After nearly four years of bad luck, Maruti Suzuki catches a break in September quarter

July-September has been a quarter of good fortune for India’s largest carmaker as a confluence of factors chipped in to make it the best one in recent years.
Maruti Suzuki India (File Photo | Twitter)
Maruti Suzuki India (File Photo | Twitter)

For India's largest automaker Maruti Suzuki, July-September has been a quarter of comeback.

The Gurgaon-based company has been one of the biggest post-COVID laggards among the big names in India, with its path to recovery obstructed by one hindrance after another. First, it was poor demand in 2019, followed by the pandemic shutdown of 2020. Then, just as things were looking up, the company was caught on the wrong side of the trends in India’s car market that started gravitating towards SUVs and away from small cars. This led to the company posting volume declines for eight quarters, until now.

"In this quarter, as you might have observed, almost all the positive factors combined to give us a good result..,” said the Chairman RC Bhargava in a post-earnings conference call, “there was not a single negative element," 

“We had all the positives in this quarter. We had everything positive. It is very unusual in a quarter that you have all that is positive,” he added.

Key to the current success of the company has been a sharp turn towards more premium vehicles, particularly SUVs. Over the last one year, the company has emerged as the king of India’s SUV market, displacing Mahindra & Mahindra, with a range of models such as Brezza, Ertiga, Fronx, Grand Vitara, Invicto, Jimny and XL6. 

In September, the company’s SUV sales zoomed by 82% to 59,271, helping offset the 22% decline in its mainstay hatchback and compact segment from 1.02 lakh to 78903.

“In the industry, the share of utility vehicle segment continued to expand. In quarter 2, the share of SUVs increased about 50%.. Together with MUV, the share of UV in the industry is now around 60%,” said the management. 

Thanks to the SUV boost, the Indian automaker saw perfect quarterly results in terms of the highest-ever quarterly sales volume and revenue. 

During the three months ended September, the company sold over 5.5 lakh vehicles, registering a growth of 6.7 % over the same period the previous year. 


Meanwhile, a confluence of positive factors — particularly softening metal prices — aided the company’s performance on the profit front.

The automaker which pointed out a couple of reasons for their successful September quarter mainly had the softening of metal prices to be thankful for. 

He also added that the increase in the mix and the volumes also helped Maruti in terms of both operating leverage as well as achieving higher margins. 

The company, which had seen a significant rise in the one-off employee costs in the June quarter, was thankful for dodging those costs this quarter. 

"Advertisement costs also have been slightly lower than what they were in the first quarter because of launches," said the company. 

The net profit for the quarter rose to Rs. 37,165 million from Rs. 20,615 million in the second quarter, a year-on-year growth of over 80%. 

This was on account of higher sales volume, cost reduction efforts, favourable commodity prices and higher non-operating income.

A Spate of Bad Luck

Maruti Suzuki has had a spate of bad luck in the last five years. The troubles began in 2018 when demand and sales started decelerating.

This slowdown caught pace in 2019, with passenger vehicle sales declining to 2.77 million units from 3.38 million units during FY20, according to Society of Indian Automobile Manufacturers. Maruti Suzuki, as the market leader, was not spared the impact. 

Just as the demand environment was beginning to recover in early 2020, the automaker suffered huge setbacks with the Covid-19 pandemic, the lockdown and other restrictions that came along with it. 

Even as the restrictions started easing, things remained pretty tight for Maruti with muted demand due to economic uncertainties. 

For Maruti, domestic sales were down by about 7% in FY21 compared to the previous fiscal. 

The Indian automaker, even before fully recovering from the pandemic, had to deal with another blow with the global semiconductor shortage. 

Like other automakers, Maruti was impacted by chip supply constraints, leading to lower production.

In Q2 FY22, the company could only produce 60% of its full capacity due to the chip crunch. While demand was recovering, Maruti could not fully capitalize on it due to supply limitations. 

Its pending customer orders reached around 2.6 lakh vehicles by early 2022, reflecting the gap between demand and constrained supply. 

Still, compared to the COVID-impacted FY21, Maruti Suzuki saw sales jump by 13% to 1.65 million units.

The automaker was losing its market share constantly as the demand for their hatchbacks and sedans was shrinking in favor of SUVs and MPVs. 

The Indian passenger vehicle market is witnessing a rapid change in terms of the vehicle preferences of consumers. Utility vehicles including SUVs, crossovers and MPVs are expanding their footprint in the country, 

This has been attributed to the fact that affluent households have been less impacted by the pandemic, while lower middle class and rural markets continued feeling the pinch of job losses, medical expenses etc. As a result, the share of smaller cars has contracted. 

“So small cars are a phenomenon of affordability and affordability means both cost and income,”  said Bhargava on the call. 

“The cost has gone up disproportionately because of the regulatory intensity you have seen in the past few years. And the income in this segment of the demography has not taken off,”  he added. 

“We are hoping that sooner or later the income growth in India will catch up and sometimes the small car segment will revive."

“There are some explanations that the customer is upgrading. A person who can afford a bigger car would always have bought a bigger car. That would have been true in India for a long time. So it's purely an affordability issue in this segment,” he added. 

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