Choice Institutional Equities has upgraded Maruti Suzuki India to 'Buy' after a recent share price correction. While the company achieved record sales of over 696,000 units, net profit declined 27% to INR 24 billion, impacted by commodity inflation and investment losses. Investors may monitor how the company manages margin pressure amidst stiff competition.
Choice Institutional Equities has revised its rating for Maruti Suzuki India to 'Buy', pointing to the recent correction in the company's share price as a potential entry point for investors. However, the brokerage has lowered its target price to INR 13,500 from the previous INR 15,350, reflecting concerns over profitability in the coming years.
Maruti Suzuki recently posted its highest-ever quarterly sales volume, with 696,654 units sold, a 26.5% jump compared to the same period last year. Domestic sales growth was particularly strong at 37.8%, while exports dipped slightly. Despite these record-breaking sales numbers pushing net revenue to INR 506 billion, the company's profit performance was weaker than expected. Net profit fell by 27% to INR 24 billion.
The drop in profit is largely linked to rising commodity costs and mark-to-market losses on the company's surplus cash investments. When a company invests its spare cash in financial assets, the value of those assets fluctuates with market conditions. These mark-to-market losses mean the value of these investments decreased on paper during the quarter, which directly impacted the bottom line.
The brokerage noted that operating margins showed a modest improvement, reaching 8.9% compared to 8.2% in the previous quarter. However, the company faces persistent challenges from commodity inflation, which makes raw materials like steel and aluminium more expensive. If these costs remain high, it becomes difficult for the automaker to protect its profit margins without raising vehicle prices, which can in turn affect demand in a highly competitive market.
The Indian passenger vehicle sector is currently witnessing intense competition. Players like Tata Motors, Mahindra & Mahindra, and Hyundai are aggressively expanding their SUV portfolios. For Maruti Suzuki, maintaining profitability while managing this competition is critical. The brokerage’s valuation for the stock is now based on a 22x multiple of the projected average earnings for fiscal years 2028 and 2029.
Investors tracking Maruti Suzuki may focus on how the company manages its input costs and whether its new SUV models can sustain demand to improve profit margins. The effectiveness of the company’s treasury management in reducing mark-to-market volatility and the ability to maintain pricing power in the face of sector-wide competition will be key monitorables in upcoming quarters.