Maruti operating margin under pressure

Parvatha Vardhini C | Updated on January 17, 2018

Production loss due to disruption at a vendor’s plant saw Maruti Suzuki record a modest 2.1 per cent increase in volumes.

Despite that, the company’s net sales expanded 12.1 per cent to ₹14,655 crore in the quarter ended June 2016, over the same quarter last year. This was aided by a richer product mix, consisting of vehicles with higher price points such as the Ciaz, SX4 S Cross, Baleno and the Vitara Brezza. Average realisations for the quarter moved up 9.8 per cent, over a year ago.

But the strong show in the topline did not carry through to the operating margins. Operating margins came in at 14.8 per cent, much lower than the 16.2 per cent recorded last year.

With commodity prices reversing from rock-bottom and the base effect also catching up, benefits from cheap raw materials have worn away. Adding to the pressure on input costs is the strong yen.

Apart from direct import of inputs, the company has 10-11 per cent indirect exposure through imports made by vendors. The adverse forex movement has also increased royalty outgo. Higher advertising expenses from the setting up of Nexa premium outlets and the launch of the Vitara Brezza in end-March also dented margins.

However, lower depreciation, due to change in method of depreciating certain assets, as well as a more than doubling of other income helped the car maker post double-digit growth in net profit, Net profit was up 23 per cent at ₹1,486 crore.

Published on July 26, 2016

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