Maruti Suzuki net profit zooms 2x, even as the rising cost of commodities strains margins

  • India’s biggest car manufacturer Maruti Suzuki today reported a double-digit increase in its net profit on a year-on basis.
  • The rise is mostly due to Covid problems that affected operations during the year before.
  • Maruti Suzuki also revealed that the shortage of chips prevented it from producing 51,000 vehicles as well as in the middle of 280,000 orders.

The largest automaker in India Maruti Suzuki reported a two-fold increase in net profits in the Q1 of FY23 to Rs 1,036 crore, year-on year. However, its margins were at risk due to the increase in the cost of commodities during this quarter.

The company’s revenue soared by more than 49% during the same time frame to reach 26.512 crore. However, this may be a distorted figure due to the lower base effect from last year, when the company was experiencing the severe lockdown of the second wave.

In a sequence, Maruti Suzuki witnessed a drop in all three of its variables – specifically, its margins took the brunt of the steep increase in the prices of commodities in the first quarter of FY23. The price increase in April of this year wasn’t enough to ease the strain to its profits.

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Maruti Suzuki hiked prices four times in FY22 and one time during Q1 of FY23. In spite of the five price hikes its year-over-year margin grew by only 1.2 percent.

DetailsQ1 FY23Q4 FY22Q1 FY22
RevenueRs26,512 croreRs26,749 croreRs17,776 crore
Net profitRs 1,036 croreRs.1,876 croreRs475 crore
Margin3.9%7%2.7%

Maruti Suzuki blamed high commodity prices, higher costs for advertising and lower non-operating earnings to the stress in its profit margins. Materials costs comprise 75-78 percent of the cost of a car, so commodity prices have significant impact on automobile businesses.

However, an decline in Rupee and price increases helped to ease off some of the pressure.

The volume of sales are decreasing in a series and chip shortages are partially to blame.

In terms of volume in a chronological order, Maruti Suzuki reported a net decrease in units that were moved however exports increased by one percent.

In a year-over-year comparison however, the auto manufacturer reported an overall rise of 32%. again due to the low-base effect. However, these numbers do not provide the complete picture.

PeriodQ1 FY23QoQ changesYoY changes
Total volume4,67,931-4%32%
Domestic3,98,494-5%29%
Exports69,4371%53%

Source: Corporate reports

However, it’s worth noting that the issue of chip shortages plays a significant role in the contribute to the decline in sequential sales in sales.

“Shortage of electronics this quarter led to about 51,000 vehicles not being manufactured. The number of customer orders pending was approximately 2,80,000 vehicles at the close of the quarter, as the business is working to meet these demands quickly,” the company said in an exchange report.

The light commercial vehicle segment saw the most growth year-on year. The compact segment, that is the bread-and-butter of Maruti Suzuki also saw growth at a healthy 26.9 percent.

SegmentSalesYoY changes
Mini48,9873.7%
Compact2,04,87726.9%
Mid-size2,6726.1%
UVs80,85234.7%
Vans31,76645.8%
LCV10,817166.7%
Other18,52368.7%
Total3,98,49429.3%

Source: Company reports

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