Maruti plans capacity expansion of 10 lakh vehicles per year to drive demand growth. What to expect?

Automobile major, Maruti Suzuki is tightening the bolts to keep up with growth in market demand, and hence the company is planning an additional capacity of 1 million per year. More cars, less wait, better growth! The capacity expansion plan seems to augur well for Maruti going ahead.

Apart from announcing its financial results for March 2023 quarter and overall fiscal year FY23, Maruti's board members in a meeting on Wednesday also approved the creation of additional capacity of up to one million vehicles per year.

The one million vehicles per year are approximately 10 lakh units.

At present, the total existing capacity at Maruti is around 13 lakh vehicles which are fully utilized.

The existing capacity is in Maruti's facility in Manesar and Gurugram. In addition to this, the company is supplied vehicles by Suzuki Motor Gujarat (SMG) under the Contract Manufacturing Agreement.

Through this capacity expansion, Maruti plans to boost growth in market demand including exports.

Manish Chowdhury, Head of Research at Stoxbox said, "The company confirmed a capacity addition of 10 lakh vehicles at its facilities in Manesar and Gurugram which will augur well for MSIL as market demand grows in the coming years. We would keep a close eye on the export volumes hereafter, along with a tab on new launches, and see if the demand scenario remains intact after the price hikes from April 1 and the introduction of BS6 Phase 2 compliant vehicles."

At Maruti, the mode of financing for the expansion is through internal accruals. However, the timeline within which the proposed capacity is to be added and also the amount of investment required will be revealed in due course as they will be finalized and approved by the board members while framing the phases of the installation of capacity.

In Q4FY23, Maruti posted 42.7% YoY growth in net profit to ₹2,623.6 crore, while net sales zoomed by 20.8% YoY to ₹30,821.8 crore. Operating EBIT came in at ₹2,611.1 crore up by a whopping 46.7% YoY.

Total sales volume for the quarter stood at 514,927, recording a single-digit growth of 5.3% as against 488,830 units sold in Q4FY22.

Among the key positive factors of Q4FY23 for Maruti were --- relatively better sales volume leading to improved capacity utilization; improved realization; cost reduction efforts; favorable foreign exchange variation; and higher non-operating income.

For full-year FY23, Maruti's total sales jumped by 19% to 1,966,164 vehicles compared to 1,652,653 vehicles in FY22.

Among key monitorable going forward in Maruti would be volume ramp up and consequent market share gains amidst new product launches in SUV space.

As per ICICI Direct note, Marut is the market leader in the domestic passenger vehicle (PV) space with market share pegged at 41.3% as of FY23. The company has witnessed loss in market share in the recent past due to weaker offerings in the SUV space which now forms 52% of overall PV sales vs 28% in FY19. Company however in the recent past has focused upon increasing market share in this space with ambitious target of selling 5 lakh SUV in FY24E with aim of achieving ~25% market share amid new launches like Fronx, Jimny which have received cumulative booking of ~40,000 units till date. 

Also, the brokerage pointed out that the company is also keeping tabs on technological trends through Wagon R (Flex Fuel Prototype, to be launched in 2025) & first concept EV (eVX) powered by 60 Kwh battery with ~550 kms of range (likely launch in 2025) and is a potential beneficiary of Toyota accelerating the EV push on a global scale (30 EV models, ~US $35 billion investment).