While near term margins could remain under pressure for the country’s largest passenger vehicle maker, brokerages have a positive medium term outlook on the back of volume-led uptick in the domestic market, capacity expansion and export growth.
The maker of Swift Dzire posted a revenue growth of 28 per cent, better than consensus estimates, which was a function of an 11.8 per cent rise in volume and 14.6 per cent increase in realisations. It was higher than the annual (FY26) revenue growth performance of 20 per cent year-on-year (Y-o-Y), with volumes/realisations contributing 8-11 per cent.
Operating profit rose 44 per cent Y-o-Y, even as margin remained flat. Though commodity inflation was sharp, what offset the same were lower sales promotion expenses, favourable fixed-cost absorption due to inventory accretion, and favourable forex movements. Shridhar Kallani of Antique Stock Broking pointed out that the company's relentless cost-control efforts, coupled with operating leverage, volume growth, and better ASPs, resulted in broadly stable operating profit margins.
Going ahead, higher commodity prices, start-up costs, and higher manufacturing and administrative expenses will weigh on margins, according to Maruti Suzuki. Some brokerages such as Elara Capital believe that the macro environment remains challenging with elevated commodity costs. Analysts led by Jay Kale of the brokerage have reduced their FY27/28 estimates by 15 per cent and 8 per cent, respectively, on lower margins, factoring in a steep movement in raw material prices. The brokerage has revised its target price on the stock to ₹16,546 from ₹18,686 per share, though it has maintained its 'buy' rating.
While short-term headwinds persist, other brokerages believe downside risks to estimated margins appear limited, with gradual recovery visibility supported by potential easing in West Asia tensions and the resultant moderation in commodity cost pressures. Antique Stock Broking has a 'buy' rating and believes that the company remains well-positioned with domestic demand visibility (supported by discounts), lean channel inventory (as indicated by channel checks), sustained export momentum, a strong balance sheet and ongoing capacity expansion plans. It has a target price of ₹14,585 on the stock.
The cut in the goods and sales tax has helped improve the demand for small cars, as the segment has become more affordable. The company expects to post a volume growth of 10 per cent in the domestic market in FY27. This will be driven by strong domestic demand, particularly in the entry level segment, low network inventory of 12 days, lower discounts and a healthy order book of 190,000 vehicles.
The healthy growth should drive market share gains for the car major, which in turn would drive a re-rating for the stock, say analysts led by Aniket Mhatre of Motilal Oswal Research. The brokerage expects healthy demand to offset near term cost headwinds. It has reiterated a 'buy' rating with a target price of ₹15,529 and expects the company to deliver an earnings growth of 16 per cent over FY26-28.
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