Maruti Suzuki India (MSIL) reaffirmed a familiar Street narrative in its 2025-26 (FY26) third-quarter (October–December/Q3) results: demand remains resilient, but margins are under pressure. While the country’s largest carmaker posted strong revenue growth and maintained a healthy order book, rising input costs, a softer pricing mix, and one-off expenses weighed on profitability, prompting brokerages to stay cautious on the near-term outlook.
The Q3 numbers fell short of expectations on profitability even as volumes held up, highlighting MSIL’s trade-off of prioritising scale and market reach over margins amid elevated cost pressures. The stock slipped 2.5 per cent on Thursday.
MSIL reported consolidated revenue of around ₹49,900 crore for the December quarter, up nearly 29 per cent year-on-year (Y-o-Y), driven by healthy volume growth and steady demand. However, margins lagged Street estimates as average selling prices (ASP) declined sequentially and cost pressures intensified.
Nomura Research said that adjusted operating profit margin came in at 8.9 per cent, below its estimate of 9.9 per cent, with ASP falling 2.3 per cent quarter-on-quarter to roughly ₹7.12 lakh. Raw material costs rose as a proportion of sales, while reported operating profit was further impacted by a one-time ₹590 crore provision linked to the new labour code.
Adjusted profit after tax stood at ₹4,260 crore, up 16 per cent Y-o-Y but below expectations. Management maintained that demand remains strong, though supply constraints persist. The pending order book was around 175,000 units at the end of December, while channel inventory hit an all-time low of three to four days. First-time buyers accounted for a higher share of the sales mix, underscoring MSIL’s dominance in entry-level and lower-priced segments.
Brokerages see MSIL’s focus on driving volumes, particularly in the lower segments, as a conscious strategic choice, especially with major capacity expansion underway. The company plans to add 500,000 units of capacity through two new plants in the first half of 2026-27, alongside a ₹10,000 crore capital expenditure plan for FY26.
However, this strategy is proving costly in the near term. Management attributed the sequential margin decline to higher discounts, adverse product mix, lower production efficiency, commodity inflation, price cuts on entry-level cars following goods and services tax (GST) reductions, rare earth shortages, and unfavourable currency movements. While operating leverage provided some support, it was insufficient to fully offset these headwinds.
Nomura Research flagged that Maruti’s heavy exposure to mass-market segments could continue to pressure margins, especially as sport utility vehicles gain share across the passenger vehicle industry. Reflecting this, the brokerage cut its FY26 through 2027-28 (FY28) operating profit margin estimates and lowered its target price to ₹16,118 from ₹16,956, while maintaining a ‘neutral’ rating amid limited upside at current valuations.
Other brokerages offered a more constructive medium-term outlook. Emkay Global Research acknowledged the softer Q3 performance and near-term margin pressures but remained positive on MSIL’s long-term prospects. It highlighted sustained export traction, with the company confident of achieving its FY26 guidance of 400,000 units — a 20 per cent Y-o-Y growth.
Emkay also pointed to MSIL’s aggressive product pipeline, including eight new sport utility vehicle launches by 2030-31, and expectations of a gradual recovery in small car demand aided by GST cuts and improving affordability. While it trimmed FY26–28 earnings estimates due to rising commodity costs, the brokerage retained its ‘buy’ rating, albeit with a reduced target price of ₹17,000.
Motilal Oswal Research shared a similar view, citing benefits from the GST rate cut, a healthy new launch pipeline, and strong export momentum as factors that could help MSIL regain market share over time. Although it lowered near-term earnings estimates following the Q3 miss, it reiterated a ‘buy’ rating with a higher target price of ₹18,197, valuing the stock at 27x December 2027 earnings.
On valuation, brokerages broadly agree that MSIL is trading close to fair value. Nomura noted the stock is currently valued at around 22.5x FY28 earnings, within its historical trading band, limiting immediate upside unless margins improve meaningfully or market share gains materialise.
Upside risks include a sharper-than-expected revival in hatchback demand and easing commodity prices. Downside risks stem from renewed discounting, potential market-share losses, and policy uncertainties such as import duty changes. For now, MSIL’s strong demand visibility and expansion plans provide comfort on volumes, but a challenging cost environment continues to cloud profitability, keeping the Street watchful rather than outright bullish.
 "Maruti Suzuki Q3 hit by costs as volume push keeps margin pressure alive")
