Maruti Suzuki's Export Surge Shields Profit Amid Domestic Slump—A Buy for FY26 Outperformance

Maruti Suzuki's May 2025 sales report underscores a pivotal strategic shift: surging exports (+79.8% year-over-year) have become the linchpin of growth, compensating for a 5.3% decline in domestic passenger vehicle demand. This dichotomy—weakness at home but dynamism abroad—paints a compelling picture for investors. While the company's net profit dipped 4.3% in Q4 FY25 due to margin pressures, its export-driven model now positions it to outperform peers in FY26. Here's why this is a buying opportunity.

The Domestic Dilemma: Slumping Passenger Cars, Resilient Utility Vehicles

Maruti's domestic sales fell to 138,690 units in May 2025, dragged down by a 12.9% collapse in mini and compact passenger car sales (Alto, S-Presso, Swift). The Ciaz sedan, once a midsize staple, saw sales plummet 37% to 458 units—a stark reminder of eroding demand in India's entry-level and compact segments. These declines reflect broader macroeconomic headwinds: inflation, rising financing costs, and shifting consumer preferences toward utility vehicles.

Yet within this weakness lies resilience. The SUV/MPV segment (Brezza, Ertiga, Grand Vitara) grew 1.3% to 54,899 units, while vans (Eeco) surged 12.5% to 12,327 units. These segments cater to India's growing middle class and commercial needs, offering space and utility over fuel efficiency—a trend that will likely persist as rural electrification and infrastructure projects expand.

Exports: The Engine of Future Growth

Exports now account for 17% of Maruti's total sales, up from 9% in May 2024. The 79.8% YoY jump to 31,219 units signals a structural shift. Maruti is capitalizing on demand in Southeast Asia, Africa, and the Middle East for compact, affordable vehicles. The Eeco van, for instance, is a hit in emerging markets for its versatility, while the Brezza's subcompact SUV appeal aligns with global urbanization trends.

Crucially, exports are boosting margins. While domestic sales face price competition and rising input costs, international markets—often less saturated—allow premium pricing. Analysts estimate exports could contribute 25-30% of total sales by FY26, transforming Maruti from a domestic player into a global one.

Valuation and Investor Sentiment: A Contrarian Play

Maruti's stock closed at ₹12,317.55 on May 31, down 0.55% on the day but up 14% year-to-date. This undervaluation relative to peers (Tata Motors' stock rose 22% YTD) creates an opportunity. At a P/E ratio of 25x (vs. industry average 28x), it's cheaper despite its export-led growth trajectory.

Analysts' mixed ratings (37 Buy, 6 Hold, 3 Sell) reflect near-term concerns about domestic demand. Yet 75% of recommendations are bullish, citing Maruti's robust balance sheet, dealer network, and alignment with government initiatives like the Production-Linked Incentive (PLI) Scheme.

Why This Is a Buy Now

• Structural Export Growth: The 79.8% export surge isn't a blip. Maruti has secured long-term partnerships with distributors in 12 new markets and aims to double exports to 60,000 units/month by 2026.
• Segment Diversification: While compact cars struggle, SUVs and vans—where Maruti dominates—are gaining share. The utility vehicle segment's 29.5% growth in FY25-26 highlights this shift.
• Margin Stability: Exports' higher margins will offset domestic pressure, stabilizing EBITDA. Even with a 5% domestic sales dip, FY26 profits could grow 10-12% if export targets are met.

Risks to Monitor

• Domestic Demand Recovery: If India's economic slowdown deepens, further declines in passenger cars could strain margins.
• Global Supply Chain Hurdles: Geopolitical risks or chip shortages could disrupt export ramp-up.
• Electric Vehicle Transition: Maruti's EV offerings lag peers like Tata and Hyundai. A delayed rollout could erode long-term competitiveness.

Conclusion: A Strategic Bet on Asia's Auto Giant

Maruti's May performance is a microcosm of its future: domestic headwinds are real, but its export pivot and segment focus make it uniquely positioned to capitalize on global demand. With a PEG ratio of 1.2x—indicating growth is priced in but not overdone—the stock offers asymmetric upside as exports scale. For investors with a 12-18 month horizon, this is a compelling buy to outperform in FY26.

Invest now while sentiment remains cautious—the export boom has only just begun.