Maruti Suzuki’s Q2 paradox: record volumes, shrinking margins

Dealer inventory stood at a contained 17 days, including vehicles in transit, helping lift domestic market share by 220 bps to 40.8%. Maruti is targeting at least 10% domestic-volume growth in the second half of fiscal year 2027 (FY27), relying on recent capacity additions, a stronger product mix and its multi-powertrain strategy. It has added nearly 500,000 units of annual capacity through its second plant at Kharkhoda and the fourth production line at Hansalpur in Gujarat.

Its expanding SUV and CNG portfolios should also support volumes, while a new electric vehicle (EV) launch at Bharat Mobility next year should strengthen its EV presence. Pending customer orders rose from 200,000 at September-end to about 270,000 by Dussehra, management said, signalling robust demand and lending support to its growth target. Including exports, Maruti expects volumes to grow 7-10% in H2FY27, putting full-year growth in the mid-teens.

The bigger question for investors is whether volume growth can translate into a sustained recovery in profitability. Ebitda margin improved 70 bps sequentially in Q2, but management has indicated that pricing actions will be calibrated to protect demand among its price-sensitive customer base. Cost-control measures, including tighter marketing expenditure and operational efficiencies, could cushion the impact of higher input costs.

However, steel and copper prices, currency movements and geopolitical disruptions remain key variables that could limit the benefits of higher volumes. “We do remain watchful of demand risks in FY28F particularly for hatchbacks considering the risks from higher interest rates, inflation, weak monsoons and oil prices,” Nomura analysts said. Exports also remain a pressure point. Maruti’s Q2FY27 exports fell 2% year-on-year to 108,119 units, constrained by logistics challenges linked to the West Asia war, regulatory disruptions affecting e-Vitara shipments to Europe and higher tariffs in Mexico.

Maruti’s stock is currently just about 5% above its 52-week low of ₹10,985, touched last week. With demand holding up and capacity in place, the pace of margin recovery will be crucial in determining whether the stock can regain momentum.