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Hyundai Motor India (HMIL) logged a soft quarter, with revenue/EBITDA down 8%/10% YoY, respectively; EBITDA margin declined by 70bps QoQ to 12.8% on lower volumes and higher discounts. HMIL has guided to a low-single digit PV industry growth on a high base and a challenging demand scenario. HMIL has established a strong franchise in India; but lack of major launches (key growth driver historically in PVs) over the next 9-12M, muted ~5% capacity CAGR, higher royalty, and lower treasury income are likely to restrict EPS CAGR to 4% over FY24-27E. We trim FY25E/26E/27E EPS by ~2.5% each, to factor in the weak demand scenario. We retain REDUCE with unchanged TP of Rs1,750 at 23x Sep-26E core PER. We prefer MSIL over HMIL (refer to our Hyundai IC report), given its catch-up on operational and financial metrics (even on a 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).

Soft quarter led by volume decline and pressure on margins

Consolidated revenue fell 7% YoY to Rs172.6bn. QoQ gross margin decline of 70bps was owing to increase in sales incentives due to demand weakness in domestic and export markets. Consol EBITDA declined ~10% YoY to Rs22.1bn. EBITDA margin declined by ~70bps QoQ to 12.8% due to gross margin contraction of ~70bps. Reported PAT declined 16% YoY to Rs13.8bn. Royalty rate in Q2 stood at 2.6% (vs 2.7% in Q1FY25; cost of certain material from related party will affect the royalty rate)

Earnings Call KTAs

1) Management reaffirmed its expectation for low single-digit growth in the domestic passenger vehicle (PV) industry, citing a high base of previous year and ongoing nearterm macroeconomic challenges. HMIL to address these headwinds in both, domestic and export markets, by maintaining its premiumization strategy (higher SUV contribution; introduced sun-roof variants in certain models) coupled with cost optimization (value engineering and localization); HMIL to focus on quality of growth by striking a balance between volumes, market share, and margins. 2) HMIL’s enquiries and Oct-24 retails saw double-digit growth vs last year; HMIL remains confident of stable performance in Q3FY25. 3) Phase 1 of expansion at the Pune plant is on-track and expected to commence operations by Q3FY26. 4) Exports grew in most regions in H1, especially in Africa, Mexico, and LatAM; Middle East exports were affected by Red Sea issues. HMIL aims to be a production hub for emerging markets, with a healthy mix of domestic and export sales to hedge against fluctuations; Exter exports to commence (~1K units pm, initially to South Africa; HMIL on the lookout for other markets as well). 5) HMIL’s 4 EV models (including Creta EV in Q4FY25) to feature a localized supply chain and locally-sourced key components; the company has partnered with a local chargepoint operator to install 60KW fast chargers for EVs at 100 dealerships. 6) While HMIL maintains its aspirations for Creta, it continues to innovate in other models (Exter, Alcazar share improving) to reduce its dependence on Creta. 7) HMIL is witnessing good traction in their CNG portfolio (13% penetration in Q2FY25); increasing share of dueldiesel CNG within the CNG portfolio is aiding ASPs; HMIL would monitor customer acceptance prior to investing in hybrids. 8) HMIL is expanding its rural network and expects a good monsoon to aid rural demand; rural regions (40% of HMIL’s sale outlets) are outperforming urban (21% of revenue now vs 20%/18.5% in FY24/FY23). 9) While share of first-time buyers (FTBs) was ~37% in Q2 vs 38% in Q1, future growth prospects remain strong; FTBs are seen moving directly to SUVs (Venue: 40% share; Creta: 28% share). 10) HMIL’s channel inventory is now at less than 4 weeks.

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