Maruti Suzuki Q1. I slipped on the margin

Gross margin at 25.4% was slightly below analysts’ expectations, as headwinds from higher commodity costs were partially offset by favorable movement in the yen-rupee. Sequentially, employee spending increased 13%, leading to a 190 basis points (bps) contraction in EBITDA margin in the first quarter. One basis point is 0.01%. This comes after two consecutive quarters of growth in Ebitda margin.

In addition, semiconductor shortages added to the crisis as the automaker could not produce around 51,000 vehicles in the last quarter. Sales volume fell 4% sequentially to 467,931 units.

However, the company hiked prices during the quarter, leading to an increase in net realization per vehicle by Rs 467,931 on a quarter-on-quarter basis. However, it did not provide much relief on Ebitda on a per vehicle basis, which declined by 17.8 per cent sequentially due to the above reasons.

The semiconductor situation is expected to improve going forward. “The company’s production levels are improving month-on-month as the chip problem has been largely resolved. The company has addressed the white spaces in its portfolio through the launch of Brezza and Grand Vitara. We expect entry-level demand to pick up ahead of the festive season.

True, the demand environment remains strong, as evidenced by pending customer orders of approximately 280,000 vehicles at the end of Q1. But note that this reflects somewhat of an underproduction.

With the easing of chip shortage conditions, the company can be expected to regain the lost market share. Given the high competitive intensity in the sport utility vehicle segment, investors would do well to track it.

However, investors can hardly complain. Recently, shares of Maruti Suzuki have seen some momentum behind the excitement about their new launches. Shares in the Nifty Auto index have gained 12.6 per cent, as against a gain of 12.7%, in CY2022 so far.

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