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Q1FY26 Results Beat Estimates; Market Share Loss a Concern

Est. Vs. Actual for Q1FY26: Revenue – BEAT; EBITDA – BEAT ; PAT – BEAT

Change in Estimates post Q1FY26

FY26E/FY27E: Revenue -6.2%/-7.2%; EBITDA -0.4%/-13.1%; PAT -7.3%/-5.0%.

Recommendation Rationale

• Domestic Market Outlook: The Indian PV industry witnessed a marginal decline of 1.6% YoY in Q1FY26, compared to a 6.1% decline for Maruti. The slowdown was attributed to a high base effect and affordability pressures, particularly impacting entry-segment cars, with SUVs/MPVs accounting for over 66% of the industry sales mix in Q1FY26 vs less than 35% in FY19. On account of fierce competition, Maruti has lost overall wholesale market share to 39% from its peak of 51% in FY19. Retail saw 3.4% YoY growth for Maruti, whereas the industry degrew 1.5% YoY.

• Exports Outlook: Exports emerged as a key cushion to the subdued domestic growth in Q1FY26 for Maruti, achieving 37% YoY growth at 97k vehicles. Export revenue stood at ~Rs 6,500 Cr, and the company is projecting strong export volume growth ahead in FY26. A significant contribution to this will come from the eVITARA, an electric SUV, where the company plans to initiate sales by Sep’25. The earlier target set for 70,000 units in FY26 may be adversely impacted due to the unavailability of rare earth minerals. Japan has emerged as the second-largest export destination on the back of successful products like Jimny and Fronx.

• EBITDA: Maruti EBITDA margins contracted by 227 bps YoY in Q1FY26 to 10.4%. Key factors included a 60 bps negative impact from operating leverage, 50 bps from seasonal employee expenses, overheads from the newly commissioned Kharkhoda plant (30 bps impact), and adverse commodity prices mainly led by steel (40 bps), partly offset by a favorable product mix (30 bps), lower advertisement expenses (60 bps), and a 50 bps gain from hedging/forex gains.

Sector Outlook: Neutral.

Company Outlook & Guidance: In the near term, the company expects low single-digit domestic volume growth in FY26E and double-digit export volume growth.

Current Valuation: 20x PE on FY28EPS (earlier 22x P/E on FY27 EPS)

Current TP: Rs 12,635 (earlier 11,710/share)

Recommendation: We maintain our HOLD rating on the stock.

Financial Performance

Revenue, EBITDA, and PAT beat estimates by 5%, 6%, and 22% respectively, in Q1FY26. Revenue was up 8% YoY (but down 6% QoQ), led by 1% volume growth and a 7% improvement in realisation driven by a better product mix (higher share of SUVs and exports). EBITDA was down 11% YoY and 6% QoQ. PAT came in flat on account of higher other income due to efficient treasury options and MTM gains from interest rate reductions.

Outlook

At the CMP, valuations appear full, and significant challenges persist for the PV industry, particularly for Maruti, in sustaining its domestic market share, thereby limiting its upside potential. We have reduced volume growth estimates for Maruti’s overall PV volume growth (largely aided by exports pick-up) to ~5% CAGR for FY25–FY28E.

Valuation & Recommendation We value the stock at 20x PE on FY28EPS (earlier 22x P/E on FY27 EPS) to arrive at our TP of Rs 12,635/share. The TP factors include declining sales in small cars, stagnated domestic SUV volumes lower margin assumption due to EV volumes risk, Kharkhoda plant start-up cost and a muted PV industry environment on a high base being partly supported by new product launches and export volume growth. We maintain a HOLD rating with a 0% upside potential from the CMP and recommend a Buy on Dips strategy for the stock.

Key Concall Highlights

• New Product Launches: Maruti Suzuki will launch two new models: the eVITARA - an electric SUV and another ICE SUV aimed at further strengthening its presence in the high-growth UV segment.

• EV Outlook: The management cautioned that EV profitability will be significantly lower than that of internal combustion engine (ICE) vehicles across the industry. The sector’s reliance on policy support, like the 5% GST and various incentive schemes, underscores the margin challenges inherent to EVs. Despite this, the company emphasised a broader decarbonisation strategy, leveraging multiple technologies to achieve emission reduction goals, rather than relying solely on EVs. Export volumes are expected to soften the margin impact slightly by providing better economies of scale.

• Inventory Days: The company ended Q1FY26 with 33 days of dealership inventory.

• Capital expenditure is ~Rs 10,000 Cr, and for FY26, on R&D: range, reflecting sustained investment in capacity expansion and technology development.

• Forex gains provided an additional 50 bps benefit, although these were booked under non-operating income and not captured in the EBITDA margin

Key Risks to Our Estimates and TP

• Upside risk to our estimates may arise on account of a reduction in GST from 28% to 5%/12% on Hybrid Vehicles,

• Earlier-than-expected recovery in the small car segment will be a positive trigger for the company.

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