Maintenance CapEx vs. Growth CapEx: Why the Difference Determines Your Returns | Quick ₹eads

by Karnivesh | 26 January 2026

A CFO sits in a board meeting presenting the annual capital expenditure plan. "We're investing ₹1,000 crores in CapEx this year," she announces. The board nods approvingly growth investment is good, right? But half an hour later, an investor reading the earnings release asks a critical question: "How much is maintenance, and how much is growth?" The CFO pauses. Most investors never ask this question, and that's exactly why many get blindsided by deteriorating cash flows.

The distinction between maintenance CapEx and growth CapEx is one of the most overlooked metrics in Indian equity analysis. It reveals whether a company is simply keeping the lights on or building for tomorrow and, more importantly, how much free cash flow will actually reach shareholders.

What's the Difference?

Maintenance CapEx (also called sustenance or replacement CapEx) is the spending required to keep a company operating at its current level. It includes replacing old machinery that wears out, repairing factory equipment, upgrading facilities to meet safety standards, and maintaining IT infrastructure. Without maintenance CapEx, a company gradually decays production slows, quality deteriorates, and customers leave.

Growth CapEx, by contrast, is discretionary spending to expand capacity, open new locations, develop new products, or enter new markets. It's the investment needed to increase future revenue beyond historical levels. Growth CapEx is where companies bet on tomorrow's opportunity.

The critical distinction: maintenance CapEx is often mandatory; growth CapEx is optional. A mature manufacturing company can skip maintenance CapEx temporarily, but it will suffer later. It can skip growth CapEx indefinitely if it chooses, accepting stagnation instead.

The Indian Reality: How Sectors Differ Dramatically

The chart reveals why different Indian companies have vastly different capital strategies. Maruti Suzuki, a mature automaker with established capacity, allocates 84% of its CapEx to maintenance and only 16% to growth. The company replaced ₹2,789 crores in depreciation with roughly similar CapEx meaning the asset base is stable, not expanding. This generates abundant free cash flow for dividends and debt repayment.

Compare this to Reliance Retail, which allocated 89% of its ₹33,696 crore FY25 CapEx to growth. The company added 2,659 new stores in a single year, launching dark stores and reimagining retail format. Depreciation is only ₹5,000 crores, but growth CapEx towers at ₹30,000+ crores. The asset base is expanding dramatically a 6.7x multiple of depreciation. Free cash flow? Negative or minimal. The company is consuming cash to fund expansion.

TCS, the IT services giant, operates a fundamentally different model. Capital-light IT services require minimal CapEx roughly 10% of revenue. Depreciation is ₹4,500+ crores; CapEx is similar. TCS spends 95% on maintenance (office space, computers, software), 5% on growth. The company generates massive free cash flow because it doesn't need reinvestment to maintain operations.

This is why a company generating ₹100 crores in operating cash flow can have vastly different free cash flow depending on its CapEx mix. Maruti with 84% maintenance CapEx might generate ₹40 crores in FCF. Reliance Retail with 89% growth CapEx generates negative FCF.

Maintenance CapEx vs. Growth CapEx: Indian Companies' Capital Allocation Strategy

The Depreciation Rule: Reading Hidden Messages

A simple rule separates growth-phase companies from mature ones: compare CapEx to depreciation.

If CapEx significantly exceeds depreciation, the company is expanding its asset base growth CapEx is material. If CapEx roughly equals depreciation, the company is in maintenance mode. If CapEx falls below depreciation, the company is running down assets a red flag suggesting financial distress or deliberate harvesting.

Maruti's CapEx-to-depreciation ratio is 1.07 nearly equal, indicating a stable asset base and mature business. Reliance Industries runs 1.88x, signaling material growth CapEx across oil & gas, digital, and retail segments. Reliance Retail runs 6.74x indicating rapid expansion far beyond asset replacement.

When depreciation consistently exceeds CapEx (ratio <1.0), equity analysts flag it as a warning. The company isn't replacing worn assets. Either it's harvesting profits from an aging asset base (potentially a declining business in disguise), or it's facing liquidity constraints and can't afford maintenance.

The Free Cash Flow Trap

This is where maintenance versus growth CapEx becomes critical for investors. Free Cash Flow (FCF) = Operating Cash Flow – CapEx. Two companies with identical operating cash flow can have vastly different FCF based on CapEx allocation.

A startup or growth-phase company spending 80% of cash flow on CapEx has minimal FCF for shareholders, debt repayment, or dividends. It needs external financing or debt to fund the gap. A mature company spending 30% on CapEx generates substantial FCF cash available for dividends, share buybacks, debt reduction, and strategic M&A.

During market downturns, this distinction becomes critical. A high-growth company with negative FCF becomes extremely vulnerable. Every rupee of cash burn is critical. A mature company with 40% FCF margin has a cushion to sustain downturns, invest countercyclically, or increase dividends to support the stock price.

Reliance Retail's aggressive growth CapEx made sense in 2022-2024 when capital was cheap and retail was booming. But if the growth story falters if store productivity declines or online competition intensifies the company faces a cash crunch. Negative FCF becomes unsustainable. The company would need to cut CapEx, slow expansion, and refocus on profitability.

Why This Matters: The Valuation Connection

Growth CapEx and maintenance CapEx are valued completely differently. Maintenance CapEx is viewed as a recurring cost necessary but not value-creating. Growth CapEx is valued as an investment promising future returns.

A company with strong ROIC (Return on Invested Capital) on its growth CapEx deserves premium valuation every rupee invested generates future returns. A company with weak ROIC on growth CapEx destroys value capital is wasted on poor returns. TCS invests minimal growth CapEx but generates exceptional returns. Reliance Retail invests aggressively in growth CapEx; whether those returns justify the investment is the key valuation question.

Red Flags: When CapEx Goes Wrong

Watch for several warning signs. Rising CapEx-to-OCF ratio combined with declining asset utilization suggests capital is being wasted. New plants are being built, but existing plants are underutilized.

Rising maintenance CapEx often precedes deteriorating asset quality. If maintenance suddenly spikes (depreciation held constant), it suggests assets were neglected and now need expensive overhaul. This is bearish accumulated maintenance debt is catching up.

Negative FCF extending beyond one year is dangerous. Growth companies need temporary negative FCF, but if it persists across multiple cycles or worsens, external financing becomes unavoidable either dilutive equity or constraining debt.

The Investor's Playbook

When evaluating an Indian company, calculate its maintenance versus growth CapEx mix. Compare CapEx to depreciation if the ratio is >1.5, the company is in growth mode and will have constrained FCF. If <1.2, the company is mature with likely substantial FCF.

Assess whether growth CapEx is generating returns. Look at revenue growth, margin expansion, and asset turnover. Is the company investing CapEx dollars and getting revenue and profit in return? Or is CapEx rising while revenue and profits stagnate?

Project forward. If a company maintains its current CapEx-to-OCF ratio, what will FCF look like in 3-5 years? Will growth CapEx eventually decline as the company matures? Or will it remain elevated indefinitely, constraining cash returns?

The Bottom Line

Maintenance CapEx sustains the present. Growth CapEx builds the future. But both must be managed rigorously. A company skimping on maintenance CapEx risks asset decay and future crisis. A company over-investing in growth CapEx risks destroying shareholder returns through wasteful capital allocation.

The best Indian companies TCS, Maruti, stable FMCG firms excel at managing this balance. They maintain assets efficiently, invest growth CapEx only where returns are clear, and generate abundant free cash flow. The ones that struggle are those that ignore maintenance needs while chasing growth, or those that mature but can't shift from growth to maintenance mode.

Understanding this distinction separates sophisticated investors from those who see only headline CapEx numbers without understanding what they actually mean for shareholder returns.