Maruti Suzuki India Ltd Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Pramod Kumar - UBS - Analyst : Yeah, thanks a lot for the opportunity. And congratulations on what appears to be a very good set of numbers operationally. So, Rahul san, my first question is on the data point on discounts as to what were the average discounts for the quarter, sir? Because you did say that discounting pressure increased. So what is the average discount we incurred this quarter for vehicle?

Question: Pramod Kumar - UBS - Analyst : So that compares to INR14,500 discount what we had in 4Q, is that right?

Question: Pramod Kumar - UBS - Analyst : Sir, just help me understand this, the margin print what you have posted, because whatever you said, there is no one-off as such in terms of any lumpy item or any one-off gains as such, and there would be an operating utilization right now. So at what levels are we operating in terms of capacity utilization at the plant level?

Question: Pramod Kumar - UBS - Analyst : So we are nowhere close to the kind of capacity utilization what some of our peers are operating, we have very high discounts in most of our categories. And we had operating deleverage, which was quite severe. So what I'm trying to understand is like what is driving this kind of margin, as in is it the CNG led mix which is aiding our margin or profitability to an extent of the product mix itself within CNG, automatics and other things. So if you can just help us understand the reason for this resilient margin, because as I see, employee expenses have also gone up meaningfully, even on a sequential basis and other expenditures have not reduced meaningfully quarter on quarter, despite the operating deleverage. So what I'm trying to understand is that effectively with this kind of adverse environment, if we're reporting this kind of profitability, what would -- what should one expect if the operating environment gets better in terms of both demand, discounts, and new launches, I think. Just trying to understand, are we looking at a much significant operating margin band for the company going forward?

Question: Pramod Kumar - UBS - Analyst : Yes sir.

Question: Pramod Kumar - UBS - Analyst : And how important is the mix as an element, sir? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / NTS, MRTI.NS - Q1 2025 Maruti Suzuki India Ltd Earnings Call

Question: Pramod Kumar - UBS - Analyst : Fair enough. Sir, on the demand environment, if you can just help us understand, you did call out heat wave and other impacts, but how do you see the demand from your vantage point currently, given the introduction of Dream Series and how is the inquiry and other general walk-ins and all that kind of shaping up, and how should one expect the festive season to shape up? I understand the higher base, but sequentially, how should one read the demand trend from here on? And any signs of any green shoots or any bottoming out of demand in entry level category?

Question: Pramod Kumar - UBS - Analyst : Fair enough. I have more questions, I'll get back in the queue. Thanks a lot and best of luck.

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Thank you, sir, for the opportunity. Congratulations on strong margin performance. Sir, my first question was on the raw material costs. In opening comments, you indicated that RM QoQ basis has or gross margin QoQ basis has improved by 90 basis points. Out of that 60 basis points was one-off. So the remaining 30 basis points would be largely from commodity and ForEx benefit. Would that be right understanding? And also because recently, non-ferrous, there was some increase. Do you see any commodity price increase happening for Q2?

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Got it, sir. And going forward, do you see any negative impact?

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Thank you, sir. My second question was on the demand side. So number one, as you alluded in your comments that the rural is doing better. So are you seeing with improvement in rural the share of first-time buyer, I think pre-COVID, it was 47%, 48% and it had come down to about 40% to 43% in FY24. Are you seeing this segment coming back and how you think that could impact positively support the hatchback demand maybe by second half or next year? That is one part. Second, if you can also talk about recently in UP, there was that the road tax rebate on hybrid. So has that been implemented? Are you expecting other states also to follow? Your thoughts on that. Thank you.

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Got it, sir. And lastly, sir, if you can share us the exports number for Q1, export revenue and the royalty revenue, I mean royalty percentage? And also if you can talk about which regions you are seeing the growth in exports? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / NTS, MRTI.NS - Q1 2025 Maruti Suzuki India Ltd Earnings Call

Question: Raghunandhan N.L. - Nuvama Research - Analyst : I was referring to export revenue numbers, sir.

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Total number, sir.

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Thank you. And your thoughts on which regions are doing well? Recently also we had export month where number was presented 30,000 in a single month. Where are you seeing the growth and how do you see the outlook? Would you retain that 3 lakh kind of outlook for full year?

Question: Raghunandhan N.L. - Nuvama Research - Analyst : Got it, sir. Thank you so much and wishing you all the best.

Question: Kapil Singh - Nomura - Analyst : Hi, good evening, sir. Congratulations on the strong performance. Just one clarification before I ask the question. So this quarter's raw material to sales does it include any element of reversal, did I understand that correct? And what is the nature of that?

Question: Kapil Singh - Nomura - Analyst : Okay. So sustainable margins, if one has to see, one has to adjust for that 60 basis points. Is that the right way to look at it?

Question: Kapil Singh - Nomura - Analyst : Okay. Okay. Perfect. That helps. Sir, one question was that we are seeing pretty healthy ASPs and margins also. Is there a thought process here that we redeploy some of these gains to drive a stronger volume growth, given that market conditions are looking tougher? And where are you on inventory levels right now as well?

Question: Kapil Singh - Nomura - Analyst : Sure. And the second question was on hybrids. Just as where the current taxation regime is in India, do you see hybrids as a technology being viable and would you be investing in this technology for future products at current level of taxation?

Question: Kapil Singh - Nomura - Analyst : Okay. What is the experience from UP market? Is there a significant increase in adoption after the change by the UP government?

Question: Kapil Singh - Nomura - Analyst : Okay. Right, sir, thanks. I'll come back in the queue.

Question: Binay Singh - Morgan Stanley - Analyst : Hi team, thanks for the opportunity. Three questions from me. First is our last year in Q1, you called out that staff was -- there was this sort of retention payment that you had done? There was an 80 basis point one-off in staff, and we did see staff cost actually taper down in the following quarters. Any number you want to call out in this quarter on staff, which is a specific to this quarter?

Question: Binay Singh - Morgan Stanley - Analyst : Okay sir. So is it like last time, I think we called 80 basis point as one-off on retention related payments and --

Question: Binay Singh - Morgan Stanley - Analyst : Okay. Okay. Okay. So similar in a way trend will play out this year broadly? Hello team?

Question: Binay Singh - Morgan Stanley - Analyst : No, we couldn't hear your response.

Question: Binay Singh - Morgan Stanley - Analyst : Right. And sir, secondly, then just on the CAFE 3 norms, we do understand it's very stringent. Is there full clarity that they will get implemented from April 2027. And secondly, so some of your peers are saying that they need to sell 20% to 30% of portfolio as electric vehicles to meet those norms. What percentage will Maruti target down to meet those norms?

Question: Binay Singh - Morgan Stanley - Analyst : So even the super credit, which I understand for EVs, PHEV, HEV is different and penalty, is it finalized now that the 3:1 super credit and the penalty per vehicle if you don't meet the norms?

Question: Binay Singh - Morgan Stanley - Analyst : Great team, thanks. I'll come back in the queue.

Question: Amyn Pirani - JPMorgan - Analyst : Yes, hi. Thanks for the opportunity. Most of my questions have been answered. But basically, I just want to go back to the first-time buyer. Now, would it be fair to say that as the share of first-time buyers have come down, between first-time buyers, these salience of small cars has also come down because now we have a lot of micro SUVs and small SUV, which are also attracting a lot of small -- a first-time buyer. So can you provide some color as to, you know, say for the Fronx or Brezza, are you seeing an increasing number of first-time buyers, which earlier used to come mainly for say, the Alto or the Swift, or the Baleno?

Question: Amyn Pirani - JPMorgan - Analyst : Yes.

Question: Amyn Pirani - JPMorgan - Analyst : Okay. And could you just put a broad number say for the Fronx, if first-time buyers like 20% or 50%, I mean, any broad range is something that you can provide.

Question: Amyn Pirani - JPMorgan - Analyst : Okay. Okay. Okay. And secondly, so you have addressed a lot of SUV white spaces in last two to three years. And as you know, every year goes by, the new SUV categories or sub-categories are also coming up. In the next 18 to 24 months, when you think of the launches that you may have, is the micro SUV category or say a Fronx below kind of a category is something that you would look at? Or is that something that you think that we should be looking at?

Question: Amyn Pirani - JPMorgan - Analyst : Yeah.

Question: Amyn Pirani - JPMorgan - Analyst : Yeah.

Question: Amyn Pirani - JPMorgan - Analyst : Okay, understood. Understood. Thanks for this. I will come back in the queue.

Question: Gunjan Prithyani - BofA Global Research - Analyst : Yes, hi, thanks team for taking my questions. I had just a couple of follow-ups, very quick ones. One on the order book, if you can share where it stands and you notice the mix that you usually give, how much of it is from CNG or Ertiga, if you can give those details? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / NTS, MRTI.NS - Q1 2025 Maruti Suzuki India Ltd Earnings Call

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay. And that's good to hear. I'm just trying to see if there is a backlog to sort of think which we have serviced more in this quarter because the last time order book had quite high composition of CNG so. If you can share where order book stands. And as a percentage of CNG for a full year basis also, this is something which we can still continue with roughly around 33%, 35% share of the CNG portfolio basis.

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay. Got it. So that mix tailwind should continue. Okay. My second question Rahul san is on this on sales to the OEM, that is certainly seeing a meaningful jump drive from almost doubling with the number of models being shared with Toyota increasing. Is there like a sort of a broader thought process you can share with us, how should we think about growth, our volumes in that category. It's increasingly, the number is becoming significant, right? So any thought process on how we should think about volume targets, your growth here? And are there any models that you can share in from here also which are which can potentially come under co-badging in fiscal '25 or '26, whatever you can share for us to think through this.

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay, got it. Just last one on the FX. You did call out there is an FX tailwind in this quarter with the reversal that we are seeing in yen now, yen appreciating. Is there something that we should keep in mind when thinking through the margin sustainability going ahead? Is there a large element that reverses or the FX is very, very marginal. Any thoughts there?

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay. Got it. Thank you so much.

Question: Chandramouli Muthiah - Goldman Sachs L.L.C. - Analyst : Hi, good evening and thank you for taking my questions. My first question is on the topic of SUVs. So if I just look at your mix, just adding utility vehicles and vans, FY19, it was about 25% of your domestic volumes. In 1Q FY24, it was about 36% of the domestic volumes, and 1Q FY25, it seems to be 45% of domestic volumes. So just trying to understand, I think for the full year FY24, close to 60% of domestic car volumes was utility vehicles plus vans. And as you plan your capacity and your model launches for the next five years of growth, just trying to understand if you're trying to target SUV mix to be beyond 60% that the industry enjoys today in volume mix

Question: Chandramouli Muthiah - Goldman Sachs L.L.C. - Analyst : Got it. That's helpful. And my second question in a slightly more futuristic question. I think Suzuki is investing in a battery manufacturing plant in India, think production there is potentially expected to start in CY26. So I just want to understand, initially, do we plan to first start with assembly of the battery pack or do we think that we can start with cell manufacturing around that time frame? And just in addition to that, if you can shed some light on if there's any battery chemistry preference that the company has? At this point, most electric cars in India seem to be running on LFP technology, but Maruti has thought out of the box in the past. So just trying to understand what your sort of battery chemistry thinking is in house at this stage.

Question: Chandramouli Muthiah - Goldman Sachs L.L.C. - Analyst : Got it. Thank you very much and all the best.