(Bloomberg) — Maruti Suzuki India Ltd., India’s biggest carmaker, reported a lower-than-expected quarterly profit as rising input costs and supply chain constraints hurt earnings.
Net income was 10.1 billion rupees ($126 million) in the three months ended June 30, compared with a profit of 4.4 billion rupees 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 15.7 billion rupees, according to data compiled by Bloomberg.
Revenue climbed to 265 billion rupees, which was higher than estimates.
Total costs surged 43% to 252.7 billion rupees 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 Ltd. and Mahindra & Mahindra Ltd. 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.
The automaker “continued to work on cost reduction efforts to minimize the impact on customers,” it said.
The company also had a backlog of customer orders for about 280,000 vehicles by the end of the June quarter.
White Spaces
“Production levels for the company are improving month-on-month as the chip issue is largely resolved,” Mansi Lall, research associate at Prabhudas Lilladher, said in a note Wednesday.
Maruti has “addressed white spaces in its portfolio through the launch of Brezza and Grand Vitara.”
Gaining market share is crucial for Maruti as competition is intensifying in the utility vehicle space, Lall said, adding that the demand for entry-level cars would gain momentum ahead of the local festive season.
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 R.C. 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.
New Plant
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.
Shares of Maruti advanced 1.6% in Mumbai on Wednesday, taking this year’s climb to almost 17%.
(Updates with analyst comment in the eighth paragraph.)
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