Maruti Suzuki – Leader in Passenger Vehicles

Some highlights from the Q2 FY24 concall:

Summary:

1. Very strong quarter where every variable went favourable – lower RM prices, adequate semiconductor availability, Dollar strengthening against the Yen, SUVs doing well etc. However, such “all factors moved favourably” will not happen in every quarter.

Industry:

2. On the demand side, share of CNG vehicles in the industry has now reached ~15%. Share of diesel vehicles continued to decline and is now about 17% compared around 19% during last financial year Hybrid vehicles has seen a good traction and now the share of Hybrid vehicles has increased to about 2%

3. Management says slowdown in small cars is because costs have gone up due to regulatory action and incomes at entry level have not bounced back to the same extent. However, sooner or later the income levels will catch up and the small car category will see a revival. Only top 3 % of Indian population owns a car today so there is a huge untapped market still there. For industry, small car segment used to be about 34% of the portfolio. Now, it is about 28%. 4. Let us keep in mind that the top 3% of India today owns a car. So, if the car market has to grow, more people have to move from the 97% club to the 3% club.

Company:

5. New model development time is about four years.

6. Current year, the capital expenditure should be above INR 8,000 crores (this excludes SMC capex which is yet to be decided)

7. There is a 10% reduction in the percentage of first-time buyers from the market for us

8. The company has close to 2.3 million units of annual manufacturing capacity.

Q2 performance:

9. This was the highest sales in a quarter ever, which is even more commendable considering this was a seasonally weak quarter. Company has gained market share. Exports were also strong.

10. Pending orders at the end of quarter 2 has come down to ~288,000 units and further corrected to 250,000 today (27-Oct-2023). CNG accounts for around 123,000 units out of this. Ertiga is one major model with about 73,700 units in the pending orders. Then, we have the Brezza, the Grand Vitara, the Jimny, Fronx and Invicto. So, a large part of pending orders is for the SUVs, which have been recently launched

11. Diverging demand patterns between utility vehicle and small car segment is continuing. Proportion of small cars and first-time buyers is coming down in their portfolio.

12. The major benefit to margins has come from the commodities and the cost reduction that we have been able to achieve. There has been a significant softening in the prices of precious metals commodities.

13. The sales promotion cost is about INR 17,692/vehicle in the Q2 FY23-24, we were INR 16,214/vehicle in the Q1 FY23-24, so marginally higher.

14. In commodity prices, 50 % of the basket is steel and steel prices have started inching up again. There was a very sharp decline in the precious metal prices.

Future:

15. Going forward, the Company plans a 3-fold increase in its exports volume by increasing its exports to 750,000 -800,000 units/ year by 2030-31 (this comes to 17 % CAGR)

16. We are talking about capacity expansion. Capacities will go up by 2 million.

17. Transiting to EV – over the period of next six years, six new models are coming in.

18. On SUVs – We’ve announced in our annual report that currently from about 17 models, we will move up to about 28 by the turn of the decade.

19. One of the reasons for SMG integration is that it gives us flexibility and agility to quickly respond to the changes in demand.

(Disc.: Holding)