Maruti Suzuki India Limited (NSE: MARUTI) Q2 2025 Earnings Call dated Oct. 29, 2024
Corporate Participants:
Pranav Ambaprasad — Assistant General Manager – Investor Relations
Rahul Bharti — Chief Investor Relations Officer
Arnab Roy — Chief Financial Officer
Analysts:
Pramod Kumar — Analyst
Raghunandhan N L — Analyst
Kumar Rakesh — Analyst
Binay Singh — Analyst
Kapil Singh — Analyst
Chandramouli Muthiah — Analyst
Gunjan Prithyani — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q2 FY ’25 Earnings Conference Call 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.
Pranav Ambaprasad — Assistant General Manager – Investor Relations
Thank you, Rutuja [Phonetic]. Thank you,. Ladies and gentlemen, good afternoon once again. Welcome you all to the Q2 FY ’25 earnings call. May I introduce you to the Management team fromMaruti Suzuki.
Today, we have with us our Chief Investor Relations Officer, Mr. Rahul Bharti and CFO, Mr. Arnab Roy. Before we begin, 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 you that the call is being recorded and the audio call and the transcript will be available at our website. May please note that in case of any inadvertent error during this live audio call, a transcript will be provided with the corrected information.
The con call will begin with a brief statement on the performance and outlook of our business by Chief Investor Relations Officer and Executive Officer, Corporate Affairs, Mr. Rahul Bharti. After which we’ll be happy to receive your questions. I would now like to invite our Chief Investor Relations Officer, Mr. Rahul Bharti. Over to you, sir.
Rahul Bharti — Chief Investor Relations Officer
Thanks, Pranav. Good afternoon, ladies and gentlemen, and thank you for joining us. I’ll first share some major business highlights in the quarter two, followed by our business performance of the Company.
So some highlights. One, the manufacturing facility at Manesar achieved cumulative production of 1 crore units. With this, the Manesar facility became the fastest among Suzuki’s global automobile manufacturing facilities to reach this milestone in just 18 years of inception. Just to recall, the Company achieved a cumulative production of three core units in April earlier this fiscal. In a constant endeavor to enhance customer convenience, the Company keeps augmenting the sales and service network to reach closer to customers across the country. Recently, the Company inaugurated its 500 NEXA sales outlet. So-far, the Company has delighted over 2.7 million customers through its NEXA showrooms across more than 300 cities. Maruti Suzuki sales Network arena, NEXA and Commercial now extends to 3,925 outlets covering about 2,600 towns and cities.
Third, reaffirming Company’s commitment to offer enhanced customer confidence, the Company significantly enhanced its warranty programs for all its vehicles. Additionally, the Company has also expanded the scope of its extended warranty packages and has introduced extended warranty options to cover the vehicle for up to six years or 160,000 kilometers, whichever is earlier.
The consumer preference towards CNG vehicles continues to increase. In-quarter two of this fiscal year, every — in every three cars, one car sold by the Company was a CNG vehicle. Maruti Suzuki introduced S-CNG powertrain in its fourth generation Epic New Swift. With this, Maruti Suzuki offers the industry’s most comprehensive lineup of S-CNG vehicles with 14 models.
Next, the Grand Vitara became the fastest to clock 2 lakh unit sales in the mid SUV segment since its launch. Also, the FRONX SUV has set a new record, reaching the 2 lakh sales mark in just 17.3 months. The Company has commenced export of its made in India FRONX SUV to Japan. France will be the first SUV for Suzuki to be launched in Japan. The landmark milestone celebrates the spirit of Make in India and Eco’s national [Phonetic] pride. The Company also reaffirmed its commitment to gain logistics by surpassing a landmark of 2 million cumulative vehicle dispatchers using railways. This makes Suzuki India’s first automobile company to attain this Eco [Phonetic] milestone.
Over the last 10 years, this initiative has helped the Company to save about 270 million liters of fuel. I now come to the business performance in the second-quarter.
The Company sold a total of 541,550 vehicles during the quarter, of which the domestic market volume was 463,834 vehicles and the export volume was 77,716 vehicles. While the domestic volume declined by 3.9%, the export volume grew by 12.1% compared to the same-period of the previous year. In the domestic market in the second-quarter, demand for PVs continued to remain muted. The Company continued to create an excitement in the market by introducing limited additions across segments and significantly increase its efforts to reach-out to customers. To sweeten the offering for our customers, we raised our discounts, making our products even more attractive.
As a result, despite the less than ideal market conditions, we could achieve retail sales nearly at par with the same-period as previous year. In the ongoing festive season, the demand appears to be quite healthy, albeit with higher sales promotion. Seasonally, because of the festive on the year-end phenomena, the sales effort in-quarter three to maximize retail sales. With customer-centric events and initiatives, we are further increasing our focus on improving retail sales.
In exports, the Company continued to maintain a healthy growth in sales volume. The Company commanded nearly 40% share of India’s total passenger vehicle exports in quarter two and H1.
Coming to the financial results in quarter two, during the quarter, the Company registered net sales of INR355,891 million against INR355,351 million in the same-period of the previous year. The profit before-tax for the quarter grew by 6.3% year-on-year to INR51,005 million being its highest-ever for the Company. The net profit for the quarter declined to INR30,692 [Phonetic] million compared to INR37,165 million due to a provision of INR8,376 million, resulting from the withdrawal of indexation benefit and change in tax-rate on long-term capital gains on debt mutual funds as per the Finance Act 2024. This impact was intimated earlier to the stock exchanges on 17 August this year. Since investors also look for a sequential comparison, I’ll share on sequential basis, the operating profit margin EBIT has come down to 10.3% of net sales compared to 11.1% in the first-quarter of the same financial year. The adverse commodity prices and higher sales promotion expenses have affected the operating margin performance by about 50 basis-points and 80 basis-points respectively. ForEx was favorable in the quarter. It is to be noted that the bulk of benefit in ForEx of about 60 basis-points is accrued due to hedging gain and because of the nature of income, this benefit is accounted in non-operating income and is not captured in the operating margin.
As explained in the last quarter, there is some seasonality in the employee cost and other operating income. While the employee cost softened by about 50 basis-points over first-quarter, the other operating income was lower, thus nearly offsetting the benefit of lower employee costs. Sequentially, as the volume has increased by about 4%, the benefit of favorable operating leverage is to the tune of about 30 basis-points to 40 basis-points.
Coming to the highlights of the financial results in H1, the Company sold a total of 1,063,418 units during the period, comprising 915,142 units in the domestic market and 148,276 units in the export market. While the domestic market sales declined by 0.3%, the export sales volume grew by 11.9% year-on-year. The Company registered its highest-ever half yearly net sales of INR694,644 million in H1 this year as compared to INR663,803 million of last year. Net profit in H1 was INR67,191 million as against INR62,016 million in last year.
We’ve also shared about the amalgamation of Suzuki Motor Gujarat Private Limited with Maruti Suzuki. Last year, SMG was acquired to become a 100% subsidiary of MSIL. The Board considered the structure after the acquisition and gave an in-principle approval for the amalgamation of SMG with MSIL. The appointed date for the amalgamation is 1 April 2025, subject to all diesel and regulatory compliances.
And towards my conclusion, I want to give the confidence to all our analysts and investors that auto business has its ups and downs and its cyclicity, but as a market-leader, we have all the enablers in-place to generate the best-value for our shareholders. We’re now ready to take your questions, feedback and maybe any other observations that you may have. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions].
Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pramod Kumar from UBS. Please go ahead.
Pramod Kumar
Yes, thanks a lot for the opportunity. Sir, the first question is on the festive demand outlook what you guys have shared. If you can just provide some color because I pick-up in media articles which have got published post the press release that you’re talking about the period ending with Shradh or start of Navaratri till Diwali, but based on whatever insight you have on the booking numbers and the scheduled delivery.
The reason I’m asking that is because on VAHAN, the cumulative festive retails for the industry is still down around 4% as of this morning. I understand there’s a bit of a lag [Phonetic] in counter retailers to [Technical Issues] registration, but it can’t be that the registration on VAHAN is reasonably a mid-single digit negative and we are talking about a double-digit growth.
So if you can just help us understand the period we are looking at and the data you’re looking at and also some color on what’s the expected retail in this number of 3 lakh between today and till the end of Diwali, sir.
Rahul Bharti
Okay. So this time we have reckon the festive period from the beginning of Shradh, I repeat, from the beginning of Shradh, till Diwali. And the reason we are doing that is because there was a month-end in between, we wanted to avoid any impact of month-end sales to come into the picture to have a like-to-like comparison. So, from the beginning of Shradh till Diwali, year-on-year, we have grown by 14% in our retail sales. Retail sales is relevant because you know in the festive period, that’s what the true customer interest is. So against the last year figure of 260,000, this year, most likely we’ll be closing around 297,000 and I should also give you, because sometimes wholesales clouds the picture. For the full-year, April till October this time we are, we are hoping to clock about 3.9% growth in retail sales. [Speech Overlap]
Pramod Kumar
Can you repeat that please?
Rahul Bharti
For the full-year financial year till-date, till-date means, till month, till October. So April to October, we hope to close at around 3.9% growth in retail sales.
Pramod Kumar
Okay, which I think, till September was a decline, sir, if I’m not wrong of 0.8% as per VAHAN.
Rahul Bharti
You’re talking about wholesale?
Pramod Kumar
I’m talking about VAHAN retail, sir. April to September, Maruti retails are down 0.5% or thereabout as per VAHAN.
Rahul Bharti
VAHAN still has — see, sooner or later we want to switch-over to VAHAN. It still has some lag and some — for example, one state is not still a member. So sooner or later VAHAN will converge with our data. But year-on-year, April to October end, I mean, I think once they still left [Phonetic], we hope to do about 3.9% growth in retail sales. And festive period, which is beginning of Shradh till Diwali, we are we are expecting it to be about 14% growth, 14%, and that’s — and not only that, we should end the month with a healthy inventory of just about one month or even lower.
Pramod Kumar
So in a way, is it that the discounting you expect will not be seeing any step-up, which you typically see in a big way during the December quarter, during the month of December?
Rahul Bharti
I’m sorry I am — Could you kindly repeat that?
Pramod Kumar
So I’m saying, sir, given that the inventory is going to be not that high, the typical year-end December discount this year should not see a sharp spike as such. Is that the understanding?
Rahul Bharti
So the pressure on discount will not be there. Mostly the pressure on discounts comes because of inventory. Fortunately, Maruti is unlike many other companies in the market, we are comfortably placed as far as inventories are concerned.
Pramod Kumar
And on discounting, sir, what the discount — average discount per car what we had in the quarter?
Rahul Bharti
So, Arnab ji [Speech Overlap]
Arnab Roy
Yes. So the average discount per car in the quarter, this is Arnab speaking, is INR29,300.
Pramod Kumar
INR29,300, and sir, more color on the demand because the demand going into the season for the industry was not looking good. So what has changed? If you can just help us some color on in footfall, inquiry, conversion, regional flavor, urban versus rural? Anything which you can share which can help us understand the demand — the festive demand, which is — which according to you is turning out to be better. So if you can just help us understand that, that will be great, sir.
Rahul Bharti
I would like to retrace a couple of steps. India is now the third-largest car market. It does happen once a while that the market takes a breather [Phonetic]. So we are not too — of course, we would like the market to grow faster, but we are not too overly concerned about it. And the Indian customer does want to buy. So at — there are times when he is slightly dominant, there are times when he comes forward. And so this year, if you want to understand the outlook, we are hoping to close this year, on retail sales about 3% to 4% growth, which is precisely in-line with, maybe slightly better than, the projection that we had at the beginning of the financial year.
Pramod Kumar
Yes, sir. And anything on urban rural, what is doing better-for-you, any regions, any segments which are doing entry-level cars are they coming back? Sorry, I’m kind of pressing on this, but this is actually the most — topical [Phonetic] thing on the passenger car industry demand right now for Maruti sir. So forgive me for this, but.
Rahul Bharti
So, rural is doing better than urban and it — so we are expanding our NEXA outlets in the rural area also, other than Arena, and of course we know that SUVs are growing faster. SUVs are now from 50% they have grown to about 54% now. This trend seems to continue for a while and we are yet to see some strength in the small car segment, it is declining, but I can tell you that we were able to arrest [Phonetic] the decline in small cars, thanks to a lot of limited additions and giving some excitement in the market.
Pramod Kumar
Fair enough, Sir then there is a seven — the pay commission, [Speech Overlap]
Rahul Bharti
Wagon R is doing quite well.
Pramod Kumar
Yes. When do you expect the pay commission benefits should kick in, sir?
Rahul Bharti
See it’s very difficult to understand the Indian customer. It does not happen that today the notification comes out tomorrow the sales increase. Many people would be doing it ahead of the announcement in anticipation, many would like to defer it or time it according to their family needs. So there’s no direct correlation that we can relate to about [Indecipherable].
Pramod Kumar
As a — before I fall back in the queue, just a query. There is a clarification — I’m getting messages from clients. I just want to clarify again, the 14% growth what you’re referring to is point-to-point like-to-like start-of-start last year to the festive to start-of-start this year till festive, right? Or is it a start of [Speech Overlap]
Rahul Bharti
Let me allow you to repeat it.
Pramod Kumar
Yes.
Rahul Bharti
Start of Shradh to — till Diwali, in retail sales year-on-year, 14% growth.
Pramod Kumar
So it’s the same thing. The confusion was, are you saying end of Shradh last year to festive and start of Shradh this year to festive gives you additional that’s not the case, right?
Rahul Bharti
This time we are seeing start of Shradh for two reasons. One, there was a month-end coming in-between. So we had to ignore the effect of that. So we included that. Plus, it’s so interesting that when we have Shradh in North India, there are some festivals in South India also.
Pramod Kumar
Yes, absolutely. So even in the base here, you’re starting from Shradh, right? Am I right?
Rahul Bharti
Yes of course, it has to be a like to like comparison.
Pramod Kumar
Yes, yes, see, that was the confusion, sir. Sorry, sorry for this, but I’m getting queries from clients to clarify this. So I had to do that. Apologies for that. But thanks a lot and I’ll fall-back in the queue. Thank you.
Rahul Bharti
Mention [Phonetic] — Still in the queue. I thought you had the answers anyway, let’s go-ahead.
Operator
Thank you. The next question is from the line of Raghunandhan from Nuvama Research. Please go-ahead.
Raghunandhan N L
Thank you, sir, for the opportunity and congrats on the strong performance in the festive period. Sir, on festive period, just one question. How did you see the trend in terms of first time and replacement buyers and are you getting confidence of recovery in Hatchbacks, given that there is some recovery in first-time buyers and going-forward, there could be benefits of expected interest-rate cuts, pay commission benefits? How do you see or by when do you see the recovery in Hatchback? And also relating to Hatchbacks, how much would be the inventory in Hatchbacks by end-of-the month?
Rahul Bharti
So no major discernible change in trend that I can share at the moment and inventory at the end-of-the month, we hope to be within one month, total, network inventory.
Raghunandhan N L
Got it, sir. And also, in the press conference on.
Operator
Sorry to interrupt you, Mr Raghunandhan, may we request you to please speak a little bit louder. We are unable to hear you.
Raghunandhan N L
Yes. Is it better now?
Operator
Yes, please go-ahead.
Raghunandhan N L
Yes. On hybrids, in press conference, there was indication of 25% road tax rebate [Phonetic]. Can you talk about the road tax rebates in Punjab and other states and the benefits you are seeing because of this? On a related note, would you look at further expanding hybrid product portfolio in EVs [Phonetic] and Hatchbacks in future?
Rahul Bharti
So some states are giving benefits from hybrids. For example Haryana is giving 25% road tax waiver, Chandigarh is giving 50% road tax waiver, Rajasthan similarly is giving something. Chhattisgarh is giving something. There are some states which have it in their policy, but they are yet to implement it. Having said that, I think it’s a, it’s a great technology which saves CO2 and drastically cuts oil consumption and does not have the anxiety of range, no charging infrastructure requirement. So extremely customer-friendly. And we think in the immediate onwards for the middle-term, it is a potent technology for both national objectives, CO2 and oil import cutting. So we would like to enhance it as much as possible.
Raghunandhan N L
Got it. And on [Technical Issues] Maruti’s launch is expected to provide the best-cost of ownership in the segment in January. Can you talk about the differentiating factor or USP of your upcoming electric SUV? I mean, in some of the media interactions, what we understand is it is based on a new platform, we are working on localization initiatives such as cell [Phonetic] manufacturing, you are looking at enabling charging and you also have export plans. So your thoughts will be very helpful here.
Rahul Bharti
Okay, okay. So thanks for this question. Actually we are — we will now be starting a campaign for our EV, It’s a high-spec EV because we want to give customers confidence so that he can increase EV adoption without any concern on range etc. So it’s a freshly designed EV, it’s not an IC engine converted to an EV, with high range, we will be — there are some changes in the government norms on range, so we’ll be specifying the range at an appropriate time. But you can assume that it’s a high range. Approximately 60 kilowatt-hour battery and of course we will be exporting it. It will be made in India for the world. So many advanced markets like Europe and Japan will, will be a benefit — customers in these countries will be benefiting from this EV. And I think there will be many milestones where we’ll be showcasing it in different markets in Europe, in India. In India will have it in the Bharat Mobility show [Phonetic] in January and you may hear a lot on this in the next few weeks from us.
Raghunandhan N L
Got it, sir, wishing you all the best on EVs and hybrids. Just a housekeeping question. Can you share the exports for Q2 entities?
Arnab Roy
The exports for Q2 is 70 — is actually the [Indecipherable] volume.
Rahul Bharti
It’s about 5,000 — It’s about INR5,261 crores in rupee terms.
Raghunandhan N L
Got it, sir. And retails for Q2 will be 4,20,000?
Rahul Bharti
Approximately.
Raghunandhan N L
Thank you, sir. Thank you so much. I’ll fall back.
Operator
Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go-ahead.
Kumar Rakesh
Hi, thank you for taking my question. Good evening and Happy Diwali to all of you. My first question was on quarter-on-quarter gross margin movements. I noticed that most of the key commodities have been largely benign since April, May, such as steel, iron, copper. Also in the P&L, the line-item changes in inventories of finished goods was positive during the quarter. This is probably the first time in the last several years since this was positive. Usually what happens that you build factory inventory ahead of the festival this year also.
Operator
I am sorry to interrupt you Mr. Kumar Rakesh, may we request you to please repeat your question.
Kumar Rakesh
Hi, sorry for that. I’ll repeat my question. My first question was on quarter-on-quarter gross margin movement. I noticed most of the key commodities have been largely benign since April, May such as steel, iron, copper. Also in the P&L, the line-item changes in inventory of finished group [Phonetic] was positive during the quarter. So this is probably the first time in the last several years when we saw this to be positive. Usually there is a factory inventory buildup which happens in this quarter ahead of festival. This year also, I think you were building inventory for desire ahead of the launch and hence that shows up as a negative line-item in the changes to inventory.
So can you just help us understand this movement in gross margin with whatever granularity you can? Thank you.
Arnab Roy
Yes, sure. See, there are few factors which has contributed towards it. The first one is, as you would have seen that the sales promotion expenses is slightly higher this quarter. So that is contributing on the gross margin impact. Commodity has some point, as highlighted in the opening statement, that’s about 0.5%. So these are the two predominant factors which is impacting, which is on the sales promotion as well as the commodity of 0.5%. Of course, we have some favorable impact on the exchange rate and other things.
Kumar Rakesh
Got it. Thank you Arnab. I had a second question for you. So as now, it’s almost a year since you would have joined nine, 10 months now and you have experience of working at multiple MNCs in the past. You’re [Phonetic] handled business which is — businesses which were spread across geographies have seen raw-material price volatility as well. So now having settled at Maruti, what’s your vision, how do you plan to handle the pricing versus margin, all those debates which we had in the past. I understand Maruti already operates with very rigid cost-control measures. But on a big-picture basis, how do you plan to handle these rates going-forward?
Arnab Roy
Look, I think it’s a — we have to watch the market closely, how it goes. I think none of us have a crystal ball to predict, but we have to keep watching the market closely. I think, I mean, what we do is between operations, finance, we keep a very close watch on both commodity and forex. We take appropriate hedging decisions as and when it is needed because there are several factors which has to be kept in mind. All we can say — I can tell you is that we are extremely agile to the market, connected to the — I mean the day-to-day movement, the macro [Phonetic] things which keeps happening and take appropriate calls. I mean, do we get it right every time? We get it right-most of the time, definitely, not be every time?
Kumar Rakesh
Great. Thanks a lot for that and Happy Diwali again to all of you.
Arnab Roy
Happy Diwali to you all also.
Operator
Thank you. The next question is from the line of Binay from Morgan Stanley. Please go-ahead.
Binay Singh
Hi, team. Thanks for the opportunity. Very encouraging to see the 14% commentary that you are seeing at least some signs of demand recovery. My question is on the discount side. Typically, in Q2, what we see is that we put in inventory, retail sales is weak and discounts run on retail sales and the wholesale dispatches are higher. And then in Q3, actually, the discounts are paid out. So when you look at Q2 this year, is it fair to assume that retail number that you gave, 420,000, this time retail is higher than wholesale, so the actual discount will be lower?
And secondly, any commentary on how do you see this discount number in Q3? Because this has been the big drag in gross margin this year — this quarter?
Arnab Roy
First of all, commenting on your Q2, yes, your analogy is right that the retail is higher than the wholesale in Q2. And Rahul already gave you the October outlook, the festival outlook. So you can see the directional trend, how it is going. Directionally, we are in a position where retail is picking-up. And if directionally retail picks up, there is no reason why you should have an abnormal behavior understand.
Binay Singh
So discounts in a way should be flattish fair to assume quarter-to-quarter? because on your [Speech Overlap]
Rahul Bharti
Binay it’s not easy to predict it, but you know, most manufacturers have cut prices drastically. We’ve had only a limited amount of discount. The good part is that our inventory will be less than one month and we want it to be a month. If it is below a month, then some color, some variant will not be available to the customer because we have a — we have a huge range, we have a portfolio of models [Phonetic]. So that should be sufficient indication.
Binay Singh
Yes. And just a second question, just two-parts. One is that the 14% number that you are seeing, do you think this is in-line with the industry as per your internal insight or has Maruti gained share? And lastly, incremental commodity pressure, any commentary on that with the spot [Phonetic] prices the way you are seeing? Thanks.
Rahul Bharti
We won’t be able to comment on competition, but yes, what we can say is the retail sale growth year till month, October included, is almost in-line with that of market, maybe slightly lesser. So — but festive could be difficult to comment and commodities is a mixed bag, so we — it’s fairly flattish on an aggregate level if we talk about there are some going up, some going down so fairly stable.
Binay Singh
Perfect. Thank you. Thanks.
Operator
Thank you. The next question is from the line of Kapil Singh from Nomura. Please go-ahead.
Kapil Singh
Hi, good evening, sir. I just want to understand, for the — growth for this full-year, we are talking of 3% to 4% in retail and first-half has been flattish. So is it that we are feeling that demand conditions in second-half of the year would be better or are there any reasons where Maruti Suzuki will gain share? Also on the CNG mix, if you could comment, we’ve seen very good improvement. It’s at 33% already. Do you see this rising further and any thoughts here where it could get to in the medium-term?
Rahul Bharti
I’ll take your second question first. CMG, see, it’s a story across multiple factors. One is the distribution infrastructure in the country. Today, we are at 7,000, it will go up to 17,000 by the time of the decade and the number of models will also keep going up. It has a lower CO2 footprint, so it’s good for the environment also. Customers in upper segments, Premium SUVs are accepting it as a quality fuel, it’s not supposed to be an economy fuel any longer. So there are factors going positive for it. We don’t have a projection, but it’s positive.
Obviously, if you do the math, yes, when somewhere the H2 will be, as what we discussed because we are projecting in retail sales 3% to 4% for the whole year and we did about 3.9% till October. So that’s how we expect it to be.
Kapil Singh
Yes, no, I was just trying to understand any factor that you feel will be supporting this.
Rahul Bharti
Well, if the overall strength that you play, the network strength, the service strength, the number of models that you have, the number of powertrain technologies that you have, of course, sometimes we have to sweeten with some — sweeten the offer for our customers with some discounts also. So it’s a combined strength of all factors that helps.
Kapil Singh
Okay. Are there discounts in this festive season higher than what they were last year?
Arnab Roy
I think quarter two numbers, I already told you, you have already seen the quarter two numbers for 300 [Phonetic], but I mean, and we fairly expect it to be stable in the remaining part of the year.
Rahul Bharti
We just have to keep in mind, Kapil, that last year some vehicles were in short supply.
Kapil Singh
Okay. Sure, sure, sir. And just one last thing from my side. We have given a long-term target of having 28 models in our portfolio, like just trying to understand from a dealership footprint point-of-view, how do you, how do you think about the sales network to accommodate these models, if you understand what I’m trying to say?
Arnab Roy
Yes, I understood what you’re trying to say.
Rahul Bharti
So that is a question of — when we had come to investors for during the time of SMG acquisition, we had mentioned how to manage scale with complexity is one of our biggest management thinking points. And this is one of them. So of course, we have to do some more thinking on it and we’ll keep updating you as we go along.
Kapil Singh
Sure sir, and wish you all the best and the entire team of Maruti Suzuki a very happy Diwali as well.
Arnab Roy
Thank you.
Operator
Thank you. The next question is from the line of Chandram from Goldman Sachs. Please go-ahead.
Chandramouli Muthiah
Hi, good evening and thank you for taking my questions. My first question is just on the model lineup. So I think we have mentioned that we plan to launch one EV per year over the next five to six years and potentially.
Rahul Bharti
On an average, we don’t bind us to it. On an average because we are talking about five to six till the end-of-the decade. So that makes average one a year.
Chandramouli Muthiah
Got it, got it. Makes sense. So one EV per year-on average till the end-of-the decade, five to six potentially. We currently have about 20 Maruti Suzuki branded models in the market and we’re selling maybe three more through Toyota. So just trying to understand that 28 model number over-time, is that likely to be mostly EV launches going-forward with ICE refreshes or do we have completely new ICE models also that can surprise and excite the market over the medium-term?
Rahul Bharti
So we have 18 now and we want to reach about 28. And so of course, 10 is a net-new — 10 is the net additional numbers. But among the 18 also there will be some refreshments and we have spoken about five to six EVs. That’s, that’s how we look at the model lineup in the future.
Chandramouli Muthiah
Got it. That’s helpful. And just trying to understand for the December quarter, how we are looking at key commodity prices that might affect our P&L? And also what effect we expect from whatever we’ve seen in lead-lag on the Japanese Yen our accounts[Phonetic]?
Arnab Roy
Yes. See on the commodity side, as we said earlier, we expect it to be fairly stable. There will be pluses and minus within per particular commodity. But as a basket, we expect it to be fairly stable. Yen, it’s a good question. I mean, we have to see several macroeconomic factors. We have selection being one in 10 [Phonetic]. So — but what we are doing is we are consciously stepping up our coverage with the hedging because at the end-of-the day, we are in the business of making cars. So we have to be a bit conservative in our approach. So we are stepping up the hedging to see, I mean we have less and less volatility on the exchange side.
Chandramouli Muthiah
Got it. That’s helpful. And lastly, if you could just share the royalty number for the quarter, please?
Arnab Roy
Okay. Just one second. So overall royalty in absolute value is — the royalty is about 3.4% of sales.
Chandramouli Muthiah
Got it. Thank you very much and all the best.
Arnab Roy
Thank you.
Rahul Bharti
Thank you.
Operator
Thank you. The next question is from the line of Gunjan Prithyani from Bank of America. Please go-ahead.
Gunjan Prithyani
Yes, hi, thanks team for taking my question. I just had a few clarifications on the, on the comments that you all made in press around the rural and the urban growth. In rural, you guys mentioned 8% and urban minus 2%. I assume this is for first-half of the year. Is that correct?
Rahul Bharti
No, no, it was not minus 2% and 8%. Rural is positive, urban is negative. On the net-net it is nearly flattish on wholesale and about 3.4% — 3.9% on the advocate[Phonetic]?
Gunjan Prithyani
Okay. So I’m just trying to tie-in this like rural is certainly growing positive for us and at the same time, you also sort of alluded to small car still being under pressure. So I’m just trying to understand what are the demand trends that you’re seeing in the rural? I mean, Ideally, I would have expected that if rural starts to come back or grow well, then this would mean good for hatches and small cars as well. But it doesn’t seem to be the case. It seems like even in rural market SUVs are the preferred choice or maybe higher-ticket prices are still doing better there. So if you can share some thoughts on what’s happening in the consumption behavior in the rural itself? Yes.
Rahul Bharti
I think it’s not — the past is not necessarily holds true what it is today. So rural has changed big-time. In fact we should change using the word. It is more of up-country and there is an increasing amount of convergence in the consumption patterns that we see between the so-called rural and the so-called urban. It’s not necessary that rural will buy only small cars or lesser priced cars. In fact we are opening NEXA showrooms in up-country, so it means that there is a fair amount of convergence happening.
Gunjan Prithyani
Okay. Got it. And the — so what really sort of drives the small car recovery or I mean, I’m — is that something we expect when the first time buyer demand comes back? How do we think about hatches as a category coming back? I know you all had spoken about fiscal ’26 is when we see that recovering. Is there more that you can share? You’re seeing green shoots in the market. So outlook for next year for the Small Car segment.
Rahul Bharti
Still nothing new that we can share at this point of time. There is an affordability challenge that we see both on from an income point-of-view and from the cost of cars point-of-view. But the only thing I can mention is that we’ve been able to arrest the decline because of some excitement, with some limited models in the market.
Gunjan Prithyani
Okay. Got it. And the other clarification, a quick one, which I had was on the discounts being a drag on the gross margin in this quarter. When I look at ASP and other expenses, they — discounts really don’t show-up in those line items. So I’m just trying to understand, is there — how is discount really accounted for? Usually we’ve netted it off in ASP, right? So any change there or you know anything that I’m reading wrong there?
Arnab Roy
No, you’re not reading anything wrong. It’s basically the mix is richer. So there is a higher discount. So that’s how we.
Gunjan Prithyani
Okay. Got it. And last one on the capacity, if you can update, are we on-track for that 300,000 capacity on in Quarter four, any recalibration there?
Rahul Bharti
So our plant in Kharkhoda is on track. We hope to commission it within this — within the end of this financial year.
Gunjan Prithyani
Okay, got it. Thank you so much.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. 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.
Rahul Bharti
Thank you.