Big miss for Maruti Suzuki as Q1 net profit comes in at Rs 441 crore

Weak volumes, commodity costs weigh on margins

India’s largest passenger vehicle maker, Maruti Suzuki India (MSIL) posted a net profit of Rs 440.8 crore in June quarter of FY22 (Q1FY22). The bottom line was much lower than street expectations which pegged the same at Rs 878 crore. The company had reported a loss of Rs 249 crore in the year ago quarter due to a complete lockdown. 

While sales were impacted by the lockdown in the first two months of the June (Q1FY22) quarter, the reason for the lower net profit y-o-y was a decline in other income which more than halved to Rs 507 crore. On a sequential basis, the net profit declined by over 62 per cent. 

While volumes were up nearly five-fold y-o-y to 3.53 lakh units as the recovery took hold in June, it was 28 per cent lower than the March quarter. The rural segment continues to do well accounting for 40 per cent of the overall sales. Despite the recovery, sales were much lower than the Q1 levels of FY18-19, according to the company. 

In addition to lockdown restrictions, the company highlighted issues related to global semiconductor supplies though it has been less impacted than peers. Given the rising fuel prices, there has been higher preference for compressed natural gas variants. The company indicated that the demand recovery in July has been strong with a pick up in enquiries, booking and retail sales. While the company’s market share in the entry level and compact hatchback remains steady, it has been losing out to competition in the sports utility vehicle segment. 

Though revenue performance was sub-par, operating performance too missed street expectations by about 200 basis points with margins coming in at 4.6 per cent. On a sequential basis margins declined 367 basis points. The company indicated a 3.5-4 per cent impact on the profitability due to commodity costs and lower volumes. While the company has been increasing prices (three times since the start of the year), the hikes have been gradual and insufficient to overcome the steep rise in commodity costs. MSIL indicated that a recovery in volumes (operating leverage), commodity price correction and price hikes would be needed for margins to recover from these levels. 

On the Q1 performance and outlook, Mitul Shah, head of research at Reliance Securities says, "MSIL reported subdued Q1FY22 performance due to a sharp jump in commodity costs. However, we expect the domestic passenger vehicle industry to record double digit volume growth in FY22, which would support MSIL's business."