Hyundai India Guides For Slower Growth In Second Half Of FY25 Amid Rural Push

Hyundai Motor India Ltd. expects further moderation in car demand in the world’s third-largest automotive market amid a sales revival in the hinterland.

“So, we have been maintaining that this year, the industry would see a low single-digit growth on a very high base of last year,” Tarun Garg, chief operating officer of India’s second largest carmaker, said during a post-earnings analyst call. “At the same time, we will not lose focus on premiumisation, so that value enhancement continues to happen.”

To be sure, larger rival Maruti Suzuki India Ltd. has indicated as much.

“The industry is not optimistic of an upsurge in demand in the second half [of the ongoing fiscal],” RC Bhargava, chairman of India’s largest carmaker and industry bellwether, told NDTV Profit earlier this month. “The industry will grow at 3-4% in FY25 and Maruti Suzuki will grow inline.” To be sure, industry body Society of Indian Automobile Manufacturers has pegged this figure at 5-6%. In FY24, that figure stood at 8%. In FY23, it was 23%.

“The Indian auto industry is cyclical in nature,” Unsoo Kim, managing director at Hyundai India, said during the earnings call. “After the phenomenal growth in the last 2-3 years due to pent-up demand post-covid, the current demand moderation is very natural. However, in the mid- to long-term, we are confident of a sustained demand momentum in the industry.”

And whatever growth has to happen will come from the rural market.

The Creta maker, according to Garg, has seen rural penetration rise to 21% as on date as against 20% last year. Before that, it was 18.5% and 16.5%. In fact, the hinterland now makes up nearly half of Hyundai India’s monthly sales.

“On the urban versus rural, very clearly, in the last one year, we’ve seen that rural demand continues to be very strong (even for SUVs),” Garg said. “A good monsoon this year would help even further. I believe the crop is very good.”

“So, going forward, we believe that the rural will continue to play a very important role and, accordingly, we are also adjusting our network strategy with a big thrust on rural areas.”

In the ongoing fiscal, Hyundai India has grown its district coverage to 84% from 70-75% a couple of years ago. About 40% of the company’s network is in what it qualifies as rural areas, contributing 21% of overall sales. Additionally, the carmaker has deployed more than 100 mobile service vans that “helps rural customers get service on the road-step”.

The company is also making sure it gets seen at ‘Grameen Mahotsava’—village festivals or fairs—for additional brand visibility.

The management commentary came on the back of a lacklustre set of numbers in Hyundai India’s maiden quarterly results—the company, just last month, launched the country’s largest initial public offering to a muted listing.

Standalone net profit of the Creta maker fell 16% over the year-ago period to Rs 1,338 crore in the quarter ended 30 September 2024, on the back of revenue that fell 8.3% year-on-year to Rs 16,876 crore, according to an exchange filing on Tuesday.

• Revenue down 8.3% at Rs 16,876 crore vs Rs 18,409 crore

• EBITDA down 11% at Rs 2,138 crore vs Rs 2,400 crore

• EBITDA margin down 30 basis points at 12.7% vs 13%

• Net profit down 16% at Rs 1,338 crore vs Rs 1,602 crore

One basis point is one-hundredth of a percentage point.

On a consolidated basis, the topline decreased 7.50% year-on-year to Rs 17,260.38 crore even as the bottomline fell 15.53% to Rs 1,375.46 crore. The operational profitability margin—measured as the earnings before income, tax, depreciation and amortisation—stood at 12.78% as against 13.08% a year ago.

The performance came on the back of muted demand—an industry-wide phenomenon.

In July-September, Hyundai India dispatched 1,49,639 units to dealerships, as against 1,58,772 units in the year-ago period, showing a decline of 5.75%, SIAM data showed.

Hyundai India, however, continues to bank on premiumisation to drive profitability, even as it weathers “industry slowdown and geopolitical challenges”. Material cost reduction, by way of localisation, kept margins buoyant in a difficult quarter. 

Of the 1,49,639 cars sold in the previous quarter, 1,02,636—or nearly 69%—were SUVs. 53% of the 2,99,094 units sold in the first half of the fiscal had sunroofs, as against 47.4% a year ago. Automatic variants now account for 25.3% of sales versus 23.2% a year ago. One in five Hyundai cars sold in October had a CNG powertrain.

The first-time buyer, consequently, is flocking to Hyundai showrooms across the country. The cohort contributed to 36.5% of second-quarter volumes, up from 31% in 2019. The average selling price has improved 1.9% sequentially to Rs 7.7 lakh. That compares with the industry figure of Rs 10.5-11 lakh.

“Consumers are bypassing hatchbacks and moving to SUVs,” Garg of Hyundai said. “We believe that this strategy (of premiumisation) has worked for us…”

In an “atypical” year that is Fiscal 2025 for India’s car industry, analysts believe Hyundai India’s domestic execution was strong relative to peers.

Nomura’s Kapil Singh and Siddhartha Bera believe that while the second half of the ongoing fiscal is a near-term challenge, new capacity will drive growth next year. The Pune plant, acquired from General Motors earlier this year, is expected to go onstream in the third quarter of Fiscal 2026. That will increase total installed capacity to 1.1 million units per annum—enough for domestic and exports demand.

“We estimate its EBITDA margins to improve to 14% by FY27 from 13.1% in FY24—led by improving mix, cost reduction and operating leverage,” Nomura said in a Nov. 13 note.

The brokerage expects the Korean carmaker to deliver a compounded annual growth rate of 17% through Fiscal 2027, with a return on equity of 42%. “We believe the stock is attractively priced as 18X FY27 PE and offers one of the best risk-reward in our coverage.”