Maruti Suzuki bets big on alternative fuel with Rs 561 crore CBG push; sees margin recovery ahead

Maruti Suzuki India is deepening its clean fuel strategy with plans to set up four compressed biogas (CBG) manufacturing projects, approving an investment of ₹561 crore in the first phase even as higher raw material costs weighed on its quarterly profitability.

The company's board on Friday approved the four projects and said it would consider expanding CBG manufacturing based on the experience from the first phase.

Compressed biogas, produced from agricultural residue, municipal waste and other organic waste, can be used as a cleaner substitute for compressed natural gas (CNG) and is being promoted by the government to reduce emissions, manage waste and lower dependence on imported fossil fuels.


Also Read: Maruti Suzuki Q1 profit drops 11% YoY to Rs 3,352 crore on higher input costs

The latest investment builds on the early success of parent Suzuki Motor Corp.'s CBG project in Gujarat and expands Maruti Suzuki's push into the alternative fuel ecosystem alongside its CNG vehicle portfolio.

Kharkhoda plant drives sales growth

The announcement came alongside Maruti Suzuki's first-quarter earnings, where the company said higher vehicle sales were enabled by the commissioning of its second manufacturing plant at Kharkhoda in Haryana, helping boost production while keeping dealer inventory at around 13 days at the end of the quarter.

The automaker sold 6.83 lakh vehicles during the April-June quarter, with total sales volume rising 29.3% year-on-year. Domestic sales of small cars grew 34.1%, SUV sales increased 44.6%, while exports rose 28.6%. The company's domestic market share improved by 2.3 percentage points to 41.2%.

Net sales rose 36% year-on-year to ₹49,959 crore during the quarter. However, net profit declined 11% to ₹3,352 crore from ₹3,758 crore a year earlier as rising input costs offset robust revenue growth.

Input costs weigh on margins

The company said raw material costs started increasing during the quarter and were "seriously aggravated during the war", referring to disruptions linked to the Iran conflict.

Higher steel and other commodity prices, along with increased costs associated with ramping up production at the new Kharkhoda facility, weighed on profitability despite two rounds of vehicle price hikes undertaken this year.

However, the company expects margins to recover over the next few quarters as input costs ease and pricing arrangements with suppliers are reset, it said in its post-earnings call.

Maruti Suzuki had temporarily shifted from quarterly to monthly commodity settlements to support suppliers during a period of elevated aluminium prices, a move that resulted in a 110-basis-point hit to margins during the quarter.

Company executives described the impact as a timing issue rather than a structural increase in costs, while noting that any recovery would depend on future commodity price movements.

Also Read: Maruti Suzuki commences production at 4th plant at Gujarat facility with 250,000 units annual capacity

The automaker retained its guidance of around 10% sales growth for the current fiscal, saying demand remained healthy across segments. It added that production capacity, rather than demand, would be the key constraint on growth, with the pace of expansion depending on how quickly its newly commissioned plants ramp up output.