High raw material and commodity price impacts automobile industry

Spiralling raw material prices did impact the automotive industry and tyre players, in particular, are hoping that with the softening of prices, things will look up in Q3. T E Narasimhan brings in the details.

- T E Narasimhan

It is no secret that the recent spike in the costs of commodities and raw materials have put pressure on auto Land auto components companies' bottom line during Q223.

Companies tried to offset this cost by increasing the price of the end products. But market conditions and competition meant that they could not pass it on fully. The good news is that raw material and commodity prices have now started softening and market watchers say that the auto industry should start seeing the benefits from Q3 onwards.

During the post Q2 earnings call, Ajay Seth, CFO, Maruti Suzuki said that the company's operating profit in Q2FY23 stood at Rs 20,463 million as against Rs 988 million in Q222.

The operating profit in Q2 of last year had dipped sharply owing to steep commodity price increases and electronic component supply constraints. So, the results of Q2FY23 are not strictly comparable with those of Q2FY22.

Tata Motors witnessed a commercial vehicle business margin improvement which was aided by higher volumes, realisations. However, residual commodity inflation and foreign exchange had an impact on it as well. The passenger vehicle business also saw earnings before interest and taxes (EBIT) margins improved by 200 Basis points (BPS) Y-o-Y to 0.4 percent because of higher volumes, mix and improved realisations. However, margin recovery was impacted due to residual commodity inflation and adverse effects.