facing? And second question was on the demand for the entry-level car segment. We continue to see that category continues to shrink. So according to you, where do you think demand could settle on the lower side for that segment? And what will be needed from a macro perspective for that segment of first-time buyers and [indiscernible] buyers to kind of make [indiscernible]
On the first question, yes, because of higher functionality, premium features, technology, infotainment, the semiconductor content in the car has gone up. It's difficult to put a number because it's a model-wise, variant-wise phenomenon. Having said globally also, one of the reasons -- one of the drivers of semiconductor consumption increases, larger cars and some EVs in Europe also. So I think all manufacturers are affected. Everybody complains about shortages. Everybody has pending bookings. So it's an industry-wide phenomena. And one element that sometimes hurts more is that when semiconductor manufacturers they peg the New Year allocations based on past base figures. So that sometimes works to this advantage. Your second question was on.
Entry level [indiscernible]
So this year, entry-level car in FY '22, '23 were higher than in previous year with a reasonably good growth. However, next year, we expect it to be at a similar level as this year, let's say, a flattish growth.
[indiscernible] positive because generally, we've been picking up the rent-level demand continues to be under pressure for the industry wide, and it's declining even now. So you -- but you expect that it could be flattish on a full year basis?
So in the backdrop of low expectation, this is somewhat positive.
Okay. And last one on the order book status. What is the current order book number with I think still early days with the [indiscernible]? And where do we stand on the order book side? And if you can give a broad breakup of the order book in terms of CNG and key models, just to understand what the kind of model mix for the engine on the order book versus, say, just 21% volumes of SUV and MPV right now? What is the kind of order book mix, if you can help us understand.
So the total order book as of today morning would be 412,000. CNG is about 1/3 of that. And we have -- the new SUVs that we have launched are also at a good number.
[indiscernible] last one. Other expenditure any comment on the [indiscernible] lumpy expenses this quarter because that will probably not recur for the next 2 quarters [indiscernible]. So any color there as to what -- how big was that?
On the marketing side, I think the exception would be auto expo, which happens once in 2 years. The expenditure was about INR 40 crores that occurred in this year. which I think will not get repeated in the next year.
The next question is from the line of Gunjan Prithyani from Bank of America.
Just before I get to my question, I just had a follow-up on this semiconductor thing because, I mean, I do understand that it's vulnerable. But is -- can you just give us some clarity as to are there any vendor conversations, which gives you an indication that second half could be normal. I mean, any clarity around when do you see this normalizing? Because I did see some flashes that you all were talking about 2, 3 quarters. So is there some vendor negotiations which are ongoing or capacity increase?
We do not have full year visibility, but at least quarter 1 will be tougher than other quarters. And broadly, the uncertainty continues.
Okay. Okay. And the second question I had was on the [indiscernible] related cost impact. If you can just give us some sense on what was the cost implication? And are we adequately covered up with the price increases that we've taken?
Yes. So fortunately, BS VI Phase II for gasoline doesn't cost much. And now possibly analysts would be able to look back at the decision we made when we decided to exit diesel because diesel RD and OBD, onboard diagnostics, both are part of BS VI Phase II, which were mandated from 1st April this year. So diesel would have seen significant cost jump diesel models. And this year, we'll also have ESC, electronic stability control, that will have a minor cost impact. And will have seatbelt reminders that will also have a minor cost impact. Other than that, we don't see any regulatory impact this year. We are -- in CAFE, we are the best -- we have the least CO2 in the entire -- among all the car manufacturers, we have the cleanest fleet with lowest CO2 value. And I do believe that not all are in a similar comfortable position. So on regulatory front, Maruti is well positioned.
Any clarity on the airbag thing that we have since you said we are not expecting any further regulation.
So it is still in a draft notification stage and industry is in discussions with the government. I believe they will arrive at some workable solutions.
Okay. The second question I have is a little bit broader one on this whole EV shift, which is becoming more prominent in the fleet segment because we've seen some of these shared mobility guys come and make big commitments on the EV front. How are we thinking about that segment? Because it's been an important segment for us, particularly at the small car -- entry car segment. So is there something that is in the works? Or how do we position for this greener shift that even the shared mobility companies are calling out for?
See, sometimes the use terms interchangeably. When we say greener shift, the green is in the CO2 value. Maruti Suzuki has the least CO2 in the entire -- among all car manufacturers in India. For the simple reason that it is not just 1% of your portfolio, which is -- which contributes to the CO2, it's the balance 99 also. So the entire portfolio, all the volume of sales have to have a lower total, that's how the green shift happens. Now coming to your question about shared mobility in electric. We will be launching our EV next financial year, which is '24, '25. And the specs are quite powerful, 550 kilometers range, 60-kilowatt hours battery size and a very competitive charging time also. And all the use case patterns we are studying closely, and we'll be there when the market needs us.
The next question is from Raghunandhan N.L. from [indiscernible] Institution
Congratulations on good set of numbers. Sir, my first question was on precious metals. They form more than 5% of your RM cost. And in the last 2 months, rhodium, palladium seem to have taken a fall of anywhere between 10% to 30%. Just wanted your thoughts on how are you seeing the commodity basket going forward?
So commodity is a mixed bag. You have to -- I mean precious metals, of course, you've said that some of the precious metals have corrected. The impact comes with a lag effect. So -- we -- as we mentioned, there's a quarter lag in the impact that's captured. But there are certain other commodities which have also seen an uptick. So it's a combination of all that you would have to see. But yes, you're right, rhodium, palladium have seen some correction from the levels that they were at.
I think for us, the biggest commodity still remains as steel, where we have been told by our supply chain team that moving forward, they are seeing some some increase in prices, given the demand is picking up now. So that's something that we need to watch because half the commodity basket is steel and the balance are is the other commodities. So I think it's a combination of all the impact of this, if any, will be captured in the next quarter -- in the first quarter. And -- but it's have to be seen along with all other commodities put together.
And sir, for FY'23, if you could give some color in terms of customer mix, how has it been for rural versus urban first time additional buyers and replacement? How has this changed which segments are doing well?
So the first time buyers is about at 42%, and it is fairly consistent with the past. Replacement buyer at 21%. Additional car in the family is 37%. And rural continues to be strong.
Sir, share of replacement has gone up, sir?
Replacement, when it -- marginally gone up from 19% to 21%.
Got it. And going forward, which customer categories you expect to do better?
See what we -- of course, the larger shift is the move towards premium cars, towards SUVs. SUVs are now a large part of the overall market, I think we are at 43%. And this may increase further. So there is clearly a shift towards SUVs. And fortunately, we have also launched a number of very exciting products in this segment. So that is the biggest trend that we are seeing as of now.
I mean, just to clarify, I was trying to ask in first-time replacement additional buyers, how do you see the trend going forward? That's the last question from my end.
So the first time continues to be under some kind of pressure while the replacement and additional buyers can see an upward trend.
The next question is from the line of Amyn Pirani from JP Morgan.
My question was on this capacity announcement and the CapEx number. So I think this year, you spent around INR 6,000 crores. And it seems from some press releases -- from the press comments, it's INR 8,000 crores for next year. And there's a talk of 1 million capacity. So this 1 million capacity will be coming in the same place where you're doing the 250 Haryana? And what would be the time line for that?
No. The 250 Haryana is the first plant in the [indiscernible] side district [indiscernible]. And [indiscernible] has room for 4 such plants going up to 1 million.
The board approved today in principle was additional to this 1 million -- 1 million in addition to what we have [indiscernible]. But it's set a preliminary stage more groundwork needs. This is an in-principle approval. More ground work needs to be done, where, how, what, at what cost all that needs to be done.
Okay. And would it be fair to say that the 1.3 million that you mentioned that you have in Gurgaon and [indiscernible] remains that? Or does this new 1 million also means that this 1.3 million could also have some reduction, especially in Gurgaon where you are already, I mean, almost in the middle of the city.
I understand what you -- at least [indiscernible] will stay -- in fact, [indiscernible] will go up by INR 1 lakh in the next financial year, '24, '25 because in the intermediate we will need more capacity and we might to serve market demand. And a lot of this picture will emerge as time progresses. So in the next 2, 3, 4, 5 years, depending upon how the market grows, we might have to follow a reactive strategy and keep adjusting ourselves to this. Having said that, we cannot say that Gurgaon will reduce as of now, it depends on the market.
Okay. And just lastly, can you confirm the INR 8,000 crore CapEx number? And what it would be spent on for next year? That's all from my side.
Yes. So INR 8,000 crores is the CapEx number for next year. And I think there is this core investment that's going to happen. There will be also investment in new models, new projects. There is also the regular expenditure on the annual maintenance of all the CapEx that we have. So it's a combination of all this. But I think the majority of this is towards the new [indiscernible] plant.
The next question is from the line of Jinesh Gandhi from Motilal Oswal.
Firstly, can you talk about our realization this quarter was more or less flattish on 2Q [indiscernible] despite discounts going down, despite mix improving. So is there any one-off there? Can you talk about that?
No, there's no one-off. I think it's to do with the mix that you are selling in a particular quarter. And as I think it was earlier mentioned that due to semiconductor shortages, you have to adjust your mix to the available [ models ] that you can sell. So depending on what models you have for a particular quarter, where realizations will vary. But I think it should be looked at from a U.S. perspective, the realizations on a yearly basis have moved significantly higher. Don't go by a quarter basis because it will largely depend on the mix and the availability of semiconductor. But I think moving forward, as our focus is on the newer models and also the bigger models, you would see the realization going up.
Sure, sure. And can you share some data points like what was your export revenues for the quarter and the full year to the royalty for the quarter? And did [indiscernible] production for fourth quarter and FY'23 as you whole?
Export realization revenue in Q4 was INR 3,900 crores approximately. And for the full year, it was INR 14,652 crores.
[ Gujarat ] production of quarter end?
Gujarat production was 186,786 units this quarter. And for the full year, Gujarat production was at 671,692 units.
Okay. This is helpful. And lastly, on the CNG side, are we seeing some stability and recovery given on the CNG price? And what was the CNG phasing for the full year FY'23?
So last year, we sold about 330,000 CNG cars. And of course, this year, we should grow from that number. And yes, there is positive traction after the government rationalized prices.
[indiscernible] for the full year was at 20%, but in some months, it has gone beyond 20% also.
The next question is from the line of Pramod Amthe from Incred Capital.
So the first question is with regard to the sourcing from Toyota. So there have been some talks about capacity expansion of 30% happening there. Will it also benefit you sort of think of products on there. Any thoughts?
So of course, since there is a constraint, so we are negotiating all the time. And if if there is any increase, we'll let you know.
Okay, sure. And the second question is with regard to the expansion plans, which you are planning. It seems to be [indiscernible] compared to what initiated you thought. And since this is happening more from internal accruals. Any thoughts in terms of your dividend payout policy in the period going up to commissioning of this capacity?
So I hope this time, we had the highest ever dividend payout -- sorry, dividend per share.
But we were looking for a payout, right? What you ultimately and you give us because the last time the per policy was announced when the it set up the plant to get that comfort. So I just wanted to get extra how are you guys looking at managing the [indiscernible]
So of course, as you rightly mentioned, most of this -- most of the CapEx on new capacity can be met through internal accruals. And hopefully, it should happen through positive free cash flows. So the dividend question always remains with us. And the last word on technology has not been said, the auto industry is going through a major transformation. It's not just technology, it's business models also. So many areas where we might need investment. So we are watching. But you would have noticed a calibrated increase in trend in the dividends also.
And the last question is with regard to a couple of new initiatives which you have taken in terms of the new way of financing the vehicles or to that extent the digital sourcing. Any update in terms of what's been the benefit of that on the sales, what proportion you have been able to source there.
There is...
So see the marketplace that we've been using for financing. I think that's been a very good -- [indiscernible] taken a lot of has been welcomed by the customers because they get a platform where they're able to get the best rates given the credit profiles. And we have seen a significant uptick in terms of increase in the penetration on through that portal. So that -- so all the digitization initiatives that have been going on in the marketing are really paying off, and this is one in terms of giving them a platform where they can compete the finances can compete for offering the best rates to a customer with their credit profiles. And I think it's significantly increased from when we started and virtually all banks are now participating in it.
The next question is from the line of Chandramouli Muthiah from Goldman Sachs.
My first question is on the Grand Vitara model. So I think the strong hybrid variant mix seems to now be the mid-20% based on your last update versus in excess of 40% at the time of the launch last year. So maybe could you just share your thoughts on what could be driving this normalization? And any thoughts you're able to share around the company's plans for a strong hybrid technology for the other utility vehicles in the portfolio would also be helpful.
Okay. See, this is a very normal phenomena across -- it's not just to do with the powertrain. Whenever we launch a new model, the first few sales have a higher percentage of the top most variant of the topmost features of functionality and then it normalizes after that because the early adopters, they take the bookings first. So it's a very normal phenomenon across features, not just the powertrain. You're right, it's in mid-20s. And we are -- the people who drive this car -- drive this strong hybrid technology are very happy with it. We've got positive response. We plan to bring it in more models also, as you mentioned. I missed your second question.
Yes. I think that's helpful. My second question is on the channel inventory numbers. As things stand, maybe if you could just share your channel inventory numbers for the domestic market, export market, factory inventory and sort of discount per vehicle as well please?
There's a heavy waitlist so that inventory is below normal. It's about 2 to 3 weeks. We would have liked it to be higher.
Got it. Got it. And just the discount per vehicle as well at the end of the quarter [indiscernible]
Mentioned it earlier, for the quarter, it is at INR 13,269 per vehicle.
Thank you. Ladies and gentlemen, that was the last question for today. And 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.
Thank you.