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Strong ASPs lead to performance beat; festive traction and improved affordability lead to strong retails

Maruti Suzuki reported strong Q2FY26 results, outperforming our estimates by 7.9%/11.0%/0.7 % at the Revenue/EBITDA/PAT levels, respectively. Standalone revenue grew 13.2% YoY / 9.6% QoQ to Rs 4,21,008 mn, driven largely by a 10.9% YoY / 5.0% QoQ increase in ASPs, which came in 7.6% higher than our estimates. Wholesale volumes rose 1.7% YoY, supported by robust export growth of 42.2% YoY, offsetting a 5% decline in domestic sales. EBITDA margin contracted by 134 bps YoY to 10.5%, as cost-saving measures and higher operating income partially offset pressures from adverse commodity and forex movements, higher marketing spends, and Kharkhoda plant costs. Absolute EBITDA rose 0.4% YoY to Rs 44,341 mn, outperforming our expectation, driven by higher ASPs and revenue outperformance. Reported PBT was 2.5% lower than our estimates due to lower other income. Net profit rose 7.3% YoY but declined 11.3% QoQ to Rs 32,931 mn; however, PAT is not comparable YoY due to one-off tax provision in the base quarter.

Wholesales yet to reflect the retail exuberance; inventory depleted post festive

Q2FY26 was a mixed quarter, in terms of both retails and wholesales for the industry, and in turn for MSIL. The GST rate change resulted in an interim pause/slowdown in the 2nd half of August and the first 20 days of September, while post 22nd September, the market exuberance returned owing to the festive positivity, lower ownership costs and added discounts by MSIL. Wholesale growth spilled into October, with domestic growth at 9.4% YoY for the month, vs. - 1.5/-7.5/-6.1%, respectively for FY26/27/28E, respectively. With pending deliveries post the festive period, strong wholesales should continue in November.

Richer product mix reflects in strong ASP

Blended ASP expanded by 10.9% YoY/ 5.0% QoQ. Domestic (10.6% YoY/ 3.4% QoQ) and export (11.0% YoY/ 12.1% QoQ) ASPs both saw an uptick. Additionally, exports ASPs were ~4% better than domestic in the quarter, with the share of export volumes at 20.1% vs. 18.4% in Q1FY26 and 14.4% in Q2FY25. Better share of CNG volumes also contributed to better ASPs.

Management expects healthy volume growth post festive as well, supported by the small car segment in the 18% GST bracket

While it is still premature to ascertain the sustainability of the demand uptick, management believes the small car segment should grow in the range of 10%, and the whole industry at ~6% in the medium term, starting H2FY26E.

Valuation and view

MSIL has seen good traction in its compact car sales in Q2FY26 and October, reflecting an uptick in this segment, which was declining for a while now. With strong export traction, recent model launches and low inventory levels post festive season, the near-term growth outlook remains healthy. Overall, we expect an improvement in growth for MSIL, aided by policy impetus like GST and income tax rate rationalisation declining inflation and reducing interest rates. A robust new launch pipeline over next 5 6 years, entry in BEV segment with maiden offering, a strong export franchise and capacity enhancement will support growth.

We reduce our FY26E EPS estimate by 3.2%, mainly due to higher depreciation, but broadly retain our FY27/28E EPS estimates. We expect Revenue/EBITDA/PAT CAGR of 12.2/12.3/12.7%, respectively over FY25-28E. We believe the positives are priced in to a large extent. We retain our valuation at 27x Sep-27E EPS of Rs 599, and a price target of Rs 16,180. With no potential upside to the CMP of Rs 16,155, we retain our HOLD rating on the shares of MSIL. Key risks could be slower than anticipated recovery in the PV segment, sustainability of growth in the entry car segment not panning out, and competition intensity limiting any market share gains.

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