Maruti Suzuki India Limited (MARUTI) Q2 FY23 Earnings Concall Transcript

Maruti Suzuki India Limited  (NSE:MARUTI) Q2 FY23 Earnings Concall dated Oct. 28, 2022

Corporate Participants:

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Ajay Seth — Chief Financial Officer

Analysts:

Kumar Rakesh — BNP Paribas — Analyst

Pramod Kumar — UBS — Analyst

Amyn Pirani — J.P. Morgan — Analyst

Raghunandhan — Emkay Global — Analyst

Chandramouli Muthiah — Goldman Sachs — Analyst

Jinesh Gandhi — MOFS — Analyst

Pramod Amthe — InCred Capital — Analyst

Kapil Singh — Nomura — Analyst

Arvind Sharma — Citigroup — Analyst

Chirag Shah — Edelweiss — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day and welcome to the Q2 FY’23 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.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Thank you, Yeshashri. 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; 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 con call will begin with a brief statement on 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 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 recording and the transcript will be available at our website. 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 — Chief Financial Officer

Thanks, Pranav. Good afternoon, ladies and gentlemen. I hope you and your families are healthy and safe.

Let me start with some business highlights during the quarter. Maruti Suzuki celebrated 40 years of Suzuki’s partnership with the people of India. During the event, Honorable Prime Minister laid foundation stone of Suzuki Motor Gujarat Electric Vehicle, Battery Manufacturing Facility in Hansalpur, Gujarat; and Maruti Suzuki Vehicle Manufacturing Facility in Kharkhoda, Haryana.

The company was incorporated to provide cars for the masses of India and also build a vibrant manufacturing industry in India. We are happy to share that the company has been prove to its reason for existence even today. If we look back one of the key success factors in over years has been the small focus on understanding and fulfilling the needs of customers, but offering them relevant products, technologies and services.

Over the years, customers have evolved accordingly our products, services and business processes will have a line keeping the customer at the heart of it. The other factor has been how we have always thought of the long-term in all our actions. All management decisions are based on the long-term interest of our stakeholders. Last but not the least, we have a very good blend of Indian and Japanese culture in our company. We were able to combine Japanese top go practices and disciplined with Indian innovation and gene in our operations. Our parent, Suzuki, Japan, has been a silent support, trying to look at the future from its global experience and carefully selecting the best technology and products for Indian customers.

Coming to the recent new model launches. In September, the Company started retailing its newest flagship offering from NEXA, the Grand Vitara. With over 75,000 bookings in a short span of time, and I suppose this pause for the Grand Vitara is overwhelming, the Grand Vitara is a multi-product offering with cutting-edge intelligent electric hybrid powertrain, Progressive Smart Hybrid Technology and Suzuki’s AllGrip Select technology is designed to appeal to a various customer base and will revolutionize the SUV space in India.

In August, the Company launched a full model of change of its iconic brand Alto, the all new Alto K-10 is loaded with most of comfort, safety, convenience and connectivity features. The Company further strengthened its green vehicles portfolio by introducing S-CNG powertrain technology in Swift and S Presso, with this Maruti Suzuki now offers 10 vehicles with factory-fitted S-CNG technology.

Maruti Suzuki research and development facility conducts rigorous testing. We’re expected for S-CNG cars to deliver unmatched safety performance, durability and fuel efficiency. Going forward, the company will strive to further strengthen its SUV portfolio to dominate the SUV segment, just like all other segments.

Coming to the business environment during the quarter, on the back of better availability of the product components, the Company reported its highest-ever sales volume in any quarter. The electronic component shortages are still limiting our production volumes and this quarter the Company could not produce 35,000 vehicles, limited visibility on availability of electronic components is a challenge in planning our production. Our supply chain, engineering production and sales teams are working towards maximizing the production volumes from available semiconductors. The supply situation of electronic component continues to remain unpredictable.

Now let me come to the highlights of quarter two of this financial year, the Company sold a total of 517,395 vehicles during the quarter, sales in the domestic markets stood at 454,200 units. Exports were at 63,195 units. The same period previous year was marked by huge shortage of electronic components and consequently, the company could sell a total of 379,541 units, comprising 320,133 units in domestic and 59,408 units in export markets.

Pending orders stood at about 412,000 vehicles at the end of the quarter, out of which about 130,000 vehicles pre-bookings are for recently launched models. During the quarter, the Company registered its highest-ever quarterly net sales of INR285,435 million, during the same period previous year, the net sales were at INR192,978 million. The operating profit in quarter two of this year stood at INR20,463 million as against INR988 million in quarter two of the previous financial year.

The operating profit in Q2 of last year had dipped sharply vehicle steep, commodity price increases and electronic component supply constraints and hence results of Q2 of last year are not strictly comparable with those of Q2 of this year. The company has been making simultaneous efforts in securing electronic components availability, cost reduction and improving realization from the market to better its margins. With this, the net profit for the quarter rose to INR20,615 million from INR4,753 million in Q2 of last year.

Coming to the highlights of first half for this financial year, the company sold a total of 985,326 units during the period. Sales in the domestic market stood at 852,694 units. Exports in this half year were at 132,632 units. During the same period previous year, which is H1 financial year ’21-’22, the Company registered a total sale of 733,155 units including 628,228 units in domestic market and 104,927 units in the export market. In addition to electronic components shortage, the sales in H1 from the previous year were also severely affected due to COVID-related disruptions and hence results of H1 financial year ’22-’23 cannot be compared with those of H1 financial year ’21-’22.

The Company registered net sales of INR538,298 million in first half of this year, which is the highest ever half yearly net sales. The net sales in first half of previous year were at INR360,965 million. The Company made a net profit of INR30,743 million in the first half of this year, as against INR9,161 million in the first half of previous year.

We are now ready to take your questions, feedback and any other observation that you may have. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have our first question from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Kumar Rakesh — BNP Paribas — Analyst

Hi, good evening team and thank you for taking my question. My first question was around realization, so sequentially we have seen an increase in the realization by about 2%. Now, this is quite noteworthy given that in the context of the volume mix, which we had during the quarter, mini and compact segments mix has increased, while UVs and export mix or the volume mix was lower and also discounting in September quarter usually is higher than what happens in the June quarter? So despite all of this we have seen an increase in realization. So can you please, help us understand that what led to this realization increased?

Ajay Seth — Chief Financial Officer

Sequentially, there is an improvement in realization and this is attributed to the again, the mix because the proportion of the — while we have launched the new Alto and the price points of the old Alto and new Alto were different. So that’s one part. Second, also I think the proportion of the Brezza and other higher vehicles were higher compared to the first quarter, which led to this higher realization. Also the fact that we had taken a price increase in the first quarter, which was partial — first quarter is fully observed in the second quarter. So that also had this — its impact. The counts are more or less same in the two quarters. It’s marginally higher in the — this quarter compared to first quarter, not very different.

Kumar Rakesh — BNP Paribas — Analyst

Got it. Thanks for that. My second question was how to look at now at the installed capacity that we have access to at Maruti, given that we’ll also have access to Toyota capacity. So what number we should be looking at the installed capacity for us?

Ajay Seth — Chief Financial Officer

So as of now, we have about 22.5 lakhs capacity at Haryana plus Gujarat. Of course, production at Karnataka is over and above this. Whatever is, whatever comes to Maruti. So and in times to come, we are in process to working on the Kharkhoda plant, which will be up and running in the year in 2025. And if required, I think most likely, we might have to add about one lakh capacity on a short-term basis in Manesar to meet the — meet the intermediate demand. 24 — Manesar — Manesar one lakh might come by April ’24 and Kharkhoda on the next year.

Kumar Rakesh — BNP Paribas — Analyst

Understood. Okay. I have more questions, but I’ll fall in line. Thank you.

Operator

Thank you. We have a next question from the line of Pramod Kumar from UBS. Please go ahead.

Pramod Kumar — UBS — Analyst

Yeah. Thanks a lot for the opportunity and just on the opening comments you talked about with future SUV launches to dominate the segment. I like how we dominate the other categories. This is quite — this is quite heartening because your current SUV market share — SUV plus NPV market share is 17 percentage points. So if you can just help us understand between you and Shashank plan as to — or even Rahul plan as to what are the plans here, because the under — it’s a pretty competitive segment of with very well interest of models and Maruti is kind of is coming late in the category. So can you just help us understand, what gives you that confidence that you will have a significant — you’re talking about dominant but even if it’s a significant market share, how — what are the plans and how do you get there, sir?

Ajay Seth — Chief Financial Officer

I think let the excitement carry onto some more time because we have said that we are committed to address this SUV segment and therefore, we have mentioned that there will be more launches in these segments. But see as you’re aware that we don’t give any details of the products — product plans and as such, there should be some excitement, which should be visible to you as you saw in Grand Vitara maybe soon you will see more excitement in the newer launches that we will have. But definitely, we are committed to the SUV segment, which will not only help us address the growing segment, but also help us address the market share loss that we’ve had in the past.

Pramod Kumar — UBS — Analyst

And sir, just related to this, generally the automotive thumb rule as a pricing of a category goes, pricing of a product goes higher, the probability is generally better, of course, subject to scale. But — and SUVs are predominant — are significantly more price than comparable products in every category. So is that understanding the right that as you make this pivot from a hatchback-led portfolio to a higher price SUV segment, there is no reason why you should be kind of compromising your profitability right when you make the switch and transition?

Ajay Seth — Chief Financial Officer

Right. See, profitability is all dependent on what is your ability of pricing your product at a given point time. And in the past with portfolio being smaller cars and we were not present in the SUV segment, I still, our profitability was reasonably good. I think, it’ll be a combination of what the market can absorb, where you can price your product, and also when the product matures over a period and as you localize and cost goes down, things change in that entering period. So it would be a combination of many factors. So giving an answer to that would be very complicated at this point in time.

Pramod Kumar — UBS — Analyst

Okay, Fair enough. Sir and the last question then is on the financial, on the other expenditure side, we have seen that it’s kind of outpaced the revenue growth quarter-on-quarter, exponential revenue growth. So what is drive [Technical Issues]?

Ajay Seth — Chief Financial Officer

You go ahead, go ahead, please.

Pramod Kumar — UBS — Analyst

So what is driving that, sir? And if you can just grow more light on the sustainable number then and even you’re growing expenses seen a reasonable jump. So if you can just help us understand these two kind of better, sir? Thank you.

Ajay Seth — Chief Financial Officer

So is it you’re talking about sequential or compared with the previous year?

Pramod Kumar — UBS — Analyst

Sequential, sir. Sequential, previous year, the base is impacted. So there’s no point. I’m talking about 2Q or 1Q?

Ajay Seth — Chief Financial Officer

Okay, Q also. In sequential, one thing that’s built-in in this is also other expense is royalty and with the volume going up, the royalty also as an absolute value goes up. And then so there is an impact of that, which is increased from Q1 to Q2. That’s about INR150 crores. Then there is increase in the advertisement and marketing costs. And as you are aware that we’ve had launches and also we mentioned in the previous fall as well, that we will be not shying away from investing in marketing spend, where that gives us much longer visibility. So that’s gone up by another INR150 crores. And also the manufacturing expenses have gone up, because of the significant rise in the energy prices, the power and fuel costs are significantly gone up.

Also certain activities that we were scaling down earlier, we have started to now in the normal situation, we have restarted that. So there’s an increase on that account as well. We — so these are broadly the heads where it’s gone up there, there is small increase in other heads including the employee cost, which is a normal increase that you have on account of the normal increments, etc., that happens during the year. But other than that, I think there is no other factor of increase at this point in time.

Pramod Kumar — UBS — Analyst

And would you expect the marketing intensity to continue like this or you would expect some of normalization? Or even on the royalty side, is there any launch related royalty pay off, one-off on when the new model is introduced?

Ajay Seth — Chief Financial Officer

No. So there is no launch related royalty that we pay. Royalty is basically linked to sales and it will be based on the same formula that we have mentioned to you in the past. So there will be no change as far as that is concerned. Marketing spend will depend on many factors is a kind of visibility that we need for the new models the kind of availability that we need for existing brands and existing models. And also as you’re aware, as we mentioned that we’ll be bringing in more new models, so obviously the spend will remain stepped up.

Pramod Kumar — UBS — Analyst

Fair enough. So thanks a lot and wish you all the best. Thank you.

Ajay Seth — Chief Financial Officer

Thank you.

Operator

Thank you. We have a next question from the line of Amyn Pirani from J.P. Morgan. Please go ahead.

Amyn Pirani — J.P. Morgan — Analyst

Yes, hi sir. Thanks for your opportunity. So just to go back to the question on discounts and royalty, can you mention the discount per vehicle number as well as the royalty number for the quarter? I know you answered the question directionally, but can you give us the numbers also?

Ajay Seth — Chief Financial Officer

So royalty, sorry, discounts in this quarter were at INR13,840 per vehicle, and they were at INR12,748 in the first quarter. So they’re about INR1,000 higher than the first quarter. And they were obviously much higher in the second quarter of last year. They were at about INR18,500 in the second quarter of last year. So that’s on discount. The royalty percentage in last year was at 3.5. Now it is at 3.8. And the first quarter, royalty was slightly lower than this because, which was at 3.0 — between 3.6 and 3.7.

Amyn Pirani — J.P. Morgan — Analyst

Okay. Thanks a lot for that. And secondly, on your capex, I see that in your cash flow, I think you’ve already spent I think INR3,500 crores on capex for the first half. So can you help us understand what’s the full year expectation number and what are the areas in which these spend are going? Is most of it going towards the Haryana capex? Or is there some other areas where you’re spending this money?

Ajay Seth — Chief Financial Officer

So we will be spending upwards of INR7,000 crores this year, and this includes of course, Kharkhoda facilities, where we are now, we have started our construction work, etc. So that’s, and also we have to place orders to various vendors. So that will be one major portion of capex. Besides that all the new model launches that we are doing, where we have to have the investment on tooling, etc., I think that would be the other large piece of capex. So these are two areas where the capex would be maximum then you have the other routine capital that can turn on the other aspects of the business, which is R&D, the regular maintenance capex. So these are the key areas where we will be spending.

Amyn Pirani — J.P. Morgan — Analyst

Okay, sir. Thank you. I’ll come back in the queue.

Operator

Thank you. We have our next question from the line of Raghunandhan from Emkay Global. Please go ahead.

Raghunandhan — Emkay Global — Analyst

Congratulations, sir. Thanks for the opportunity. Firstly, order book is huge at 4.1 lakh as of end of September, and new products are 1.3 lakh, for the remaining portion, which is large at 2.8 lakhs. Can you indicate which are the major models?

Ajay Seth — Chief Financial Officer

So it’s a mix, but mostly we have seen, Ertiga has a high wait list. And anecdotally, also you keep getting requests for early allotment. Of course, the new models we have discussed, the Baleno also has a high number, and then the other models mostly equally spread.

Raghunandhan — Emkay Global — Analyst

And CNG would be 1.30 lakh, 1.40 lakh?

Ajay Seth — Chief Financial Officer

Approximately, yes.

Raghunandhan — Emkay Global — Analyst

Okay. Sir, just given the strong response for hybrid, there is scope for launch of hybrids and other existing model, what are the thoughts here? And typically, what is the timeline required for introducing a new powertrain an existing model?

Ajay Seth — Chief Financial Officer

Yes. So we are also happy and hopeful because it’s — maybe it’s slightly premature that the strong hybrid is getting a good response in the Grand Vitara almost more than 35% of the total bookings that we have today are of the strong hybrid. And we’ll watch this as it comes and we’ll try to look at other options in other models also.

Raghunandhan — Emkay Global — Analyst

Thank you, sir. Lastly the gross margin has improved 150 basis point quarter-on-quarter. So can you indicate what would be the contribution of JPY depreciation and commodity benefits for Q2?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So from the sequentially, there has been a benefit on amount of commodity, because commodities have come off, it also the element of the normal cost reduction that we do even on the exchange rates we have gained, because JPY — the JPY depreciation has been steep during the quarter. So there are combinations of factors this time now, which are all positive. So what I said, commodity, second, I mentioned about the cost reduction, regular cost reduction that we do, and the JPY impact — overall impact of the currency depreciation. So all put together, you see a combination of these three are impacting the gross margins to improve by what you’ve seen.

Raghunandhan — Emkay Global — Analyst

And how do you see the commodity benefits going forward?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Commodity benefits going forward is difficult to predict. It will depend on certain commodities that pulled off and certain commodities are higher than the ideal period. So it’s a combination. For example, anything related to oil, energy, etc. is still expensive, which — where we’ve been shelling out more money than before, but things like steel, ambitious metals have shown improvement. Now we will have to wait and launch in terms of how the future moves. I think it’ll at least remain steady in the third quarter, but the indication given by our supply chain is that there could be slight inching up in the fourth quarter.

Raghunandhan — Emkay Global — Analyst

Got it, sir. Thank you.

Operator

Thank you. We have our next question from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.

Chandramouli Muthiah — Goldman Sachs — Analyst

Hi, good evening, and thank you for taking my question. The first question is on the Grand Vitara profitability. Could you maybe share any additional color on how long will you think this product could take to reach sort of corporate average EBIT margins? So from a percentage margin perspective, we maybe see scope for this product of reach the corporate average EBIT margin over time? Or is the outsource manufacturing arrangement likely to sort of continue a shared margin structure?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So we do not comment on individual segment or individual product margins as such. But the largest benefit was that it’s a premium offering in the SUV space. And what we are excited about is that a fair percentage of the bookings are in the higher variants, and this is both for Grand Vitara and for the Brezza. So a very good percentage of the bookings are from the upper or the top variants. So that is positive. And once we have volumes and we have presence in these segments. Profit automatically follows.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s helpful. My second question is on the semiconductor situation. So despite still a bit of nagging impact of semiconductor shortages, we seem to have hit sort of record production and volumes this quarter. So just trying to understand the few units that you are not able to produce this quarter, what is the typical model mix there? Is it on more premium vehicles or some CNG vehicles? Any color there would be very helpful?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

No, it’s not like that. It’s basically most of the constraint is coming from one semiconductor, one electronics part manufacturer. And of course, it is in some specific models. So hopefully going forward, we hope that the situation eases though it is very difficult to predict.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s helpful. And lastly I just have a house housekeeping question. If you could maybe just give us the numbers on spare sales and export revenues for the quarter?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So export revenue was about INR3,400 crores for the quarter. And spares — generally, we do not have a separate disclosure for spares.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. Thank you very much and all the best.

Operator

Thank you. We have our next question from the line of Jinesh Gandhi from MOFS. Please go ahead.

Jinesh Gandhi — MOFS — Analyst

Hi, a couple of questions from my side. First of all, are we seeing any material impact on CNG demand given the substantial price increase which we had seen and how do we see that segment considering the price differential now?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So fortunately, till now, no, but we are — there is a cause of concern. The high prices and we have represented to the government that they should not, but I have — we are informed that in the commercial vehicle space there has been an impact. So CNG for us this quarter was more than 20% penetration. But we are engaging with the government to reign in the prices because this has nothing to do with Indian costs. It is only a global indexing — linked to a global index, which has a force major kind of situation.

Jinesh Gandhi — MOFS — Analyst

Right, right. And similarly, are we seeing any impact on the export demand? Given that many of the end export markets are witnessing challenges on currency and similar micro pressures? So are we seeing pressure in the demand on that site?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So fortunately, the — nothing so far, but we are watching the situation.

Jinesh Gandhi — MOFS — Analyst

Got it. And can you share our retail sales in the current quarter and [Technical Issues]

Ajay Seth — Chief Financial Officer

Actually, this is a continuous period starting from starting from the first Navaratri still end of December. So some models are in transit, some are in — some we have stocked up for some particular models, but we are expecting that by end of December, we’ll be able to sell a lot of — lot of models and keep our closing stock low.

Jinesh Gandhi — MOFS — Analyst

Sorry, my question was retail sales for 2Q FY’23?

Ajay Seth — Chief Financial Officer

Yeah, because part of it was in the festive period, so that’s what.

Jinesh Gandhi — MOFS — Analyst

Okay.

Ajay Seth — Chief Financial Officer

It’s better to club till end of December, which means club until Q3.

Jinesh Gandhi — MOFS — Analyst

Sure. Got it.

Ajay Seth — Chief Financial Officer

And then we have a — then we have a view.

Jinesh Gandhi — MOFS — Analyst

And Gujarat production, would that be around that similar 31%, 32% range or has gone up?

Ajay Seth — Chief Financial Officer

About 31%, we did about 162,000 from Gujarat recently.

Jinesh Gandhi — MOFS — Analyst

Got it. Thanks. I’ll fall back in queue.

Operator

Thank you. We have our next question from the line of Pramod Amthe from InCred Capital. Please go ahead.

Pramod Amthe — InCred Capital — Analyst

Yeah, hi. I would continue on that CNG question. How has the mix of fleet was this personal bias changed in last two years? Can you give some color?

Ajay Seth — Chief Financial Officer

Yeah. Fleet versus personal bias?

Pramod Amthe — InCred Capital — Analyst

Yeah, for the CNG segment?

Ajay Seth — Chief Financial Officer

We have a very good response from the personal bias within CNG. And — but generally, what we have seen, for example, the Ertiga is a very hot seller. So the kind of impression that we are getting is that WagonR and Ertiga, Ertiga has is more than — I think more than two-third is CNG. WagonR also has a high infraction. So the models with a higher boot space, they are going very well on CNG.

Pramod Amthe — InCred Capital — Analyst

You mean the commercial is relatively higher than these two segments? I was looking for more person —

Ajay Seth — Chief Financial Officer

No, no, it has not linked with commercials.

Pramod Amthe — InCred Capital — Analyst

Okay.

Ajay Seth — Chief Financial Officer

It is linked with — it is linked with — so if you have a bigger model and bigger boot space, the CNG acceptance is far higher.

Pramod Amthe — InCred Capital — Analyst

No, the reason why I ask you is that you said there is some pressure on demand on the commercials segment? So hence I was asking —

Ajay Seth — Chief Financial Officer

No, no. I’m so sorry. I’m so sorry. I — when I said that I meant trucks — commercial did not mean taxi, it meant trucks. So when we discussed within Sam — the commercial vehicle manufacturer, the trucks, they are concerned about it. They have some impact.

Pramod Amthe — InCred Capital — Analyst

And what’s the industry for [Technical Issues] mix of personal and commercial for industry, for the car site for CNG implicitly?

Ajay Seth — Chief Financial Officer

I’m sorry, could you speak louder please?

Pramod Amthe — InCred Capital — Analyst

Yeah, sorry, I was saying for car industry CNG segment, what’s the mix of fleet and personal?

Ajay Seth — Chief Financial Officer

I’ll have to get back with the figure, not readily available, but that’s a fair amount of spread among across all models. And even for example, in models like regular for example, we have a good level of penetration and Ertiga has very high level of penetration. Dzire Tour, obviously, because in many places it is mandated that they need to run on CNG. So we have 88% penetration. Even the normal Dzire has about 35% penetration, the passenger the non-taxi Dzire.

Pramod Amthe — InCred Capital — Analyst

Sure. Okay, Thanks. Second one is with regard to the full — the Strong Hybrid which you launched, can give more details in terms of your cell or battery sourcing? What’s the type of localization you have in that and sustains of the current pricing? Do you have more visibility on that considering that will be as depreciated and the local content, what it’s input content in those cells or battery?

Ajay Seth — Chief Financial Officer

See pricing is always a dynamic — we keep watching the market. It’s a new product. So and of course, we are very consumer centric. So we’ll keep taking a view on the market on a regular basis. As you rightly mentioned, the factors can change and if we get any kind of cost reduction along the way normally we do consider it.

Pramod Amthe — InCred Capital — Analyst

And any indication on localization, where current and how you look at going forward this year?

Ajay Seth — Chief Financial Officer

So it is being manufactured at — in Karnataka. So the local content will also depend on our OEM partner.

Pramod Amthe — InCred Capital — Analyst

Okay. Thanks a lot.

Operator

Thank you. We have a next question from the line of Kapil Singh from Nomura. Please go ahead.

Kapil Singh — Nomura — Analyst

Yeah. Hi, good evening, sir. Firstly I just wanted to check overall growth, what you expecting for the full year and given the situation on supply constraints? Do you expect Maruti to do better than industry in this financial year?

Ajay Seth — Chief Financial Officer

So of course, your answer is linked to the supply of semiconductors. So given — whatever we get, we’ll be able to — we should be able to produce and send to the market. So the industry is expected to do about 3.8 million this year.

Kapil Singh — Nomura — Analyst

Okay. No, the question was just trying to understand that order book is pretty high, but the production has not matched the order book. So if you could just help us understand why that is happening that, inventory is also increased. So what is the technical issue here that we are facing?

Ajay Seth — Chief Financial Officer

Okay, inventory, see in the festive months we do stock and sometimes if you keep — if we — instead of the shorter term, you keep the medium to longer-term in picture the total — given the total semiconductor supplies, you can maximize your production if you keep a slightly longer-term in view. So we are keeping a view till, let’s say end of December, by which time, we should be able to get both get both wholesales and retails at the higher level, given the overall semiconductor constraints. The idea is to maximize within the constraint available if we improve the time frame a bit.

Kapil Singh — Nomura — Analyst

Okay. And second, I just wanted to check, given your experience with Strong Hybrid and the kind of demand you are seeing, are you looking to add more models with Strong Hybrid option?

Ajay Seth — Chief Financial Officer

Slightly, premature. Yes, obviously over a longer period of time that would be the intent. So but we will get more feedback from the ground, from the consumer level and from our manufacturing experience. Obviously, the effort will be in that direction and because it helps majorly in CO2 reduction also. So nothing that we can immediately offer to comment on nothing specific, but that would be the direction in the future.

Kapil Singh — Nomura — Analyst

Okay. Thank you. I’ll come back in the queue. Have a good day.

Operator

Thank you. We have a next question from the line of Arvind Sharma from Citi. Please go ahead.

Arvind Sharma — Citigroup — Analyst

Hello. Good evening sir. And thank you for taking my question. So first question will be on the capacity expansion, you did mention something at 1 lakh at Manesar further at the new plant. Is it possible to share some timeline about the net capacity expansion especially in the new plant? How much will it add? I believe, it would be in view of something which will go away at Gurgaon. So what would be net capacity addition at the new plant?

Ajay Seth — Chief Financial Officer

We are not looking at any kind of reduction in Gurgaon. In fact, at least in the shorter term, we might have to increase production in Gurgaon. Kharkhoda plant, the first — all plants generally they are the optimum economic size is about 2.5 lakhs per annum. Our first plant should be commissioned by the first quarter of calendar ’25. And I think we already have to start thinking on the second plant. If demand growth continues in India, we are not looking at any kind of reduction in Gurgaon.

Arvind Sharma — Citigroup — Analyst

Sure. So this 2.5 lakhs would be in addition to current and add to it the one lakh at Manesar, right?

Ajay Seth — Chief Financial Officer

Yes.

Arvind Sharma — Citigroup — Analyst

Great. Sir, second question more for the current quarter, what are the FX gains, is it possible to quantify the FX gains and where do they reflect? And also as a corollary is the — what are the import content both for your product at Gujarat and Haryana, what are the — what are the import content for these two plant — these two locations and the FX gains this quarter?

Ajay Seth — Chief Financial Officer

Both content for both the plants would be similar. There is no different because all the procurement is more or less same on the same basis. So our total direct report content is about 4%. So it’ll fall in that category only both the plants. Similarly, I think the other thing is the report content, which also would be in a similar category, because the vendors are common and all the materials that we are buying from the vendors are basically from similar vendors. So there’s no difference in terms of import report content. In terms of forex — so between different currencies there have been gains, largely on the import and export side on the dollar-rupee exposure, we have naturally hedge. So we use a natural hedge rule. On the dollar-yen, there have been maximum gains this quarter compared to last quarter and also last year, because of the significant depreciation of the currency. And the net impact on exchange rates have been about INR158 crores of gain in this quarter compared first quarter of last year — of this year.

Arvind Sharma — Citigroup — Analyst

So this is the entire gain on the P&L INR158 crores?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

That’s right. And they will be under different heads. So it —

Arvind Sharma — Citigroup — Analyst

Right, right. Sure. Sir, could you — you share the direct import contain of around 4% work with the indirect input content, if you could share?

Ajay Seth — Chief Financial Officer

About 10%.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

10% — 10% between 10% and —

Ajay Seth — Chief Financial Officer

10% to 11%.

Arvind Sharma — Citigroup — Analyst

Sure. Thank you so much. That’s all from side. Thanks so much.

Operator

Thank you. We have our next question from the line of Chirag Shah from Edelweiss. Please go ahead.

Chirag Shah — Edelweiss — Analyst

Yeah, thanks for the opportunity and congratulations for good number, sir. Sir, I have one very specific question on the SUV strategy. Are you looking to enter the compact car category because some of your peers, for example, Tata Punch, are trying to address that category with the SUV type or SUV field model? Is there a part of your strategy, the SUV launches that you indicating? And if you can elaborate on it? It would be helpful.

Ajay Seth — Chief Financial Officer

Sorry, you mentioned SUV or XUV?

Chirag Shah — Edelweiss — Analyst

SUV type of a product, like Tata Punch is a compact SUV addressing that Baleno kind of range in terms of price points.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So as Mr. Seth mentioned some time ago, let’s keep the excitement and let’s bring out products with which deliver pleasant surprises to the customers. So you’ll have to wait for some more months.

Chirag Shah — Edelweiss — Analyst

And sir, switching question over on Hybrid, if I — the Strong Hybrid, is there any restriction or technological limitation on the size of the vehicle to add more — to add Strong Hybrid? So say, how much lower you can go in terms of technology today in terms of size of the vehicle?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So you are right, Strong Hybrid, at the moment, we have solutions in slightly bigger cars, which are — which have room in the engine room who accommodate both the powertrains. It becomes a bit of a challenge to bring them in smaller cars, but that is what Suzuki’s competence is all about. So we’ll watch the market. And to reduce carbon, we have to adopt a portfolio of technologies. And each technology, each model will have its own context. Its cost, its volume, So it’s a complex equation that we keep working on all the time. We’ll keep watching how we can maximize hybrid volumes in the future.

Chirag Shah — Edelweiss — Analyst

Yeah. Thanks a lot, sir.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. [Operator Closing Remarks]