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Maruti Suzuki net profit zooms in 2x even as high raw material prices squeeze margins

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  • India’s largest automaker Maruti Suzuki today reported a doubling of its consolidated net profit year-over-year.
  • The increase is largely due to Covid disruptions that hampered operations in the previous year.
  • Maruti Suzuki also revealed that the chip shortage prevented it from producing 51,000 cars – and is also on top of 2.80,000 orders.

India’s largest automaker Maruti Suzuki reported a twofold increase in consolidated net profit in Q1 FY23 to 1,036 crore year-over-year. Margins, however, remained under pressure due to the rise in commodity prices in the current quarter.

Revenues increased by more than 49% to ₹26,512 crore in the same period. But this may be a misleading number due to last year’s low base effect, which was in the throes of a severe second wave lockdown.

On a sequential basis, Maruti Suzuki witnessed declines in all three parameters – margins specifically bore the brunt of the sharp rise in commodity prices in Q1 FY23. The price increase in April of this year was not enough to ease the pressure on corporate results.

Maruti Suzuki has raised prices four times in FY22 and once in Q1 FY23. Despite the five price increases, the margin improved year on year by only 1.2 percentage points.

Particularities Q1 FY23 Q4 FY22 Q1 FY22
Revenue ₹26,512 crore ₹26,749 crore ₹17,776 crore
Net profit ₹1,036 crore ₹1,876 crores ₹475 crore
Margin 3.9% 7% 2.7%

Source: Company Reports

Maruti Suzuki attributes high raw material prices, higher advertising costs and lower non-operating income to pressure on margins. Material costs account for 75-78% of the total cost of a vehicle, which means that raw material prices have a heavy impact on car companies.

On the other hand, a declining rupee and price increases helped avert some of this pressure.

Volumes shrink sequentially – and chip shortage is partly the cause

In terms of volumes, on a sequential basis, Maruti Suzuki reported a net decrease in the number of units moved, although exports grew by 1%.

Year-over-year, however, the automaker reported an overall increase of 32% – again, due to the low base effect, the growth numbers don’t tell the full story.

Period of time Q1 FY23 QoQ change YoY change
Total volume 4.67.931 -4% 32%
Domestic 3.98.494 -5% 29%
export 69.437 1% 53%

Source: Company Reports

However, it is worth emphasizing that the chip shortage has played a major role in the successive decline in sales.

“Due to a shortage of electronic components, approximately 51,000 vehicles were not produced in this quarter. Pending customer orders totaled approximately 2.80,000 vehicles at the end of the quarter, and the company is doing its best to fulfill these orders quickly,” the company said in an exchange request.

The light commercial vehicle segment had the best year-on-year growth. The compact segment – ​​Maruti Suzuki’s bread and butter – also grew at a healthy 26.9%.

The ‘mini’ segment grew the slowest.

Segment sale YoY change
mini 48.987 3.7%
Compact 2.04.877 26.9%
medium 2.672 6.1%
UVs 80,852 34.7%
vans 31.766 45.8%
company car 10.817 166.7%
others 18,523 68.7%
Total 3.98.494 29.3%

Source: Company Reports

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