Maruti Suzuki India : Transcript of the Investor Conference call - Q1 FY2023-24

`

Q1 FY24 - Investor Conference Call

July 31, 2023

1 | P a g e

MSIL Conference Call Transcript 31 July 2023

Moderator:	Ladies and gentlemen, good day and welcome to the Q1 FY24 Earnings Conference Call of Maruti Suzuki India
	Limited.
	As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask
	questions after the presentation concludes. Should you need assistance during the conference, please signal an
	operator by pressing '*' and then '0' on your touchtone phone. 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:	Thank you, Dorwin. 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 Affairs) - Mr. Rahul Bharti, and General Manager (Corporate Strategy and Investor
	Relations) - Mr. Nikhil Vyas; from Finance, we have Executive Director - Mr. Pradeep Garg, and Vice President
	- Mr. Dinesh Gandhi.
	The concall will begin with a brief statement of 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 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 would also like to inform you
	that the call is being recorded and the audio recording and the transcript will be available at our website. You
	may please note that in case of any inadvertent error 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.
Ajay Seth:	Thanks, Pranav.
	Welcome, ladies and gentlemen.
	I'm pleased to report that Maruti Suzuki has demonstrated resilience and maintained a steady course in the first
	quarter of the fiscal year 23-24.
	Let me start with some of the recent business highlights:
	To strengthen our product portfolio in utility vehicle segment, the Company launched a premium three-row utility
	vehicle, Invicto. With this launch, the Company debut in the 20 lakh+ price segment.
	Coming to other business highlights:
	During the quarter, start of sales of two new SUVs, the Fronx and the Jimny has positively contributed to the
	Company's performance.
	Overwhelming response to these SUVs, coupled with the strong sales performance of other two SUVs, the Brezza
	and the Grand Vitara, the Company posted a market share of about ~20% in SUV segment during the quarter 1.

2 | P a g e

MSIL Conference Call Transcript 31 July 2023

Recently, the Company further expanded its green car portfolio by offering S-CNG powertrain technology in Fronx. With this Maruti Suzuki now offers 15 models with factory-fittedS-CNG technology.

During the quarter, in the domestic market the Company sold a whopping 113,000 vehicles powered by S-CNG technology. This resulted in highest ever CNG penetration of about 27%.

In the export market, the Company expanded its portfolio by starting the exports of Fronx to destinations in Latin America, Middle East and Africa.

Coming to the business environment

During the quarter, the Company continued to face the electronic component shortages, particularly in the models witnessing high demand. The Company could not produce about 28,000 vehicles in Q1 FY24. Pending customer orders stood at about 355,000 vehicles at the end of the Quarter and the Company is making efforts to serve these orders fast.

Limited visibility on availability of electronics components is a challenge in planning our production. With the support of our supplier and dealer partners and efforts of our Supply Chain, Engineering, production and sales teams we managed to maintain healthy sales volumes during the quarter.

Today, Maruti Suzuki Board approved acquiring shares of SMG from SMC

With the growth of the Indian car market and export potential, Maruti Suzuki India Ltd (MSIL) would need to increase its production capacity to about 4 million cars per annum by FY2030-31, almost double from current levels. This would happen over several locations, some of which are known and some being studied. On the other hand, given the carbon neutrality requirements, several powertrain technologies like EVs, Hybrids, CNG, Ethanol etc. will co-exist for a reasonably long period of time. Managing this scale and complexity of production with multiple powertrains, under different managements, would pose several challenges.

The Board of Directors considered this and decided that for the purpose of efficiency in production and supply chain, it is best to bring all production related activities under MSIL. Accordingly, the Board approved termination of the contract manufacturing agreement and exercising the option to acquire the shares of Suzuki Motor Gujarat Pvt Ltd (SMG) from Suzuki Motor Corporation (SMC) subject to all legal and regulatory compliances including minority shareholders' approval.

The mode of acquisition including consideration to be paid to SMC shall be decided in a subsequent Board meeting.

In terms of actual production, logistics, sales and the cost thereof, there will be no change as the cars earlier supplied by SMG as a contract manufacturer, will now continue to be supplied as before.

Coming to the Highlights of financial results: Q1 (April-June), FY 2023-24

The Company sold a total of 498,030 vehicles during the quarter, higher by 6.4% compared to the same period previous year.

In the Quarter, the sales in the domestic market stood at 434,812 units, up by 9.1% over that in Q1FY23. The export sales were at 63,218 units as compared to 69,437 units in Q1FY23.

3 | P a g e

MSIL Conference Call Transcript 31 July 2023

	During the Quarter, the Company registered highest-ever quarterly Net Sales of INR 308,452 million as against
	INR 252,863 million in Quarter 1 of FY2022-23.
	The Net Profit for the Quarter rose to INR 24,851 million from INR 10,128 million, a growth of 145.4% over
	that of Quarter one of last year. This was on account of larger sales volume, improved realization, cost reduction
	efforts and higher non-operating income.
	We are now ready to take your questions, feedback and any other observations that you may have. Thank you.
Moderator:	Thank you very much. We will now begin the question-and-answer session. The first question is from the line
	of Kapil Singh from Nomura, please go ahead.
Kapil Singh:	Decision that we have announced for acquiring the SMG plant. Can we talk about have we thought what could
	be the timelines and mode of consideration, so will it be in the form of cash only or there can be other options
	like share swap, etc., also which may be evaluated.
Rahul Bharti:	This part has not been deliberated so far. As we mentioned both in the press release and in the CFO speech in
	the beginning, this will be deliberated in a subsequent board meeting and we wish to complete it within this
	financial year by March 2024.
Kapil Singh:	Will there be any efficiency gains here as well, which will be there for the combined entity that you can envision?
Rahul Bharti:	Broadly speaking, yes. We have so many powertrains, ICE engine base, the EV base, and the hybrid. There
	would have been some challenges if we had not integrated them together, at least now the decisions would be far
	more agile. We can quickly make changes in the production plan, location plan etc. MD also mentioned in the
	press conference, we are also expecting some economies of scale.
Kapil Singh:	Second question is on cost. We have mentioned that there is some 80-bpsone-off cost. So, if you could talk about
	that and what is the normalized level of cost and also just the overall industry outlook that you are seeing right
	now, competitive intensity, discount levels and inventory levels?
Ajay Seth:	So, this 80 basis point is one time, where we have made some payments to employees for retention related
	payments and this would not be repetitive in nature. It will not occur in the next quarters. If you see the employee
	cost, it is inflated in this quarter because of these payments and also due to the retiral benefits which certainly
	comes in the first quarter, and it is not repeated in the subsequent quarter. The second question that you asked
	about discounts. Discounts have been slightly up compared to last year. Last year discounts were at INR 12,748
	per vehicle. Now it is at INR 16,214 per vehicle and also up from the quarter 4 of last year, quarter 4 was INR
	13,269 per vehicle. I think with the semiconductor situation easing and with the mix becoming better, discounts
	should also progress. But you will have to see how the market behaves in a given quarter and accordingly,
	discounts would have to be maneuvered. In the third quarter, normally the discounts are higher because you have
	the year-end clearance of your cars. Discounts will vary in each quarter as I have mentioned.
Kapil Singh:	And also, the outlook and inventory level, if you could talk about that demand outlook and inventory level?
Rahul Bharti:	The demand outlook is fine at the moment. If you notice in Q1, competition (industry minus Maruti) grew by
	about 7%, while Maruti could grow over 12%. Since we have a good model lineup of recently launched, mostly
	SUVs, we expect that momentum to continue. The only issue is that in Q2, the last year base is very high. So,

4 | P a g e

MSIL Conference Call Transcript 31 July 2023

	while the absolute sales should continue, the growth figures might look less in Q2 because of a high base last
	year.
Ajay Seth:	Network inventories would be about 125,000 units at about 4 weeks.
Moderator:	Thank you. We have the next question from the line of Pramod Kumar from UBS. Please go ahead.
Pramod Kumar:	Before I go with the questions, just a clarification. If my memory serves me right, when we did this arrangement,
	there was this worry that the consideration for a buyback of the plan maybe at a higher value. So, you had assured
	that it will be at a book value. So, just wanted to clarify that so does that hold good even now as in?
Ajay Seth:	So, the contract manufacturing agreement, the way it is drafted and approved by the minority shareholders clearly
	lays down the principal that if it is to be terminated at any given point in time, the purchase would be at the net
	book value, so it holds good. The contract manufacturing agreement is very clear about it. There cannot be a
	deviation from the approval given by the minority shareholders.
Pramod Kumar:	That's great to hear. Then the question from my side on the business side. Even on the other expenditure side,
	we've seen some uptick. Just want to clarify, is it related to what we heard from other companies as well related
	to IPL spends and also you had couple of launches. Is it fair to assume that the recurring run rate may be a bit
	lower than where we are today, or you think these are going to be the sustainable level on special marketing
	costs?
Ajay Seth:	So, one I mentioned is that there is some 80-basis point expenditure on account of employee cost which is not
	recurring in nature because we had to account for these in the first quarter as we had paid some retention bonuses
	etc. to employees for a long term retention. But the other expenses, it will depend on the period in which the
	launches takes place or the events take place. It may vary a little bit, as we launch more models. Marketing
	expenses will continue to be at this pace in the near future. So, this is an investment we are making in the long
	run, not for a shorter period. They will remain to be a little stepped up.
Pramod Kumar:	And Sir, how do you see the evolution of your model mix from where we are today because we've seen a pretty
	good improvement in both ASP and gross profit per vehicle, quarter-on-quarter, but how do you see it going
	forward as the semiconductor situation eases and also if you can just help us understand how do you see the
	major cost elements within your P&L like commodity and some sort of any comments on FOREX that would be
	very helpful. Thank you.
Ajay Seth:	Model mix, as semiconductor situation improves, should improve because we will be in a position to sell more
	of the SUVs and other vehicles as large number of them are in the wait list. So, hopefully I think the realization
	should also improve as the mix improves in the next quarters. It (semiconductor situation) has eased a bit, but
	we will know exactly when we finish the second quarter in terms of where we are. But it seems to be better than
	where we were in the first quarter. That's the answer to the first question. Second on the commodities, now I
	think we have kind of stabilized. We will wait to see how the steel behaves. We had some uptick in the first
	quarter, but hopefully it should correct moving forward. So, we are seeing more stability both in commodities
	and FOREX during the year as compared to the volatility that we witnessed in the earlier years. So, while there
	may not be significant cost improvement, but there is not going to be any more pain that we have seen in the
	past. Additionally, the cost reduction efforts that we put in, which used to be offset because of these commodity
	increases may help us and we can continue to stick to our targets of cost reduction as we normally have during
	the year.
	5 | P a g e

MSIL Conference Call Transcript 31 July 2023