Maruti’s fourth-quarter profit soars despite costs and chip hurdles

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NEW DELHI : Maruti Suzuki India Ltd beat analysts’ expectations with a 58% rise in quarterly profit, although the country’s biggest carmaker warned that demand for its bread-and-butter small cars is falling as they become more expensive.

The Suzuki Motor Corp. unit. recorded a net profit of 1,838.9 crores in the three months ended March 31, despite challenges from rising input costs and semiconductor chip shortages impacting production and sales volumes. The figure exceeded the Estimated 14,800 crores in a Bloomberg analyst survey.

Vehicle sales fell 0.7% in the quarter to 488,830 units. Domestic sales fell 8% from a year ago to 420,376 units, while exports jumped nearly 93% to a record 68,454 vehicles.

Maruti recorded an operating profit of 1,779.6 crores in the March quarter, an increase of 42% year-on-year and 95% year-on-year as the automaker reported net sales growth of 11% year-on-year compared to the previous year and by 15% sequentially 25,514 crores.

The improvement in operating performance stems from cost reduction efforts, lower sales promotion expenses, higher selling prices and higher non-operating revenue.

Overall, the company’s financial performance exceeded market expectations.

“Maruti Suzuki performed strongly in 4QFY22 with an Ebitd margin of 9.1%, 100 basis points above our estimate of 8.1%,” said Mitul Shah, Head of Research at Reliance Securities Ltd. .

However, chip availability and rising raw material costs will pose challenges for Maruti.

Semiconductor shortages meant Maruti’s pending orders of around 268,000 vehicles at the end of March exceeded 300,000 vehicles now, chairman RC Bhargava said in a conference call with reporters.

Admittedly, the challenge for Maruti is also the declining entry-level car market.

In FY22, the company’s small and compact car sales fell 3% to 916,643 units. However, midsize sedan and utility vehicle sales increased 15% and 27% to 15,869 units and 290,701 units, respectively.

Bhargava said that the proportion of price increases of entry-level small cars was much higher than that of high-end cars, which is one of the main reasons for the contraction of the small car market. Still, the small car segment remains the biggest volume driver for the company.

Meanwhile, Maruti plans to introduce a wider range of new vehicle models this fiscal year as it seeks to retain its market leadership. However, investors will be watching the pace of sport utility vehicle launches and advances in electric vehicles. While the company plans to launch electric vehicles from 2025, Bhargava pointed out that Maruti is also focusing on hybrid vehicles. The company’s management also expects the strong pull in export markets to continue, supporting its overall volumes. In addition, the under-penetrated rural market also provides opportunities, and improving levels of prosperity in rural India are expected to contribute to sales volume.

Overall, analysts expect sales of premium products to increase further at Maruti in the future. The company will also benefit from a higher market share in CNG variants as the preference for CNG vehicles has increased.

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