Maruti Suzuki Q3 hit by costs as volume push keeps margin pressure alive

Maruti Suzuki Q3 results review: Maruti Suzuki’s December quarter (Q3FY26) performance has reaffirmed a familiar Street narrative i.e. demand remains resilient, but profitability is under pressure. While the country’s largest carmaker delivered strong revenue growth and maintained a healthy order book, rising input costs, a softer pricing mix and one-off expenses weighed on margins, leading brokerages to stay cautious on the near-term outlook.

 

The Q3 numbers undershot expectations on profitability even as volumes stayed robust, highlighting the trade-off Maruti is making by prioritising scale and market reach over margins at a time of elevated cost pressures.

 

Costs bite despite strong demand backdrop

 

Maruti Suzuki reported consolidated revenue of about ₹49,900 crore in 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 (ASPs) declined sequentially and cost pressures intensified.

 

 

Nomura noted that adjusted Ebit margin came in at 8.9 per cent, well below its estimate of 9.9 per cent, with ASPs falling 2.3 per cent quarter-on-quarter (Q-o-Q) to around ₹7.12 lakh. Raw material costs rose as a proportion of sales, while reported Ebitda was also impacted by a one-time ₹590 crore provision linked to the implementation of 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 stood at about 175,000 units at the end of December, while channel inventory was at an all-time low of three to four days. First-time buyers formed a higher share of the sales mix, underlining Maruti’s continued dominance in entry-level and lower-priced segments.

 

Volume-led strategy weighs on margins

 

Brokerages see Maruti’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 FY27 (H1FY27), alongside a ₹10,000 crore capex plan for FY26.

 

However, this approach is proving costly in the near term. Management attributed the sequential margin decline to a combination of higher discounts and adverse product mix, lower production efficiency, commodity inflation, price cuts on entry cars following GST reductions, rare earth shortages and unfavourable currency movements. While operating leverage provided some support, it was insufficient to fully offset these headwinds.

 

Nomura flagged that Maruti’s higher exposure to mass-market segments could continue to pressure margins, particularly as SUVs gain share across the passenger vehicle industry. Reflecting this, the brokerage cut its FY26-28 Ebit margin estimates and lowered its target price to ₹16,118 from ₹16,956, while maintaining a ‘Neutral’ rating amid limited upside at current valuations.

 

Divided brokerage views on the road ahead

 

Other brokerages struck a more constructive tone on the medium-term outlook. Emkay Global acknowledged the softer Q3 performance and near-term margin pressure from commodities but remained positive on Maruti Suzuki’s longer-term prospects. It highlighted sustained traction in exports, with the company confident of achieving its FY26 guidance of 400,000 units, implying 20 per cent Y-o-Y growth.

 

Emkay also pointed to Maruti’s aggressive product pipeline, which includes eight new SUV launches by FY31, 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 pressures, the brokerage retained its ‘Buy’ rating, albeit with a reduced target price of ₹17,000.

 

Motilal Oswal had a similar view, arguing that benefits from the GST rate cut, a healthy new-launch pipeline and strong export momentum could help Maruti regain market share over time. Although it lowered near-term earnings estimates following the Q3 miss, Motilal reiterated its ‘Buy’ rating with a higher target price of ₹18,197, valuing the stock at 27x December 2027 earnings.

 

Valuation comfort, near-term caution

 

On valuation, brokerages broadly agree that Maruti Suzuki is trading close to fair value (FV). Nomura noted that the stock is currently valued at around 22.5 times FY28 earnings, within its historical trading band, which limits 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, while downside risks stem from renewed discounting, potential market share losses and policy-related uncertainties such as import duty risks.

 

For now, Maruti Suzuki’s strong demand visibility and expansion plans provide comfort on volumes, but an unforgiving cost environment continues to cloud profitability, keeping the Street watchful rather than outright bullish.   

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