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Volume change does affect profitability, based on fixed cost structure and investment phase, company is in. Maruti (MSIL) is good example for this analysis, as it is a listed company, so data is publicly available and at the same time, it is a dominant player in Indian market.
2020 – April to June – quarter sales took a massive hit due to non-production and gradual rise in consumption, when phase wise economy was un-locked. Maruti has reported losses in tune of ₹ 249 Crore, as revenue from operation took a nosedive, but other fixed cost (employee, finance, D&A) remained largely at same level. As sales came back on track, profitability too returned. However, high level of discounts in second half of 2019 and 2020 kept overall profit margin under pressure.
Such information is not available for other manufacturers, as they are either unlisted or, are part of diversified parent (Tata Motors and Mahindra). Still to gain fair idea, we have assessed the level of underutilization of their entire resource, considering sales as yardstick. Here underutilization is calculated with reference to highest sales they ever achieved in past calendar year.
Higher the level of underutilization, basically indicates lower level of profitability or higher losses. Also, if highest sales was achieved way before 2018 (2018 was the best year for Indian PV industry in terms of sales), means, they might already have had written-off the losses in past years, or in other words, suffering from lower level of profitability or even losses since long time.
Hyundai, indeed, outperformed others in this aspect. Also, they are managing complex manufacturing of varied engine, gearbox and variant combination quite well across their product portfolio. In fact, Tata Motors too chose Hyundai as supplier for Harrier’s 6-speed automatic transmission unit.