Maruti Suzuki India Ltd (MARUTI) Q3 FY22 Earnings Concall Transcript

Maruti Suzuki India Limited  (NSE:MARUTI) Q3 FY22 Earnings Concall dated Jan. 25, 2022

Corporate Participants:

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Ajay Seth — Chief Financial Officer

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Analysts:

Pramod Kumar — UBS — Analyst

Amyn Pirani — J.P. Morgan — Analyst

Kapil Singh — Nomura — Analyst

Gunjan Prithyani — Bank of America — Analyst

Raghunandhan NL — Emkay Global Financial Services — Analyst

Pramod Amthe — InCred Capital — Analyst

Aditya Makharia — HDFC Securities — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Kumar Rakesh — BNP Paribas — Analyst

Joseph George — IIFL — Analyst

Ronak Sarda — Systematix Group — Analyst

Nitij Mangal — Jefferies — Analyst

Ashish Jain — Macquarie Group — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY ’22 Earnings Conference Call of Maruti Suzuki India Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Pranav Ambaprasad. Thank you and over to you, sir.

Pranav Ambaprasad — Senior Manager Corporate Strategy and Investor Relations

Thank you, Margaret. 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; Senior Executive Director, Marketing and Sales, Mr. Shashank Srivastava; from Corporate, Execute 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; Executive Advisor, D.D. Goyal; 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 uncertainty and the risks 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. Good afternoon, ladies and gentlemen. I hope you and your families are healthy and safe. The third wave of COVID is posing challenges for the country at large. We are following all government protocols and taking all precautionary steps in the best interest of employee’s health and safety, including that of our value chain partners.

Let me start with some highlights of our product offerings and our Company initiatives. We exported 205,450 vehicles in calendar year 2021. It is the highest-ever exports in any calendar year by the Company. In the calendar year 2021, eight of the 10 best-selling passenger vehicles were from Maruti Suzuki. We are deeply grateful to our customers for choosing Maruti Suzuki as their most preferred passenger vehicle brand. One of the notable aspects in quarter three was the launch of the India’s most fuel-efficient petrol car, all-new Celerio. We are witnessing a good initial response. The new Celerio has a fuel efficiency of 26.68 kilometers to a liter and its CNG variant has a mileage of 35.60 kilometer to a kilogram. Maruti Suzuki Baleno is the fastest-selling premium hatchback car to cross a million unit sales. Maruti Suzuki Super Carry, the country’s most powerful mini-truck has recently achieved the record milestone of 100,000 unit of cumulative sales in just five years of its launch.

Maruti Suzuki’s state-of-the-art online car financing solution has achieved a phenomenal customer response. Maruti Suzuki Smart Finance platform has disbursed cumulative INR65,000 million auto loans to over 1 lakh customers within nine months of its launch.

Taking a step towards circular economy, Maruti Suzuki and Toyota Tsusho Group’s vehicle scrapping and recycling unit commenced operations. The facility offers hassle-free end-to-end solution for customers to scrap vehicles in a safe and environment-friendly way with a capacity to scrap and recycle over 24,000 vehicles annually. Continuing on the path to promote the culture of safe and responsible driving in the country, Institute of Driving And Traffic Research was inaugurated in Chhattisgarh. This is the eighth IDTR in the country managed under our CSR program.

Coming to the business environment that prevailed during the third quarter, the Company continued to experience shortage of electronic components, especially during the quarter marked with festive period, when the demand for cars usually remains good. An estimated 90,000 vehicles could not be produced during the third quarter owing to the global shortage of electronic components, mostly corresponding to the domestic models. Though still unpredictable, the electronics supply situation is improving gradually. The Company hopes to increase production in Q4, though it would not reach full capacity. The inquiry, bookings and retail sales in third quarter has shown an improvement sequentially. Enablers such as finance, availability and interest rates continue to remain favorable.

On cost side, the commodity prices increased significantly over the course of last one year and has been the most adverse factor impacting the net profit. The Company made maximum efforts to absorb input cost increases, offsetting them through cost reduction and passed on a minimal impact to customers by way of car price increase. Overall, during the third quarter, adverse commodity prices, lower volumes and lower non-operating income compared to that of the same period previous year have adversely impacted the profit performance.

Coming to financial results, quarter three, the Company sold a total of 430,668 units, lower than 495,897 units in the same period previous year. In the domestic market, the sales stood at 365,673 units in the quarter against 467,367 units in Q3 last year. In the quarter, the Company clocked the highest-ever exports of 64,995 units as compared to 28,528 units last year same quarter. This was also 66% higher than the previous peak exports in any quarter three.

During the quarter three financial year ’21-’22, the Company registered net sales of INR221,876 million compared to that of INR222,367 million in the same period previous year.

The net profit in this quarter came down to INR10,113 million compared to INR19,414 million in the same period previous year.

Comparing nine months, the total vehicle sales during the nine months period were at 1,163,823 units. This includes domestic market sales of 993,901 units and exports of 169,922 units. In the corresponding period previous year, the Company registered a sale of 965,626 units comprising of 905,015 units in domestic market and 60,611 units in the export market.

During this period of nine months, the Company logged a net sales value of INR582,841 million compared INR436,035 million in the same period previous year.

In this period, the Company made a net profit of INR19,274 million as against INR30,636 million in the same period previous year.

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

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Pramod Kumar from UBS. Please go ahead.

Pramod Kumar — UBS — Analyst

Thanks a lot for the opportunity, sir. I have two questions. First is on the market share bit and second one is on hybrid. So on market share, just wanted to understand whether we still kind of use — hold that 50% market share threshold which Suzuki has put out in their medium-term plan and even for 2030. So does that market share target still holds good for us, given the market share slippage what we’ve seen in the last couple of years? So that was like the first question on the market share side, sir.

Ajay Seth — Chief Financial Officer

Yeah. I’ll request Shashank san to answer this. So he’ll answer the question.

Pramod Kumar — UBS — Analyst

Thank you, sir.

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Pramod, so if you look at the figure for December, the market share for wholesale was 48.3%, and for retail it was 49.9%, very close to the 50% mark. However, if you look at the cumulative figures so far for the year, the market share is just around 44%. So I think judging by that, it does appear that if — while December market share is close to 50%, but cumulatively it might be difficult to reach that 50% at the end of the year given the current production scenario. However, next — in the years forward, I think it’s still quite feasible for us to target 50% market share, and that’s what we plan to do.

Pramod Kumar — UBS — Analyst

And the reason why I ask that, Shashank san, is that, we are still not participating in the — there are meaningful portfolio gaps in the smaller SUVs and the mid-size SUV and other categories. So — and given that you are pretty confident that 50% is quite feasible in the next year itself, probably the entire launch pipeline may not be active. So with all the portfolio gaps getting filled, is there a possibility that we could even reach that 50% mark in the medium-term?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

What was the last one, reach that…

Pramod Kumar — UBS — Analyst

Reach the 50% market share, this [Phonetic] — all the portfolios are getting flood [Phonetic]?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Yeah, surely. So if you — Pramod, if you look at our market share up till December for hatches, it is 67%. If you look at the passenger cars, it is 62.5%. If you see the MPVs where we have the XL6 and the Ertiga competing against Innova, Triber, etc., it is 64% and for the vans it is 95.6%. So, obviously, in all these segments our market share being above 65% or thereabouts. It’s the SUV space, which has pulled us down. And as we said, while the entry SUV, which is 50% of the SUV market, we have — we are the market leader, because we have the Brezza. And yes, we have a weakness in the mid-SUV segment currently and we hope to address it going forward by expanding our portfolio in this very critical category.

Pramod Kumar — UBS — Analyst

And Shashank san, before I let you go, one follow-up. This is a general understanding that SUVs are inherently higher — command higher margins than other categories given the pricing differential versus a equally [indecipherable] and equally tax cuts. Is the industry notion generally right in India as well?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Actually, there is, I don’t know the cost structure for other companies, but generally that may not be true for the — any particular segment. It all depends on the competitive scenario and the pricing, which is we see in the industry today.

Pramod Kumar — UBS — Analyst

Fair enough, sir, and thanks a lot for that. And the second one is on hybrid. Is there anything which you would like to share at this point of time? Because given the plans what you have, looks like you, as a Company or as a organization, are kind of quite committed to that technology despite lack of or government fiscal support. So in that sense, just want to understand what is the use case for the consumer you see with hybrid, which is giving you that kind of a confidence to kind of still pursue that technology while practically everyone else, outside of Toyota and Suzuki, is pivoting towards EVs in a big way, even in the short- to medium-term. So if you can just help us understand the thinking and the rationale behind that, that would be very helpful?

Ajay Seth — Chief Financial Officer

Rahul, would you like to take this?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Sure. See, while one will be focusing on all technologies, including EV, including hybrids and others also that we have not discussed at the moment. However, given the high upfront cost of batteries, given the limited charging infrastructure network in the country, we do think that at least for the medium-term hybrids will be a very powerful solution, they are scalable. They do about 40% of the job of an EV in terms of CO2 reduction in terms of energy efficiency, but they are probably 100 times scalable. So in the medium-term, they will be a good option. And, of course, EVs also have to be pursued for the long-term. So all options have to be worked upon.

Pramod Kumar — UBS — Analyst

And, Rahul san, any timeline as to when do you debut the technology in the Indian market? I’m not looking for quarters, I’m like saying this year, next year…

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Let’s keep the excitement. Let’s keep the excitement.

Pramod Kumar — UBS — Analyst

Fair enough. Thanks a lot. And wish you guys all the best. Thank you.

Operator

Thank you. The next question is from the line of Amyn Pirani from J.P. Morgan. Please go ahead.

Amyn Pirani — J.P. Morgan — Analyst

Yes, hi. Thanks for the opportunity. My question was mostly on the raw materials side. This quarter, we have seen a sequential decline in raw material sales, and even on a raw material per vehicle basis, the costs have come down. So, can you help us understand as to any particular commodity that has helped, or has there been a reset in the steel or aluminum contracts with the suppliers?

Ajay Seth — Chief Financial Officer

So there has been a marginal improvement in commodities compared to the second quarter, especially the precious metals have seen a decline compared to where they were in Q2. Although steel has shown some rise in Q3 as well, but we are now hopeful that moving forward we will see some correction in the steel prices, as well as the precious metals will remain at the levels where they are. So, some impact of the commodity reduction has come in, in quarter three, and we expect some more to come in, in quarter four, if the steel prices come down, which we have witnessed in the month of January. So that’s the trend on commodities at this point in time.

Amyn Pirani — J.P. Morgan — Analyst

And can you remind us as to how often do your steel contract you had — is it like six-month [indecipherable] because while they fell in December quarter, global steel prices are again up. So what’s the lead and lag there, if you can help us understand?

Ajay Seth — Chief Financial Officer

We generally do it for half year, but sometimes, depending on the market volatility, we can do it for shorter periods as well.

Amyn Pirani — J.P. Morgan — Analyst

Okay. Okay. Understood. And just one more thing on the currency. Can you just remind us what is your yen exposure? Because, obviously, royalty is now fully in rupees. So what is the yen exposure, as we stand today?

Ajay Seth — Chief Financial Officer

Our direct yen exposure is now reduced to about JPY30 billion, approximately JPY30 billion.

Amyn Pirani — J.P. Morgan — Analyst

Okay. Okay. And from the vendor side, like you used to mention as a percentage of revenues, what is the extent?

Ajay Seth — Chief Financial Officer

So there we have an exposure of about JPY50 billion thereabouts.

Amyn Pirani — J.P. Morgan — Analyst

Okay. So JPY30 billion plus JPY50 billion, direct plus indirect.

Ajay Seth — Chief Financial Officer

That’s right. That’s right.

Amyn Pirani — J.P. Morgan — Analyst

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

Ajay Seth — Chief Financial Officer

This is only the yen exposure. There would be some exposure, which is also on the dollar imports and the euro imports, which is not counted in the yen exposure, but they would not be as large. The euro exposure is about EUR68 million in our case direct and EUR90 million in case of vendors. And similarly, there will be some exposure on the dollar side also.

Amyn Pirani — J.P. Morgan — Analyst

And that would be an offset on the exports, right? Export is mostly dollars?

Ajay Seth — Chief Financial Officer

So now we have a significant natural hedge because exports have gone up quite a bit. So on the direct side, we are virtually — we are surplus on dollars. However, if we include indirect, then, of course, we have a bit of a deficit dollars because yen also has two legs, it’s dollar yen and dollar rupee. So to that extent, we have a reasonably good hedging now, natural hedging now.

Amyn Pirani — J.P. Morgan — Analyst

Okay. Okay, okay. Thank you. Thank you, sir.

Operator

Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.

Kapil Singh — Nomura — Analyst

My first question is on demand. If you could share the outlook for industry growth for FY ’23? And I would also like some perspective on the medium-term growth, I mean, beyond FY ’11, whichever way we slice or dice the data, industry hasn’t really grown much, it’s not even been a 5% CAGR, even whichever period we choose, if we take 2012 to 2018 or thereabouts. So, once these base effects go through, let’s say, next year, what is the kind of medium-term CAGR you are looking at? And why has it been below potential? Also, if you can some perspective on the regulatory costs. We have also heard about six airbags becoming mandatory as a draft regulation. So, that would be my first question.

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Kapil, thank you for that question. The CAGR, as you said, has been declining, if you take the recent periods, you’re right. But it’s not as if you slice and dice it at any time period, it’s 5% or less. For example, if you take last five years, it’s 6.2%; last 10 years, 8.1%; last 17 years, 9.8%. So, it is — of course, it has come down in recent years and I think we discussed this. In 2019-2020, when it had come down — the market did come down to about 18%. It was largely on account of the cost of acquisition, which was — because of the conversion which happened because of many factors, including the regulatory requirements of BS-IV to BS-VI and safety requirements. So it is that which has prevented the growth in ’19-’20. However, if you look at the future, which is your — the second part of your question, I think we can look at — reasonably look at CAGR growth in line with the economy, which would be roughly 7% to 8%. Thank you.

Kapil Singh — Nomura — Analyst

Okay, sir. Thanks. And, sir, the second question was on the order book, we mentioned that it’s around 240,000 plus kind of order book. And in October also we had mentioned, it’s more than 250,000. So, could you give some perspective on whether the order inflows have been affected because of supply shortages also, because there is no growth in order book despite the production shortages we had?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So, actually, the pending bookings is what is the figure you are quoting, 240,000 as of 1st of January and currently 264,000. Of course, the booking inflow has been reasonably steady. Month-on-month if you see the booking inflow, pretty steady, I would say. For Maruti Suzuki, I can give the roughly figures of around maybe about 6,000 on an average per day. Little bit less in January so far. But the buildup of pending payment happens because we don’t have enough vehicles to retail. That’s what we are witnessing. But if you want a question of whether — if you want an answer to whether there has been a shortfall in the booking inflow, the answer is no, there has been no shortfall in inflow.

Kapil Singh — Nomura — Analyst

Okay, sir. Thanks. Thanks.

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Yeah.

Operator

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

Gunjan Prithyani — Bank of America — Analyst

Yeah, hi. Thanks for taking my questions. The first question is on this — the news flow around this airbag regulation and also we do have the next set of CAFE norms. So, could you just help us understand how much will this translate in terms of cost and where — at what stage this regulation is?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So, the CAFE norms, I hope we are aware that Maruti is in the best position in terms of CO2 footprint, whether on an absolute scale or a relative scale. And so, we are already meeting the norm which is supposed to come from April.

The second is, on the airbag issue, we are in discussions with the Ministry of Road Transport. It’s not just the cost. It’s the feasibility also. And once we have a discussion, we’ll be in a better position to share the result.

Gunjan Prithyani — Bank of America — Analyst

Okay. Got it. The other question I had was on the supply side. Now, just trying to understand how much improvement do we expect from where we were in the month of December? And also you mentioned in the release that we’ll not reach our full capacity in Q4 as well. So, I just wanted to clarify, when you look at this full capacity, do you include the Line 3 of Gujarat, because December –. Okay.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So our full capacity is approximately 5.4 lakhs — 5.5 lakhs per quarter or about 22 lakhs per annum. And while there is steady improvement in the supply situation, we still may not be able to reach full capacity because of electronic components. And, of course, the general disclaimer holds true, it’s always unpredictable. So, we never know, [indecipherable] may happen in this area. It’s a global problem.

Gunjan Prithyani — Bank of America — Analyst

Okay. But December run rate, you seem to be sustaining still, there hasn’t been any deterioration to that, right?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

We are better in Q4 than we were in Q3.

Gunjan Prithyani — Bank of America — Analyst

Okay. And lastly, if you could just share the royalty, discount and retail volume numbers for this quarter?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So, royalty…

Ajay Seth — Chief Financial Officer

Royalty in this quarter was at 3.6% and the discounts were at INR15,200 in this quarter. And what was the other information you wanted? Royalty, discount and…

Gunjan Prithyani — Bank of America — Analyst

The retails during this quarter?

Ajay Seth — Chief Financial Officer

Retails number you would have.

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Sir, the retails for Maruti Suzuki for this quarter basically she wants, right?

Ajay Seth — Chief Financial Officer

Yeah. If you can share?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Q3 retail was 392,171 passenger vehicles plus if you include Carry, then it is 403,970.

Gunjan Prithyani — Bank of America — Analyst

Okay. Thank you so much.

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Thank you.

Operator

Thank you. The next question is from the line of Raghunandhan NL from Emkay Global. Please go ahead.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Thank you, sir, for the opportunity. My first question, on CNG vehicles, can you share the volume number and market share for Q3? And can you talk about future potential for CNG penetration as increasing share of CNG in product mix should be market share accretive for the Company?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Yeah. So, CNG volumes for April-December period so far are just around 150,000. We hope to close the financial year around 237,000, 235,000 range. Last year, the similar figure was 160,000 and the previous year it was 106,000. The penetration of CNG for Maruti Suzuki is now close to — it’s slightly above 15%. And for the models in which CNG is there, remember, we have eight models which are in CNG, it is around 30%. Going forward, we do expect CNG to — continue to find traction. And for the next year also we have — we think there is going to be a good growth in CNG, judging by the order inflow, the pending bookings and also the fact that the CNG network is expanding rapidly across the country, and the fuel prices at the pumps continue to be high for gasoline and diesel.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Thank you, sir. That’s very encouraging. My second question, Company is targeting to fill white spaces ahead and some of the new products would be in collaboration with Toyota. In a scenario where the product is jointly developed, would both OEMs launch the product at the same time or would Maruti get the opportunity to launch the product first? I was trying to understand whether bulk of the new model volume go towards the OEM who launches the product first.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So this is a very conscious well thought out strategy where we look at our commercial benefits and the opportunity of sales in the market and then we time it accordingly. So we’ll get immense benefit from this alliance and the timing and the strategies thereof.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Got it, sir. Lastly, can you share the capex spends on a YTD basis and full-year plan for FY’22? And would it be possible to share the plan for FY ’23 as well? Thank you.

Ajay Seth — Chief Financial Officer

So, we have spent so far INR2,233 crores that we spent till December and plan for the full-year is INR5,500 crores — a little upwards of INR5,500 crores, and we are on target in terms of the plan for the year. So there is estimated expenditure of about INR3,000 crores which will be incurred in the next three months.

Raghunandhan NL — Emkay Global Financial Services — Analyst

Understood. And broadly, can you indicate the breakup, sir? That’s all from my side.

Ajay Seth — Chief Financial Officer

So this is divided. I don’t have the exact breakup with me. But this is divided between the new models, R&D expenditure, facilities in the existing capacities that we have, and also the additional land purchase, etc., that we will do as part of our capital expenditure.

Raghunandhan NL — Emkay Global Financial Services — Analyst

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

Operator

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

Pramod Amthe — InCred Capital — Analyst

Yeah, hi. This is with regard to new product launches. It seems because of the semiconductor challenges some of them got delayed to come through for FY ’22 pipeline. In that context, how are you looking at your planned launches for the remaining products? Do you still maintain the timeline on a yearly launches or are you deferring the medium-term launch plans considering that you need to maintain some gap and momentum to be built upon new launches?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So, the — it’s not probably correct to say that the launch plan itself has been affected by the semiconductor shortage, it is generally not true. And we do not foresee, going forward we will change our launch plan based on the semiconductor issue.

Pramod Amthe — InCred Capital — Analyst

Sure. Thanks for that assurance. Second one is with regard to exports. Considering that this year we have seen a sharp jump. Wanted to know what is your medium-term plan in terms of taking this as — exports as a proportion of the sales? And also wanted to get your thoughts in terms of, you have also applied for auto PLI, how does that fit in, in the overall scheme of things?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So we were able to clock the highest-ever exports in this calendar year. And the good part is that, from a demand perspective, it seems sustainable. So we’ve gone into expansion of products, expansion of the network, expansion of the number of markets where we are present and all have helped. It seems sustainable in the medium-term, so far, barring any surprises that may come about.

And the second question was on PLI. So, companies have applied for the PLI. And, of course, God is in the details, so there are lots of conditions, lots of thresholds, and other parameters that will determine the total incentives to each company across each product. So, the good part is that many companies have applied and to that extent, there will be increased localization and increased production in those technologies, the list of AAT, Advanced Automotive Technologies.

Pramod Amthe — InCred Capital — Analyst

And specific to you, yours is more focused on exports for PLI application or more about the — because localization will come through for vendors, right?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

The earlier format of the PLI scheme seemed to be towards encouraging exports, but now the latest version in which form it came was about import substitution or localization. So it’s about localization.

Pramod Amthe — InCred Capital — Analyst

Okay. Thanks, Rahul, for that explanation. Thank you. All the best.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

It is neutral across exports and domestic sales.

Pramod Amthe — InCred Capital — Analyst

Okay. Thank you, and all the best.

Operator

Thank you. The next question is from the line of Aditya Makharia from HDFC. Please go ahead.

Aditya Makharia — HDFC Securities — Analyst

Yes, sir. Just on the follow-on question with Toyota joint development. So there is a lot of news about FY ’23 being the big year for Maruti because you will launch two to three SUVs. Now, I know directionally you will not comment on exact models, but can we expect something quite sizable coming into next year?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So as I explained, yes, we have plans to further strengthen our portfolio in different segments, including the ones where we are currently weak in. So you can expect a good strengthening of the portfolio in the coming years.

Aditya Makharia — HDFC Securities — Analyst

Okay. That’s very encouraging to hear, sir. And just a second question is, with, you did mention that the chip shortage is now gradually easing. So is it totally gone now and are we going to be working at that 2.2 million annualized run rate if demand is there?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Yeah. So if you see the chip shortage, everything, and I think Rahul explained a little bit. We have been — gradual improvement in the supply position. And even one small correction it is not with respect to the capacity that we speak of, it is with respect to the plan that we have, the production plan which we have. So in September, we were just around 40% of our plan, in October, we touched around 60%, in November, we were around 83%, 85%, in December, we were just around 90%. So, the situation in that sense is improving. However, it is still not 100% as you can see, and we are hopeful in — that in January, Feb and March, we will continue to see this improvement hopefully to be above that 90% mark. But as we have mentioned in our press release, we may not reach 100%. When we will reach 100% is actually not clear at the moment because we cannot take a definitive view on that because it’s a very complex supply chain, which is involving, not just Maruti Suzuki, but all OEMs in India and not just India, but across the globe. Thank you.

Aditya Makharia — HDFC Securities — Analyst

Sure. And, sir, just the last question on market share, because you have lost market share in the first six months due to chip shortage. Now, we see Hyundai is really on the back foot on that count. So, will that also enable us now to catch up on where we actually should be at the 50% mark?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So, yes, I did mention, if we look at the segment-wise market share, I gave the figures for passenger cars, it is 63%, for vans, it is 96%, for MPV, it is 64% and without the SUVs, we are around 65% of the market share. So, I don’t know whether the chip shortage for other people is going to help us or not. We — obviously, they’re looking at our performance and hopefully, like in December, our retail market share was close to 50%. We would try to maintain that mark going forward.

Aditya Makharia — HDFC Securities — Analyst

Sure. Congratulations, sir, for a good result and a very positive commentary. Thank you.

Operator

Thank you. The next question is 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 is from the data on exports and what was the Gujarat production? Input [Phonetic] revenues?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So, INR3,343 crores realization.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

And Gujarat production in the quarter was approximately 142,500, approximately, number of cars.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Great. Second question pertains to the depreciation in this quarter, it seems to have come off quite a bit. Is there any one-off in this or this is the new level of depreciation because the capacity addition has been done at Gujarat plant?

Ajay Seth — Chief Financial Officer

So depreciation that you see is related to MSIL depreciation and the other line item of SMG comes under the lease expenses separately. To the extent, the assets have already lived their life, the depreciation of those assets would finish in that period. So, it is related. So, if you look at both SMG’s depreciation and our depreciation together, it is almost similar as it was last year, about the same number that you see INR1,060 crores in Q3 last year and INR1,064 crores now, not different, and even as a percentage of sales, it is at 4.8% in both these quarters.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Great. So, MSIL depreciation will be around this quarterly run rate of INR640 crore, INR650 crore in that range as against INR750 crore in second quarter?

Ajay Seth — Chief Financial Officer

Yeah, that’s correct.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Great, great. And the third question pertains to — with respect to other income. So, we have seen consistent drop in other income because of increase in GSec yields. What should be the sustainable level of other income if the GSec yields remains at around 6.5%, 6.5%, should we go back to INR500 crore to INR550 crore a quarter or it should be lower than this?

Ajay Seth — Chief Financial Officer

See, we have done two things to derisk. One is that, we have shortened our tenures. Earlier we used to be between two to three years of papers. Now, we’re down to one year paper so that the risk of mark-to-market is minimized given the fact that interest rates are arising. So, we are on a shorter tenure. And last year, we had significant mark-to-market gains because the interest rates were going down and therefore — and we were on two- to three-year papers, and therefore, the gains were significant. This year, we have, on the contrary, small mark-to-market losses. Average returns on a one-year yield is now between 4.5% to 5% depending on where the markets are. So, effectively all these cash surplus that we carry you should see an income of anywhere between INR450 crores thereabouts every quarter.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. Got it. That’s quite helpful. And lastly, sir, any forex gains in royalty or RM cost in this quarter?

Ajay Seth — Chief Financial Officer

Not much movement in foreign exchange. There is slight — if we compare the two quarters, there is an improvement in this quarter by about INR50 crores on the direct imports. So that’s reflected in the material costs. Other than that, there is no significant change in foreign exchange.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay, sir. Thanks. I’ll come back in queue.

Operator

Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Kumar Rakesh — BNP Paribas — Analyst

Hi. Good evening and thank you for taking my question. My first question is on the commodity inflation side. So how much of it is still under-recovered for us? And in a scenario that commodity prices remain flat in the quarters ahead, will they — will we be passing this on gradually to customers?

Ajay Seth — Chief Financial Officer

So we have been taking series of actions internally with respect to the unprecedented commodity increase. We have worked very hard to reduce our cost. We have also been working hard to reduce the cost structure exercises on the material side vigorously. There have been price increases that we have taken over the last one year to offset the price increase. Although it’s always a painful decision to take frequent price increases, given the cost of ownership continues to go up and as Shashank san mentioned that one of the reasons of the drop in industry in ’19-’20 was the ownership — cost of ownership going up. So — but we have taken price increase actions and the last one we took was in January where we have increased our prices. The impact of that will be visible to you in the fourth quarter. Discounts fortunately in this quarter — discounts have been much lower compared to last year, also because of the shortage of cars with the OEMs. So, I think all these factors will play out in terms of how global commodity price will be mitigated.

Kumar Rakesh — BNP Paribas — Analyst

How much was the under-recovery on the commodity side?

Ajay Seth — Chief Financial Officer

Commodities have gone up on a sequential — on a last year average basis by about 10%, right? And we have done quite a bit of price correction as well as…

Kumar Rakesh — BNP Paribas — Analyst

[Foreign Speech]

Operator

Please go ahead, sir.

Ajay Seth — Chief Financial Officer

So, we’ve done quite a bit of price correction. There have been lower discounts in this quarter. And the impact of that is seen in this quarter as the margins — operating margins have gone up. But you will — the balance impact you will see in the next quarter.

Kumar Rakesh — BNP Paribas — Analyst

Got it. My next question was about the market share. A lot of discussion has happened on this call as well and outside as well. And Mr. Srivastava also said that white spaces is one of the areas in which we can potentially work, especially in SUV space to get back the market share, the overall market share. So why don’t we disclose the model launch plan? And not specifically models, but at least quantify that the number of the official or new launches, which we’re planning to do this year or a longer duration of time, say, five years like many of our competitors locally and globally also does this. So, can we get some indication about the model launch plan, not by disclosing any specific model per se?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So, I have mentioned that we have always had a very strong product plan and a portfolio of vehicles and we will continue to do that and I have indicated the areas. The reason why we don’t mention it specifically is because we operate in all segments. It doesn’t help by letting the market or anybody know which segments we are appearing, in which models. So there are, for example, if you have a full model change in a particular model, you would expect the current sales also to be affected. It doesn’t help actually and that’s the reason why, as a policy, we do not disclose the models that we’ll be launching in the future. We don’t make any specific reference to new models.

Kumar Rakesh — BNP Paribas — Analyst

Got it. I was referring to just quantify the number of models you plan to launch without disclosing specifically which?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So there is this question which will always be there because new models means what? There are new brands, for which you have an absolutely no background or no past history or you could have a full model change, which we call FMC or you could have a minor model changes, which we call MMC. So, which to consider? Where it is actually you may be — maybe if we give information, it might be misunderstood, and actually, the market may be misguided rather than being guided.

Kumar Rakesh — BNP Paribas — Analyst

Fair enough. One final question on the capex side. So, this year’s capex is at a higher level compared to our recent trend partly because we are going to make land purchases this year. So, is that trend likely to continue in FY ’23 as well or this land purchase related additional capex was one-off for this year?

Ajay Seth — Chief Financial Officer

So, we are now working out on our plans for the next financial year. So, this is the exercise of preparing budgets and then depending on the requirement in the plants between the Manesar and Gurgaon and the new model launches, we will take — we will decide and then we’ll communicate to you in terms of what the next year plans are.

Kumar Rakesh — BNP Paribas — Analyst

Okay. Thanks a lot. That answers my question.

Operator

Thank you. The next question is from the line of Joseph George from IIFL. Please go ahead.

Joseph George — IIFL — Analyst

Thank you for the opportunity. Couple of questions. One is, if you see the commentary coming in from…

Operator

Your voice is not very clear, sir.

Joseph George — IIFL — Analyst

Is it better now?

Operator

Better. Request you to come on the handset mode and go ahead with your question. Thank you.

Joseph George — IIFL — Analyst

Sure, sure, sure. So, if you look at the commentary coming in from a lot of companies such as two-wheeler companies or tractors or recently FMCG companies, there is a buzz that there is a lot of weakness in the rural markets and we are seeing that in two-wheeler sales, tractor sales etc., etc. So what are the things that you are seeing in the rural market, I mean, historically rural isn’t growing faster for you compared to urban, but if you can update us on trends there, especially in the context of what other companies are saying? Thank you.

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So, in our case, rural markets still continue to have a strong run. And if you see that, the percentage of sales of — in the rural areas actually gone up a little bit in this year. So from around 41%, 41.5% it has gone up to almost, I mean, just sort of 43%. So, it does indicate the rural markets are still robust and going strong. And I think there are reasons for it also which we have been stating. The kharif crop has been record, you have had good monsoons back-to-back. The rabi sowing this year has so far has been very good. The MSPs have actually gone up. So, we consider that as a good sign for rural growth to continue. And by the way, tractor industry also if you look at the calendar year, it has actually grown on the back of record growth last year. Last year growth was 27% until December the growth for tractor even is around 1%. We expect the rural to continue to show strength. Thank you.

Operator

Thank you. The next question is from the line of Ronak Sarda from Systematix. Please go ahead.

Ronak Sarda — Systematix Group — Analyst

Yeah, hi. Thanks for the opportunity. Just a clarification first, what was the average price hike which we took in January?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

The weighted average is close to 2%.

Ronak Sarda — Systematix Group — Analyst

2%. Okay. Thank you. The other question for you, Shashank san. So, while there is the — there are gaps in the portfolio in the SUV space, but how do you balance the equation between volume market share and profitability? Because as you mentioned, as you go towards these smaller or the compact SUVs, the competitive intensity is higher and in a way we kind of — the customer segment is someone who is buying a compact car or a premium hatchback where Maruti is already a market leader with almost 65% market share. So how do we balance this, the entire equation of market share versus profitability? And what are your thoughts on the new products comes in?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

I’m not fully — I don’t think I understood the question fully. Probably what you were trying to say that the profitability on the SUV segment is higher. Is that what you are saying?

Ronak Sarda — Systematix Group — Analyst

No. While there is a gap when we talk about medium or a large SUV, but when we talk about a compact SUV, let’s say, in and around the Vitara Brezza range, we are in a way targeting the customers who are buying a compact or a premium hatchback. So, how do we see the overall equation? How do you balance the equation between market share and profitability because that segment is highly competitive? And as you mentioned in a question earlier, the profitability will depend on a lot of different factors and SUVs are not inherently profitable. So how do we balance out the equation? And what are your thoughts on the new launches in that category?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So I think individually we have to look at model-by-model. And what I had referred earlier to some question which was raised, the profitability obviously depends on the segment you are operating in, the competitiveness of the segment, the number of models in that segment, our own cost structure and the cost structure in the industry. So, it’s a mix, which not necessarily you can actually differentiate based on an entry SUV or a premium hatch or a mid-hatch, etc. By the way, the most competitive also in terms of the number of models is the SUV segment. There are about 45 models which compete in the SUV space as against hatches there are only 19. So, obviously, there are pluses and minuses. And we have to look at model-wise rather than looking at some overall profitability segment-by-segment.

Ronak Sarda — Systematix Group — Analyst

Sure. Sure. Thanks. And a final clarification, when we say the order book of around 250,000 units. How much of this would be CNG?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

So at the current 264,000, which is the total booking, CNG is 117,000.

Ronak Sarda — Systematix Group — Analyst

117,000?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

1-1-7.

Ronak Sarda — Systematix Group — Analyst

Sure. Okay. Thank you and all the best.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

And may I just explain what Shashank san just mentioned about profitability and market share? What he is essentially saying is, there is — we don’t accept the trade-off so easily and so early. I think the best thing that pushes the trade-off far away is excellent products. So if you have excellent products, you will not face a situation where you have to choose the lesser of two evils, either volume loss or profitability loss. I’ll give you an example. The Celerio, it has a fuel efficiency of 26.68. It’s much higher than its nearest competitor. The CNG version has a fuel efficiency of 35.6 kilometres per kg. Fuel efficiencies in the zone of 30s is unheard of in India. It’s only Maruti who’s present in the 30-plus kilometer per kg club. Similarly, a higher network. If we have a higher volume, we can sell more numbers of the same model as compared to our competition. So these are the methods by which we push this trade-off away. We don’t accept that there is a trade-off so easily between profitability and market share.

Ronak Sarda — Systematix Group — Analyst

Right, right. Thanks, sir. Thanks a lot. Thanks for that clarification.

Operator

Thank you. The next question is from the line of Nitij Mangal from Jefferies. Please go ahead.

Nitij Mangal — Jefferies — Analyst

Hi. Good evening. Thanks for taking my question. I want to ask you, what are your — what are the plans for capacity expansion at Gujarat? And I mean, what will make you comfortable or confident to go for the next rounds? Thank you.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So, in Gujarat, the third line is already operational and it is — we have the option of two shifts also. So with that, our total capacity is 2.2 million per annum. And a little bit of productivity stretch is always possible.

Nitij Mangal — Jefferies — Analyst

Right. But I was just thinking so, let’s say, to start the next line today, it will probably take another two, two and a half years. So, I mean, let’s say, in the next whatever, few years when do you think you’ll have to start that expansion?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So, this is where our productivity stretch helps always and in the past also, whenever marketing has required, production has always come up to — has risen to the occasion and they have been able to deliver. And this stretch also improves our operational leverage and our profitability. So we keep doing that all the time across cycles.

Nitij Mangal — Jefferies — Analyst

Okay. Thank you. And my second question is on exports. I mean, we have seen a very good decent volumes over there. Last time also you mentioned that there’s something which would be sustainable, you talked about Toyota network, etc. But, let’s say, if you think of exports two, three years out from here, what is the potential in those markets? Thanks.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So as of now, whatever steps we have taken, I mentioned about the three-pronged strategy, more number of products, more markets and more density of the network within those markets, so they have generated good dividends, and it is sustainable in the — at least in the medium-term. And we have to keep in mind that global markets do have a sense of unpredictability and surprises, sometimes some country develops some protectionist measure, some economy goes up or comes down. So, we will go along the way and we’ll keep — we would like to keep increasing our exports.

Nitij Mangal — Jefferies — Analyst

Okay. Thank you. Thanks for taking my questions.

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

Thank you.

Operator

Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.

Ashish Jain — Macquarie Group — Analyst

Hi, sir. Good evening. Sir, my first question is on market share. Now, if you look at the SUV segment in particular, nearly 35%, 40% of volumes at an industry level is actually diesel. And in that backdrop, how do we see our market share in SUV even with the new launches? Is CNG a viable option within the SUV space at all or you think CNG will not work in SUV?

Shashank Srivastava — Senior Executive Director, Marketing and Sales

Yeah. So, as I explained, Maruti’s market share, if you — I mean, without the SUV is 65%. So, obviously, that is an area of interest for us if we have to maintain an overall market share, 50% or thereabout.

Talking about the diesel penetration, the diesel penetration currently in the industry is around 18%. But if you look at segment-wise, it’s quite different. And you’re right, passenger cars just around 2%, and vans around 4%. If you see the SUV space, there the entry level SUV is only about 20%. It is actually in the mid-SUV that you see some traction, in diesel around 58% or thereabouts. But remember, when — before the Brezza came with that K15 petrol engine, the diesel share of even entry SUV was about 88%, 89% just a couple of years back. So, in a couple of years, 88% diesel actually became just around 20% in the entry SUV. And we would expect that going forward, if you have some really good products in the mid-SUV, which are petrol, then also you could expect the sharp fall in the diesel percentage in the mid-SUV space as well.

Overall, SUV — in the SUV space, the diesel share is roughly about 37%, which used to be about 95% just a few years ago and by few years, I mean, about three, four years back. So, it has rapidly come down from about 95% to 37% and even more rapidly in the entry SUV segment. So if you see some play in the mid-SUV segment for a good petrol SUV, then you might find the same story being repeated there as well. Thank you.

Ashish Jain — Macquarie Group — Analyst

Right. Sir, is CNG an option in SUV or…

Shashank Srivastava — Senior Executive Director, Marketing and Sales

It is always an option, of course. CNG is an option in SUV as well.

Ashish Jain — Macquarie Group — Analyst

Sir, my second question is on the airbags and all. Can you give a sense of what will be the cost implications and all if the regulation goes through in the current form?

Rahul Bharti — Executive Director, Corporate Planning and Government Affairs

So, as of now we are not getting too much into the cost. There is an implication of semiconductor, there is implication on lead time of delivery. So, it is a comprehensive topic in itself. We are in discussion with MoRTH. And at an appropriate time, we’ll share the findings.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. On behalf of Maruti Suzuki India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.