Maruti Suzuki Profit Slips on Higher Costs Despite Strong Demand

Quarterly Results

In the April-June quarter, Maruti Suzuki posted net profit of 33.5 billion rupees, down 11% from a year earlier, or about $351 million. The result was shy of the 34.4-billion-rupee consensus from a Bloomberg poll of analysts and extended the streak of earnings misses for Suzuki Motor Corp.'s Indian arm to four consecutive quarters. India's largest carmaker said the results in a filing Friday.

Sales advanced to 524.6 billion rupees, a 36% gain, even as total expenses climbed 41% to almost 500 billion rupees. Raw-material expenses surged 46%. Its EBIT margin slid to 5.1% for the quarter, compared with 8.4% in the same period last year.

Cost Pressures and Price Increases

Higher steel and other commodity inflation are compressing profitability for Indian automakers. The automaker gained from growing demand for its costlier SUVs and from stronger exports, yet it was still forced to raise prices twice in recent months to transfer a portion of the cost pressure to customers. In May, the company announced it would raise vehicle prices by up to 30,000 rupees, and a second round of increases was announced this month.

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Additional expenses also came from scaling up output on the second production line at the company's Kharkhoda factory in Haryana. According to the filing, the expanded plant enabled the higher sales volume. The filing also said the war had made the rise in material expenses much worse in the period.

Demand and Market Share

Vehicle sales totaled just over 682,700 units in the quarter, as domestic orders stayed firm and overseas shipments rose roughly 29% year on year. A better sales mix and a helpful exchange rate also boosted profitability. Maruti has been trying to take advantage of a recovering small-car segment, which had been weak for years until a consumption-tax reduction made those models more affordable.

It has noted that entry-level models are bouncing back with improving rural spending, adding to the robust rise in high-margin SUVs. As a result, the industry front-runner widened its share of the market by 2.3 points, reaching 41.2%.

Expansion and Industry Context

Maruti's board has also given the go-ahead to four plants producing compressed biogas (CBG), with the initial phase expected to cost 5.6 billion rupees. Further CBG capacity additions could be considered "based on the experience of these projects," the filing said, as Maruti looks to build on the encouraging start of its parent's company's plant in Gujarat.

The quarterly figures reflect the broader challenge for Indian automakers: strong demand and higher input costs pulling in opposite directions. Competitor Hyundai Motor India Ltd. likewise reported quarterly earnings that fell short of projections this week. Mahindra & Mahindra Ltd. edged past the consensus forecast thanks to its farm-equipment division, although its raw-material spending climbed 22%.

Even with Maruti's market share at a fresh high, its latest earnings underline how much of the commodity shock is being absorbed by the manufacturer. Price increases and a richer sales mix have not been enough to protect margins, leaving investors to weigh strong volume momentum against persistent cost pressure.

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