Prediction: Maruti Stock Will Beat the Market. Here's Why

Maruti Suzuki, a stock that's trailed the broader market over the past year, may finally be ready to overtake its competition.

After encountering margin hiccups, sluggish hatchback demand and a delayed EV rollout, the country's largest carmaker is entering a phase of multiple tailwinds.

The Q4FY25 results unveiled why Maruti could be gearing up for outperformance. Net sales grew 5.9% year-on-year (YoY) to Rs 388 billion (bn), driven by a 3.5% rise in volumes to 604,635 units.

While it was not a blowout, it marks a clear stabilisation, with exports rising and SUV momentum staying strong.

Operating profit fell 14.2% YoY due to higher costs from new plant expenses, advertising around the e-Vitara launch, and manufacturing overheads. But this margin pressure looks temporary.

Importantly, PAT came in at Rs 37.1 bn, down just 4.3% YoY, suggesting that higher non-operating income helped offset the margin squeeze.

But before we delve into the triggers, let's break down the business.

Maruti's Business

The business is structured across key segments:

(1) Passenger Vehicles (PV) - Its core segment, contributing nearly 85% of total volumes, which includes hatchbacks, sedans and SUVs.

i) CNG, which is a rising sub-segment within PVs, contributing about 33% of domestic sales.

(2) Light Commercial Vehicles (LCV), which accounts for about 2% of volumes.

(3) Exports, which now make up around 12-13% of total volume.

Maruti Suzuki Sales Volume - Q4FY25 and FY25

SUV and CNG: Strengthening the Core

Going forward, Maruti's strategy hinges on three growth vectors within the PV segment: scaling up its SUV portfolio, deepening its CNG dominance and executing a high-stakes EV foray.

SUVs accounted for 27.8% of Maruti's PV volumes in Q4FY25, up from 25.5% a year ago. Models like the Brezza, Fronx, and Grand Vitara are cementing Maruti's transition. Notably, the average selling price rose 2.8% YoY due to a richer product mix.

The Dzire and Grand Vitara have been standout performers, with the Dzire crossing the 3-m unit production milestone and the Vitara fast gaining traction in the premium SUV segment.

This shift up the value chain is gradually redefining Maruti's image from a budget-car maker to a well-rounded auto giant.

EV Ambitions: The EV story is the most exciting pivot. The e-Vitara, Maruti's first electric SUV, boasts a 500-km range and cutting-edge features.

Production is slated to begin in H1FY26, with a sales target of 70,000 units in the first year, a large portion of which will be export-led.

Maruti is supporting EV adoption by rolling out 1,500 EV-ready service workshops rolled out across 1,000 cities and a fast-charging network deployed in India's top 100 cities. This is a key step to address range anxiety and build trust in the brand.

However, when it comes the economics of EVs, the management has been very clear: EVs will remain structurally less profitable than ICE vehicles, with margins currently 3-5% lower.

While the company is working to localize key components and benefit from global economies of scale, it admits that EV profitability parity with ICE is unlikely in the near term.

The focus instead is on building credibility, market share and scale is setting the foundation for improved margins over the next 3-5 years.

Fresh capacity: The Kharkhoda plant, which began operations in Q4, has added 10% capacity. The plant is designed to produce a mix of internal combustion engine (ICE) vehicles, SUVs and crucially, the new e-Vitara electric SUV for both domestic and export markets.

CNG Resilience: One in every three cars sold domestically was CNG-powered in Q3FY25, a testament to Maruti's deep moat in this segment. With fuel price dynamics favouring CNG and Maruti holding the lion's share of this market, this provides a cushion to both, the topline and margin.

Export Leadership: It commands a near-50% share in India's passenger vehicle exports, with Q3FY25 exports hitting a record 99,220 units-a 38% jump over the previous year.

Its strategy to make India the hub for global EV exports further enhances its long-term growth narrative. For FY26, Maruti expects export volumes to grow 20% YoY, supported by the ramp-up of EV exports.

Financial Track Record

Maruti's financial track record confirms the strength of the franchise.

In FY25, net sales rise 7.5% to Rs 1.45 trillion, whereas operating EBIT shot up 9.3% to Rs 146 billion (bn). PAT rose 5.6% despite the cost overhangs.

Maruti's balance sheet remains healthy. The five-year track record has been solid despite sectoral ups and downs.

Maruti Suzuki Financial Snapshot (2021-25)

	2020-2021	2021-2022	2022-2023	2023-2024	2024-2025
Revenue Growth (%)	-7.20%	22.87%	32.90%	19.50%	7.80%
Operating Profit Margin (%)	11.22%	8.14%	10.81%	15.40%	13.10%
Net Profit Margin (%)	5.94%	4.24%	6.75%	9.20%	9.40%
Return on Capital Employed(%)	10.58%	8.87%	17.70%	21.80%	22.00%
Return on Equity (%)	8.61%	7.20%	14.02%	16.80%	16.00%

Source: Equitymaster

Between FY20 and FY25, the company clocked a revenue CAGR of around 14.1% and a net profit CAGR of about 20.6%. The returns have been strong with the RoE and RoCE averaging at 12.3% and 15.9% over the same period.

Future Plans

Looking ahead, Maruti has guided for a Rs 80-90 bn capex for FY26, after Rs 8.4 bn in FY25. This reflects continued investment in production capacity and EV readiness.

Apart from the Kharkhoda plant, the company is also monitoring eligibility for the PLI scheme post-Start of Production, while maintaining strong localization. This includes the 85-90% of steel sourced locally in tandem with work to reduce rare-earth dependency in EVs.

On the product front, two launches are planned in FY26: the e-Vitara and another new SUV model, reinforcing Maruti's strategy to broaden its premium offering. Over the long term, it plans to expand its product line-up to 28 models by 2030.

Export volumes are expected to rise by at least 20% in FY26, building on a strong FY25 performance of 3.32 lakh units exported. A major part of this will come from the e-Vitara EV, which targets 70,000 units in FY26, with a significant portion earmarked for international markets.

However, when it comes to small car demand, it remains cautious about continued stagnation but is closely watching potential consumption catalysts such as upcoming pay commissions. And while the domestic passenger vehicle industry is expected to grow just 1-2% in FY26, Maruti aims to outperform through its expanding SUV lineup and aggressive export push.

Facing Global Giants

Alongside its domestic push, Maruti's toughest battlefield is the global stage.

As it rolls out its first electric SUV, the e-Vitara, Maruti is stepping onto the world stage against automotive heavyweights like Toyota, Hyundai, and Chinese EV giants such as BYD.

Global OEMs enjoy scale advantages, integrated supply chains and massive R&D budgets. China's EV ecosystem, in particular, is tough to rival due to cost advantages and state-backed incentives.

Maruti's challenge is to differentiate through smart execution. Backed by cost efficiency, a strong service network, and Suzuki's global support, Maruti aims to quickly build scale and compete on both price and reliability.

Stock Performance and Valuation

In terms of stock performance, Maruti has delivered mixed results over different timeframes.

Over the past five years, the stock has compounded at a modest CAGR, reflecting the cyclical nature of the auto sector and the impact of regulatory shifts and COVID-era disruptions.

Over the past year, the stock has seen sharper volatility, with periods of sharp recovery offset by phases of underperformance. A large part of this comes on the back of EV transition anxieties and rising competition.

The stock is down 3% in one year.

Despite this, Maruti has broadly kept pace with key auto indices.

Presently, the stock is trading at Price to Earnings ratio of 26.9, a 27% discount to its long-term median PE.

Maruti could be well-placed for a rerating, given that the projected strong volume growth, EPS expansion and export volumes are likely to jump 20% in FY26.

However, risks such as raw material cost inflation, intense competition and muted hatchback growth persist. Yet, Maruti's strong fundamentals and diversified strategy provide a cushion.

Conclusion

The auto major has been the undisputed champion of India's middle class. It is a company that brought affordable cars to millions and became a household name.

But the market has shifted. The small car demand is slowing and Maruti knows it can't rely on its old playbook anymore.

SUVs now dominate its roadmap, EVs are finally taking center stage with the e-Vitara and exports are set to play a much bigger role in driving growth.

If FY25 was a year of stabilisation with mid-single-digit volume and revenue growth, FY26 and beyond are shaping up for stronger momentum.

Operating leverage from new capacity and a richer product mix should help maintain resilient margins even as initial EV investments weigh slightly.

Moreover, with exports and premium models to contribute a larger share of business, Maruti's earnings trajectory looks poised to outpace the modest gains seen in FY25.

But all of this is not without its risks.

While the company's focus on premiumisation, localisation and scaling its EV game is the right strategy, execution will be critical.

The e-Vitara is a big step forward, but the real question is whether Maruti can turn its EV ambitions into sustainable profitability.

For now, the company is moving in the right direction. But investors should watch closely. The next 12-18 months will be key to proving whether Maruti's pivot can truly deliver.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...