Maruti Suzuki India Ltd Q3 2021 Earnings Call Transcript

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

Question: Kumar Rakesh - BNP Paribas, Research Division - Analyst : My first question was for Ajay. So you had earlier talked about how volume is one of the key drivers for margin performance. Now sequentially, our volume increased by more than 26%, but our operating profit has largely remained flattish. Can you please help us understand where the margin was, what happened during the quarter? And what within that can reverse in the coming quarters? Ajay Seth - Maruti Suzuki India Limited - CFO & Member of Exec. Board (Finance, Corp. Planning, Co. Secretarial, Legal and Internal Audit) Yes. So as I mentioned in the opening remarks that one of the dead front to us this time was significant increase in the commodity prices. And the uptick doesn't seem to stop. I think some impact of that will be seen in the fourth quarter as well. And we are now working to see what is the impact of overall commodity increase. This quarter saw an impact of almost 300 basis points on overall commodity increase, which was largely -- and there was no pricing action that was taken by us in the third quarter. So that was largely the reason for the flattish -- so there was some play of operating margin. In spite of a 3% commodity increase, our operating margin was shaped better than Q2, which was largely possible because of the operating leverage and a few cost reduction initiatives that we have taken. But largely, the reason is the commodity price increase, that's kind of -- as capital margins are at the same level as Q4 of this year.

Question: Kumar Rakesh - BNP Paribas, Research Division - Analyst : Got it. My second question was, what would be our strategy to manage these cost inflations, the cost efficiencies, as well as pricing increase? So how essentially, we are going to look at the balance between the margin performance and the price increases? Ajay Seth - Maruti Suzuki India Limited - CFO & Member of Exec. Board (Finance, Corp. Planning, Co. Secretarial, Legal and Internal Audit) So I think we will have to keep a balance within the market and pricing action. We'll have to see how the demand is. And while on one hand, we are reducing, we have sales promotion over what we had in the previous year, so that's helping us. But we have also taken some pricing action where we have moved our prices in quarter 4, I think it will be effective end of January. So there will be some impact of that, that you will see in quarter. However, we'll have to continue to gauge in terms of how the commodity cost moves up. And therefore, what are the actions that are required internally in terms of cost optimization further. So we have also looked at our supply chain very closely and looked at what are the other methods of which we can then offset the commodity cost by various other initiatives that we can pick up. So that work is all at this point in time.

Question: Gunjan Prithyani - JPMorgan Chase & Co, Research Division - Analyst : Two questions from my side. Firstly, on -- we hear a lot about the shortage of steel, semiconductor, not just in India, even from the global OEMs. If you can just talk us -- talk about, is there any challenge we can face you anticipate in the next 3, 6 months due to these shortages?

Question: Gunjan Prithyani - JPMorgan Chase & Co, Research Division - Analyst : Okay. So on the semiconductor, as of now, we don't anticipate any...

Question: Gunjan Prithyani - JPMorgan Chase & Co, Research Division - Analyst : Yes. Okay. Okay. The second question was on the demand side. I mean you did point out the risk of the macro and all. But can you just share more color on what are we seeing in terms of retail demand over the last post festive, post year end sales? And what kind of order backlog, wait periods are there? If you can give some sense, is there any order backlog that we are carrying? Because inventory, clearly, there are situations of stock-outs in the market. So if you can talk about that.

Question: Gunjan Prithyani - JPMorgan Chase & Co, Research Division - Analyst : Sir, can you provide the inventory level?

Question: Gunjan Prithyani - JPMorgan Chase & Co, Research Division - Analyst : Sorry, the channel stock, you mentioned -- did you mention about the channel stock, maybe I missed it.

Question: Gunjan Prithyani - JPMorgan Chase & Co, Research Division - Analyst : Okay. Just last question from my side, if I can squeeze in, this price increases that you spoke about, I mean, I understand, we can't calculate what is the impact for this quarter 4 on the commodity. But the increases, the price hikes that we have taken in Jan, does that give us comfort that the inflation that we saw in Q3 has been largely offset? Or even there is a cost absorption flowing through from past quarter as well? Ajay Seth - Maruti Suzuki India Limited - CFO & Member of Exec. Board (Finance, Corp. Planning, Co. Secretarial, Legal and Internal Audit) As we said, that the inflation on account of commodities is pretty steep. And we talked about number of 3%. So we are taking a collaborative call in terms of how much price increase we can do and how much of it should be absorbed by other means. So we are working on other measures. Whether we will be able to fully contain it is a difficult question to answer at this point in time. But we are internally definitely working on not only the price increase measure, but also the other measures that we can take to ensure that the impact is minimized. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2021 / 9:30AM, MRTI.NS - Q3 2021 Maruti Suzuki India Ltd Earnings Call