June 2, 2023

Great Indian Mutiny

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Earnings of India’s leading automobile companies disappoint after price hike

India’s largest carmaker Maruti Suzuki India Ltd posted a lower-than-expected quarterly profit as rising input costs and supply chain disruptions hit earnings.

Net income for the three months ended June 30 was 10.1 billion rupees ($126 million), compared with a profit of 4.4 billion rupees ($293,000) a year earlier, the unit said. Suzuki Motor Corporation of Japan In a statement on Wednesday. That was lower than the average estimate of 15.7 billion rupees ($1.04 million), according to data compiled by Bloomberg.

Revenue rose to Rs 265 billion ahead of estimates. Total expenses rose 43% to Rs 252.7 billion from the same period last year. The cost of raw materials also increased to the same extent.

Maruti said in a filing that higher commodity prices “negatively impacted operating profit”. “The company was forced to increase the price of the vehicles to partially offset this impact.”

Automakers around the world are grappling with a severe supply chain crisis that has sent raw material prices skyrocketing and hurting their margins. Rising costs have forced automakers including Maruti, Tata Motors Ltd and Mahindra & Mahindra Ltd to raise vehicle prices in an Indian market dominated by affordable cars, which could hurt demand.

The company sold 398,494 vehicles domestically during the quarter, compared to 308,095 units in the previous year. Maruti Suzuki said in a presentation that around 51,000 vehicles could not be produced due to shortage of electronic components.

The automaker “continued to work on cost-cutting initiatives to minimize the impact on customers,” it said. The company had a customer order backlog of about 280,000 vehicles at the end of the June quarter.

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“The company’s production levels are improving month by month as the chip problem is largely resolved,” he said. Mansi Lal, Prabudas Lilladher Research Associate, in a note on Wednesday. Maruti has “addressed the gaps in its portfolio by introducing the Brezza and Grand Vitara”.

Gaining market share is crucial for Maruti as competition in the utility vehicle sector has intensified, Lal said, adding that demand for entry-level cars will pick up pace ahead of the local festive season.

Maruti Suzuki increased prices by an average of 1.3% across all its models in April, after an earlier hike of 1.7% in January. However, higher prices of cars did not affect Maruti’s local sales in June, which grew by 1.3% to 132,024 units.

Chairman RC Bhargava said Maruti had to focus on larger cars as demand for entry-level passenger cars, its main source of income, was falling and prices were rising due to inflation.

New plant

In May it said it was considering a new plant in the northern Indian state of Haryana to expand capacity to 1 million vehicles a year. An investment of over 1.4 billion will go into the first phase of the plant’s development.

With India still generating 75% of its electricity from dirty coal, Maruti is also betting on hybrid technology, natural gas and biofuel-powered cars in electric vehicles.

Shares of Maruti rose 1.6% in Mumbai on Wednesday, taking it up nearly 17% this year.