April 28 (Reuters) - Maruti Suzuki India plans to invest $1.48 billion to expand manufacturing capacity in the world's third-largest car market, betting on demand for small cars despite mounting risks from the Iran war.
India's largest automaker, a unit of Japan's Suzuki Motor, will spend the money to widen production by 500,000 units in the current fiscal year that started in April.
Vehicle sales in the world's most populous country have picked up after New Delhi slashed taxes last September, boosting showroom footfalls and aiding pricing power, particularly for small cars and sport utility vehicles.
"Small cars account for about 130,000 of the 190,000 pending orders," Maruti Suzuki India Chairman R C Bhargava said in a post-earnings call, adding that affordable vehicles will remain key to mass mobility in a price-sensitive market such as India.
The weeks-long Iran war and the closure of the Strait of Hormuz have pushed up raw material costs and tightened supplies of key materials such as aluminum and plastics.
However, Bhargava said the impact on India's car production and demand has been minimal so far even as risks from higher prices and fuel costs remain uncertain.
The Swift small car maker's profit fell 6.9% to 35.91 billion rupees ($380 million) for the quarter ended March, below analysts' estimates of 41.38 billion rupees, according to LSEG-compiled data.
Overall sales, including exports and supplies to Toyota under a global manufacturing and design partnership, rose nearly 11.8% from a year earlier, pushing revenue up 28.2% to 524.49 billion rupees.
A near 51% year-over-year surge in raw material costs pushed total expenses up 28%, while a 67.3% fall in other income further dented earnings, with margins shrinking by 270 basis points to 7.2%, the automaker said.
Maruti's peers have yet to report their quarterly earnings.
($1 = 94.5087 Indian rupees)
(Reporting by Kashish Tandon in Bengaluru, writing by Chandini Monnappa; Editing by Nivedita Bhattacharjee, Kevin Liffey and Mrigank Dhaniwala)
By Kashish Tandon and Aditi Shah
