IGI Logo

In tune with industry trends One of the few MNCs who has cracked the India PV segment

*  Hyundai Motors India (HMI) holds a diverse portfolio mix that covers almost 87% of India’s passenger vehicle (PV) market. HMI boasts a healthy domestic market share in several fast-growing segments, with 34%/20%/18% share in the mid-size SUVs/compact SUVs/premium compact car segments. HMI is well-aligned with the domestic PV industry trends, as 63% of its mix comes from utility vehicles (UVs).

*  HMI receives extensive support from its parent, Hyundai Motor Company (HMC), in the areas of management, R&D, design, supply chain, et al. HMC’s inherent strengths in emerging mobility domains can be effectively leveraged for the Indian market, which remains one of HMI’s core strengths.

*  HMI has emerged as India's second-largest PV exporter, with significant growth opportunities on the horizon. Following a projected moderation in FY25, we anticipate HMI to report 17% EPS CAGR over FY25-27. We ascribe a slight premium to HMI over Maruti Suzuki (MSIL), given: 1) HMC’s technological prowess in emerging technologies that can be adapted to domestic requirements; 2) superior financial metrics; 3) a relatively premium brand perception; and 4) better alignment with industry trends. We initiate coverage on HMI with a BUY rating and a TP of INR2,345, premised on 27x Sep’26E earnings (vs. 26x for MSIL).

Well-positioned to reach greater heights

*  HMI has a diverse portfolio of 13 PV models that cover all major segments, including sedans (14% of volumes), hatchbacks (23% of volumes), and SUVs (63% of volumes), accounting for up to ~87% of India's total PV addressable market for FY24. The company also has a presence across all fuel types, including petrol, diesel, CNG, and Electric Vehicles (EVs).

*  HMI appears to be well-aligned with the evolving industry trends in India. Its UV mix has notably improved to 63% in FY24 from 13% in FY16, while the overall industry UV mix has risen to 60% in FY24 from 21% in FY16. Thus, HMI is well positioned for future growth.

*  The company has a healthy presence in some of the fastest-growing segments in India. HMI is a market leader with 33% share in the mid-size SUV segment, 20% share in compact SUVs, 20% share in the compact sedan segment, and an 18% share in the premium compact car segment.

*  Overall, HMI has now emerged as a trusted brand for its stakeholders in the Indian market. HMI has a well-established PV ecosystem

*  HMI has now established a robust ecosystem in India. It is to be noted that: 1) HMI’s Chennai plant is among the few large single-location PV manufacturing plants in India with a capacity of 824,000 units p.a.; 2) HMC's largest supply chain outside of South Korea is located in India, comprising 194 tier-1 and 1,083 tier-2 suppliers; 3) the localized supply chain sources almost 93% of its materials from four adjoining districts of Chennai; and 4) HMI has the secondhighest number of customer touchpoints in India.

*  It is this strong manufacturing ecosystem that enables the company to launch feature-rich, reliable, innovative, and yet competitively priced PVs, thereby establishing HMI as a strong and trustworthy brand in India.

Strong backing from the parent

*  HMI receives extensive support from its parent (HMC) in several aspects of its operations, including management, R&D, design, product planning, manufacturing, supply chain development, and quality control, et al.

*  HMC's inherent strengths in emerging mobility domains, such as electrification, shared mobility, and autonomous driving, combined with the information flow within the Hyundai Motor Group on emerging global trends and the latest customer preferences, enable the timely identification of potential upcoming technology trends in India.

*  HMI also benefits from the implementation of HMC's manufacturing practices and quality management systems in its operations

*  HMI also maintains close connections with other group affiliates within the Hyundai Motor Group across the auto OEM value chain, fostering synergies in supply chain, manufacturing, and product development.

Exports – opportunities aplenty!

*  On the back of its parent support, HMI is currently India's second-largest exporter of PVs, serving over 150 countries across Latin America, Africa, the Middle East, Asia, and beyond. In the past couple of years, HMI’s export revenue has registered a 25% CAGR vs. overall revenue CAGR of 21%.

*  The company aims to leverage its local manufacturing capabilities to establish HMI as the largest foreign production base for HMC for emerging markets, including Southeast Asia, Latin America, Africa, and the Middle East et al.

*  Exports are likely to remain a key growth driver for HMI going forward due to two main factors: 1) the higher ASP for exports, which enhances its profitability vs. domestic sales, and 2) the natural hedge it provides against imports. Given these factors, we anticipate HMI’s export volumes to report an 11% CAGR over FY25-27. Warrants a slight premium to MSIL – Initiate coverage with a BUY

*  While FY25 is likely to be a moderate year for PVs in India and consequently for HMI, we project the company to report an 8% volume CAGR over the next two years. Following a moderation in FY25E earnings, we expect HMI to post 17% earnings CAGR over FY25-27E.

*  When comparing HMI with MSIL, which is its closest peer, we believe that while both OEMs are very close in competency and future growth potential, we can ascribe a slight premium to HMI over MSIL, given: 1) HMC’s technological prowess in emerging technologies that can be customized to meet Indian customer requirements as needed; 2) superior financial metrics; 3) a relatively premium brand perception; and 4) better alignment with industry trends.

*  We hence assign a 27x one-year Fwd PER multiple to HMI, relative to our target multiple of 26x currently assigned to MSIL. Therefore, we arrive at our TP of INR2,345 for HMI, based on 27x Sep’26E earnings. We initiate coverage on HMI with a BUY rating.

*  Key downside risks: 1) lack of revival in domestic PV demand; 2) supply chain issues and logistic disruptions; 3) unfavorable regulatory changes; 4) a delay in the ramp-up of new facilities; and 5) rise in commodity prices.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412