Maruti Suzuki

Just as Maruti cars have become a trusted ‘Way of Life’ for millions of Indians, the company’s stock now poses a lifestyle choice for investors— whether to keep it parked safely in your portfolio or accelerate into fresh gains. With exports firing, SUVs leading, and GST reforms on the horizon, the road ahead looks promising, but not without a few speed bumps[EasyDNNnews:PaidContentStart]

About the Company
Maruti Suzuki India Limited is the country’s largest passenger vehicle manufacturer, with offerings spanning entry-level hatchbacks to premium sedans and SUVs. The company operates through Arena, Nexa, True Value, and Commercial outlets, supported by a vast service network of over 5,400 touchpoints across 2,700+ cities. Backed by manufacturing facilities in Gurgaon and Manesar and an advanced R&D centre in Rohtak, Maruti combines scale with product innovation while ensuring strong customer engagement through sales and after-sales services.

Maruti Suzuki holds a dominant 43 per cent share in India’s passenger vehicle market and is also the country’s largest exporter of cars, with shipments to nearly 100 international markets. Key export destinations include South Africa, Saudi Arabia, Chile, Japan, and Mexico. This strong global footprint, combined with its unmatched domestic presence, firmly positions Maruti Suzuki as a leader in delivering affordable and reliable mobility solutions.

Current Overview of Indian Auto Industry
The Indian auto sector has outperformed the frontline market in FY26 as on August 25, 2025, with the BSE Auto Index gaining nearly 9 per cent versus a 4 per cent rise in the Sensex. The rally has been broad-based, with eleven constituent stocks delivering double-digit returns, underpinned by optimism around GST reforms and S&P’s sovereign rating upgrade of India to ‘BBB’. Industry expectations are centred on a structural tax overhaul, with GST rationalisation from the current four-slab structure (5, 12, 18, 28 per cent) to a simplified two-slab system (5, 18 per cent) and a 40 per cent rate for luxury items. This reform has the potential to materially alter affordability dynamics across segments. Entry-level cars and two-wheelers are expected to benefit most, with prices likely to decline by 8–10 per cent and 6–8 per cent respectively, while mid-size vehicles could see 3–5 per cent reductions. Luxury vehicles, currently taxed at nearly 50 per cent, would move into the 40 per cent bracket with minimal impact.

On the demand front, the industry presents a mixed picture. Passenger vehicle volumes were marginally lower in July 2025, down 0.2 per cent YoY to 3.41 million units, as demand softness persisted in entry-level and mid-size categories due to high vehicle prices post emission upgrades and consumer deferment ahead of GST cuts. In contrast, two-wheelers grew 8.7 per cent YoY to 15.67 million units, led by scooters, which surged 16.2 per cent, reflecting stronger urban adoption and changing consumer preferences. Three-wheelers delivered their best-ever July sales at 69,403 units, up 17.5 per cent, driven by both passenger and goods carriers on the back of infrastructure spending and e-commerce demand. Exports remain a bright spot, growing 22 per cent YoY in Q1 FY26 to 1.46 million units, with passenger vehicles recording their highest-ever export volumes at 2,04,330 units, up 13 per cent.

Meanwhile, EV penetration has reached 7.8 per cent of total sales, supported by strong policy push under the ₹10,900 crore PM E-DRIVE scheme. Six structural catalysts continue to shape the sector’s trajectory—GST reform, export momentum, rural demand recovery, EV adoption, premiumisation, and manufacturing competitiveness. At the same time, easing trade frictions with China, particularly on critical inputs such as rare earth magnets, provides additional support to supply chain resilience.

The industry continues to grapple with margin pressures arising from affordability constraints that limit pricing power, rising regulatory compliance costs, and volatility in raw material prices. At the same time, capital allocation decisions have become increasingly complex, as companies must strike a balance between investing in conventional powertrain capabilities, scaling up electric vehicle initiatives, expanding export markets, and strengthening supply chain security.

Q1FY26 Financials
Maruti Suzuki reported steady performance in Q1 FY26, with sales volumes at 5.28 lakh units, up 1.1 per cent YoY compared to 5.22 lakh units in Q1 FY25. Net sales rose to ₹36,624.7 crore, reflecting an 8.1 per cent increase, supported by a better product mix and improved realisations.

On the profitability front, operating EBIT declined to ₹3,057.8 crore, down 18.9 per cent YoY, due to higher input costs and weaker operating leverage. However, profit before tax (PBT) improved by 3.1 per cent to ₹4,834.2 crore, while profit after tax (PAT) increased by 1.7 per cent to ₹3,711.7 crore, aided by higher other income and treasury gains.

Outlook and Valuation
Maruti Suzuki enters FY26 with a constructive demand outlook, supported by multiple growth drivers across domestic and export markets. Export momentum remains strong, with volumes up 37.4 per cent YoY, while disciplined channel management has kept dealer inventory at a healthy 33 days in the domestic market. The SUV segment, now accounting for over 55 per cent of the overall passenger vehicle market, is expected to remain a key growth engine, with Maruti strategically positioned to capitalise through two upcoming SUV launches—one electric and one conventional—timed around the festive season, a period that has historically delivered a material uplift in volumes. The company’s proactive alignment with evolving safety norms, with 97 per cent of volumes now featuring six airbags as standard, not only strengthens brand equity but also ensures regulatory preparedness.

Management remains cautiously optimistic for Q2 FY26, with early monsoon benefits, rural resilience, and festive demand tailwinds emerging as key demand drivers. Rural markets continue to outpace urban demand and are likely to gain further traction on the back of above-average monsoon forecasts, reinforcing their role as a critical support pillar.

Beyond cyclical drivers, Maruti retains structural strengths through export leadership, its broad SUV portfolio, CNG powertrain expertise, and the industry’s most extensive service infrastructure, all of which provide durable competitive moats. Capex guidance remains steady at ₹10,000 crore for FY26, with ~25 per cent already deployed in Q1, ensuring timely new product launches and technology investments.

The company also benefits from multiple underappreciated earnings levers that extend beyond traditional vehicle sales. Sophisticated treasury operations are well-positioned to deliver meaningful ‘other income’ gains in an expected declining interest rate environment, while the Kharkhoda plant ramp-up offers fixed-cost leverage that will directly enhance margins. Strategic initiatives such as six-airbag standardisation and premium export penetration into markets like Japan are supporting higher ASPs (Average Selling Price) and strengthening Maruti’s positioning as a quality leader domestically and globally. These near-term catalysts, alongside potential demand uplift from the upcoming government pay commission, represent material earnings accelerators that appear underappreciated by the market.

Looking beyond the next 12–18 months, Maruti is positioned with sustainable competitive advantages that can support long-term value creation. Its first-mover advantage in rail logistics ensures cost leadership while aligning with ESG priorities, potentially unlocking valuation benefits. The spare parts and service network provides recurring, high-margin cash flows that add resilience to earnings, while the SMG subsidiary further strengthens financial quality through independent cash generation. Collectively, these factors reinforce Maruti Suzuki’s positioning not just as a volumedriven OEM but as a cash-rich, operationally excellent franchise with embedded competitive moats that should support margin expansion, stronger return ratios, and a sustained stock re-rating.

On valuations, Maruti Suzuki offers an attractive entry point given its robust financial profile and earnings visibility. Return ratios remain strong, with ROE at 15.9 per cent and ROCE at 21.7 per cent, underpinned by a debt-free balance sheet (D/E at 0.0x). Over the past three years, sales and net profit have compounded at 20 per cent and 72 per cent respectively, demonstrating operational leverage and margin resilience. At 31.2x FY26E earnings, the stock trades at a discount to the industry average of 38.5x and its five-year median of 35.8x, providing valuation comfort. Furthermore, GST rationalisation is expected to lower effective tax rates for entry-level cars, which, coupled with rural recovery and festive-driven demand, could enable operating margins to revert to historical levels of 14–15 per cent in FY26E–FY27E. With anticipated 20 per cent sales growth and multiple earnings catalysts in play, we believe Maruti Suzuki is well-positioned to deliver superior earnings growth. We recommend an ‘Accumulate on Dips’, as the stock offers a compelling balance of growth visibility, margin expansion potential, and valuation support.

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