India’s biggest carmaker Maruti Suzuki, reported a lower-than-expected quarterly profit as rising input costs and supply chain constraints hurt earnings.
Net income was Rs 1,010 crore ($126 million) in the three months ended June 30, compared with a profit of Rs 440 crore a year earlier, the unit of Japan’s Suzuki Motor Corp said in a statement Wednesday. That fell short of the average analyst estimate of Rs 1,570 crore, according to data compiled by Bloomberg.
Revenue climbed to Rs 26,500 crore, which was higher than estimates. Total costs surged 43% to Rs 25,270 crore from the same period last year. Raw material costs jumped by a similar level.
Higher commodity prices “adversely impacted the operating profit,” Maruti said in the filing. “The company was forced to increase prices of vehicles to partially offset this impact.”
Automakers globally are grappling with a serious supply chain crunch, which has aggravated soaring prices of raw materials, hurting their margins. The increase in expenses has forced automakers including Maruti, Tata Motors and Mahindra & Mahindra to raise vehicle prices in the Indian market, which is dominated by cheap cars, potentially denting demand.
The company sold 398,494 vehicles domestically during the quarter compared with 308,095 units previous year. About 51,000 vehicles could not be produced due to a shortage of electronic components, Maruti Suzuki said in the filing.
It also had a backlog of customer orders for about 280,000 vehicles by the end of the June quarter. The automaker “continued to work on cost reduction efforts to minimize the impact on customers,” it said.
Price hikes
Maruti Suzuki increased prices by an average of 1.3% across its models in April, following a previous hike of 1.7% in January. However, higher cost of cars didn’t impact Maruti’s local sales in June, which rose 1.3% to 132,024 units.
Chairman RC Bhargava has said Maruti will have to shift its focus to bigger cars because the demand for entry-level passenger vehicles -- its main source of income -- is waning as they become more expensive due to commodity inflation.
It’s considering expanding the capacity of a new plant in the northern Indian state of Haryana to 1 million vehicles a year, he said in May. Investment of more than $1.4 billion will go into the development of the first-phase of the plant.
Maruti is also betting on cars powered by hybrid technology, natural gas and biofuels over electric vehicles as India still generates about 75% of its electricity from dirty coal.
