Prediction: Maruti stock will beat the market. Here's why.

After encountering margin hiccups, sluggish hatchback demand and a delayed electric vehicle (EV) rollout, the country’s largest carmaker is set to benefit from several tailwinds.

The Q4FY25 results revealed why Maruti could be gearing up for outperformance. Net sales grew 5.9% year-on-year to ₹38,800 crore, driven by a 3.5% rise in volume to 604,635 units. While not a blowout, the results marked a clear stabilisation, with exports rising and SUV momentum remaining strong.

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Operating profit fell 14.2% year-on-year owing to higher costs from new plant expenses, advertising around the e-Vitara launch, and manufacturing overheads. But this margin pressure appears to be temporary.

Importantly, profit after tax (PAT) came in at ₹3,710 crore, down just 4.3% year-on-year, 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 operates across key segments:

1. Passenger vehicles (PV): Maruti’s core segment, which includes hatchbacks, sedans and SUVs, contributes nearly 85% of total volumes. CNG, a growing sub-segment within PVs, contributes about 33% of domestic sales.

2. Light commercial vehicles (LCV): These account for about 2% of volumes.

3. Exports: These now make up around 12-13% of total volume.

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 plan.

SUVs accounted for 27.8% of Maruti’s PV volumes in Q4FY25, up from 25.5% a year ago, with models such as Brezza, Fronx, and Grand Vitara cementing Maruti’s transition. Notably, the average selling price rose 2.8% year-on-year owing to a richer product mix.

Dzire and Grand Vitara have been standout performers, with Dzire crossing the three-million-unit production milestone and the Grand Vitara quickly gaining traction in the premium SUV segment.

This move up the value chain is gradually redefining Maruti’s image from that of a budget carmaker to a well-rounded auto giant.

EV ambition: Electric vehicles are the company’s 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 exports.

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

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

While the company is working to localise key components and benefit from global economies of scale, it admits EV profitability is unlikely to match that of ICE vehicles in the near term. The company is instead focusing on building credibility, market share and scale, building the foundation for improved margins over the next three to five years.

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Fresh capacity: The Kharkhoda plant, which began operations in Q4, has increased Maruti’s capacity by 10%. The plant is designed to produce a mix of 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 in Q3FY25 was CNG-powered, a testament to Maruti’s wide moat in this segment. Fuel-price dynamics favour CNG and Maruti holds the lion’s share of the market. This provides a cushion to both the topline and margin.

Export leadership: The company commands a near-50% share of 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 a hub for global EV exports further enhances its long-term growth narrative. For FY26, Maruti expects export volumes to grow 20% year-on-year, supported by a ramp-up of EV exports.

Financial track record

Maruti’s financial track record confirms the strength of the franchise. In FY25, net sales rose 7.5% to ₹1.45 trillion, while operating earnings before interest and taxes (EBIT) shot up 9.3% to ₹14,600 crore. PAT rose 5.6% despite cost overhangs. Maruti’s balance sheet also remains healthy despite sectoral ups and downs.

The company clocked a revenue CAGR around 14.1% between FY20 and FY25, and a net profit CAGR around 20.6%. Returns have also been strong, with the return on equity and return on capital employed averaging 12.3% and 15.9%, respectively, over the same period.

Future plans

Maruti has guided for ₹8,000-9,000 crore of capex for FY26, after ₹840 crore in FY25. This reflects continued investment in production capacity and EV readiness.

Apart from the Kharkhoda plant, the company is also monitoring its eligibility for the government’s production-linked incentive (PLI) scheme once production starts, while maintaining strong localisation. This includes 85-90% of steel sourced locally and work on reducing its rare-earth dependency in EVs.

Two launches are planned in FY26: the e-Vitara and a new SUV, reinforcing Maruti’s strategy to broaden its premium offering. It plans to expand its product line-up to 28 models by 2030.

Export volumes are expected to rise at least 20% in FY26, building on strong performance in FY25, when 332,000 units were exported. A big 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, the company remains cautious on small car-demand, which continues to stagnate. It is closely watching potential consumption catalysts such as upcoming pay commissions. While the domestic passenger vehicle industry is expected to grow just 1-2% in FY26, Maruti aims to outperform through its growing SUV lineup and aggressive exports push.

Taking on global giants

Maruti’s toughest battlefield is the global market. By rolling out its first electric SUV, the e-Vitara, the company is taking on global automotive heavyweights such as Toyota and Hyundai, and Chinese EV giants such as BYD.

Global OEMs have advantages such as scale, integrated supply chains and massive R&D budgets. China’s EV ecosystem, in particular, is tough to rival owing to cost advantages and state-backed incentives.

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

Stock performance and valuation

Maruti stock has delivered mixed results over various timeframes. Over the past five years, it 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 increased volatility, with sharp recoveries offset by phases of underperformance. A large part of this is due to EV transition anxieties and growing competition. The stock is down 3% over the past year.

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Despite this, Maruti has broadly kept pace with key auto indices. The stock currently trades atprice-to-earnings ratio of 26.9, a 27% discount to its long-term median PE.

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

Risks such as raw-material cost inflation, intense competition and muted hatchback growth persist, but Maruti’s strong fundamentals and diversified strategy provide a cushion.

Conclusion

The auto major has been the undisputed champion of India’s middle class and a household name, having brought affordable cars to millions.

But the market has shifted. 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 centerstage 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 keep margins resilient even as initial EV investments weigh slightly.

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

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But all of this is not without its risks. While thecompany’s focus on premiumisation, localisation and scaling its EV game is the right strategy, execution is critical.

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

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

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com