India’s largest carmaker had its best-ever quarter for sales, with 2 lakh customers still waiting for their cars. Profit fell by more than a quarter, because the war in West Asia has made steel, aluminium and other components much more expensive.
Maruti Suzuki reported standalone net profit of ₹2,415 crore for the September quarter, down 27% from ₹3,303 crore a year earlier. Consolidated profit fell 26% to ₹2,466 crore.
Demand was not the problem. Maruti sold a record 6,96,654 vehicles in the quarter, up 26.5%, and revenue rose 26% to ₹53,340 crore. At the end of September, its dealers held only about 17 days of stock, very low for the industry, and about 2 lakh customer bookings were still waiting to be filled. Even with more production capacity, demand outpaced supply.
Over the first half, total sales rose about 28% to a record 13.79 lakh vehicles.
Costs increased
Raw material and component costs rose 48% to ₹37,488 crore, far faster than the 26% rise in revenue. Maruti linked the increase to commodity price inflation caused by the West Asia conflict, which has raised the cost of steel, aluminium, precious metals and many components.
EBITDA fell 6% to ₹4,764 crore, and the EBITDA margin dropped to 8.93% from 12.01% a year earlier. Operating profit after depreciation fell 17%. Losses on Maruti’s large investment portfolio, which is marked to market as bond prices change, also reduced other income.
Some improvement
There was improvement from the June quarter. Standalone EBITDA rose about 10.5% from Q1 on volumes that were only about 2% higher, and the margin widened by about 80 basis points from 8.6%. That suggests price increases and cost controls are starting to offset the higher costs.
The chairman described the outlook as quite positive, pointing to strong demand for small cars and CNG vehicles, which are popular because they are cheaper to run when petrol prices are high.
This earnings season there has been strong demand, but high costs. Cement makers, Cipla and Havells all reported the same squeeze, with sales growing but energy and commodity costs limiting how much of that growth turns into profit.
For carmakers, the question is pricing. Maruti has already raised some prices, but raising them too far risks hurting demand, particularly for first-time buyers of small cars, who are the most price-sensitive. With a large order backlog, Maruti has room to raise prices further, but would be cautious about doing so in a slowing economy.
Exports were slightly lower, at 1,08,119 vehicles against 1,10,487 a year earlier.
Maruti shares rose 2% to ₹11,450 before the results were released. The market’s reaction on Wednesday will depend on whether investors focus on the record sales and order backlog, or on the margin squeeze.
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