Maruti Q2 profit slumps 66% as input costs, chip shortage bite

Maruti Suzuki India Ltd. on Wednesday reported a 66% slump in second-quarter net profit at ₹487 crore after being hit by an “unprecedented” increase in commodity prices and a semiconductor shortage.

The country’s largest carmaker said the quarter saw it suffer an estimated production shortfall of 1.16 lakh vehicles — normal monthly output is about 1.50 lakh units — owing to the electronics component shortage mostly corresponding to the domestic models, while material costs soared to a record 80.4% of net sales at the end of the September quarter.

Chairman R. C. Bhargava said the company had more than 2 lakh pending customer orders at the end of the quarter, a majority of them for CNG vehicles due to the rising prices of petrol and diesel.

“The COVID situation, in the second quarter particularly, was not too bad,” Mr. Bhargava said during a virtual press conference. “But the shortage of electronic components and increase in the prices of commodities like steel, aluminium and precious metals on a pretty unprecedented scale has upset all the earlier estimates and expectations.”

The component shortage had a bigger impact on Maruti than on other OEMs as one particular component was from a single German vendor whose factory in Malaysia had suffered the maximum hit from COVID, he said. “So both of these factors have had a major impact on our results in terms of volumes, in terms of profits,” he added.

However, he noted that despite this, the company’s export figures “are almost unbelievable”. The exports at 59,408 units are the highest ever in any quarter for the company and Mr Bhargava said this level of exports seems sustainable. The company is strengthening its position, particularly in the African market where they are getting support from the dealership of Toyota.

The company’s consolidated revenue from operations stood at Rs 20,551 crore during the quarter under review, up from Rs 18,756 crore in the year-ago period. Total vehicle sales, however, were down 3% at over 3.79 lakh units.

Outlook

Asked to give guidance about sales growth this fiscal, Bhargava said, “We will not have double-digit growth.”

He added that while the market is recovering and there are a significant number of customers who are waiting for cars, “predicting what the future will hold is very difficult because this area of both commodity prices as well as of electronic component supplies is not that easy to predict.”

EV plans

Replying to a query, Mr Bhargava said that the company is likely to launch an electric vehicle anytime soon, but sometime before 2025, as current EV sales numbers “leave us a little unexcited”.

“Unfortunately, we will not feel happy if we can sell 500 or even a thousand cars… These are good numbers but they leave us a little bit unexcited. So we have to see if I start selling electric vehicles, I would like to sell maybe 10,000 electric vehicles in a month,” Mr Bhargava said.

Asked about a tentative timeline for the launch, he added, “I’ll maybe give you an outside date… maybe before 2025… It all depends on market conditions, on consumers, what is the pricing of electric batteries, how the infrastructure is built up…,” he reasoned.

He added that if Maruti Suzuki is selling two million vehicles a year, which he is confident of reaching once things normalise, then does it make sense for the company to sell a car that will have a demand of less than about one lakh a year.