28/09/2021

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Maruti Suzuki to hike prices across models from Sept; stock rises 2.9%

The hike could be steeper than last three rounds, pushed by an exponential increase in prices of raw materials such as steel and copper, analysts said

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Maruti Suzuki | price hike | car prices

Maruti Suzuki, the country’s largest automaker, has announced a price hike across models from September, making it the fourth such increase this year.

While the hike was minimal in the last three rounds, this one could be steeper, pushed by an exponential increase in prices of raw materials such as steel and copper, analysts said.

The company’s stock price immediately rose after the announcement, closing at 2.9 per cent higher, while the benchmark index rose by 1.36 per cent.

The company had announced its plan to hike prices for the July-September period, but it did so only for CNG models. “It has become imperative to pass on some impact of the additional cost to customers. The price rise has been planned across models in September 2021,” it said in a regulatory filing.

Maruti’s move is likely to be followed by other companies. Tata Motors had raised prices of commercial vehicles in April and July, while it raised rates of passenger vehicles by 1.8 per cent in May.

“There has been a dramatic increase in commodity prices. Normally, we try to accommodate it by increasing efficiency and productivity, so that we don’t have to pass these on to consumers. Actually, we should have taken a price hike earlier, but since we were coming out of a very bad year in 2019-20 followed by the pandemic-induced lockdowns, we focused on the topline rather than bottom line,” said Shashank Srivastava, senior executive director, Maruti Suzuki.

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He said steel prices had increased from Rs 38,000 to Rs 65,000 per tonne while the price of copper in the international market had gone up from $5,200 in FY20 to $10,200 per tonne. Prices of precious metals such as rhodium have gone up from Rs 18,000 per gram to about Rs 64,000.

Auto companies typically have 3-6-month contracts with suppliers and any change in commodity prices is reflected after some time.

Srivastava said price hikes are the last resort as it might affect the topline. “But we have to draw a fine line where the bottom line isn’t sacrificed too much,” he said.

Maruti’s Q1 FY22 margins (profit-after-tax) hit multi-quarter lows at Rs 440.8 crore, registering a significant 62 per cent sequential decline compared to Q4 FY21.

The latest round of hike may dampen sales during the third quarter, during which they sell the most number of cars and two-wheelers during the festive season.

Srivastava said while the start of festive sales has been better as compared to last year in south India during Onam, there is still uncertainty over the demand due to fear of a third wave of the pandemic. “What we see now is that while there has been a revival, it’s far from those buoyant years and there is uncertainty going forward due to which it is difficult to give a future guidance,” he said.

Sales will be further hit by a global shortage of chips that has been disrupting production. Maruti’s current stock level stands at 20 days, while an ideal inventory level is around 30 days.

“The semiconductor shortage will stretch through September. As of now, it looks like supply will lag behind demand,” said Srivastava.

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