Chip crisis to halt 2-digit growth run for Maruti Suzuki

Maruti was impacted more than other automakers, Bhargava said, as the carmaker sources a particular electronic component from a single German vendor whose factory in Malaysia was the hardest hit from the Covid flareup

Maruti Suzuki India Ltd won't post double-digit sales growth this year as a semiconductor chip shortage and surge in raw material costs disrupt production at India's largest carmaker.

"We didn't expect to lose so much production in the second quarter due to chips or that the commodity prices would shoot up," said Maruti Suzuki Chairman RC Bhargava in an earnings call Wednesday. "What we had expected in terms of volumes and profitability has changed substantially."

Maruti was impacted more than other automakers, Bhargava said, as the carmaker sources a particular electronic component from a single German vendor whose factory in Malaysia was the hardest hit from the Covid flareup. Maruti is expecting its negotiations with the Haryana government for a new manufacturing plant to come to "some finality" in a few weeks as there's been a "considerable advance" in talks.

The carmaker will launch an electric vehicle possibly before 2025 and when it sees the potential for monthly sales of above 10,000 units, Bhargava said. "Volumes in hundreds or thousands leave us a bit unexcited," he said. Maruti's net income slipped 65 per cent to 4.75 billion rupees ($63.3 million) in the three months ended September 30, the unit of Japan's Suzuki Motor Corp said in a statement. That fell short of the average analyst estimate of 6.9 billion rupees, according to data compiled by Bloomberg. Revenue climbed 9.6 per cent to 205.4 billion rupees, beating estimates.

Key Insights

- Despite revenue being buoyed by a strong demand rebound in the broader Indian economy as pandemic-related movement curbs are eased, the carmaker flagged concerns around surging raw material prices. Total costs jumped 16 per cent.

- "This quarter was also marked by an unprecedented increase in the prices of commodities like steel, aluminum and precious metals," the company said in the statement.

- Maruti is increasing car prices to partially pass on these inflationary pressures. It's also making "maximum efforts" to absorb rising input costs, it said.

- Shortage of electronic components decreased capacity utilization, according to Maruti, which said about 116,000 vehicles were not produced due to a dearth in electronic parts.

- It has more than 200,000 pending customer orders as of September and is trying to expedite deliveries.

- Maruti in August said it expected September output to plunge 40 per cent. Parent Suzuki Motor Corp. cut its October production in Japan by 20 per cent to 70,000 units, citing constraints in parts and semiconductor supplies.

Market Reaction

- Shares of Maruti closed 0.8 per cent higher on Wednesday in Mumbai as investors cheered the better-than-expected jump in revenue.

- Its shares have retreated 3.8 per cent this year, while the benchmark S&P BSE Sensex has surged 28 per cent in 2021. (Bloomberg)