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Higher discount and adverse mix hurt margins

Commercialization of new plant to be next key growth driver

* Hyundai Motor (HMI) reported a weak operating performance in 3QFY25, as EBITDA/adj. PAT of INR18.8b/INR11.6b came in below our estimates of INR20.4b/INR12.4b. The 3Q performance was impacted by a weaker product mix, higher discounts, and operating de-leverage. Nonetheless, we remain optimistic about HMI’s ability to outperform the domestic PV industry, driven by its strong SUV portfolio and export opportunities.

* We cut our FY25E/FY26E consol EPS by ~3%/9% to factor in lower margins. We expect its exports to stabilize in 4Q and then pick up from Q1 onward. Further, HMI is likely to start launching new models, once the new Pune plant commences production, which will be the growth driver in coming years. We believe HMI remains well placed to benefit from the premiumization trend in India given its mix in favor of SUVs. Maintain BUY with a TP of INR1,975, valued at 26x Dec’26E.

Higher discounts, mix and one-time employee expenses dent margins

* 3QFY25 consol revenue/EBITDA/adj. PAT declined ~1%/14%/19% YoY to INR166.5b/INR18.8b/INR11.6b (est. INR165.9b/INR20.4b/INR12.4b). 9MFY25 revenue/EBITDA/adj. PAT declined ~2%/3%/8% YoY.

* Volumes declined ~2% YoY. Net realizations grew 1% YoY (flat QoQ) to INR893.1k/unit.

* Gross margin contracted 60bp QoQ to 26.9% (est. 27.3%). This, coupled with lower volumes, led to a 14% YoY drop in EBITDA to INR18.8b (est. INR20.4b).

* EBITDA margin contacted 160bp YoY/150bp QoQ to 11.3% (est. 12.3%). Margins were impacted by 1) growth in exports to Africa with the help of pricing levers, 2) high discounts in the domestic market, 3) one-time compensation given to employees after the IPO.

* Discounts in 3Q stood at 2.6% of domestic ASP, up from 1.9% QoQ. Discounts have declined QoQ in 4Q so far.

* The weak operating performance led to a miss in adj. PAT at INR11.6b (-19% YoY, est. INR12.4b).

Highlights from the management commentary

* HMI expects stability in export markets in coming quarters. Growth drivers: 1) Hyundai India is an export hub for Latin America, the Middle East and Africa; 2) HMI intends to evaluate global export opportunities for Creta EV; and 3) Exter left-hand drive should see huge opportunities in key markets.

* Management expects the domestic PV industry to post low-single-digit growth in CY25 as well.

* Management has indicated that, with the support of its parent, HMI would look at alternate powertrains, including EVs, flex fuels, CNG and hybrid for the Indian market to comply with emission laws.

* Its Pune plant is on track to commercialize production by CY25 end, with initial capacity of 170k units p.a. New launches may coincide with this.

Valuation and view

* We cut our FY25E/FY26E consol EPS by ~3%/9% to factor in lower margins.

* We expect its exports to stabilize in 4Q and then pick up from Q1 onward. Further, HMI is likely to start launching new models, once the new Pune plant commences production, which will be the growth driver in coming years. We believe HMI remains well placed to benefit from the premiumization trend in India given its mix in favor of SUVs. Maintain BUY with a TP of INR1,975, valued at 26x Dec’26E EPS.

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