Material costs at an all-time high for Maruti Suzuki: RC Bhargava

A steep rise in commodity prices has resulted in an unprecedented cost escalation for the country's largest carmaker Maruti Suzuki India Ltd (MSIL). The auto major, which was forced to hike prices of its models recently, is now incurring record levels of material costs, said its top management.

At 80.4 per cent of net sales, material costs stood at an all-time high at the end of September quarter, MSIL Chairman RC Bhargava said. "Increase in material costs by 6.4 percentage points - is a huge impact."

Steady rise in prices of key commodities, like steel, aluminium and other precious metals, have forced MSIL to raise prices thrice this year. During the last such hike in August, MSIL increased prices of its cars by 1.9 per cent to protect its profit margins.

However, with overall costs continuing to grow, the carmaker is not rolling out another round of prices yet. According to the company's chief financial officer Ajay Seth, the recent trends in the commodity market may be encouraging, but the developments are being watched very carefully.

"We have witnessed unprecedented inflation in commodities like steel, aluminium and other base and precious metals. The material costs to net sales ratio has gone up from 74 per cent to 80.4 per cent at the end of September quarter. While, of late, we have seen prices of precious metals coming down, it could also be due to lower demand. As semiconductor shortage is impacting productions globally, demand for such commodities have also eased. So, we are watching the space very carefully", said Seth.

Also Read: Maruti Suzuki Q2 results: Net profit plummets 65% to Rs 475.3 cr, net sales up 9%

According to Bhargava, while MSIL increased the prices in the September quarter, it did not pass on the entire additional cost burden to customers. The management intends to keep car prices in check by mitigating the commodity price hikes through cost efficiency.

"We are taking all possible measures to mitigate rise in commodity prices", Seth added.

As part of its austerity measures, Bhargava recently urged MSIL's vendors to implement strict cost control measures. The industry veteran requested its suppliers to spend less on senior management's lifestyle.

"I would strongly suggest to component manufacturers that they need to look at the entire management culture and management style and see how more funds remain within the company and less funds are used for other purposes including lifestyles of senior management personnel," he said in August.

Earlier today, the company reported a steep 65 per cent year-on-year decline in its net profit for July-September at Rs 475.3 crore as the global shortage in the supply of electronic components and higher commodity prices hit it hard.

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