Maruti Suzuki India Ltd. sold more cars than in any previous quarter from July through September, but its standalone net profit fell 27% to INR 24.15 billion from INR 33.03 billion a year earlier, as higher commodity costs and losses on its investment portfolio ate into earnings.

The gap between volume and profit matters well beyond India. Maruti is the Indian unit of Japan's Suzuki Motor Corp. and the country's dominant carmaker, and its results are a read on how energy and materials costs tied to the West Asia conflict are passing through to Asian manufacturers that have little room to raise prices quickly.

Total sales volume rose 26.5% to 696,654 vehicles, the company said in its results release on Oct. 27. Net sales climbed to INR 506.16 billion from INR 401.36 billion. Operating profit, measured as earnings before interest and tax, fell to INR 28.04 billion from INR 33.82 billion, although it was 10.8% higher than in the April to June quarter.

Margins shrink as Maruti Suzuki pays more for materials

The company blamed the year-on-year drop in operating profit mainly on commodity prices that rose with the conflict in West Asia. Its investor presentation also cited unfavorable currency moves, higher manufacturing overheads and heavier depreciation from a new plant and new model dies, according to Upstox News.

EBITDA margin narrowed to 8.93% from 12.01% a year earlier, Upstox reported. The decline in net profit was steeper than the decline in operating profit because non-operating income fell sharply. Maruti said it booked mark-to-market losses on the surplus cash it keeps invested.

Profit also fell from the previous quarter. The company's half-year and September-quarter figures imply standalone net profit of about INR 33.52 billion in April to June, so the September quarter was about 28% lower sequentially.

For the six months to September, net profit fell to INR 57.67 billion from INR 70.61 billion, while net sales rose to INR 1.006 trillion from INR 767.56 billion.

Demand outruns supply at home, exports slip

Volume was not the problem. Maruti said demand kept running ahead of what it could build, even after recent capacity additions. Domestic small-car sales grew 35.9% and sport-utility vehicle sales rose 68.2%, helped by new SUV launches. The company's share of India's domestic market rose 2.2 percentage points to 40.8%.

Over the first half of the fiscal year, Maruti sold 1,379,378 vehicles, up 27.9%. Of those, 1,146,523 were sold in India, a record for a half-year, and 232,855 were exported.

Pending customer bookings stood at about 200,000 vehicles at the end of September, and dealer inventory was equal to roughly 17 days of sales, the company said.

Exports were the soft spot. Overseas shipments slipped to 108,119 units from 110,487 a year earlier, which Maruti attributed to a difficult geopolitical environment. In September alone, the company shipped 44,219 vehicles abroad out of total sales of 236,013, according to its monthly sales release.

The cost squeeze echoes pressure across the region. Oil has been volatile as the Middle East conflict shifts, with Brent easing from near a six-month high in late October, and the Reserve Bank of India has been defending the rupee.

Price increases ahead, shares near a 52-week low

Maruti plans to raise vehicle prices across its range over the next six months to offset higher input costs, Managing Director and Chief Executive Hisashi Takeuchi said at a post-earnings briefing, according to media reports cited by Just Auto. The company did not give the size of the increases in its results release.

The shares closed up 2.05% at INR 11,450 on the National Stock Exchange on the day of the results, Upstox reported. The stock was still down 31% for the year, and it had touched a 52-week low of INR 10,985 on Oct. 22, against a high of INR 17,370 on Jan. 5. The company's market value was about INR 3.6 trillion.

The board also approved setting up a not-for-profit company to build the Osamu Suzuki Centre of Excellence to train workers in manufacturing and technical skills as part of its corporate social responsibility spending.

The next test is pricing. With roughly 200,000 orders waiting, Maruti has a cushion of demand to absorb increases, and its monthly sales releases, issued on the first day of each month, will show whether buyers keep coming as prices rise.