Maruti Suzuki Q1 profit falls 62% as Covid-19 hits output, sales

Commodity super cycle to hit margins, says carmaker

Maruti Suzuki has said it will continue to witness pressure due to surge in input materials cost even though the company sees better-than-expected recovery in demand.
 
Operating margin stood at 4.8 per cent compared to 8.6 per cent in the previous quarter while profit fell for the second straight quarter, missing estimates, as local lockdowns to curb the deadlier second Covid-19 wave disrupted production and sales.
 
Net profit of India’s largest carmaker slumped 62 per cent sequentially to Rs 440 crore in the quarter ended June. It sold 25 per cent fewer vehicles than the preceding quarter, at 353,000 units, as companies were forced into phased shutdowns.
 
Though the company tried to pass on some of the increased cost to customers by undertaking three rounds of price hikes since January, it expressed inability to take any significant price increase. This would hit recovery of demand in a market suffering from poor consumer sentiment.
 
“We have never seen such a steep increase in commodity prices before and we will continue to see an increase at least till the end of next year. We have taken gradual price increases like we took a small round of increase in July. But there is a limit to taking a hike without disturbing the calibration of demand,” said Ajay Seth, chief financial officer (CFO) at Maruti Suzuki.
 
Auto sales have been in the slow lane even before the pandemic. Two waves of Covid-19 have washed away gains, forcing automakers to shut production and dealerships. There have also been loss of jobs or severe cut in salary.

Domestic steel prices have increased sequentially by about 19 per cent in Q3 of FY21 and by another 19 per cent quarter-on-quarter in 4Q of FY21. Aluminium prices saw a similar trend and increased 11 per cent quarter-on-quarter in Q3 of FY21 and further 7 per cent quarter-on-quarter in Q4. Additi­onally, prices of precious metals have also gone up.
 
Other automobile companies have also been forced to increase prices like Tata Motors hiked prices by 1-2.5 per cent across commercial vehicles (CV) in July after a 2.5 per cent hike in April. Bajaj Auto, the country’s third-largest two-wheeler brand, has undertaken a five per cent increase in prices across products between Q1 and Q2 of FY22.
 
However, Maruti said it is witnessing an encouraging revival in demand after a slowdown due to the impact of the second wave. “With fast unlocking happening across the country, we are witnessing a good recovery. For July, we have seen a pick-up in enquiry that is roughly 85 per cent that of last financial year,” said Shashank Srivastava, senior executive director, marketing and sales at Maruti Suzuki.
 
Srivastava also said the company intends to plug the gaps in the mid-level SUV segment where it has seen continuous decline of market share due to competitive pressure from rivals Hyundai’s Creta and Kia Motor’s Seltos.
 
“While for the entry-level segment (SUV), Vitara Brezza is the leader. We have seen competitive pressure in the mid-level SUV segment that we are looking to plug,” Srivastava said.
 
Compact SUVs are the fastest growing segment in passenger vehicles. Maruti’s share here has risen 10 percentage points from FY18 levels of 15 per cent. The company is also losing out on sales of larger SUVs, given the lack of diesel options