Should You Invest in Hyundai Motor India Ltd. for Long Term? Stock Analysis by Finology

India’s 2nd largest passenger car producer, Hyundai has a remarkable 40%+ ROE with ~0x debt-to-equity ratio.

Finology Research Desk has analysed the company this week, providing a clear verdict on whether Hyundai Motor India Ltd. is a good long term stock or not. Find out in this article.

What makes the Automobile industry special?

The Indian automobile industry is one of the significant sectors in India, contributing ~6% to the country’s GDP and 35% to the manufacturing GDP as of 2024. This industry was valued at USD 137.06 Billion in 2025 and is expected to grow at a CAGR of 8.20%, reaching USD 203.25 Billion by 2030. 

This industry can be broadly classified into four key segments comprising- passenger vehicles, commercial vehicles, three-wheelers and two-wheelers. India ranks as the second largest manufacturer of two wheelers and the third largest manufacturer of passenger cars in the world. With two-wheelers and passenger vehicles segments dominating the Indian automobile industry as of 2024, holding a market share of 75.4% and 17.7% respectively.

 

 

Source: Finology Research Desk, SIAM

The passenger vehicle industry was valued at USD 38.8 Billion in 2024 and is expected to grow at a CAGR of 12.1%, reaching USD 96.0 Billion by 2032. This increase was driven by changing customer preferences, technological advancements and rising disposable income of individuals.

India Passenger Vehicle Market (in USD)

 

Source: P&S Intelligence

Further classified into Passenger Cars, Multipurpose Vehicles (MPVS) and Vans- The passenger vehicle industry is currently dominated by multi-purpose vehicles segment with a market share of 59.8% which is followed by passenger cars at 36.7%.

 

 

Source: Finology Research Desk, SIAM

Within the passenger car segment, Hatchback was as a popular choice among the customers over the years because of its cost effectiveness and lower running costs, making them affordable to the Indian customer. However, this trend has transformed over the years with SUVs now leading the market with a share of ~50% of the overall industry sales. This increase is attributed to changing customer preferences, with buyers now prioritising advanced features, enhanced safety and improved interior & exterior design over economically priced vehicles when making their purchase decisions.

 

 

Source: DRHP

This industry is dominated by Maruti Suzuki with a market share of 43%, followed by Hyundai (15%), Mahindra (11.2%),Tata Motors (11.1%), Kia India (6%) as of 2024. These companies have shown a strong commitment to innovation through the introduction of advanced technologies, especially in electric and hybrid vehicles, while also expanding their CNG vehicle portfolios to meet changing consumer preferences.

There is increasing adoption of electric cars in India driven by high operational costs of conventional vehicles and increasing awareness about environmental issues, with Tata Motors being the leading player in the EV segment with about 71% share and Morris Garages being the second at 13%.

 

 

Source: DRHP

Business Model of Hyundai

Formed in 1996, Hyundai Motor India Ltd. is an Indian subsidiary of South Korean automobile manufacturer Hyundai Motor Company, which is the third largest auto Original Equipment Manufacturer (OEM) in the world. It is primarily engaged in the business of manufacturing and selling four-wheeler passenger vehicles, as well as parts (including transmissions and engines) in India and outside India. It is the second-largest passenger car manufacturer and exporter in India (as of 2024). It has a network of 1,366 sales outlets spread across various states in India.
 

 

Source: DRHP

Revenue Mix of Hyundai
 

 

Source: Finology Research Desk, Annual Report FY24

Hyundai India generates the majority of its revenue - 85.95% from the sale of passenger vehicles. The company offers a diverse portfolio of 13 models spread across various segments, including sedans, hatchbacks, SUVs, and electric vehicles (EVs), catering to a wide range of customer preferences.

Beyond passenger vehicle sales, the company derives 6.17% from sale of parts such as engines and transmissions and another 6.06% from sale of services.

 

 

Source: Finology Research Desk, Investors Presentation Q3 FY24

With a strong foothold in the domestic market, Hyundai generates 77% of its revenue from India while the remaining 23% is contributed by other parts of the world.

In terms of volume, SUVs accounted for 63% of the domestic sales, with Hyundai India dominating the mid-sized SUV sub-segment through Creta. Whereas Hatchbacks and Sedans contributed 23% and 14% respectively as of 9M FY24.

Hyundai's Cost Mix

 

 

Source: Finology Research Desk, Annual Report FY24

Hyundai’s cost of material primarily consist of steel, aluminium, rubber and precious metals such as palladium, platinum, rhodium which are essential for its manufacturing operations. Material cost accounted for 72.8% of the total revenue and has been stable ranging between 72 to 75% over the years. Although the material costs have remained stable over the years,  the fluctuating prices of these elements attributed to changing general domestic and international economic conditions, geopolitical tensions, extreme weather changes, import duties and tariffs and foreign currency exchange rates could make these costs volatile. 

Depreciation and amortisation expenses constitute about 3.10% of the company’s total revenue. These costs have grown in line with the company’s revenue growth over the years. It has remained stable, ranging from 3% to 5% of the revenue over the years.

Employee benefit expenses make up around 2.1% of the total revenue. Despite the growing adoption of automation, human involvement remains crucial in the passenger vehicle industry particularly in terms of their abilities in problem-solving, design, and customer interaction.

Other expenses which include costs for repairs and maintenance, royalty, freight, advertisement and promotional expenses etc, accounted for 10% of the total revenue. It has been stable over the years, generally falling in the range of 9% to 10% of the total revenue.

Hyundai India is entitled to the payment of royalty to its parent company, Hyundai Motor Company, for the use of technical information and trademarks related to manufacturing and sale of passenger vehicles and parts. The royalty fees have recently been increased from 2.4% to 3.5% of the sales revenue which has impacted the profit margins and increased the overall cost structure of the company.

The company’s tax burden has been relatively low, accounting 3.06% of the total revenues. Over the years it has ranged between 2% to 3%, aligning with the corporate marginal tax rate of about 25%.

After accounting for all the expenses, the company achieved a net profit margin of 8.5%. The company has been demonstrating strong profitability with net margins typically ranging from 6 to 8% of the revenue over the years.

Porter's 5 Forces Analysis of Hyundai

 

 

Source: Finology Research Desk

1. Low Threat of New Entrants: The threat of new entrants is low in the passenger vehicle industry due to high barriers of entry in terms of high capital expenditure, technological expertise, complex compliance requirements (including safety and emission norms) and building an efficient supply chain network. Established brand reputation of existing players also play a crucial role in influencing customer decisions which restrict the entry of new players in the market. 

2. Moderate Bargaining Power of Customers: Customers have moderate bargaining power in the passenger vehicle industry. The availability of a wide range of options in the market allows the customers to demand better features and competitive pricing. Since, the majority of the customers are price sensitive in India, companies must keep their prices competitive (especially in budget and mid range segments) in order to maintain their position in the market.

2. Moderate Competition in the Market: The passenger vehicle industry is an oligopolistic market, where a few firms dominate the overall industry. Maruti Suzuki, Hyundai, Mahindra, Tata Motors and Kia India, the top 5 players in this industry command 85%+ market share in the Industry. Despite being the second largest player of this industry, Hyundai faces increasing competition from these players which are competing over market share, price and features.

4. Low Bargaining Power of Suppliers: The passenger vehicle industry faces low bargaining power of suppliers due to availability of a large number of domestic and foreign suppliers, which reduces the influence of a specific supplier over price and contractual terms. 

5. Low Threat of Substitutes: Threat of substitutes is low in the passenger vehicle industry, primarily because there are limited availability of alternatives that can fully replace personal cars in terms of convenience, safety and control. While public transportation may serve as partial substitute, they do not offer the same level of comfort, privacy and flexibility. Moreover, rising disposable income and purchasing power are acting as a key driver fueling the demand for personal cars in India.

What led us to reject Hyundai Motor India Ltd. for Finology 30?

1. Conflicting Interest - Hyundai India operates as a subsidiary of Hyundai Motor Company, which holds 34.16% in Kia Corporation. Kia Corporation operates in India through Kia India Private Ltd which is a direct competitor of Hyundai India in the passenger vehicle market. Both companies have overlapping product offerings such as SUVs, Sedans and EVs and target similar customer segments which can lead to internal competition and strategic conflicts between the companies.

Additionally, Hyundai Motor Company’s chairman is also the chairman of Kia corporation which raises concern about the independence of strategic decisions and potential favouritism. As Kia India expands its market share from 3.1% in FY20 to 6.0% in FY24, there is a risk that Hyundai’s growth could be hampered and its competitive position would be diluted. This lack of clear separation between these two companies may lead to conflict of interest which may impact the operations and future prospects of Hyundai India.

 

 

Source: DRHP

2. Concentration Risk - Hyundai India currently manufactures its passenger vehicles and parts including engines and transmissions only at the Chennai Manufacturing Plant (Tamil Nadu). This heavy reliance on a single region production facility exposes the company to significant concentration risk. Any operational disruptions, natural disasters or regulatory issues in this region could severely affect the production capabilities of Hyundai India. Although the company has acquired another manufacturing plant in Pune, Maharashtra, this facility is still under development and is not yet operational. Until it becomes fully functional, Hyundai India remains restricted to this single production facility which may impact its operations in case of any unforeseen circumstances.

3. Minimum Public Shareholding (MPS) Rule - As per the SEBI’s Minimum Public Shareholding rule, all listed companies in India (except Public Sector Unit companies) must ensure that at least 25% of their equity shares are held by non-promoter shareholders. This means promoters can't hold more than 75% of the total equity shares. In the case of Hyundai India, promoters hold about 82.5% shares which is significantly above the prescribed limit. Therefore, Hyundai will be required to dilute at least 7.5% to comply with this requirement within 3 years from its date of listing. Such stake reduction could have an impact on the earnings per share if there is no proportionate increase in company’s earnings and may dilute the holding of existing shareholders.

The Bottom Line

For Finology 30, our ideology has been to focus on business models with robust financials and strong management pedigree. For now, Hyundai Motor India Ltd. failed to pass our investment checklist. So, we decided not to go ahead with Hyundai Motor India Ltd.

However, there are very few stocks that made it to the Finology 30. Check them out here.