Maruti Suzuki Profits Fall Due to Rising Raw Material Costs

India’s largest automaker by sales Maruti reported two days ago that its quarterly profits were down 18 percent in the last three months of last year, largely because of an increase in raw material costs and bigger payments to parent company Suzuki.Although the Indian car market is growing at a fast pace, the New Delhi-based company is facing competition from South Korea's Hyundai, and other rivals.

Net profit dropped to INR5.65 billion ($123 million) in the fourth quarter, down from last year’s INR6.8 billion ($143 million). The company's market share isn’t doing too badly though, as sales jumped 27 percent in value to INR92.8 billion ($2.01 billion), thanks to new models that were launched last year. By volume, sales amounted to 330,687 vehicles during the fourth quarter, up 28 percent from the same period a year earlier.

Profits were eroded by surging prices for steep, rubber and other raw materials. "The increase in commodity costs during the quarter also impacted margins," the company said in a statement. Maruti's expenses in buying steel, aluminum and other raw materials jumped 27 percent from the year-earlier period.

India is one of the fastest growing car markets in the world, thanks to increased buying power from the country’s middle class, which is estimated to number 300 million people. The market has a lot of potential left, as just one in 10 households owns a car in urban areas.

In order to meet this strong demand, Maruti has been producing cars at near-maximum capacity for the past year, currently rolling out around 1.2 million vehicles from its two plants in Northern India (in Manesar and Gurgaon).