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Powerful Lineage, Promising Levers

We initiate coverage on Hyundai Motor India (HMIL) with BUY (TP of Rs2,194) at 24x FY27E), valuing the stock at par with MSIL. Although HMIL is aligned well with PV segment trends, its growth has been capacity-constrained as reflected in lower domestic volume CAGR of ~9% (vs ~16% for industry) over FY21-24. The GM plant acquisition will surely boost growth through vital capacity addition in phases. Besides leveraging the strong parentage of Hyundai Motor Corp (HMC), HMIL is fast evolving in line with a dynamically changing tech landscape, which will slash lead times for new product development, make India franchise definitively robust, and help strengthen exports (~21% volume share in FY24). HMIL is likely to become a thriving export hub for HMC. Further, it has consistently launched/revamped models; Creta EV launch is slated for 4QFY25. We see the MPV segment as a portfolio gap, which means HMIL can gainfully challenge the duopoly of MSIL and Kia. Its impressive earnings should continue unabated; we estimate Volumes/Revenue/EBITDA/Adj.PAT CAGR of 8.2%/11.5%/15.1%/11.4% over FY25-27E. We also expect healthy FCF of Rs60/74b in FY26E/27E, implying FCF yield of 3-4%, ROE of ~40% in FY27E, which is attractive. We prefer M&M, TVSL followed by HMIL among OEMs from our coverage universe.

Spearheading India’s tech-led premiumization of PV space – HMIL’s domestic market share (MS) remained firm at 14.4%-14.9% over past 4 years as it covers ~87% of addressable market. However, it holds a healthy MS in fast-growing segments, with 34%/20%/18% share in the mid-size SUV/compact SUV/premium compact. In effect, HMIL’s exposure to end-segments is closely aligned to the structure of the industry (share of SUVs at ~63% vs ~53% for the industry) and well-placed to benefit from ongoing premiumization. In addition, HMIL derives ~24% of revenue from exports which has seen consistent growth in FY21-24. GM plant acquisition: big boost to capacity-led growth - We believe Hyundai’s overall growth (domestic + exports) has been constrained by capacity. While domestic volumes saw consistent growth, exports fell from peak of ~260k in FY13 to ~104k in FY21, possibly to accommodate higher domestic sales. In Dec 2023, Hyundai acquired GM’s Talegaon plant (phase 1 SOP by 2HFY26), which will add ~250k capacity on full rampup, over Hyundai’s current capacity of ~824k.

Strong pedigree, futuristic vision in the form of HMC - HMIL have the support of HMC in many aspects of their operations. HMC has invested an aggregate amount of Rs1,875.03b towards global R&D from CY2014 to June 30, 2024 including towards emerging mobility areas such as electrification, shared mobility and autonomous driving. HMC’s R&D capabilities, coupled with information flow within the Hyundai Motor Group on emerging global trends and latest customer preferences, enables them to identify customer preferences in a timely fashion. HMC’s exports network across more than 190 countries helps them pursue export opportunities, a key revenue and profitability driver.

MPV segment is white space; new launch pipeline will swell gradually - HMIL has launched new models over the years to keep its model line-up exciting. We believe the MPV segment is a portfolio gap, which Hyundai may address in coming years. Hyundai plans to launch Creta EV in 4QFY25, to add to the Ioniq 5 (premium EV). Further, it can also launch products such as Ioniq 6 EV by Feb’25 and Startgazer MUV by Jul’25. However, we would like to see aggressive ICE launch pipeline which shall help drive static market share.

Healthy earnings, return ratios, and FCF among key positives - HMIL has a strong potential for growth given the strong SUV preference among the consumers, robust multi-powertrain models in the product pipeline and the premium features. All these factors are estimated to drive healthy Volumes/Revenue/EBITDA/Adj.PAT CAGR of ~8%/11.5%/15.2%/11.4% over FY25-27E. We expect healthy FCF generation of Rs60/74b in FY26E/27E, implying FCF yield of 3-4% and ROE of ~40% in FY27E, which is attractive.

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