Maruti Suzuki India : Transcript of the Investor conference call -Q4, FY2022-23

Q4 FY23 - Investor Conference Call

April 26, 2023

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MSIL Conference Call Transcript 26 April 2023

Moderator:	Ladies and gentlemen, good day, and welcome to the Q4 FY'23 Earnings Conference Call of Maruti Suzuki India
	Limited.
	As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask
	questions after the presentation concludes. Should you need assistance during the conference call, please signal
	an operator by pressing '*' then '0' on your touchtone phone. 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: Ladies and gentlemen, good afternoon once again. May I introduce you to the Management Team from Maruti Suzuki. Today we have with us our CFO - Mr. Ajay Seth; from Corporate we have Executive Director (Corporate Planning & Government Affairs) - Mr. Rahul Bharti; and General Manager (Corporate Strategy & Investor Relations) - Mr. Nikhil Vyas; from Finance; we have Executive Director - Mr. Pradeep Garg; and Vice President

• Mr. Dinesh Gandhi. The con call will begin with a brief statement on the performance and outlook of our business by Mr. Seth, after which we will be happy to receive your questions.

	May I remind you of the Safe Harbor, we may be making some forward-looking statements that have to be
	understood in conjunction with the uncertainty and the risks that the Company faces. I would also like to inform
	you that the call is being recorded and the audio recording and the transcript will be available at our website.
	You may please note that in case of any inadvertent error during this live audio call, the transcript will be provided
	with the corrected information.
	I would now like to invite our CFO, Mr. Seth. Over to you, sir.
Ajay Seth:	Good afternoon, Ladies and Gentlemen,
	In its 40th anniversary year, despite the shortage of electronic components, the Company recorded its highest-
	ever annual sales volume. The annual turnover of the Company surpassed Rupees ONE LAKH crore mark.
	Financial year 2022-23 was also an action-packed year for the Company. It worked on multiple fronts. Among
	other things, it introduced three new models, four product refreshers, one of the world's best Strong Hybrid
	Electric technology, six-speed automatic transmission technology, and a host of new-age technology features.
	Additionally, the Company extended the CNG powertrain to six models, ensured that its entire portfolio complied
	with new regulations/norms, started construction of a new manufacturing facility, demonstrated an electric
	vehicle concept, enhanced its manufacturing flexibility to accommodate market fluctuations, maximised the
	production volume amidst shortage of electronic components, and expanded the digitalisation drive.
	The Company strengthened its product portfolio in the SUV segment with the launch of Brezza and Grand Vitara,
	thereby increasing its market share in this segment. Moving forward, with Jimny and Fronx, the SUV product
	portfolio of the Company will be further strengthened. With this, the Company aims to secure a leadership
	position in the SUV segment.
	The Brezza and the flagship SUV Grand Vitara garnered strong bookings since their introduction. The
	phenomenal success of Brezza and Grand Vitara stands as the testimony of Company's ability to command a
	larger volume in higher-price segment vehicles. The Company believes in offering products and technologies
	that are relevant to the Indian market context. Through extensive market research, the Company gathered that in

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MSIL Conference Call Transcript 26 April 2023

the high-priced vehicle segment, customers prefer feature-loaded vehicles. The Company offered a flurry of classy features in these new models, which added to their excellent acceptance.

Driven by new model launches, product refreshers, introduction of the Strong Hybrid powertrain, and the expansion of the portfolio of CNG-powered models, the Company's new model activity saw a multi-fold increase during the year. On the product regulations, phase-2 of Corporate Average Fuel Economy (CAFE) norms were mandated from 1st April 2022. The Company undertook relevant modifications in products and powertrains to ensure compliance with BSVI (phase-2) norms and to make all the models compatible with E20 fuel. Given the Company's wider portfolio, comprising 16 models and over 100 variants, carrying out regulatory compliances is not only resource intensive but also extremely challenging. The Company, with meticulous planning and in close collaboration with various stakeholders ensured timely compliance.

The new models and product refreshers introduced during the year specially in Utility Vehicles (UVs) segment received good market response. However, the shortage of electronic components restrained the ability of the Company to fully serve market demand. The Company could not produce about 170,000 units due to shortage of electronic components during the year.

To expand production capacity, the construction of a new manufacturing facility in Kharkhoda, Haryana has started. A plant with a capacity of 250,000 vehicles per annum is to be commissioned within the year 2025.

In addition, in light of the estimated market demand including exports, the board today in principally approved the creation of additional capacity of upto one million vehicles per year.

Now, coming to the financial results, of Quarter 4 (January-March),FY2022-23

The Company sold a total of 514,927 vehicles during the Quarter, higher by 5.3% compared to the same period previous year.

In the Quarter, the sales in the domestic market stood at 450,208 units, up by 7.1% over that in Q4 of last year. The sales in the export market were at 64,719 units as compared to 68,454 units in Q4 of previous year.

During the Quarter, the Company registered Net Sales of INR 308,218 million, an increase of 20.8% compared to the same period, the previous year.

The Operating Profit for the Quarter stood at INR 26,111 million, a growth of 46.7% over that of Q4 of previous financial year on account of higher sales volume, improved realization from the market, and favourable forex movement.

Net profit for the Quarter stood at INR 26,236 million, higher by 42.7% compared to the same period previous year.

Coming to the Full Year (April-March,FY2022-23), the Company sold a total of 1,966,164 vehicles during the year. This translated to a growth of 19% over previous financial year. In the previous financial year the sales of vehicle was 1,652,653 units. Sales volume in the year comprised 1,706,831 units in the domestic market and highest-ever exports of 259,333 units.

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MSIL Conference Call Transcript 26 April 2023

	During the period, the Company registered Net Sales of INR 1,125,008 million compared with INR 837,981
	million in FY2021-22.
	The Company recorded an Operating Profit of INR 81,844 million in FY2022-23 as against INR 29,147 million
	in FY2021-22. The Company was able to better its operating profit on account of higher sales volume, improved
	realization from the market, and favourable forex movement.
	With this, the Net Profit for the year rose to INR 80,492 million, which is the highest-ever. The Net Profit in
	FY2021-22 was at INR 37,663 million.
	The Board of Directors recommended highest-ever dividend of INR 90 per share (face value of INR 5 per share)
	compared to INR 60 per share in FY 2021-22.
	We are now ready to take your questions, feedback and any other observations that you may have. Thank you.
Moderator:	Thank you very much. We will now begin the question-and-answer session. The first question is from the line
	of Kapil Singh from Nomura. Please go ahead.
Kapil Singh:	I wanted to understand the volume outlook for next year, both from demand and supply side. And particularly
	from a supply bottleneck point of view if you could talk in terms of what are the factors that are causing these,
	are these specific to some vendors of powertrain for Maruti Suzuki or is it an industry wide issue. And how do
	you plan on addressing them so that we can achieve that ahead of industry growth that we are expecting?
Rahul Bharti:	So, Kapil for FY2023-24, the industry body SIAM estimates passenger vehicle industry to grow between 5% -
	7%. Maruti Suzuki should grow well beyond this. So, we will be better than industry.
Kapil Singh:	Yes, basically we have seen strong demand even in the current year, but we missed out because of the supply
	bottleneck. So, what I am trying to understand is, are these bottlenecks specific to some powertrains or vendors
	for Maruti Suzuki or is it an industry wide issue and how do you plan to address them in the next year?
Rahul Bharti:	Yes, I am fully with you. We feel the loss of production because of supply side bottlenecks, semiconductors. The
	problem is a global one and it is due to a combination of factors such as a particular supplier, a particular plant,
	a particular country, a particular design of a model. So, basis the combination it could affect different models,
	different manufacturers, different modules of the car differently. All our efforts are to organize supplies through
	multiple sources. We are also doing depopulation for example if there is a particular semiconductor in a particular
	variant of a model which is superfluous, which is not required, sometimes because of commonization you keep
	it. We are removing all such semiconductors. So that our consumption is the minimum. All those efforts are
	going in including negotiations at global scales. However, we are still vulnerable to supply side bottlenecks.
Kapil Singh:	And the second question was on cost and margins. If you could just talk about, we are seeing some increase in
	raw material to sales (ratio) this quarter so if you could talk us through in terms of what were the factors that
	impacted this, how are the discounts for the quarter and what is the outlook for next year?
Ajay Seth:	Discounts during the quarter (Q4 FY2022-23) was at INR 13,269 per vehicle, they were lower than the 3rd Quarter
	(Q3 FY2022-23) and they were slightly higher than Q4 previous year (Q4 FY2021-22) was at INR 11,130 per
	vehicle. Q3 FY2022-23 was higher at INR 18,291 per vehicle. So, the raw material to net sales (ratio) is a
	combination of many factors. The proportion of sales of products manufactured both at SMG and at Toyota has

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MSIL Conference Call Transcript 26 April 2023

	gone up. There the concept of transfer pricing works, fixed cost of theirs' is loaded on to the material cost. So,
	while you are seeing absolute profits have gone up, as a percentage there will be slight change. Because if that
	proportion of products from SMG and Toyota is higher, then of course the load of overheads also goes into the
	material cost due to the transfer price. So, that is the main reason.
	But other than that, the raw material prices have pretty much remained constant and there has not been any
	significant change. Discounts have in fact come down compared to the 3rd Quarter. And foreign exchange rates
	also have been stable, in fact Yen was at 140 per USD in the 2nd Quarter, it is now slightly deteriorated to about
	132-134 per USD, so there would be some impact of the foreign exchange as well, but not significant. So, I think
	these are the factors that have resulted in the ratio that you see as it reflects in the quarterly account and full year
	accounts.
Moderator:	Thank you. Next question is from the line of Pramod Kumar from UBS. Please go ahead.
Pramod Kumar:	My question is a follow-up to what Kapil asked, if you can just help us understand because of the kind of changes
	in the models we have done, the kind of feature enhancement what you are planning and the changes to
	transmission. What has been the kind of jump in the average consumption of semis for you because the market
	has a difficulty in believing that we have been continuously plagued with the semiconductor shortage over more
	than a full year now and it's not expected to resolve anytime soon but just want to understand within Maruti,
	given the model mix, what you enjoy currently, what has been the kind of semiconductor intensity increase what
	you have seen on the year-on-year basis, on the per model basis the average semiconductor numbers what you
	had earlier, what is it now so that we can better appreciate the kind of scale of issues of what you are facing.
	And the second question was on the demand for the entry level car segment. We continue to see that category
	continues to shrink. So according to you, where do you think demand could settle on the lower side for that
	segment? And what will be needed from a macro perspective for that segment of first-time buyers, an entry level
	car buyers to kind of make up for that.
Rahul Bharti:	On the first question, yes, because of higher functionality, premium features, technology, infotainment, the
	semiconductor content in the car has gone up. It's difficult to put a number because it's a model wise, variant
	wise phenomenon. Having said that, globally also one of the reasons, one of the drivers of semiconductor
	consumption is increase in larger cars and some EVs in Europe also. So, I think all manufacturers are affected,
	everybody complains about semiconductor shortages, everybody has pending bookings, so it's an industry wide
	phenomenon.
	And one element that sometimes hurts more is that when semiconductor manufacturers peg the new year
	allocations based on past base figures so that sometimes works to disadvantage.
	On your second question. So, this year entry level cars in FY2022-23 were higher than in the previous year, with
	a reasonably good growth. However, for FY2023-24 we expect a flattish growth.
Pramod Kumar:	So, Rahul san, that's actually positive because generally we have been picking up that entry level demand
	continues to be under pressure industry wide and it's declining even now, but you expect that it could be flattish
	on a full year basis?
Rahul Bharti:	So, in the backdrop of low expectations this is somewhat positive.

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MSIL Conference Call Transcript 26 April 2023