Kotak Equities initiates coverage on Hyundai Motor with 'Add' rating, sees 11% upside

Kotak Institutional Equities has initiated a coverage on Hyundai Motor India stock with an 'Add' rating and pegged a target price at Rs 2,025 which is an 11% upside over the current market price. The brokerage sees the automaker well-positioned to benefit from the growing penetration of passenger vehicles with its strong portfolio of SUVs and access to advanced technologies.

The DCF-based target implies 23X December 2026E core EPS estimates.

However, investors have not been excited as the stock saw muted trading on Tuesday. It was hovering around Rs 1,828 on the NSE at 2:37 pm, up by 0.12%.


Hyundai Motor, which was listed on October 22, 2024, is currently trading below its IPO price of Rs 1,960 per share.

Notwithstanding stock's performance, Kotak remains upbeat on a host of factors. Here are 3 reasons why:

1) Company's strong parentage of HMC will aid the company to smoothly navigate the powertrain transition and launch new advanced features and technologies to ride the premiumisation wave, thereby driving higher ASP (average selling price) growth.

2) Its fair value implies a 6% volume CAGR for the domestic passenger vehicle industry. The growth is expected to ride on disposable incomes, lower household PV penetration and new model launches in multiple powertrains. Its SUV segment is expected to outperform industry growth in the long term.

3) Financials: Kotak expects 8% revenue CAGR over FY2024-28E (11% CAGR FY2025-28E) driven by 5% CAGR growth in volumes, 3% CAGR in ASPs and 8-11% CAGR in spare parts and service revenues. Company’s EBITDA margins to improve by 60 bps to 13.7% in FY2028E from 13.1% in 1HFY25 led by operating leverage benefits, richer product mix and cost rationalisation.

Following its listing, the company announced its Q2FY25 earnings where it reported a 16% decline in consolidated net profit at Rs 1,375.47 crore for the second quarter ended September 30 FY2025 amid sluggish demand for cars in the local market and challenging geopolitical environment globally. The automaker had reported a consolidated profit after tax of Rs 1,628 crore in the July-September quarter of the last fiscal.

Total revenues from operations in the period under consideration stood at Rs 17,260 crore for the second quarter, which is a decline of 7.5% compared to Rs 18,660 crore in the year-ago period, Hyundai Motor India Ltd (HMIL) said in a regulatory filing.

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