Explained: Why Maruti Suzuki share price gained over 2% despite weak Q2 results

Maruti Suzuki's quarterly report revealed a 17% year-on-year decline in net profit to Rs 3,103 crore, falling short of market expectations.

In Short

• Maruti Suzuki stock rises over 2% despite weak Q2 earnings
• Brokerages cautious but retain 'buy' rating on Maruti Suzuki's stock
• UBS retains buy rating, optimistic about festive demand boost

Shares of Maruti Suzuki rose over 2% in early trade on Wednesday, showing unexpected strength after the company reported weaker-than-expected second-quarter results. By 11:02 a.m., the stock was up 2.23% at Rs 11,293.65 on the Bombay Stock Exchange (BSE), reflecting a mixed but cautiously optimistic response from brokerages despite ongoing challenges.

In the previous trading session, the Maruti Suzuki stock had slumped over 5%.

Maruti Suzuki’s quarterly report revealed a 17% year-on-year decline in net profit to Rs 3,103 crore, falling short of market expectations.

Revenue from operations rose slightly to Rs 37,449 crore, though a deferred tax liability of Rs 1,018 crore impacted net profit, driven by regulatory changes affecting indexation benefits and tax rates on capital gains from debt mutual funds.

BUY, HOLD OR SELL?

Nomura took a conservative stance on Maruti, maintaining a neutral outlook with a target price of Rs 12,455, citing continued demand softness and margin pressures as likely short-term constraints. The brokerage anticipates that discounting could remain elevated in the near term, though improvements in Maruti’s CNG mix and rising average selling prices (ASPs) could be positives.

Maruti’s management is optimistic about a 14% year-on-year increase in festive season sales, which could alleviate inventory pressures and reduce the need for discounting in the coming months.

HSBC echoed a cautious outlook, reiterating a 'hold' rating and adjusting its target to Rs 14,000. It attributed Maruti’s Q2 margin contraction to a challenging demand environment and elevated discounts, with Q3 also likely to see some pressures. However, HSBC remains hopeful for improvement by FY26, driven by demand recovery and new product launches. A potential tax reduction on hybrid vehicles could also support Maruti’s future valuation.

Investec also expressed caution, retaining a 'hold' rating but lowering its target to Rs 12,385 from Rs 14,030. It cited operational challenges, particularly around margins, with weaker demand in entry-level models as consumers shift towards premium vehicles. The brokerage also highlighted concerns regarding Maruti’s EV transition, given its dependency on Toyota for technology.

On a more optimistic note, UBS maintained a 'buy' recommendation with a target of Rs 14,800, slightly reduced from Rs 15,200. UBS acknowledged Maruti’s Q2 earnings miss, noting that margin pressures weighed on EBITDA but pointed to festive season demand and controlled inventories as encouraging signs that could counterbalance near-term concerns.

Maruti Suzuki also announced plans to launch a dedicated electric vehicle in January 2025. Management highlighted that this EV would be built on a high-spec platform designed specifically for electric use, unlike the retrofitted internal combustion engine (ICE) models seen in some competitors.

Maruti’s stock performance has been mixed this year. The stock has dropped 15% over the past month and about 12% in the last six months, but year-to-date, it remains up nearly 10%, reflecting both market concerns and some optimism as it navigates evolving consumer preferences and the EV transition.

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