Despite commanding 41.5% of the domestic market and accounting for 43% of the nation’s car exports, Maruti is struggling to maintain its market dominance. Strategic missteps and changing consumer preferences have put its position at risk.
The company was late to capitalize on the electic vehicle (EV) megatrend and the growing premiumization wave driven by utility vehicles. It also exited the fast-growing diesel segment. While Maruti still commands over 70% share in the small car segment, the overall pie has shrunk, with volumes falling by 60% between FY18 and FY24.
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Result? It has ceded ground, with its market-share eroding significantly from 52% in 2019 to just about 41% now.
Over the past five years, Maruti’s stock has grown at a CAGR of 18%, well below the sector’s 32%. The company has seen its domestic budget-car sales undercut by sluggish urban demand, rising commodity prices, and an unexpected ₹2,966 crore IT assessment order, compounding its woes.
But despite these hurdles, Maruti Suzuki is refocusing its strategy on premiumization and sustainable mobility. The question is whether this pivot will enable it to reclaim lost ground.
Let’s explore.
Sluggish urban demand hurts Maruti
In FY25, sluggish urban demand resulted in muted domestic sales of cars. Maruti sold 2.2 million cars during the year, an uptick of just 4.6% over the previous fiscal. Price hikes and improving product mix led to slightly better revenue growth at 7.5%.
FY25 saw buoyant export-growth of 17.5% over FY24. But since exports contribute only about 15% to Maruti’s volumes, overall growth for the year remained mellow.
Budget cars have bludgeoned growth
A bulk of Maruti’s sales come from budget cars. This primarily comprises the mini segment with models such as Alto and S-Presso, and the compact segment which includes cars like Baleno and WagonR. Together, they constituted almost half of Maruti’s sales in FY25.
Stressed real wage-growth among urban masses led to slower upgrades from two-wheelers to small cars, an issue compounded by regulatory pressures and commodity prices which kept the cost of ownership high. The mini segment saw 11% lower sales in FY25, while the compact segment saw 7% de-growth.
Of course, utility vehicles such as Brezza and Ertiga, saw 12% higher sales in FY25 and supported growth. The management insisted that SUV growth is in line with the long-term trend, and it is budget cars which have struggled under persistent stress at the lower end of the consumption pyramid.
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It has sent out a call-to-action to the regulators, drawing their attention towards the need for preferential regulations to support budget cars.
Margins under stress
Muted volume growth has hampered Maruti’s operating leverage, shrinking margins. In addition, sluggish demand has forced the company to increase discounts and advertising spend.
At its greenfield plant in Kharkhoda, rising depreciation and overhead costs have added further strain. Key input costs, including aluminum, zinc, and rubber, also surged in FY25.
Maruti has also ventured into the EV market with the e-Vitara, expected to begin sales in H2 FY26. The company plans to produce 70,000 units of the EV this year, though the segment will likely remain margin-dilutive amid competition until it gains scale, despite government subsidies.
The auto industry has responded to rising costs by passing on some of the pain to consumers through price hikes early this year. Maruti was no exception. Notwithstanding, higher material and employee costs led to shrinking margins over the year. Operating Ebit for the latest quarter saw a 14% decline, while profit slipped by more than 4% to ₹3,711 crore.
A mixed outlook for near to medium term
Society of Indian Automobile Manufacturers (SIAM) has penciled in even slower growth of domestic car sales at 1-2% in FY26. Of course, Maruti is aiming for 20% growth in exports to counterbalance the muted domestic demand.
As for margins, commodity prices have eased recently amid the brewing trade-war between the US and China. While this should have helped take the pressure off margins for auto makers, the trend stands to reverse as the two largest economies move towards a truce. The impact could be negated to an extent through an improving product-mix and price-hikes. Earlier this month, Maruti announced the third round of price-hikes this year, amounting to as much as 4%.
The other side of the coin is that a truce would prevent further hits to global economic growth, which bodes well for the car maker. Moreover, given that Maruti’s export-destinations are concentrated in Latin America, Africa, and Southeast Asia, which do not have in-house automobile manufacturing capacity, the management has indicated low risk from tariffs.
Long-term outlook promising
Maruti Suzuki has big plans for the future.
By FY30, it plans to invest ₹7,000 crore towards aggressive capex and new model launches, including in the new and shiny EV and hybrid spaces. It has manufacturing facilities in Gurugram and Manesar with a combined annual capacity of 1.5 million units. This is expected to be ramped up to 4 million units by FY30. 2 new ICE SUVs are slated for launch this fiscal, and the new e-Vitara electric SUV is also set to hit the markets in the second half.
The management aims to reclaim 50% market-share by targeting sales of 2.5 million units by FY30, indicating 12% CAGR growth during the period. Notably, it plans to launch six new electric cars, and 75% of the sales in FY30 are expected to come from EVs, hybrids, and CNG vehicles.
Maruti’s EVs are built on a high-spec platform designed specifically for electric use, unlike retrofitted ICE models launched by some competitors. This allows for better specifications, which along with the reasonable price proposition, place Maruti’s EVs at a competitive advantage over global EVs. The group is targeting the affordable EV segment in Europe, and Maruti Suzuki is expected to emerge as the global EV export hub.
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While sustainable mobility can dilute margin over the medium-term, government incentives such as domestic tax-relief for small hybrid cars and import-duties on Chinese cars and components, should offer support. The shifting product-mix towards utility vehicles, CNG vehicles, and exports is also expected to be margin-accretive. Budget cars should also see a turnaround from the next fiscal, driving volume-growth and operating leverage.
Maruti stock technicals
The car maker’s stock has remained rangebound for more than a year now, swinging between Rs10,750 and ₹13,000 apiece. Barring a short-lived spurt seen in February, the stock has faced stiff resistance at Rs11,900. This is also the level from which the counter backtracked by 2% after the latest earnings were announced.
If the sentiment weakens further hereon, the stock could find support at around ₹11,325 and again at ₹10,750.
For more such analyses, read Profit Pulse.
But the long-term fundamental outlook promises potential, and the stock is trading at 25.4 times its earnings – a significant discount to its long-term average. Analysts peg the stock’s target price at Rs14,000 apiece, reflecting 20% upside from current levels.
Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa
Disclosure: The author holds shares of the companies discussed here. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
