Brokerages' Thumbs Up To Hyundai India Even As Shares Make Tepid Market Debut

The listing of the number two player in the passenger vehicle market, Hyundai India, has ensured that the top four players in the industry are now listed on Dalal Street. This also augurs well for investors who now have a SUV focused pure player auto maker.

Nomura has initiated coverage with a 'Buy' rating with target price of Rs. 2,472. This indicates an upside of 29% from current market price of Rs. 1,911 per share at 10:52 am. Macquarie and Motilal Oswal are also positive on the stock.

Nomura says Hyundai India is poised for long-term growth with SUV mix at 67%, improving average selling prices & market share as well and believes it is best positioned in their passenger vehicle makers coverage to handle technological transitions.

Hyundai has consistently been able to predict consumer shift like towards SUVs. This is an indication of launch of the Creta back in 2015, which has helped them increase the share of SUVs from 13% to 67%. Another factor positive for the company is having Indian management on board, which is a key advantage, says Nomura.

Macquarie also initiated its coverage on Hyundai India with a ‘Buy’ rating. It has a target price of Rs. 2,235, a potential upside of 17% from current price. It sees Hyundai's market share in compact and mid SUV to have stabilised and improved as well from recent lows to 14.4%. Macquarie says market share should be viewed in the context of increased competitive intensity from the likes of Tata Motors and M&M.  

The brokerage says Hyundai India has outperformed Kia with Maruti facing risk of model sharing with Toyota. It sees potential risk to Maruti’s market share upside as 36% of Maruti’s FY25 volumes has an equivalent model from Toyota under their cross badging agreement.

Macquarie prefers Hyundai over Maruti. Over FY19-24 Hyundai's realisation/ unit and EBIT/unit were higher than Maruti Suzuki, the brokerage said. This is reflected due to Hyundai India’s better positioning in the premium segment with higher SUV exposure a key positive as well.

Motilal Oswal also has a 'Buy' rating with target price of Rs. 2,345, 22% upside from the current level. Hyundai’s diverse portfolio mix covering almost 87% of India’s PV market helps the company boast healthy domestic market share. It currently holds a 34%/20%/18% share in mid-size SUVs/compact SUVs/premium compact car segments, said the brokerage. Motilal also sees Hyundai India receiving extensive support from its parent in the areas of management, R&D, design, supply chain.

The choice of preferring Hyundai India over Maruti Suzuki is echoed by Motilal Oswal as well. It ascribes a slight premium to Hyundai over Maruti Suzuki given:

1) Parent's tech prowess in emerging tech that can be adapted to domestic requirements

2) Superior financial metrics

3) Relatively premium brand perception

4) Better alignment with industry trends

Nomura estimates Hyundai India to deliver 8% volume growth CAGR over FY25-27 driven by 7-8 models. This will aid Hyundai to deliver 17% earnings CAGR over FY25-27. EBITDA margins are expected to improve to 14% by FY27 vs 13.1% in FY24. Their earnings estimate puts the stock at 25x FY27 P/E.

Macquarie believes Hyundai India deserves to trade at premium P/E multiples vs peers due to its favorable portfolio mix and premium positioning. Powertrain optionality including parent capability and market share upside risk are medium-term positives, says the brokerage as it estimates 12% PAT CAGR between FY25 and FY27.

It implies similar multiples of 25x FY27 P/E, 15% premium to Maruti Suzuki. Motilal anticipates the company to report 17% EPS CAGR over FY25-27.

Nomura says that ongoing premiumisation may drive high quality growth with the long runaway for India's car industry.

While it estimates India's PV Industry to sustain healthy volume CAGR of 6-8% over 5-10 years, it sees customers becoming more aspirational and willing to pay more for features. Hence, it believes average selling prices should continue to rise by 3-5% which will help revenues and margins as well.