More cars, thinner margins: Why rising sales aren’t boosting automakers’ profits

Indian passenger vehicle makers are witnessing strong sales growth, but higher volumes are failing to translate into stronger profits as rising commodity prices, adverse currency movements and production disruptions weigh on margins, according to Aabhas Sharma's Times of India report.

Maruti Suzuki offers the clearest example. Its total sales volume rose 29.3% year-on-year to a record more than 6.8 lakh units in the June quarter, while net sales increased 36% to Rs 49,959 crore. However, net profit fell 10.8% to Rs 3,352 crore. Operating EBITDA declined 6.7%, with the margin narrowing to 8.6% from 12.6% a year earlier.

"Higher volumes normally provide operating leverage. In the current environment, part of that benefit is being absorbed by higher input costs," said Ravi Bhatia, director, Jato Dynamics.


Puneet Gupta, director, S&P Global Mobility, said commodity prices have risen sharply, with copper increasing around 20% and aluminium about 15%, along with higher logistics and other costs. Automakers, he said, are absorbing a significant portion of these increases instead of fully passing them on to consumers to protect sales momentum.

Maruti has said material costs increased during the quarter and were further aggravated by the West Asia conflict. A temporary shift to monthly commodity settlements with suppliers, following a surge in aluminium prices, also weighed on margins.

Tata Motors Passenger Vehicles' domestic business reported a 46% increase in volumes and a 64.8% rise in revenue to Rs 17,900 crore. Its EBITDA margin stood at 4.3%, up 30 basis points year-on-year. At the consolidated level, including Jaguar Land Rover, revenue increased 9.3% to Rs 95,799 crore, while net profit plunged nearly 80% to Rs 775 crore, impacted by JLR supply constraints, commodity costs and foreign exchange movements.

Hyundai Motor India faced a sharper margin squeeze. Domestic volumes grew 5.4%, while exports declined 19.6%. Revenue slipped marginally to Rs 16,335 crore and net profit fell 35% to Rs 889 crore. EBITDA margin declined to 9.3% from 13.3%.

"There is also a timing effect. Changes in commodity and currency costs can affect OEMs before they are recovered through vehicle pricing," Bhatia said.

Realised pricing, he added, also depends on product and variant mix, discounts, dealer support and financing incentives.

Gupta said the pressure on profitability is not merely cyclical. Automakers are also committing significant capital to new plants and multiple powertrain technologies, including electric vehicles, CNG and plug-in hybrids.

"A lot of money is also going into capex, and that obviously eats into current profitability," he said.

(With TOI inputs)