Maruti reports subdued Q1 earnings on 2nd Covid wave, surge in commodity prices
Maruti Suzuki India Ltd on Wednesday reported a net profit of ?440 crore for the quarter ending June 30 due to the low base effect in the corresponding quarter when the company’s production and sales were impacted due to the stringent nationwide lockdown imposed to contain Covid pandemic. The company reported an unprecedented net loss of ?249.4 crore in the year ago period.
The New Delhi based car maker’s performance dropped sharply on a sequential basis due to the explosive growth in cases of Covid-19 infections as part of the second wave. Maruti had to stop production operations and its dealerships also remained shut for the better part of the quarter as states imposed strict lockdowns. Maruti reported a net profit of ?1166.1 crore for the March quarter.
On the back of a gradual recovery in economic activity and increased preference for personal mobility to avoid Covid infections, Maruti witnessed sharp recovery in wholesale and retail sales of vehicles in the August to March period. Due to high demand and supply chain constrains, waiting period on some of the company’s offerings also went beyond three months.
Revenue from operations during the quarter increased by 332.7% to ?17770.7 crore compared to just 4106.5 crore in the year ago period as vehicle wholesale more than tripled to 353614 units from just 76599 units. The company’s top line though dropped sharply from ?24023 crore in the March quarter.
According to analyst estimates compiled by Bloomberg, Maruti Suzuki was expected to report a net profit of ?878.7 crore and revenue of ?18171 crore.
Maruti’s operating profit or Earnings before Interest and Tax Depreciation and Amortisation (EBITDA) stood at ?821 crore compared to an operating loss in the year ago period. In this financial year, Maruti has already announced two rounds of price hikes to cover for the increased cost of commodities and the company might consider more such actions if commodity prices continue to soar.
According to Ajay Seth, chief financial officer, Maruti Suzuki, the surge in commodity prices has been unprecedented and has never been witnessed before. Hence, the company will try to cut its advertising, marketing other costs to cover up the overall expenses since weak demand post second wave will not allow the company to pass on the price increase to customers.
“It is very difficult to absorb the entire cost. We have increased prices in April and July and will keep doing it in small doses. We have to take a call on price depending on the demand in the market,” he said.
He further added that the company has limited room to increase prices and substantial price increase might impact demand. Consequently, margins have been impacted and such negative impact will continue in the second quarter as well.
Maruti has been gradually increasing production of vehicles from June as vehicle stocks at dealerships are at an all time low due to high demand and supply chain constraints triggered by a shortage of semiconductors and shipping containers.
According to Shashank Srivastava, senior executive director marketing and sales, Maruti Suzuki, demand for vehicles has picked up in July as dealerships in most states have reopened following the easing of restrictions.
“We have seen pick up in retail sales, bookings and enquiries in July. This time the recovery is led by the both rural and urban markets compares to last year when urban markets led he recovery in sales,” added Srivastava.
News Source: Livemint