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Margins remain resilient despite adverse factors

Guidance on new launches provides improved earnings visibility

* Hyundai Motor India (HMI)’s 1Q earnings at INR13.7b were ahead of our estimate of INR12.1b due to better-than-expected margins. The margins remained healthy in 1Q despite weak demand and higher discounts, led by improved mix in both domestic and export markets and lower input costs.

* HMI targets to launch 26 products (including variants) by FY30, of which eight would be launched over FY26-27E. Considering its launch pipeline, we now factor in an 8% volume CAGR over FY25-27E, which is largely back-ended. We also factor in the startup costs of the new Pune plant to impact earnings in the near term and normalize in FY27E. Overall, we expect HMI to deliver 10% earnings CAGR over FY25-27E. We believe HMI remains well-positioned to benefit from the premiumization trend in India, given its mix in favor of SUVs. Reiterate BUY with a TP of INR2,408, valued at 27x Jun’27E.

Earnings beat driven by better-than-expected margins

* HMI’s revenue declined 5% YoY to INR164b (in-line) and was largely due to the 6% YoY decline in volumes in 1Q. .

* Avg. ASP rose 0.7% YoY due to improved mix. However, exports ASP was down QoQ, as HMI received a few fleet orders for Aura/Verna, for which the company had to offer some discounts.

* Gross margin improved 120bp YoY (+50bp QoQ) to 29.3%.

* However, due to higher-than-expected employee costs and higher other expenses, margin was broadly flat YoY at 13.3%, though ahead of our estimate of 12%.

* HMI was able to maintain margins despite weak volumes and higher discounts, which is commendable. Margin resilience was driven by improved mix both in domestic and export markets and lower input costs.

* Driven by better-than-expected margins, PAT stood at INR13.7b (-8% YoY).

Highlights from the management commentary

* The export growth guidance has been maintained at 6-7% for FY26E.

* Domestic PV demand remains challenging. June has been the lowest TIV month for the last 30 months (excluding December). Management is hopeful of a pickup in demand due to the 100bp interest rate cut, the upcoming festive season, and healthy monsoons.

* SUVs have continued to gain traction and stood at 69% of total sales. SUV penetration, even in rural regions, stood at 68.8% for HMI.

* The increase of CNG and EVs in the product mix has helped the company achieve CAFÉ norms. HMI’s CAFÉ target for 1Q was 117.286, and the company managed to achieve 112.856.

* Localization: The localization levels have reached 82% currently (localized sunroof last year) from 78% in 2024. Management will continue to work on several localization opportunities, especially in EVs.

Valuation and view

* Considering its launch pipeline, we now factor in an 8% volume CAGR over FY25- 27E, which is largely back-ended. We also factor in the startup costs of the new Pune plant to impact earnings in the near term and normalize in FY27E. Overall, we expect HMI to deliver 10% earnings CAGR over FY25-27E. We believe HMI remains well-positioned to benefit from the premiumization trend in India, given its mix in favor of SUVs. Reiterate BUY with a TP of INR2,408, valued at 27x Jun’27E.

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