India

Indian carmaker Maruti's profit expectations upended by chip crunch

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Corporate office of Maruti Suzuki India Limited is pictured in New Delhi, India, February 26, 2016. REUTERS/Anindito Mukherjee/File Photo

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  • Q2 net profit 4.75 bln rupees vs forecast 7.2 bln
  • Maruti cut production by 60% in September
  • Cutting costs, hiking prices to cope with commodity costs

BENGALURU, Oct 27 (Reuters) - Maruti Suzuki India Ltd's (MRTI.NS) full-year sales and profit expectations have been upended by the global chip shortage and spike in commodity prices, India's biggest carmaker said on Wednesday, as it missed second-quarter profit forecasts.

"At the beginning of the year we did not expect to lose so much production in the second quarter because of chips and maybe lose production in the third quarter," Chairman R.C. Bhargava said after Maruti posted a 65.3% plunge in quarterly net profit.

"What we had expected in terms of volumes and profitability has changed substantially," he said, adding it would be difficult to give an estimate for this year's sales or profit, which has also been hit by a spike in commodity prices.

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The company did not say what its full-year expectations had been.

Carmakers have been forced to make sharp production cuts this year as supply chain disruptions and booming demand for consumer electronics have led to an acute shortage of chips, which have become a critical component in automobiles, powering everything from fuel injection to entertainment systems.

Maruti, which sells one in every two cars in India, cut its production by 60% in September, citing the shortage. It said its passenger car sales dipped 67.4% for the month. read more

An estimated 116,000 vehicles could not be produced due to the electronics component shortage, the carmaker said. Bhargava said this was close to one month's production.

Maruti, which is majority owned by Japan's Suzuki Motor Corp (7269.T), said net profit came in at 4.75 billion rupees ($63.38 million) for the second quarter ended Sept. 30, compared with 13.72 billion rupees a year earlier. Analysts were expecting a profit of 7.21 billion rupees, according to Refinitiv data.

The quarter also saw an unprecedented increase in prices of commodities such as steel and copper and efforts to absorb them were made via cost reductions and car price hikes, the maker of the popular WagonR and Swift cars said. Maruti has bumped up the price of its cars four times this year.

"The shortage of semiconductors and electronic components, and the increase in the price of components and commodities is on a pretty unprecedented kind of scale," Bhargava said.

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Reporting by Chandini Monnappa in Bengaluru Editing by Subhranshu Sahu and Mark Potter

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