Maruti Took The Margin Hit Early; FY27 Recovery May Come Sooner Than Expected

Maruti Suzuki's June-quarter earnings may have disappointed on margins, but brokerages believe the setback says more about timing than demand. 

A sharp rise in commodity costs, changes in supplier settlements and higher costs from new capacity weighed on profitability, yet analysts largely agreed that the company's growth story remains intact, supported by healthy demand, an expanding SUV portfolio and capacity additions.

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While Citi and BofA both attributed a large part of the margin pressure to accounting and raw material cost timing, Nuvama said improving passenger vehicle penetration, new launches and a recovery in hatchbacks should support growth over the next few years.

Brokerages Decode

BofA

• Maintained Neutral and raised the target price to Rs 14,700 from Rs 14,000.
• Said the margin miss was driven by commodity inflation, new plant costs and bonus payouts rather than weak demand.
• Noted that the accelerated shift to monthly supplier settlements brought the entire raw material cost impact into the June quarter, leaving no lag into Q2.
• Said it struggles to see a path back to 8%+ EBIT margins given the limited pricing action so far.
• Highlighted a healthy demand outlook, backed by an order backlog of 130,000 units and lean dealer inventory of 13 days.
• Sees upside risk to the company's 10% volume growth guidance, aided by capacity expansion and a strong SUV pipeline.

Citi

• Maintained Buy and cut the target price to Rs 16,500 from Rs 18,500.
• Said the margin pressure was partly a timing issue rather than a structural concern.
• Believes the move to monthly supplier settlements should allow margins to recover faster than peers as commodity costs ease.
• Noted that the company has reiterated its 10% FY27 volume growth guidance despite the weak quarter.
• Said Maruti continues to strengthen its multi-powertrain strategy, with seven new models planned by FY30.

Nuvama

• Maintained Buy and raised the target price to Rs 16,300 from Rs 15,800.
• Expects healthy revenue growth over FY26-FY28.
• Cited improving passenger vehicle penetration, upcoming launches and a recovery in hatchback demand as key growth drivers.
• Expects launches including the Fronx facelift, Baleno facelift, a new micro SUV and an electric MPV over FY27-FY28.

Maruti Suzuki Q1 Results

Maruti Suzuki reported a mixed June quarter, with revenue rising 35.9% year-on-year (YoY) to Rs 52,456 crore, marginally ahead of estimates. Net profit, however, declined 10.8% to Rs 3,352 crore, while EBITDA fell 14.5% to Rs 4,312 crore, leading to an EBITDA margin of 8.2%, well below estimates.

Management attributed the margin pressure largely to a 300-basis-point impact from higher commodity costs. Of this, around 110 basis points stemmed from the transition to monthly supplier settlements, a change that management expects will begin benefiting margins from the September and December quarters.

The company also faced higher employee costs due to new plant commencements, while raw material expenses climbed 46% year-on-year amid commodity price volatility.

Despite the pressure on profitability, demand trends remained encouraging. Exports grew 29% during the quarter, inventory remained lean at 16 days, and management reiterated its 10% volume growth guidance for FY27, reinforcing confidence in its medium-term growth outlook.

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