Motilal Oswal has maintained a ‘Buy’ recommendation for Hyundai Motor India (HMI), projecting a target price (TP) of Rs 2,235, a 24% upside from the current market price of Rs 1,804. Despite a challenging second quarter in FY25 due to weakening demand and increased discounting, HMI is well-positioned to benefit from the increasing premiumization trends in India's passenger vehicle (PV) market. With its diverse lineup, especially in the SUV segment, and a robust export strategy, HMI is expected to deliver steady growth in the medium term. Key elements include solid margins, a favorable export landscape, and upcoming product launches that underscore the brand’s alignment with evolving consumer preferences.

2QFY25 Performance Overview

- Revenue and Profit Margins: HMI’s 2QFY25 revenue grew by approximately 8% year-on-year to Rs 172.6 billion, while EBITDA and PAT saw respective YoY growth of 10% and 16%. However, the EBITDA margin dipped slightly to 12.8%, down 30 basis points YoY and 70 basis points sequentially, driven by higher discounting and softer demand.
Discounts and Realizations: Increased discounts, primarily in response to tepid festive demand, impacted gross margins, which contracted by 60 basis points sequentially. Domestic market discounts rose from 1.5% in Q1 to 1.9% in Q2.

Volume Trends: Total volumes declined by 8.5% YoY, with flat quarter-on-quarter performance. HMI’s average selling price (ASP) increased by 1% YoY, marking Rs 899,300 per unit, though it remained stable sequentially.

Strategic Position in a Premiumizing Market

- SUV-Centric Strategy: HMI’s model mix favors SUVs, with around 69% of sales derived from this segment in 2QFY25 compared to the industry average of 55%. This strong SUV lineup is expected to support HMI’s medium-term growth trajectory as consumers continue to gravitate towards premium vehicles.
Feature Expansion: The brand has seen an uptick in demand for premium features, with sunroof penetration increasing from 47.4% in 1HFY24 to 53% in 1HFY25. Additionally, automatic variants saw a jump from 23.2% to 25.3%, while ADAS-equipped models improved from 3.3% to 14.4%.

Increasing CNG Adoption: In response to regional demand, HMI’s CNG penetration reached 13% in 2QFY25. This includes a dual-cylinder CNG configuration for select models, which saw uptake rates as high as 28% for Exter and 20.2% for Nios in October.

Management Commentary Highlights

- Domestic Demand Outlook: HMI’s management forecasts a low single-digit growth for India’s PV market in FY25. While geopolitical factors affected export volumes, domestic demand is expected to strengthen in Q3FY25 due to the wedding season and renewed SUV demand.
Rural Market Growth: Supported by a robust monsoon, HMI anticipates continued growth in rural sales, which now represent approximately 21% of total volumes. This segment has grown significantly over recent years, boosted by expanded rural dealer coverage and mobile service vans.

Export Growth and Challenges: Though exports to Africa, Mexico, and Latin America showed positive growth, certain Middle Eastern markets faced headwinds due to regional geopolitical tensions. HMI plans to leverage India as a production hub, focusing on emerging markets for sustained growth.

Product Pipeline and Technological Innovation

- Upcoming EV Models: HMI plans to launch four new EV models, beginning with the Creta EV in 4QFY25, targeting the expanding EV segment. The company remains committed to identifying and catering to white spaces and burgeoning segments, though specific details on new ICE models were not disclosed.
Alignment with Global Trends: Leveraging Hyundai Motor Company’s (HMC) expertise, HMI is positioned to introduce cutting-edge technologies that are adapted to Indian market conditions. This partnership allows HMI to swiftly address evolving consumer needs, including hybrids and EV technologies.

Financial and Valuation Metrics

- Earnings Forecast: After an anticipated moderation in FY25 earnings, HMI is projected to achieve an earnings CAGR of 14% from FY25 to FY27. This growth will likely stem from an 8% volume CAGR over the next two years, largely driven by the SUV segment and export opportunities.
Comparative Valuation: When compared to its closest peer, Maruti Suzuki India Ltd (MSIL), HMI commands a slight premium in valuation due to superior financial metrics, technological prowess, and a more premium brand perception. HMI’s TP is set at a 27x price-to-earnings ratio on estimated September 2026 earnings, slightly above MSIL’s 26x valuation.

Investment Call: Motilal Oswal reaffirms its ‘Buy’ recommendation on HMI, with a target price of Rs 2,235, representing a 24% upside. The rating is supported by HMI’s diversified portfolio, premium positioning, and potential as an export hub for emerging markets.

Target Price and Investor Takeaways

- Target Price: The target price of Rs 2,235 is based on HMI’s potential to capitalize on the SUV premiumization trend in India, its alignment with future growth segments, and its strong export foundation. This valuation reflects an attractive 24% upside from the current price.
Investor Strategy: HMI represents a sound investment for those seeking exposure to the Indian automotive market’s premiumization trend, a resilient export business model, and growth driven by the SUV and EV segments.