Maruti Suzuki, in the board meeting that happened on July 31, 2023, made two crucial announcements, one of which was the quarterly result and the other related to the manufacturing unit in Gujrat.
Maruti Suzuki India, the largest passenger car manufacturer in India, reported year-on-year profit after tax increases of 145% to Rs. 2485 crore, whereas sales volume increased by 6.4% to 498030 units. Material margin cost has improved by 200 basis points to 76.1% due to the positive factor of the softening of commodity prices and efforts to reduce costs at the company level. Non-Operating Income has seen a significant jump of 2.9% year-over-year from 0.3% in the same quarter of the previous year. EBITDA margin expanded by 200 basis points to 9.2% year over year.
On a Q-o-Q basis, sales volume has noticed a decline of 3.3% from 5, 14, 927 quantities in the last quarter. Net sales have fairly remained constant with a 0.1% uptick, but the net profit has seen a decline of 5.3% due to higher sales promotion expenses (the debut of Maruti Invicto), unfavorable foreign exchange variation, and higher employee costs (1.1% increase Q-o-Q).
Domestic sales volume has noticed a rise of 9.1%, bringing it to 87% of total sales, whereas export sales have seen a 9% fall, bringing it to 13% of total sales.
The company said in a regulatory filing that ‘the board of Maruti Suzuki India Ltd. (MSIL) has approved the termination of the manufacturing agreement contract and is exercising the option to acquire the shares of Suzuki Motor Gujarat Pvt Ltd (SMG) from Suzuki Motor Corporation (SMC) subject to all legal and regulatory compliances, including minority shareholders’ approval".
The reason cited behind this termination was mentioned as follows, MSIL needs to increase its production capacity to almost double its current levels by 2030–31. The company plans to operate in multiple locations. However, the contract manufacturing arrangement is not working satisfactorily, and a quarter of MSIL's production is managed by its parent company, SMG. MSIL and SMC have agreed to bring production and production-related synergies under a single company, resulting in a more streamlined and well-handled working environment. However, as per the statement, the mode of acquisition, including consideration to be paid to the parent company, shall be decided in a subsequent board meeting.
At the time of reporting, the shares of Maruti India Ltd. were trading at Rs. 9773. Stock seems consolidation at higher levels waiting for a breakout. Any crucial breakout with volume above Rs 10000 may further boost investors scenario and we might see 10500-700 in near term.