Maruti Suzuki's Q1 net profit falls 9% despite sales jump, as West Asia conflict drives up costs

Maruti Suzuki India experienced a 9.1 per cent decline in its Q1 net profit, marking the second consecutive quarterly fall, despite a significant jump in sales, as escalating commodity prices and logistics costs, partly due to the West Asia conflict, impacted profitability.

Maruti Suzuki India (MSIL), India’s largest carmaker, saw its net profit decline for a second consecutive quarter — the first time in more than four years — as higher commodity prices, increased costs of energy and logistics triggered by the West Asia conflict, offset the sharp rise in domestic sales and exports.

It recorded a net profit of Rs 3,446.9 crore in the April-June quarter of 2026-27 (Q1FY27).

This represented a 9.1 per cent year-on-year (Y-o-Y) decline in earnings, even as overall sales volume jumped over 29.3 per cent to a record 6,82,724 units in Q1.

In the previous quarter, the carmaker’s net profit had dipped 6.45 per cent.

The last time its profits fell in consecutive quarters was in Q2 and Q3 of FY22 at the peak of the second wave of the pandemic.

Impact of Global Conflicts on Profitability

Consolidated total income rose 34 per cent Y-o-Y in the quarter to Rs 54,343.8 crore from Rs 40,493.4 crore a year earlier.

However, this was marginally lower than the Bloomberg estimates.

Explaining the decline in profitability during an analyst call on Friday, Rahul Bharti, senior executive officer, corporate affairs, MSIL, said the conflict in West Asia had created significant uncertainty for the company’s supply chain, forcing it to take extraordinary measures to ensure uninterrupted production.

The sudden increase in costs of commodities, energy and logistics also put pressure on suppliers’ working capital.

To support suppliers and ensure uninterrupted production, Maruti temporarily settled payments for commodities such as aluminium, plastics and rubber every month, which was a change from its earlier practice of doing so every quarter.

This allowed the company to compensate suppliers for higher costs of raw materials much sooner than under the earlier system.

"The company took the decision to prioritise supply continuity and support the supplier ecosystem during an extraordinary period of uncertainty.

"While this decision had an impact on profitability (of MSIL), it enabled uninterrupted production and helped us achieve record sales," Bharti said.

"The company faced a double impact from higher commodity prices and from an accelerated pass-through of these higher costs to our quarterly results."

Operational Challenges and Mitigation Strategies

Commodity-related pressures reduced operating margins by around 300 basis points (one basis point is one-hundredth of a percentage point), of which nearly 110 basis points came from the temporary shift in the commodity-settlement cycle.

Bharti said the temporary arrangement would not continue indefinitely.

"As conditions normalise, we expect to gradually move back to the quarterly-settlement cycle over the next few quarters, and hence some of the benefit will flow back," he said.

During the question-and-answer session, Bharti said the company’s decision to support suppliers ensured production remained unaffected despite disruption across the industry owing to a shortage of gas or commodities.

Apart from commodity costs, higher prices of natural gas reduced margins by around 20 basis points, while a lower absorption of fixed costs due to inventory depletion impacted margins by about 30 basis points.

(Fixed-cost absorption refers to spreading factory overheads over the number of vehicles produced.

When inventories fall, these costs are spread over fewer vehicles, reducing margins.)

Adverse foreign-exchange movements also reduced margins by around 30 basis points, while employee costs were higher by 40 basis points, largely due to seasonal factors in the first quarter.

Depreciation, the accounting charge for wear and tear on factories and machinery, increased by about 20 basis points following the commissioning of new manufacturing facilities.

These headwinds were partly offset by lower "other expenses" and higher operating income.

Sales Performance and Future Outlook

Despite the pressure on profitability, Maruti reported domestic wholesale sales of more than 0.534 million units, up nearly 33 per cent Y-o-Y, while exports rose 28.6 per cent.

Bharti said the company contributed more than 85 per cent of India’s passenger vehicle exports during the quarter, even as shipments to some West Asian markets were affected by the conflict.

He said exports remained resilient because the company now ships vehicles to nearly 120 countries, with South Africa, Japan and Europe emerging as key export markets during the quarter.

Bharti said demand remained healthy across both urban and upcountry markets and the company continued to be constrained by production capacity rather than demand.

Dealer inventories stood at around 13 days, well below the company’s preferred level of about one month, while the pending customer order books remained healthy at around 130,000 units.

The company commissioned the second plant at its Kharkhoda facility in Haryana in May and the fourth manufacturing line at its Gujarat facility in July, adding a combined annual production capacity of 500,000 units.

Bharti said both facilities would take around four to five months to reach full capacity. As a result, the company retained its guidance of around 10 per cent volume growth for this financial year, with further growth depending on how quickly the new capacity is ramped up.

Maruti increased prices in June and announced another from August to partly offset rising input costs, with most of the benefit expected to accrue in the second quarter.