New launches, capacity hike to lift Maruti Suzuki facing a war squeeze

ET Intelligence Group: The weakness in Maruti Suzuki India’s March quarter net profit, which was below expectations, appears to be a short-term issue. The auto maker’s net profit declined 7% year-on-year in the quarter, dragged by mark-to-market losses on investments, adverse input costs and sales constraints arising from production capacity limitations. The investment losses are non-cash and reversible in nature depending upon the yield curve movement for fixed income securities.

To alleviate sales volume constraints, the company has undertaken capacity expansion, which will be complete in the current fiscal year. In the near term, margins may face pressure if war-related disruptions in west Asia continue to push up input costs. Over the medium term, however, the company has guided for an expansion in the operating margin (EBIT margin) to 10% by FY30 supported by seven SUV launches and capacity expansion. The margin contracted to 8.4% in FY26 from 10% a year ago.

Despite the quarterly pressure, FY26 turned out to be a marque year for the company given the highest-ever domestic and export volumes, net sales and net profit. This was aided by a stronger second-half performance following the GST reduction.

At the end of FY26, the company had a backlog of around 190,000 customer orders due to production capacity constraints, nearly 130,000 of which were in the small car segment. Dealer inventory also stayed lean at about 12 days of stock. To ease these constraints, it has commissioned the second plant at its Kharkoda facility at Haryana in April 2026, while the fourth production line at its Hansalpur facility in Gujarat is expected to become operational in the current fiscal year. Each of these units will add an annual production capacity of 250,000 vehicles. The company has guided for capex of ‘14,000 crore for the year and plans to increase overall annual capacity to four million units from the current 2.4 million units in the medium-term.

The company has chalked out a plan to increase presence in the electric vehicles (EV) segment where the current capacity constraint will be addressed through the ongoing expansion of the production line in Gujarat. It has also set a target of adding over 1 lakh charging points by 2030 from about 2,000 currently. The company’s average selling prices rose sequentially during the March quarter and are likely to rise further, driven by a mix of higher-end models andincreasing contribution from electric vehicles over time.

The company’s March quarter net profit was hit by a ‘750 crore mark-to-market loss due to a blended increase of about 46 basis points in yields across government securities, corporate bonds and commercial paper. However, 35% of the loss was already reversed in April as bond yields softened. Profit was further weighed down by higher commodity prices and increased new-model launch expenses due to seasonality and R&D-related spending. Energy and logistics cost pressures linked to geopolitical tensions also played a role, though these were partly offset by lower discounts and employee costs.