Maruti Suzuki India Ltd (MARUTI) Q2 FY22 Earnings Concall Transcript

Maruti Suzuki India Ltd (NSE:MARUTI) Q2 FY22 Earnings Concall dated  Oct. 27, 2021.

Corporate Participants:

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Ajay Seth — Chief Financial Officer

Shashank Srivastava — Executive Director, Marketing and Sales

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Analysts:

Pramod Kumar — UBS — Analyst

Kapil Singh — Nomura — Analyst

Gunjan Prithyani — Bank of America — Analyst

Pramod Amthe — InCred Capital — Analyst

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Amyn Pirani — JP Morgan — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Aditya Makharia — HDFC Securities — Analyst

Ronak Sarda — Systematix Shares — Analyst

Sonal Gupta — L&T Mutual Fund — Analyst

Presentation:

Operator

Ladies and gentlemen, good day. And welcome to the Q2 FY ’22 Earnings Conference Call of Maruti Suzuki India Limited. As a reminder, all participant lines will be in listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Pranav Ambaprasad from Maruti Suzuki India Limited. Thank you and over to you, sir.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Thank you, Vikram. 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 marketing and sales, we have Member Executive Board, Mr. R.S. Kalsi; Executive Director, Marketing and Sales, Mr. Shashank Srivastava. From corporate, Execute Director Corporate and Government Affairs, Mr. Rahul Bharti; Senior Advisor Corporate Planning, Mr. Kasahara; and General Manager, Corporate Strategy and Investor Relations, Mr. Nikhil Vyas. From Finance, we have Executive Director, [Indecipherable]; and Executive Vice President, Mr. Sanjay Mathur.

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 risk that the company faces. I also like to inform you that the call is being recorded and the transcript will be available at our website.

I would now like to invite our CFO, Mr. Seth. Over to you, sir.

Ajay Seth — Chief Financial Officer

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

Let us start with some of recent business highlights and milestones. The most notable aspect this year was a record growth in exports. Export sales were the highest ever in the company’s history. And the figures of the first half this year exceeds the full-year sales of last year. We rolled out Maruti Suzuki Smart Finance across India, an industry first initiative. It now covers diverse customer profiles. During the quarter over 1 lakh loans have been disbursed to customers using this platform. This is a testimony of customer acceptance.

With focus to improve customer convenience and experience, Maruti Suzuki rolled out S-Assist, an industry first AI based 24by7 virtual car assistant app. The app is delivered by Xane AI, a startup under the company’s MAIL initiative to nurture innovations. We extended advanced intelligent telematics technology, Suzuki Connect for the vehicles in ARENA channel also. Suzuki Connect offers connected car experience to Maruti Suzuki car owners. The company launched Kam Se Kaam Banega campaign to celebrate three decades of leadership and offering countries most fuel efficient cars. Maruti Suzuki over the last — over the years has offered country most fuel efficient cars across all segments. Working in close partnership with parent company, Suzuki Motor Corporation Japan, Maruti Suzuki is committed to both environmentally-friendly products.

On employees front, we are happy to share that many employee families have started living at newly constructed housing project. Over 180 of the 350 flats were offered for possession, 151 flats of these have already been occupied. The company organized multiple vaccine camps for employees and family members. We are confident that by the end of this month, we will be covering 100 personnel workforce. Besides the company is also facilitating the value chain partners and business associates in this regard. The company will continue to observe all COVID-19 SOPs and precautions. Be sensitive to the human and social element, build an environment of positivity and keep working hard as it’s been in these difficult times.

Coming to the business performance. Q2 financial year ’21-’22 was a challenging quarter because of unprecedented global supply crisis of electronic components. As a result, the company witnessed a significant disruption in production operations. An estimated 116,000 vehicles could not be produced owing to electronic component shortage, mostly corresponding to the domestic models.

Coming to the demand environment, post the disruptions caused by second wave of COVID in quarter one financial year ’21-’22, the demand started to recover. The inquiry bookings and retails in quarter two of this financial year has shown an improvement. However, lack of vehicles because of electronic component shortage has impacted the whole ecosystem and hence the wholesale volumes are down. The company had more than 200,000 pending customer orders at the end of the quarter, for which the company is making all efforts to expedite deliveries.

In quarter two financial year ’21-’22, sales in rural markets improved in comparison to the other markets. As a result, the penetration of oral sales in the rural market increased to over 43% in quarter two of this year. The customer acceptance towards CNG vehicles have increased. And in this quarter, the penetration of sales from CNG vehicles and overall sales stands at 17.8%, up from 11.2% from the same period previous year.

The quarter was also marked by an unprecedented in keeping the price of commodities like steel, aluminum and precious metals within a span of one year. The company made maximum efforts to absorb input cost increases offsetting them through cost reduction and passed on minimum impact to customer by way of half price increase.

The company sold a total of 379,541 units during the quarter, constrained by a global shortage of electronic components. Sale in the domestic market stood at 320,133 units, exports, were at 59408 units. The highest in any quarter. During the same period previous year, the company clocked a total sales of 393,130 units, including 370,619 units in domestic market and 32,511 units in the export market. During the quarter, the company registered net sales of INR192,978 million compared to net sales of INR176,893 million in quarter two of the previous financial year. The net profit came down to INR4,753 million in this quarter compared to that of INR13,716 million in the same quarter previous year.

Coming to the highlights for the first half. The company sold a total of 733,155 units during this period. Sales in domestic market stood at 628,228 units. Exports in this half year were at 104,927 units. During the same period previous year, the company. Clocked a total sales of 469,729 units, including 437,646 units in domestic market and 32,083 units in the export market.

During the period, first half of this year, the company registered net sales of INR360,965 million compared to net sales of INR213,668 million in previous year first half. The sales of financial year ’20-’21 were affected due to COVID related disruptions. The Company made a net profit of INR9,161 million in this first half of this financial year compared to that of INR11,222 million in the first half of ’20-’21.

Having given you a brief on the financials and the overall company strategy, we are now ready to take any questions, feedback and any other observation that you may have. Thank you.

Questions and Answers:

Operator

Thank you very much sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Pramod Kumar from UBS. Please go ahead.

Pramod Kumar — UBS — Analyst

Thanks a lot for the opportunity, sir. A couple of questions relating –relating to the P&L basically. If you can help us understand what has been the hit to the P&L from the Gujarat arrangement, wherein we kind of compensate them for the fixed cost as well and if production volumes have taken a knock and there is a new capacity, which has got added there. How much has been the excess burden what Maruti is carrying this point of time, which is purely because of the Gujarat arrangement. If can just help us understand and how do you see that kind of plan reversing out as the production ramps up?

Ajay Seth — Chief Financial Officer

So there the impact on account of Gujarat is on two accounts. One is, it’s basically the new plant which has come up and it was capitalized in April. So there is an impact of depreciation that’s been charged on that plant. And the second is also the fixed costs that we incurred on that plant. Obviously, because of chip shortages, utilization has not been to what we had expected. And therefore the fixed cost that we are carrying on these two accounts which is depreciation as a run rate of the new plant depreciation would be about INR500 crores a year. So you can divided to take a quarterly figure and the fixed cost, I don’t have the fixed cost number right away with me, but there will be moderate amount of fixed costs also, which has been incurred there. So these two impacts are the ones that will negate once the volumes pick up.

Pramod Kumar — UBS — Analyst

And sir just to clarify this. Both this expense lines will be sitting for you at the operational level, right, in terms of the EBITDA or the deposition [Phonetic] ideally should be billed back to you, right in terms of the cost of cars. So how does the depreciation accounting work here? Does it come above EBITDA or below EBITDA?

Ajay Seth — Chief Financial Officer

Depreciation is part of our — sorry, depreciation comes under the other expenses that you see, because the way accounting is done is all other cost which is material and overheads, they are part of material cost, but depreciation is treated as lease expenses, which is part of other expenses, as you see in the SEBI format. And we club it under manufacturing and other expenses in our overall report.

Pramod Kumar — UBS — Analyst

And sir, second question pertains to demand. And in that context where would you put your dealer inventory? Because I’m assuming that dealer inventory should be next to nothing. I just want to confirm that and the order backlog of 200,000 plus by when do you see that kind of getting kind of full fledge. In a way, I’m also going to get it so how do you see the production for the second half of this year in terms of –what happened or what went wrong in the September quarter?

Ajay Seth — Chief Financial Officer

So we fortunately have our Senior Executive Director Mr. Shashank Srivastava. I will request him to answer this.

Shashank Srivastava — Executive Director, Marketing and Sales

Yeah. So the current dealer inventory is roughly around 60,000 cars, including our commercial vehicles. So, and of course it’s expected with the festive retails going up, it would probably come down a little bit from there. As regards with the second half, it’s a little uncertain from the supply side perspective and therefore it’s we are unable to give you an exact number of what the production or the sale would be in the second half. Yes you are right, we have more than 250,000 bookings pending, but because of uncertainties in terms of supply, it’s difficult to predict both the production as well as the exact details. Thank you.

Pramod Kumar — UBS — Analyst

And Shashank, and related to that, will it have further delay in our launch pipeline because we kind of thanks to COVID and other developments, we’ve been running behind on our product launch pipeline. I’m just trying to understand, it was already a busy launch pipeline what you were supposed to initiate. So how should one look at the launch pipeline from here on? Because beyond a point [Speech Overlap]

Shashank Srivastava — Executive Director, Marketing and Sales

One of the strong points of Maruti Suzuki has been launching new products, which are the as per the requirement of the consumer, and that is what we intend to do in the future as well. These launches are actually planned three years to four years in advance. So it’s unlikely that the needle regarding that will move based on short-term supply situation. Having said that, yes, we have a very strong launch plan in the next few months.

Pramod Kumar — UBS — Analyst

Fair enough. I will pass the lot and wish you all the best. Thank you.

Operator

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

Kapil Singh — Nomura — Analyst

Good afternoon, sir. I was just trying to understand the improvement in realization per vehicle that we are seeing. Could you give us an indication whether there were a much higher mix of spare part sales or [Indecipherable] benefits that we may have got this quarter compared to 1Q?

Ajay Seth — Chief Financial Officer

Kapil, sorry. Can you just repeat the question, please. I was a bit distracted so.

Kapil Singh — Nomura — Analyst

No worries sir. Basically, I was looking at the realization per vehicle, which has been a pretty sharp increase. I was just trying to understand whether the spare part mix, as a percentage of revenue has gone up in 2Q, which may also be a factor and whether there was any long-term benefit that came in for the second quarter?

Ajay Seth — Chief Financial Officer

So are you comparing the quarter two of last year with this quarter, or are you comparing sequentially?

Kapil Singh — Nomura — Analyst

Sequentially from 1Q to 2Q.

Ajay Seth — Chief Financial Officer

Sequentially from 1Q 2Q the increase is not so much, it’s a small increase, but I think it gets a bit camouflaged when you look at it along with the spare parts sales because last year we had a significant impact on the spare part sales, which was pretty down so if you add that then the impact is seen much bigger in terms of realization. But I add these numbers here for Q1 domestic sales average realization was for 427,000. And now in Q2 this year, we have average utilization of 431,000. It’s moved up by about 4000, which is also in line with net of discounts exactly in line with whatever [Indecipherable] would have happened or any change in the mix that would have happened.

Kapil Singh — Nomura — Analyst

Got it. And sir, was there any long term benefit also for the quarter?

Ajay Seth — Chief Financial Officer

Yes, there was. There was.

Kapil Singh — Nomura — Analyst

Will it be possible to quantify?

Ajay Seth — Chief Financial Officer

It’s not a very significant amount. There is a roadtap [Phonetic] benefit that we have got and in terms of quantifying I think it will be not very significant.

Kapil Singh — Nomura — Analyst

Okay, sir. Also, the second question was relating to, just on the technology front, if you can throw some light on how do we think of salience of hybrids in India during the current regulatory environment. And I mean will they were relevant technology over next two years, three years or do we need more support from the government side for hybrids to be relevant. Just some thoughts on that would be helpful.

Ajay Seth — Chief Financial Officer

So short answer is yes to both. There is some recognition from the Government already. There is some preferential rate in the GST and some same benefit to strong hybrids and plug in hybrids. But we need more. And your other question, will it be a meaningful mainstream kind of option for the country, we believe so in the next five years to 10 years at least it will be a very important option for reducing CO2. A hybrid does 40% of the job of an electric and it is scalable, as it does not need charging infrastructure.

Kapil Singh — Nomura — Analyst

Okay. So because [Speech Overlap]

Ajay Seth — Chief Financial Officer

We will need more benefits from the government.

Kapil Singh — Nomura — Analyst

Yeah, my question was more from a cost perspective, whether it will be viable for the customer to go for hybrids? At current incentive level.

Ajay Seth — Chief Financial Officer

See there is a cost to all options which reduce CO2 drastically. So even EVs have a cost, it’s only a question of relative cost. So most manufacturers will adopt parts which sort their context, their business segments, their customer segments. So each manufacturer will have his own strategy and there will be some cost hurdle to — for all for any of the options that you consider.

Kapil Singh — Nomura — Analyst

Got it. And lastly, sir do you expect that cost pressures are fully through or should we expect more cost pressures in the coming quarter?

Ajay Seth — Chief Financial Officer

So see there are two parts to it, Kapil. One is of course it depends on how the volumes now span out because we’ve been affected on operating leverage because of volumes. So if volumes improved and they have, definitely we will have the benefit, we have seen some softening of precious metals in Q2, but since we get it with a lag effect. So we are hopeful that in quarter three, we will see some softening of precious metals. If [Indecipherable] against are moving up. So whatever action we can take in terms of hedging, we will be taking. Unfortunately aluminum and steel doesn’t look good at this point in time. We were hoping that will also soften, but it looks like given the China issue, it looks like the prices will either be here or we may raise again for steel and aluminum. So we’ll have to keep a watch on these things. We continue to make our own efforts in terms of what we can do with other mitigation plans and cost reduction plans. So that those efforts are own, but two important things for us would be watching the commodity prices moving forward and also watch the volumes.

The other thing that I would like to also mention is that we did a price increase in September. That price increase was done around the first week or around 10th September. So that will be fully absorbed in the third quarter because that impact will have been visible in the second quarter. So then impact would be fully seen in the third quarter as well. So that will also help.

Kapil Singh — Nomura — Analyst

Thank you, sir. And all the best.

Operator

Thank you. We have next question from the line of Gunjan Prithyani from Bank of America. Please go ahead.

Gunjan Prithyani — Bank of America — Analyst

Hi, thanks team for taking my questions. Two questions from my side. Firstly, on the follow-up on this margin, can you give us more color on what is the impact of commodity on a sequential basis, because Gujarat was part of quarter one cost as well so incrementally, it is essentially commodity hit. And also you call out this increase in ad and promotional spend in this quarter, what does this pertain to given you know, we really don’t have launches and discounts are very low in the market?

Ajay Seth — Chief Financial Officer

So effective the significant impact has been on commodities as we venture that our material cost to net sales ratio has moved up by about 6.4% now. That is a huge impact. In spite of a small price increase that we had taken and also the cost reduction measures that we have taken during the period. So the impact of, we were — so you can imagine that the impact of commodities is much more than the 6.4% increase that you see because this is after letting off all the other measures that the company has taken. The quarter two impact is also a maximum because the precious metal prices were at its peak in quarter one and we always get a lag effect of these commodity costs. So therefore, I mentioned that given the current trend of precious metal costs, quarter three moving forward looks better if there was not to be an increase in this. So we will have to keep watching in terms of where the market moves in commodity, but we’ll also have accordingly decide what are the steps the company needs to take if commodities either remain here or go up in terms of corrective measures that are required to be taken.

Gunjan Prithyani — Bank of America — Analyst

And there are no, one offs of ad and promotional spends that you’ve mentioned in the presentation. Is this a recurring increase in the other expenses?

Ajay Seth — Chief Financial Officer

So in other expenses, if you see there is a bit of grouping issue. There is — there are some expenses that you see going up because correspondingly the recoveries are effected in the operating income. So operating income is up by about INR270 crores and the expenses are up by about INR230 crores or INR240 crores. So It’s a grouping issue, some expenses have been — which have been recovered have been grouped in operating income and expenses as incurred have been shown in other expenses.

Gunjan Prithyani — Bank of America — Analyst

Kay. So these are the freight related typically which get captured, okay.

Ajay Seth — Chief Financial Officer

So it will be development expenses related these kind of things.

Gunjan Prithyani — Bank of America — Analyst

Okay. Second question I have is on the whole emission or CO2 norms which you briefly touched upon. Now, if you can talk a bit on the CAFE II norms and the RD norms, which are more imminent in the next two years in terms of the — any clarity on the cost impact or our approach to comply with the sale. And more importantly if I see directionally, look at the emission corridor, it is bound to turn more stringent in the next phase as well. Whether it’s in F27. So how are we thinking on our product, be it electric hybrid. I mean how should we think about the change in powertrain over the next three years to five years. With these emission norm changes and also given the fuel prices have been rising. So some thoughts on this will help us from next three years to five year perspective. Okay. On the fuel price increase, how is the market responding, I’ll request, our Head of Marketing and Sales Mr. Shashank to respond. On the other two questions I’ll take. See there are — there are two broad regulations, which are coming up. One is the CAFE Phase II and the second is BS6 Phase 2. BS6 Phase 2 involves a clause on real driving emissions because of which we think there will be an impact mostly on diesel powertrain cost to comply with that. So on CAFE also different manufacturers will have different strategies of meeting it because there are so many options of reducing your CO2 output. Maruti is positioned the best in term because we have the least CO2 emission as a portfolio. Since it is just around the corner, we are expecting it from 1st of April ’22 we have to meet the norms. And in terms of the powertrain options that you make, that you talked about. So, while there are some EV launches, but the volumes are quite minuscule. And they don’t add meaningfully to the CO2 reduction. So we need some technology, which addresses the main stream. For example, natural gas, it does a 25% CO2 reduction and is scalable across India and the government also wants it. That is why we are — it’s a clean. There is no particulate matter, it’s friendly customers. The market seems to absorb it well. So that is why we are pitching on natural gas. Hybrid electric vehicles are also very good because they don’t need charging infrastructure to scale up. They have some cost impact, but it is lesser than that of EVs. And similarly they have about 40% CO2 benefit. So this churn will happen in most car companies in the next five years to 10 years and we have to work with options which are best for the customer and which gives us good cost efficiency also. So on prices, may I request Shashank to kindly.

Shashank Srivastava — Executive Director, Marketing and Sales

What was the question?

Ajay Seth — Chief Financial Officer

Market impact because of increasing fuel prices.

Shashank Srivastava — Executive Director, Marketing and Sales

So directionally of course increased fuel prices increase the cost of running and that’s a negative as far as demand is concerned. However, what we have found is that the demand for the CNG vehicles have increased dramatically. Possibly because of two reasons, one is this increase gap between the CNG fuel price and the gasoline, diesel price, which means that the cost of running for CNG, roughly around INR1.61, INR1.70 per kilometer against a INR5 per kilometer for diesel or petrol. So that is one reason why it has gone up. And the second reason is, of course, because the CNG infrastructure has dramatically spread. Thanks to support from the government. Now we are covering almost 250 cities with 3,800-odd stations as against just three, four years back of about 1,400 stations covering 150 cities. So those — directionally, I think that will continue.

And as Rahul explained, going forward, the mix of hybrid and CNG is going to help Maruti very well as regards to that.

Gunjan Prithyani — Bank of America — Analyst

Thank you. This is very helpful. Just if you can share the discount in royalty number and I’ll join back the queue.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Royalty for the quarter was at 3.5% and in terms of royalty value, it was at INR670 crores. And discounts in this quarter were at INR18,567. It was up compared to the first quarter of this year. First quarter was at INR13,911 and in the same period last year our discounts were at INR17,310. So discounts are slightly up compared to the first quarter, — compared to last year and about INR5,000 higher compared to the first quarter.

Gunjan Prithyani — Bank of America — Analyst

And that must be due to higher retails, I am guessing.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

That’s right. That’s right.

Gunjan Prithyani — Bank of America — Analyst

Okay. Thank you. Thank you so much.

Operator

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

Pramod Amthe — InCred Capital — Analyst

Couple of questions. One is you have seen a very strong export traction. Is there any geography mix change compared to traditionally you used to export because new products are added up?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So we’ve got some very good response in exports. We’ve more than doubled our volumes. The biggest gainer was Africa. So half of the volume is from Africa and one-third of the volume is coming from South Africa alone in Q2. And this is partially because of the Jimny and partially because of increased distribution network there. Thanks to our global partner Toyota’s network. And we think — the best part is we think it is sustainable.

The other markets have also done well. There is a global recovery also from COVID so that macro tailwind also helped us and geographies like Latin America were also good, Chile, Bolivia, Colombia, north countries like Egypt, they have performed well.

Pramod Amthe — InCred Capital — Analyst

Yeah. Thanks. And do you see more products joining in a similar queue with this success which you are seeing with Jimny in the next thee-year, five-year plan?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Let’s keep the excitement.

Pramod Amthe — InCred Capital — Analyst

And the second question is with regard to demand. Considering the fact that we are seeing unprecedented price hikes for cars, so how are you looking at customer behavior? Do you — are you seeing any bookings being canceled or customers downgrading the same or what are the solutions you’re planning to offer so that you will continue to remain in your basket?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So if you look at the increase in prices, you’re right, there has been an increase overall in the industry and for Maruti Suzuki as well. As you know, we have had three price hikes this year. The demand seems to be stable. In fact, if you look at the average inquiry or the booking level have actually gone up and I think that’s got something to do with the changed consumer preference for personal mobility against shared mobility or public transport.

What are we going to do about it and have we seen any changes segment wise? We do see segment wise changes, but it may not entirely be related to cost of acquisition. The entry hatches have gone down a little bit. They are now about 10% of the market as against 11% two years back. SUVs have gone up, especially the entry SUV and the mid SUV. So there seems to be a preference, not just based on the economics of the cost of acquisition, but also on the design preference and that’s what we see.

Going forward also we predict a similar sort of movement in the SUV sector and, yes, we are watching that space very carefully. That’s one of the spots which we shall look at very carefully going forward.

Pramod Amthe — InCred Capital — Analyst

Sure, sir. Thanks and all the best.

Operator

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

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thank you, sir for the opportunity. To Shashank sir, on order bookings, can you speak about customer segment where demand is robust and which segment where demand is relatively on the weaker side?

Shashank Srivastava — Executive Director, Marketing and Sales

Yeah. So I just mentioned if you look at the overall industry level entry SUV, mid SUV, the MPVs, they have gone up. The sedans have come downs a little bit. Premium hetches have gone up, entry hatches have come down just a little bit. So that is overall.

If you are talking of Maruti Suzuki, we have seen very strong vehicles, not just in terms of the segment, but also in terms of the fuel type. CNG vehicle have — and I mentioned it a little while earlier as well, there the demand surge seems to have been huge. And we also continue to have waiting periods actually across the segments and that’s because — as you know, we have had a little bit of erratic production because of the semiconductor issue.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thank you, Shashank. But I was referring to like in terms of the salary class, business community, the first-time replacement and like recently the IT sector has been doing very well. So if you can provide any color as to which types of customers are like where you’re seeing the better mix or demand share in order bookings?

Shashank Srivastava — Executive Director, Marketing and Sales

So if you look at — if you divide those segments, of course the one — the earlier answer pertains to the type of vehicle segment. I think, now you are also asking about demographic of the type of buying itself. So the first-time buyer have remained pretty steady for it’s roughly around 45%, 46%. That has been — and the replacement buying, which was earlier 26% a couple of years back has come down to about 19.6%, but it’s slightly up over last year. The additional car buying has gone up, some about 30% in 2019-’20 to about 35.2% in this year. So this is by the buyer type.

If you want — of course, we have many other types. I am not sure whether we can go through the entire list. But the average age has come down a little bit. It used to be about 40, 40.3 for Maruti Suzuki, it is about 38.5 now. Average MHI [Phonetic] actually has gone up a little bit. And if you are talking about those salaried, business, self-employed type of consumers, we have seen a drop as far as the salaried consumers are concerned over last year. Last year it had gone up suddenly from 43% in 1920 to 49% in 2021. It has dropped back to that 42%, 43% level. And the business class customers has actually gone down from about 33% in 2019, ’20 to about 29% now. So that is roughly the breakup if you want it in terms of the occupation.

I am sure you would like to know about the gender percentage also. It has remained steady.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thank you, Shashank sir. My second question was to Mr. Ajay Seth. Sir, in first half capex was around 15 billion. Will the full year capex be lower than the earlier expectations?

Ajay Seth — Chief Financial Officer

So, the capex will be what we had mentioned earlier, which is INR4,500 crores, but on top of that, we’ve also put in an additional amount of about INR2,200 crores, which will be possibly on any further expansion of land that we are contemplating. So there will — there could possibly be a total expense of about INR6,700 crores on a year. And capex is going as per our plan at the moment.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Okay. So if I understand correctly for full year FY ’22 to INR6,700 crore, of that only INR1,500 crores has been spent in the first half?

Ajay Seth — Chief Financial Officer

That’s right. That’s right.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Got it.

Ajay Seth — Chief Financial Officer

Which is what was planned in terms of cash flow and that’s been done in the first half. In the second half we have a plan of spending the balance amount.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thank you, sir. This is very helpful. If you can just share data points from Gujarat production, like exports on spares, that will be helpful.

Ajay Seth — Chief Financial Officer

So exports — in Q1 the realization was INR2,900 crores. Sorry in Q2. And in H1 it was about INR5,188 crores. Gujarat production —

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

It is 1,20000 for this quarter.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thanks, sir. Yeah. Could you also give the number for Q1?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

INR96,000.

INR96,000 in quarter one and INR120,000 in quarter two.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thank you, sir. And could you run the spares numbers. Actually you said realizations between Q1 and Q2 partly the reason is spares increase.

Ajay Seth — Chief Financial Officer

We will give you the figure after some time.

Raghunandhan NL — Emkay Global Financial Services Ltd. — Analyst

Thank you. That’s all from my side.

Operator

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

Amyn Pirani — JP Morgan — Analyst

Yes. Hi, sir. Thanks for the opportunity. First question is more of a clarification. You mentioned the loyalty of 3.5%. Does this include the royalty for the Gujarat production or is it just what you Maruti Suzuki produce?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So when I talk about royalty, it is a combination of both MSL and Gujarat.

Amyn Pirani — JP Morgan — Analyst

Okay. Okay. Because this number has come down quite drastically from 4Q of last year. Even last quarter it was lower. So has there been any significant changes in any of the agreements with Suzuki or is that a mix issue? Can you help us understand?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

We have been telling you for quite some time that as the models move into the rupee formula and then they kick in with the discounts that are applicable on completion of certain volumes, the royalty rates will come down and they have been progressively coming down. Now all our models have moved into the rupee formula and also many of them are now under the discount formula because they have done more than the desired numbers for [Indecipherable]. And hence the combination of the two the resulting royalty is now lower than 4%. It hovers around 3.5% to 4% depending on the mix and depending on the model.

Amyn Pirani — JP Morgan — Analyst

Okay. Okay. And whenever new models come in, then obviously they will still be on rupee formula but they will not get the discount benefit whenever — as and when newer models come.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Yeah. As and when we complete the new volumes we will start getting discounts on that.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Which is why we are saying below 4%.

Amyn Pirani — JP Morgan — Analyst

Sorry, Rahul. I missed that.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Which is why we are saying as below 4% broadly, 3.5% to 4%.

Amyn Pirani — JP Morgan — Analyst

Understood. Understood. That’s helpful. Second question was again some clarification on the Toyota collaboration. So the export, you’ve mentioned that there is some benefit from the Toyota dealership network. So is this being sold under Toyota branding in South Africa like you are giving the Baleno and Brezza to Toyota here. Is it the same thing which is happening or is under Suzuki brand?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So, basically it’s then channel there which has a major advantage in geographies like Africa, particularly South Africa. So the major benefit is of the distribution network, plus there is a global recovery also that has happened in many parts of the world. So that has also helped.

Amyn Pirani — JP Morgan — Analyst

Okay. And regarding the India —

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

In Jimny also — that has also [Indecipherable].

Amyn Pirani — JP Morgan — Analyst

Yeah. Of course. And just on the — just one last thing on the Toyota partnership. So based on what we know and please correct if I’m wrong, you are currently giving Baleno and Brezza and you will be giving Ertiga and [Indecipherable] models in the future. And Toyota will be making SUV or MPV in their India plant and giving to you. Is that understanding, correct?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So what we can confirm to you right now is the current — which you mentioned about Baleno and Brezza.

Amyn Pirani — JP Morgan — Analyst

Okay.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

And whenever any new project comes about, we will inform you.

Amyn Pirani — JP Morgan — Analyst

Okay. Okay. Okay, thank you. Thanks a lot. I’ll come back in the queue.

Operator

Thank you. We have next question from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Hi, sir. My first question pertains to the semiconductor shortage. I mean today’s media article suggests that semiconductor shortage is now getting addressed at Maruti level. So can you confirm that? Or are we still seeing continued challenges like we saw in September and October?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So as we informed the stock exchange for September, we said production will be down 60% from plan and also for October, it got better. We announced at the beginning, that it would be around 40% down. So I think it’s getting better. And as we discussed earlier in the day, there would be — probably November will be better than October. However, the dynamic is still unclear because it’s a global issue and there are a lot of — there is a whole lot of supply chain involved in this globally. So I think forward projection of when it will become normal is a little difficult to state at this moment.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Right. And Shashank sir regarding the CNG being very strong with the expected increase in CNG prices due to regulatory changes do you expect softening coming — softening in demand on CNG because of price increases or given that gap will still be better CNG should do better?

Shashank Srivastava — Executive Director, Marketing and Sales

Yeah. So I think the gap still exists. There is a huge gap. We have petrol diesel roughly around INR105 to INR110 range in most of the states. CNG is still in that broad range of about INR48 to INR57. So there is still a big gap. The efficiencies for CNG is also much better. So I think the cost of running around a INR1.70 per kilometer is substantially lower than the INR5 per kilometer that you get for diesel and petrol. So I think that gap is likely to continue and that means that there would be a positive trend towards CNG even going forward.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. Okay. And last question to Seth sir, with respect to the commodity cost inflation, sir, in this quarter, vis-a-vis first quarter impact would be very small, right? I mean 130 basis points or it’s higher than that?

Ajay Seth — Chief Financial Officer

It will be higher than that because there has been an impact compared to the first quarter. It will not be as steep as it was in the first quarter, but it is — it will be in the vicinity of what 250 basis points.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it. Got t. And price increase in September was what, about 20%?

Ajay Seth — Chief Financial Officer

Price increase that we did on an average was about 1.4%.

Shashank Srivastava — Executive Director, Marketing and Sales

1.9%.

Ajay Seth — Chief Financial Officer

1.9%.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. I’ve got it. Great sir. Thanks and all the best.

Operator

Thank you. We have next question from the line of Aditya Makharia from HDFC Bank. Please go ahead.

Aditya Makharia — HDFC Securities — Analyst

Yeah. Hi. This is Aditya from HDFC Securities. Sir, just wanted to know on flex fuel, the government is pushing that very aggressively. So, A, how does that work? Does it need a separate engine or do you can just sort of customize your existing products? And secondly on the Jimny there are some reports that it will be launched in second half. So then that’s sort of 12 months even from here on. So could you give some more qualitative comment on the same? Thanks.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Aditya, I’ll try to answer the flex fuel question. So the Ministry of Road Transport is quite enthusiastic about flex fuel for three reasons. One it reduces oil imports. Second, it reduces carbon emission. And third, it will help to get farmers better realization for their crops. And since the lifecycle of biofuels, the lifecycle of CO2 is very less. So we are also looking at this option quite seriously. As of now, we do not know — we do not know the technology. We are studying it. But we are open about it. How it works is that any fuel you fill into the car whether it is 100% gasoline or 100% ethanol or anywhere in between, the car runs on the fuel by adjusting itself to the characteristics of the fuel. So we are trying to understand. It is a mainstream option in Brazil and we will — the only issue is, we do not know how much the market will be. It might be limited in some states or some areas. So we have to study that option along with the carbon footprint of such vehicles and accordingly we will take a call.

On the — your other question was about the Jimny. I will request Mr. Shashank to —

Shashank Srivastava — Executive Director, Marketing and Sales

[Indecipherable] it is still about one to two years away. Not in the immediate term. More than that, you cannot — see in the auto sector any development, any product development lead time is four years. You know that very well. So we cannot have something so soon.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So on the Jimny, Shashank sir, if you can.

Shashank Srivastava — Executive Director, Marketing and Sales

Yeah. So, Jimny, as you know the SUV segment has been growing dramatically and one of the segments is the lifestyle type of SUV. This is a segment which we have been stating very closely. If you recall in the Auto Expo we had displayed a Jimny to get consumer feedback. So we are doing that study very closely looking at the market and also taking some feedback from potential consumers. And as and when we finalize that plan, we will definitely let you all know. Thank you.

Operator

Thank you. We have next question from the line of Ronak Sarda from Systematix Shares. Please go ahead.

Ronak Sarda — Systematix Shares — Analyst

Yeah. Hi. Thank you for the opportunity. The first question, Mr. Shashank is on the CNG side. One, if you can help us understand — I mean I’m assuming the waiting period is one of the highest in CNG variants. So what kind of customer profile are we seeing who are coming to CNG? And related question is are we planning to increase the capacity both at Maruti and [Indecipherable]?

Shashank Srivastava — Executive Director, Marketing and Sales

Yeah, so we have been studying that consumer profile for CNG. It is not really different. As you know we have CNG in eight of our models out of the 15 that we have. So there we haven’t seen any big difference in terms of profile across the different criteria whether buyer type or the occupation wise or the usage wise. So it does appear that almost all consumers in our country are quite conscious of the running cost and which is what is the very positive thing about CNG usage.

On your second question of the volumes, as you know the volumes for CNG for Maruti Suzuki have been increasing dramatically roughly about 75,000 till ’17, ’18 every year. 105,000 each ’18, ’19, a little bit up in ’19, ’20. 158,000 in 2021 this year we are projecting something like a 300,000. So, yes, you are right, there would be pressure on the capacity, but I’m sure our supply chain guys are working on it to increase the capacity in line with the projections going forward. Going forward, the projections are even higher.

Ronak Sarda — Systematix Shares — Analyst

And a related question is how does the resale value of the existing pool of CNG vehicles have behaved because there were earlier concerns the deterioration of the vehicle is much larger in a CNG fuel option. So if you can just help us understand over the last one year how has the resale values been in the segment.

Shashank Srivastava — Executive Director, Marketing and Sales

Yes, it’s a great question because — the reason I say that is because there seems to be two type of CNG vehicles, which are coming for resale. One is a factory-fitted types and the other is the retrofitted types. The retrofitted CNGs which are coming in the market have that problem that you are referring to because there are concerns about safety of retrofit and there is concern about the engine, the life and the maintenance cost and that was actually also one of the fears which consumers had when the retro fitment was being done. But then the factory fitted or activated CNG vehicles, there is no such concern and the used car prices for CNG is actually a little higher because remember now the gap between a CNG vehicle and the corresponding patrol vehicle is around INR90,000. I’m talking of the new car. So that is reflected also in the used cars. So we do find that’s a factory fitted CNG the used car prices hold quite strongly, but yes for retrofit vehicles, it does drop.

Ronak Sarda — Systematix Shares — Analyst

Sure. And the second question to the team on the production side. I mean if I study your monthly numbers lately I mean more on a gradual basis, we are seeing in terms of appropriation of volumes exports and sales to the other OEM have remained largely stable month-on-month while the overall domestic volumes have seen a very sharp cut as the semiconductor issues have cropped up. So if you can help us understand how do we see the overall vehicle appropriation and how does that change over the next quarter or so?

Shashank Srivastava — Executive Director, Marketing and Sales

Fortunately the semiconductor issue did not affect exports sales much and we were able to largely meet the market demand because those particular semiconductors were not used in those models, in those specifications. So that’s the reason. OEM is a small volume that was in proportion. But we hope we don’t have — I mean the larger thing is to try to get more semiconductors so that this problem is behind us.

Ronak Sarda — Systematix Shares — Analyst

And the second part of this was we have heard COE and building inventory to ensure whenever the semiconductor supply ramps up, the overall production numbers could be higher. Is that a feasible option or how does the assembly line change? Or do you think once the overall issue normalizes then only the order production can ramp up? Just a thought on, if we are building up partly built inventories or something like that?

Shashank Srivastava — Executive Director, Marketing and Sales

Yeah. Yeah. Actually it’s an option if we know that the supply — future supply of components are assured which in this case is not true. So you can theoretically have AB off vehicles and make them SEOK [Phonetic] once you receive the components. And you’re right some of the OEMs might be doing it. But the thing is that, one, you have to store the vehicles for a long period of time. So unless you know that the components will be available, definitely this may not be exactly a feasible option. But if people want to take OEMs may want to take a chance and keep them in that stage so that when the component comes they can VFC okay. That’s possible.

Ronak Sarda — Systematix Shares — Analyst

Sure. Thank you and all the very best.

Operator

Thank you. We have next question from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead.

Sonal Gupta — L&T Mutual Fund — Analyst

Yeah. Hi, good evening, and thanks for taking my question. Sir, could I get the retail volumes for the second quarter?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

For Maruti Suzuki, I mean, remember these are estimates, because while the figure for Maruti Suzuki is known, but for the industry it might be an estimate. So far Maruti Suzuki Q2 retails were about 385,000.

Sonal Gupta — L&T Mutual Fund — Analyst

385,000. Okay. And just on the export point, I mean since you’re selling a lot through the Toyota network as well, I just wanted to understand like how does the pricing work there in the sense that, one, I guess just selling to them from India. So we don’t really have any FX risk. And the second thing is, given the huge commodity cost increase, I mean are we able to pass that on or even there if you would be seeing that margin pressure and the prices will revise — be revised with the lag?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

So in case of exports, we do take into account any commodity price increase that’s taking place. And we will make corrections for that periodically to ensure that the margins are protected. And also the exchange rates will have certain play on the price depending on what rate we had contracted and what rate we actually end up supplying them out. So combination of the two, but we ensure that we protect the caution genes and the margins in the case of exports.

Sonal Gupta — L&T Mutual Fund — Analyst

Right. And this is on a — I mean longer term, maybe not — I don’t think we can sort of tackle this commodity price increase on a one or two-quarter basis, but I mean like — I mean unless you really expect that commodities will come all the way back down, I mean we have significantly hit because of these pressures. So I mean, like how do you see that? I mean do you see yourself gradually taking price increases every quarter 1% to 2% and passing these on to the consumer or I mean like what is the way forward here?

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

If you take the past history, commodity cycles have been going up and coming down. So they have corrected over a few years and this is not the first time that we are seeing such a piece. There will be corrections. But we will have to keep watching it closely and wherever we think we get out of this through our own efforts we will try to do that. That’s our first initiative to work on our own cost reduction programs. But if the price continues to rise and if there is a need for correction of price we will take appropriate decision at that point in time. We’ve done that in the past as you would have seen. Given the price increases we have taken price increases in the last six months two, three times. But obviously you can’t do a very big increase, because it really affects the market in terms of demand.

Sonal Gupta — L&T Mutual Fund — Analyst

Okay. Great, sir. Thank you so much. Thanks.

Operator

[Operator Closing Remarks]