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Initiate with Reduce; strong franchise, but high valuation amid muted growth outlook

We initiate coverage on Hyundai Motor India (HMIL) with REDUCE (TP of Rs1,750, at ~23x core Sep-26E PER, similar to MSIL) amid a lackluster ~5% EPS CAGR over FY24-27E. HMIL has established a strong franchise in India; however, lack of major launches (key growth driver historically in PVs) over the next 12-18M, muted ~5% capacity CAGR, higher royalty, and lower treasury income are likely to restrict EPS growth. While MSIL (REDUCE) also faces similar near-term growth challenges, we prefer it over HMIL given its catch-up on operational and financial metrics (even on lower SUV mix) with a much diversified product and powertrain mix and a higher growth optionality (potential small-car recovery, aggressive 8% capacity CAGR, 7-seater SUV launch in H2FY26E, and 10 new models by 2030) driving a superior 6%/10% revenue/EPS CAGR over FY24-27E.

HMIL’s strong parentage, India-focus have created an enviable India franchise

HMIL is the only major foreign OEM (along with its group company Kia) to have effectively established itself at scale in India, riding the perfect interplay of a) strong global parentage with successful operations in multiple markets, b) sharp India-focus with proactive technology/feature-rich launches capturing the timely shift in consumer preferences (eg SUVs), c) extensive product portfolio with high SUV-focus, d) high scale and the resultant cost leadership (aided by early exports focus), and e) relatively premium positioning. Thus, despite multiple competitive cycles, HMIL has largely sustained its market position at ~14.6% market share, with 10-year volume/revenue CAGR of ~5%/11%, robust 15%/19% EBITDA/EBIT CAGR, and RoE of >20%.

Lack of new launches, muted capacity addition, high royalty to limit EPS CAGR

New launches have typically driven volume growth in PVs. Based on interaction with industry participants and media articles, we believe HMIL has a muted launch pipeline for the next 12-18 months, barring Creta EV (Q4FY25). Moreover, its planned annual capacity expansion to 1,074K units by CY28 implies ~5% CAGR, which appears modest relative to the aggression shown by peers like MSIL (~8% capacity CAGR; aims to launch 10 new models with intent to recapture 50% market share via higher focus on SUVs). We also highlight that Kia seems more aggressive in India (as well as globally) than HMIL, with much higher capacity CAGR (~7%). We note that share of exports out of India within Hyundai Motor Company (HMC) has declined over the years in favor of China.

Initiate coverage on HMIL with REDUCE; we prefer MSIL over HMIL

We forecast 4%/6% volume/revenue CAGR for HMIL, with a stable ~14% market share over FY24-27E. Growth will be restricted due to lack of major launches over the next 12- 18 months, together with back-ended capacity addition (2HFY26E; currently operating at ~93% utilization levels). Moreover, higher royalty payments to Parent (1QFY25 onward) and lower treasury income (after a one-time dividend payout in Mar-24) would restrict EPS CAGR to 5% during FY24-27E. We initiate coverage on HMIL with REDUCE, valuing it at 23x Core Sep-26E PER (similar to MSIL). We prefer MSIL over HMIL as it is catching up on operational and financial metrics (despite a relatively lower SUV mix) with higher growth optionality.

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