Stock prices don’t always move the way the business does, and this is a good example. The share has slipped closer to its 52-week low, but the numbers on the ground actually look decent in some ways. A fresh brokerage note has also come out, digging into what’s driving the demand, where the pressure is coming from, and what could change in the next few quarters. Let’s get into it.
Maruti Suzuki India Limited closed at around Rs 12,013, down marginally by Rs 191.65, or 1.57%, from its previous close. It’s sitting just above its 52-week low of Rs 11,975, quite a distance away from its 52-week high of Rs 17,372. The company’s market capitalisation stands at roughly Rs 3,77,702 crore, and the stock currently trades at a consolidated PE of around 27 times.
A Quarter of Two Halves
Maruti Suzuki India Limited’s revenue grew a strong 36% year-on-year to about Rs 52,450 crore in the June quarter, helped by 29% growth in sales volumes and a 5% rise in average price per vehicle. But profit didn’t keep pace. Net profit fell 11% year-on-year to around Rs 3,350 crore, and operating margin (EBITDA margin, which shows how much a company earns before interest, tax and depreciation) dropped sharply to 8.2%, down from about 12% a year ago. Brokerage firm Motilal Oswal had expected margins closer to 9.7% for the quarter, so the actual number came in well below that estimate.
On the demand side though, things looked healthy. The company said its small car segment grew 34% year-on-year, while SUVs grew 28%. Market share improved by 230 basis points to 41.2%. Inventory with dealers stood at just 13 days, well below the usual comfortable level of around four weeks, which points to genuine retail demand rather than just stock piling up.
Where the Margin Pressure Came From
According to the Maruti Suzuki, the squeeze in margins came from a mix of factors, higher commodity costs, rising gas prices, fixed cost pressure due to lower inventory, unfavourable currency movement, and higher employee costs. This was only partly cushioned by lower other expenses and better operating income. The company also mentioned it temporarily shifted to monthly commodity settlement with vendors instead of quarterly, to support them during the cost spike, though this added to near-term cost pressure and is expected to normalise in the coming quarters.
New Launches and Capacity Additions
On the product side, the company recently launched a new version of its Brezza SUV with a smaller 1.0-litre engine, which qualifies for a lower GST slab and has reportedly been getting strong bookings. It also has a pipeline of seven new SUVs planned by 2030. On capacity, two new plants, one in Kharkhoda and one in Hansalpur, have started operations this year, taking total installed capacity to 2.9 million units annually. Management said it typically takes four to six months for a new plant to reach full capacity.
Exports Stayed Resilient
Exports grew nearly 29% year-on-year during the quarter, even as the broader industry’s exports actually fell, hit by tensions in West Asia. Export revenue came in at around Rs 11,500 crore, with exports now making up over half of total sales for the company.
What Could Help the Stock Bounce Back
Motilal Oswal has kept its Buy rating on the stock, with a target price of Rs 17,064, implying meaningful upside of 42% current levels. The brokerage expects margins to improve going forward as commodity costs cool off and as two recent price hikes, taken in June and August, start showing up in numbers from the next quarter onward. It also expects earnings to grow at around 20% annually over the next two years, helped by new launches, low inventory, and the new plants scaling up.
That said, the brokerage did trim its near-term profit estimates for the current financial year, cutting its margin and earnings expectations slightly, largely due to the weak first quarter. It hasn’t changed its estimates much for the following year though.
Challenges to Watch
The order book, or pending customer bookings, has come down to about 1,30,000 units from 1,90,000 units in the previous quarter, something worth tracking. Commodity price swings and currency movement also remain outside the company’s control and could keep pressuring margins if conditions don’t ease as expected.
Bottom Line
The stock trading near its 52-week low doesn’t necessarily match what’s happening in the business. Demand looks strong, market share is improving, and exports are holding up well despite global headwinds. Margins did take a hit this quarter, but that seems to be driven mostly by temporary factors that could ease going forward. Whether the stock catches up with the fundamentals will likely depend on how quickly margins recover in the coming quarters.