Cost Pressures Impact Carmakers: Strong Sales Amid Declining Profits
NEW DELHI: Indian car manufacturers are experiencing a surge in vehicle sales, yet this increase is not translating into higher profits. Rising commodity prices, unfavorable currency fluctuations, and production disruptions are squeezing margins for major passenger vehicle makers, despite strong demand in the market.
Maruti Suzuki exemplifies this trend. The company reported a 29.3% year-on-year increase in total sales volume, reaching over 680,000 units in the June quarter. Net sales rose by 36% to ₹49,959 crore. However, net profit fell by 10.8% to ₹3,352 crore, while operating EBITDA declined by 6.7%, leading to a margin contraction from 12.6% to 8.6%. Ravi Bhatia, director at Jato Dynamics, noted that while higher volumes typically provide operating leverage, increased input costs are absorbing much of that benefit.
Commodity prices have surged significantly, with copper rising approximately 20% and aluminum around 15%. Puneet Gupta, director at S&P Global Mobility, indicated that automakers are absorbing a substantial portion of these cost increases to maintain sales momentum, rather than passing them on to consumers. Maruti highlighted that material costs rose during the quarter, exacerbated by the conflict in West Asia, and a shift to monthly commodity settlements with suppliers also impacted margins.
Tata Motors’ domestic passenger vehicle segment saw a 46% increase in volume and a 64.8% rise in revenue to ₹17,900 crore. However, the EBITDA margin stood at 4.3%, only 30 basis points higher year-on-year. At the consolidated level, including Jaguar Land Rover, revenue increased by 9.3% to ₹95,799 crore, but net profit plummeted by about 80% to ₹775 crore due to supply constraints and rising commodity and forex costs.
Hyundai Motor India faced a more pronounced decline. Domestic volumes grew by 5.4%, but exports fell by 19.6%. Revenue dipped slightly to ₹16,335 crore, and net profit decreased by 35% to ₹889 crore, with the EBITDA margin falling from 13.3% to 9.3%. Bhatia pointed out that timing effects related to commodity and currency costs can impact original equipment manufacturers (OEMs) before they can adjust vehicle pricing accordingly. Gupta added that automakers are investing heavily in new plants and various powertrain technologies, including electric vehicles, which further strains current profitability.
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