The January–March quarter (Q4) results for 2024–25 (FY25) from the country’s largest passenger vehicle (PV) maker, Maruti Suzuki India (MSIL), were a mixed bag, with revenues broadly in line but operating profit missing Street expectations.
Given cost pressures, margins at the operating level were the lowest in the past seven quarters.
While MSIL is expected to outperform the sector on the volume front in 2025–26 (FY26), the overall outlook for the sector isn’t exciting.
Volume growth for the PV industry is expected to inch up by just 1 per cent in the current financial year (FY26).
Despite the muted sector outlook, brokerages remain positive on MSIL and expect it to outperform on the back of launches and a recovery in the small car segment.
The immediate trigger for the stock is the Q4 performance. Led by a 4.7 per cent uptick in volumes and a slight rise in average selling prices, the company posted a 6.4 per cent increase in revenues.
Overall volumes at 604,000 units were the highest ever recorded in any quarter for the company.
Growth was driven by the utility vehicle segment, which rose 5.2 per cent, while the compact segment increased 1.9 per cent.
The former accounts for about 37 per cent of domestic volumes, while the latter contributes 42 per cent.
The disappointment was at the operating level.
While gross margins were broadly in line at 28 per cent, operating profit margins stood at 10.5 per cent — down 180 basis points (bps) year-on-year and 110 bps sequentially.
The company pointed out that lower margins were due to startup costs for a new plant, higher input costs, and increased promotional spending.
This was mitigated somewhat by lower discounts on a sequential basis and better operating leverage.
The product mix, too, was adverse sequentially.
The contribution from sport utility vehicles (SUVs) fell by 290 bps to 36.8 per cent, while the share of compressed natural gas-based units dropped 240 bps to 33.7 per cent.
The hatchback segment’s contribution improved 370 bps to 42.7 per cent, while the share of the lower-margin mini segment increased by 100 bps to 7 per cent.
Going ahead, analysts will keep an eye on the impact of startup costs as well as trends in input costs.
Steel prices are expected to move up as producers have started hiking rates following the imposition of a safeguard duty.
However, price hikes and lower costs for other commodities such as copper offer some relief.
The key trigger, however, will remain the volume growth trajectory.
The company expects to outperform the sector on the strength of its launches.
Analyst Anikhet Mhatre of Motilal Oswal Research expects MSIL to post annual volume growth of 7.6 per cent between FY25 and 2026–27 (FY27), driven by launches and a healthy export outlook.
Full-year growth of 4.6 per cent in volumes was led by a 17.5 per cent rise in exports.
The company expects its exports to grow by 20 per cent in FY26.
Given the volume outperformance and an expected 10 per cent earnings growth over FY25–27, the brokerage has maintained its ‘buy’ rating on the stock.
It also finds valuations attractive at 24.3 times FY26 earnings.
Emkay Research, in a recent report, highlighted that MSIL’s launch cycle will turn positive in FY26, even as the broader industry’s launch pipeline remains muted.
In addition to the recently launched eVitara electric SUV (previously known as the eVX concept), the company has lined up two major internal combustion engine SUVs.
This, analysts led by Chirag Jain of Emkay said, coincides with early signs of improvement in the small car segment (2 per cent growth in December–January after three years of decline).
Recent tax cuts and the upcoming 8th Pay Commission could further boost consumption.
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