Maruti’s net profit zooms 24% in Q3

Can’t raise prices despite higher production cost, says firm

India’s largest carmaker Maruti Suzuki on Thursday reported a 24 per cent year-onyear (YOY) rise in net profit to ~1,941.4 crore for quarter ended December 31 (Q3) of financial year 2020-21 (FY21).

However, operating margins contracted by 70 basis points (bps) to 9.5 per cent, compared with 10.2 per cent in the corresponding period last year, because of a 31.29 per cent increase in raw material cost and 9 per cent rise in other expenses.

The firm said it has limited capability to raise prices, despite a steep increase in prices of commodities, as demand is remains uncertain.

The commentary came as analysts quizzed the management on weak margins, despite the increase in sales volume. “We need to be careful about the extent of price hike so that we don’t hit demand. I know all of you are concerned about the bottom line, but we have to take care of the top line, too,” said Shashank Srivastava, executive director — sales.

Since January 10, Maruti has increased the price of vehicles across segments citing a rise in input costs. Raw material prices are hardening with the full impact of cumulative increases to be felt in Q4. Steel, aluminium, copper, and rubber — key inputs for the auto industry — are all headed northward.

Industry data shows that while the compound annual growth rate (CAGR) of passenger vehicle (PV) sales stood at 12.9 per cent for the five-year period between March 2005 and March 2010, it fell sharply to 1.3 per cent between FY15 and FY20. Between FY10 and FY15, it rose 5.9 per cent.

In fact, the CAGR for PV sales between 2000 and 2010 stood at 10.3 per cent and between 2010 and 2020 it was 3.6 per cent. Clearly, the growth rate has slowed over the past decade, more so over the past five years. Though car sales are closely related to gross domestic product (GDP) growth, PV sales have suffered despite decent growth.

The company said that besides price increase, it has initiated many other cost control measures to offset the increase in production cost. The company’s net sales in Q3 increased by 13.28 per cent YOY to ~23,457.8 crore on the back of 13.2 per cent jump in total vehicle sales to 495,897 units. Sequentially, sales of vehicles increased from 393,130 units in Q2.

Higher sales during the quarter were led by gradual recovery in rural and urban markets due to shift in preference towards personal mobility amid pandemic.