Buy Maruti Suzuki Ltd for Target Rs.16,546 by Elara Capital
Strong demand outlook despite tough macro
Maruti Suzuki’s (MSIL IN) Q4FY26 revenue rose 28% YoY, in line with our expectations. This was led by improved ASP (up ~3.8% QoQ and 14.6% YoY), on higher spares and others, a favorable model mix and higher share of exports. Adjusted EBIT margin deteriorated by 40bps QoQ to 8.4%, but improved 10bps YoY. The QoQ margin contraction (adjusted for one time labor law related expense in Q3) was led by: a) adverse commodity price (~80bps impact), b) higher launch-related expense (~60bps) and c) higher lumpy other expense (~20bps). This was partially offset by: a) lower discounts (~50bps impact), b) favorable forex impact (30bps) and c) favorable fixed cost related to inventory accretion (~50bps). Importantly, MSIL continues to expect buoyant demand, with its volumes expected to grow by ~10% in FY27E and very limited impact of war on demand. However, macro with elevated commodity cost remain challenging. We lower FY27E-28E estimates by 15/8% as we lower margins, factoring in a steep movement in raw material prices. Hence, we revise MSIL’s TP to INR 16,546 (from INR 18,686), on 26x June ’28 EPS, as we roll forward by a quarter. The stock has corrected 15% since 26th Feb 2026 (start of the war), fully reflecting the earnings cuts and hence recommend BUY.
Optimistic on FY27 demand, fueled by GST cuts: MSIL’s H2FY26 domestic growth was at 12% YoY versus a drop of ~5% in H1FY26 , with the share of first-time buyers improving to 51% in Q4 versus ~42% in H1FY26 and ~48% in Q3FY26. At the end of Q4FY26, inventory is lean at ~12 days, which augurs well for wholesale growth in FY27, supported by robust unfulfilled order book of ~190k units, of which ~130k is from small cars. Management expects demand to be healthy, with FY27 growth likely at 10%, versus our expectation of ~9% (retail 6-7%), while the outlook for exports is uncertain given current geopolitical uncertainty. Separately, while management acknowledged the challenging cost environment due to a steep rise in commodity prices, it expects this to reverse as the war gets over.
Demand-led capacity addition: MSIL’s second facility at Kharkhoda was operationalized in April 2026, while a fourth line at the existing Gujarat facility will also be commissioned in FY27. This will add another ~0.5mn production. Separately, MSIL has also announced a plan to set up a greenfield manufacturing facility in Gujarat and is on track to increase capacity to 4mn units by FY31. For FY27, management expects capex of INR 140bn. Its new launch pipeline (seven SUVs by FY30-31) is also on track.
Maintain BUY with a revised TP at INR 16,546: We are positively surprised by the durability of demand momentum in March+ April YoY for the PV industry (Vahan retail growth of 19%). While Q1FY27 margins will be marred by increase in commodity price, given resilient demand, we expect price increases to cushion margins from Q2FY27. The EBIT/vehicle in Q4 stood at INR 65,206 and we expect FY27/FY28 to be INR 60,874/73,416. We factor in FY27 domestic retail volume growth of 6-7% (wholesale growth of ~9% vs management expectation of 10%). We will monitor new model launches in the next 12 months (especially micro SUV), for market share gain triggers. We lower our FY27E EPS by 15% to factor in delayed price increases while in FY28E, the cut is lower at 8%. So, we lower our TP to INR 16,546 (from INR 18,686) on 26x (previous 28x) June ’28E EPS, as we roll forward by a quarter. We introduce FY29E financials. Reiterate BUY.
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