Hyundai Motor India Limited (HYUNDAI) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Hyundai Motor India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Joseph George from IIFL Capital. Thank you, and over to you, sir.

Thank you, Braden. Good evening, everyone. We welcome you all to Q1 FY '26 Earnings Conference Call of Hyundai Motor India Limited. Today, we have with us Mr. Tarun Garg, Managing Director and Chief Executive Officer; Mr. Wangdo Hur, Chief Financial Officer; Mr. [indiscernible], Chief Operating Officer; Mr. Gopalakrishnan Sivaramakrishnan; Chief Manufacturing Officer; Mr. Saravanan T., Function Head Finance; and Mr. K. Hariharan, Head of Investor Relations, Hyundai Motor India Limited. I would now like to inform you that the call is being recorded. I would like to invite Mr. K.S. Hariharan, Head of Investor Relations from Hyundai Motor India Limited. Over to you.

Thank you, Joseph. Good evening, everyone, and welcome to the Q1 Financial Year '27 Earnings Conference Call. Before we begin, I want to remind of the safe harbor. We may be making some forward-looking statements that have to be understood in conjunction with the uncertainties and the risks that the company faces. The conference call will begin with our MD remarks on the business highlights, financial performance and outlook, followed by a brief presentation by me on Q1 financial year '27, after which we will be happy to receive your questions. Now I hand over to our MD. Over to you, sir.

Thank you, Hari. Good evening, everyone. Before we discuss our quarterly results, let me begin by highlighting a landmark achievement in our journey. 2026 marks Hyundai's 30 years in India celebrating three decades of trust, pride and progress. From investing more than INR 40,000 crores to surpassing 13.5 million sales cumulatively and making India a key global manufacturing and export hub, we continue to drive progress with purpose. This milestone is not just a celebration of our past achievements, but also a testament. With a strong foundation we have built for continued growth and success in the years ahead. During the journey, Hyundai has helped shape India's automotive landscape through innovation, localization and customer centricity. As we enter the next phase of our growth, we remain committed to advancing technology and delivering future ready mobility solutions for our customers. Moving on to our domestic business. Fiscal '27 began on a very strong note. The first 2 months of the quarter reflected healthy momentum with cumulative sales in April and May, growing by 13% year-on-year, supported by favorable demand environment and our strategic product actions. However, the fire incident at one of our supplier facilities temporarily impacted vehicle production in June, constraining our ability to fully meet market demand. As a result, domestic volume growth for the quarter was 5.4% year-on-year, lower than our initial expectations. However, at Hyundai, agility has always been part of our domain. Throughout our 3-year journey in India, we have successfully navigated various challenges through swift decision-making, strong execution and close collaboration with our partners. The recovery from recent operational disruption was yet another example of resilience, enabling us to return our operations to normalcy within a very short period. [Technical Difficulty]

Sorry to interrupt sir, but you're not audible at this moment. Ladies and gentlemen, please stay with us. Ladies and gentlemen, we thank you for your patience. We have now reconnected with the management. Please go ahead, sir.

Okay. Extremely sorry about this, network issue. I will quickly, I think, go through the presentation again. So anyway, I mentioned about the 30 years completing, INR 4,000 crore investment, 13.5 million sales. Of course, domestic fiscal '27 began on a very strong note. However, the fire at our supplier facility constrained our growth to 5.4% in the quarter. But if you remember, we had said that we will recover this production within this quarter 2. However, I'm very happy to report that most of it has already been done in July itself. So I think this is -- this shows a strong resilience of Hyundai Motor India. So this is the other thing I talked about. Of course, there are some achievements like Hyundai Venue, highest ever quarterly volumes, CNG contribution at 18%, rural contribution at an all-time high of 26%. So we are very confident that we are going to have 8% to 10% year-on-year volume growth for this year, which we have stated at the beginning of the year. In export also, in addition to this disruption in production, Middle East was affected, but you would have seen that we have increased our exports to the other markets. And we have a very healthy order backlog. So now that the production is in full swing, you will start reflecting -- we will start reflecting it in export sales right from July itself. Venue is also receiving a great response and also Verna PE, Exter PE and also the left-hand drive of Exter, we have already started the dispatches. So we are expecting very strong recovery in exports. And again, we are confident of delivering our stated full year guidance of 8% to 10% year-on-year in export as well. On CAFE update, I think this is an issue which has been talked about. So I'm pleased to inform you that as per our internal assessment, we will fully meet the compliance requirements and not incur any penalty at all under CAFE 2 for the period fiscal '23 to fiscal '27. Across fiscal '27 also is going great. So 0 penalty on CAFE 2, Also, we are fully aligned to the CAFE 3 draft notification. Of course, we are taking for the final notification to come in. Of course, profit margins year-on-year were impacted due to lower export volumes, of course, costs associated with the Pune plant et cetera, et cetera. But of course, our efforts to balance the calibrated pricing actions with disciplined cost management, I think they have helped us to minimize the impact. So we are, again, very confident that what we had informed you earlier of EBITDA margin between 11% to 14%, I think we are well on track to achieve that even in fiscal '27. So also, I'm happy to report that Pune plant third shift, we are starting from October itself. The earlier plan was mid of '28, but we are preponing it by two years because of the strong response received on the Venue in the domestic as well as in the export market. Also, the mid-SUV ICE, Mid-SUV ZE is ready to be launched in the festive season. And of course, a lot of activities on the AI integration. And whether it is in sales and marketing, the AI sales agent, the hygiene chat bot, dealer AI platforms, in surveys, VOC analytics, service automation, manufacturing and supply chain, we are also working towards multiple initiatives, including quality inspection, predictive maintenance. So our vision is to evolve AI, from a productive tool into an intelligence coworker that supports employees augmented decision-making and accelerate innovation. And soon, you will see products as well that we are advancing in vehicle AI capabilities. So thank you very much for your continued support to us. And I will now hand it over to Hari for a detailed review of the fiscal financial performance for the quarter. Thank you very much.

Thank you, sir. Let me begin with our sales performance during the quarter. We achieved total sales of 178,082 vehicles Q1 fiscal year '27 compared to 180,399 vehicles in the corresponding quarter last year, a decline of 1.3% on year-on-year. The impact on volumes was mainly due to the production disruption caused by supplier fire incident and geopoliticical headwinds. In the domestic market, we sold 139,374 vehicles compared to 132,259 vehicles in the same quarter last year, a growth of 5.4% on a year-on-year basis. We exported 38,708 vehicles as compared to 48,140 vehicles same quarter previous year. Moving to the segment mix in domestic market. SUVs continue to be the core pillar in our portfolio with a healthy mix of 70% during the quarter, and similar trend has been observed both in urban and rural markets. On fuel front, we also continue to see strong momentum in the CNG segment with steady growth, reaching highest ever contribution of 18.2% in the quarter in Q1 fiscal year '27. Let me now share the financial numbers. Our revenue from operations stood at INR 163,346 million in Q1 financial year '27 as against INR 164,129 million in the corresponding quarter previous year. Despite many headwinds, our calibrated pricing strategy, unfavorable exchange rate helped support our revenue, which remained largely flat year-on-year. EBITDA stood at INR 17,117 million as compared to INR 21,852 million in Q1 fiscal year '26. EBITDA margin stood at 9.3% as compared to 13.3% in Q1 fiscal year '26. EBIT stood at INR 9,546 million for the quarter, as against INR 16,571 million in Q1 fiscal year '26. EBIT margin stood at 5.8% in Q1 fiscal year '27. PAT for the quarter was INR 8,886 million as against INR 13,692 million in the corresponding quarter. PAT margin for Q1 fiscal year '27 stood at 5.4%. Our Q1 fiscal year '27 margins were impacted by a combination of factors, key common headwinds for both year-on-year and sequential basis were: number one, the production disruption, which impacted the volumes, especially of certain higher-margin models; number two, West Asia conflict impacting our export volumes; and number three, the commodity cost pressures. In addition to these, on year-on-year, margins were also impacted by capacity stabilization costs. These pressures were partly offset by favorable exchange rate and our calibrated pricing strategy. On a sequential basis, margins were impacted by increase in discount levels and lower government incentives due to seasonality. While discounts increased sequentially, this was in line with the typical seasonal trend for the quarter. Importantly, our discount levels remained below the industry average and our Q1 financial year '26 discount levels, replying our disciplined pricing approach. The sequential headwinds were partially mitigated by our continuous cost optimization initiatives and also absence of certain one-off expenses incurred in Q4 fiscal year '26. This concludes my presentation. Thank you all for your time and attention. Now we open the floor for Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Kapil Singh with Nomura.

My first question is on the margins. We have seen very strong gross margins, actually an improvement at a time when there was severe cost pressure. So can you just talk us through how much cost pressure we faced during the quarter and how we were able to mitigate that? And is there further cost pressure that we are envisaging on account of commodities and any price hikes we have taken there?

Hi Kapil, Hari here. So the commodity impact on our margins during the quarter was roughly 100 basis points on a Q-on-Q basis. In fact, the impact was largely seen in precious metals and copper. We could somehow minimize the impact on margins during this quarter, to some extent, mainly supported by three factors: number one, our calibrated pricing strategy; number two, our cost reduction efforts. And also, if you remember, last year, we indicated that there was certain one-off in commodity in Q4 of last financial year. So that also helped us to some extent during this quarter, right? And your second question was on the price hike, right? So price increase is something -- Normally, we take a calibrated approach here. So far this calendar year, we have taken three price hikes, cumulatively around 100 basis points we have taken. Going forward, we will continue to see the commodity trend, the market condition and other factors as well. In looking at all these factors will take a decision on the price increase.

And Kapil, we stay committed to our EBITDA guidance of 11% to 14% for the fiscal year. I think this is very important. So all our decisions are based on that we should -- we have -- this is what we have promised to the market. So we will take accordingly. And we have to have the balance between the volume aspiration and the margin. But one thing which you would have noticed is that year-on-year, the discounts have also come down. Last year, same quarter, the discount was 3.4%. This year is 2.8%. And when the new models come in, typically, for the first year, the discount levels are 0. So we believe that H2, which you will see two -- minimum two new models should really help us in even managing within the discount level and also help us to not really go for aggressive price hikes and maintain our EBITDA margin within this range, 11% to 14%. I hope I've answered your question.

Yes, sir, actually, most of the OEMs are calling out very severe cost pressure of around 300 to 400 basis points. So in that context, should we expect more cost pressure ahead? Or most of it is reflected in your financials? I just was trying to understand that.

Look, year-on-year, we had about 200 basis points on the commodity. Like you said, quarter-on-quarter 100, but year 200 basis points. Now what happened in the future is anybody's guess is very, very difficult. But as of now, I mean, we are holding on, and we will see how they might go, the demand looks good. We also have to understand that the base of last year will start coming up from October. Until September, everything is looking much more better in industry growth because the base was very low. But the GST came in, in September. So we are expecting that from October, industry growth will mute. And so I think we have to be conscious of that as well. So let's see, like I said, we'll have a calibrated approach and do what is best in terms of volume and profit put together.

And sir, second question was on demand side. What is the outlook for the industry and for Hyundai, can we expect market share to pick up now? And in the second half, do you expect Hyundai's growth to be higher than the industry?

For sure. We -- like I said, we will -- we are maintaining our 8% to 10% guidance which means that we have to grow minimum 8% to 10% in the second half also because we have grown by only 5.4% in quarter 1. And frankly speaking, from H2, like I mentioned, the base effect will start coming in. what will work for Hyundai is to absolutely new models in a high-growth segment, which I think is -- which will be an edge for us over the others. The second thing which will help is the Venue third shift, which will mean more when volumes come up. So I think these are the two things which are really helping Hyundai versus the competition, which will help us to get back on the market share winning ways going forward. On the export front also, like I mentioned, the back order is very strong. And also all these extra left hand drive, Exter PE, of course, the Middle East and all the efforts which we have put up in the Central and South American markets because of the problem in Middle East. I think now we'll have both the Middle East coming in as well as the strong CSA and Venue is also adding up. So I think all these things should really help us in the coming quarters.

The next question is from the line of Binay Singh with Morgan Stanley.

Just a clarification from the earlier question. So looking at all the cost pressures that you of today is where you still feel comfortable with the margin guidance, right? That is the way to read it?

Comfortable is not the word. Nobody can be comfortable in this kind of a scenario. But I think we are -- we feel that we are in charge of what we are doing, we know that -- where we are. And what we are saying is that we will take actions as and when required to ensure that we are within the 11% to 14% EBITDA range. I think this is what we are saying to be very clear. So we don't like prices going up. At the same time, you see what the uncertainty, even crude, you see one day, it is [ 90], other day to [ 73 ]. So in this scenario, it's very difficult to really judge what's going to happen in the future. And frankly speaking, internal assessment suggests that things are not going to be so tough on the raw material side. I think things will start cooling off, if not immedietely, but definitely in the coming months, they should cool off as well. And we will keep that in mind when we are taking a decision on price and volume. But discount, of course, will keep them in check like we have been able to do in the last couple of years.

And secondly, on the new model launch, fair to assume that both the models will be available for 6 months or one is available for 6 months of this year?

I think, like I said, the festive season is coming. So H2, both the models will be available in H2. Now full H2 or how -- I can't really inform you the exact time of launch, but one model definitely since it's coming in the festive season, it will be for the -- almost the entire H2.

And just lastly, on electric vehicles, this will be your first sort of a major EV launch in India. How do you see profitability of that versus the market? Because what we are seeing in your assumption is that you probably launching an electric vehicle, Still, we are seeing margin trajectory moving up. So is it the global cost structure of Hyundai that is helping you position it? Or you plan to price it in a premium side? Any thoughts on what would be your EV cost structure versus our competitors? Do you have an edge over there?

Yes. Yes, I got your question. While I'd not like to comment exactly on the profit or the cost structure. But couple of things which are very important is that, one, we are running for the PL for this new model. I think this is something which we have not been able to do so far. So this is a very big boost to our efforts in this. Number two, we have been working very strongly on the localization. In addition to the battery packs, we are looking at the other elements on power electronics, et cetera, and making sure that -- and of course, as you know, for the PLI, we need a 50% domestic value addition as well. I think that is something which is very important. Of course, HMC strength in the EVs is something which will help us. Also, we are looking -- like I mentioned in my opening remarks, we will not only be an EV, I think we will use AI in a big way. We're also working on the overall value proposition to the customer. You would have read Binay, about our announcement on on the MyHyundai app, which gives customers access to 30,000 charging points. So I think a lot of things we are doing, which will make our EV proposition, a very strong one. And also this is the first mass market dedicated EV from Hyundai. So I think we are building a very strong proposition for the customer, and we are quite confident that this should really give us volumes. On the profit and all, I would not like to make a comment, but these are some of the things which will help us to position it better.

Our next question comes from the line of Chandramouli Muthiah with Goldman Sachs.

My first question is just around the current utilization rates at Chennai and the Talangana facilities and just later, I just want to understand how much additional capacity do you see getting unlocked with the per shift on Venue?

So just to continue, we have 3 plants, 2 plants in Chennai, 1 in Pune, okay, the Pune question -- if you remember, we had said that Phase 1, we will be 170,000, which is a 3-shift operation. So currently, we are working on 2 shifts. So now we are going to thee shifts, which means that potential capacity can be 170,000. So we'll see how much of it we can use starting from October, of course. So this will be H2 of next year -- H2 of this year. So this is where Pune stands. But the most important thing is Plant 1 in Chennai, where this year, because venue got shifted, the capacity is only 72% utilization. I think with the two new models coming in, we will reach the capacity utilization of 88% in the plant, one of Chennai. And this is a major game changer for us in terms of optimizing the cost. So on two fronts, one is the Pune plant where, of course, the third ship will help. And second is the Part 1 of Chennai where the capacity utilization will go up from 72% to minimum about 88%, 90%, 91%, if not more. I hope I've answered your question.

That's helpful. Second question is just on the export business. So I think over the past 4 to 5 months, there's been a lot of disruption on the shipping lines into the Middle East. It is also an important part of your export business. So I just want to understand the confidence that you're seeing on export volumes coming back. I just want to understand how the supply chain is looking, how the shipping channels are looking for you? And also just related to that, you've seen vis-a-vis a big improvement, export ASPs up about 7% Y-o-Y with 5% to 6% Q-o-Q. So I just want to understand what are the 3 models that are driving that ASP up. So just export volume pick up in the medium term. Is that backed by visibility around shipping channels, as well as ASP drivers, what are the key models that drive that?

Yes. So let me give you some lever for exports and why are we confident? So First is the new venue. It has received a great reception. Already 29 markets are in -- they have started giving orders and we are planning for 35 total markets in the near future. Then Exter LHD, which we have launched for the first time, the shipment is starting in this quarter. And 13 markets, we will reach 13, 13 markets by quarter 3. And Verna PE also from June, we have started and more than 25 markets will reach by Q3. So I think these are the 3 things. Yes, those challenges on freight, Strait of Hormuz et cetera, are still continuing. At the same time, along with our partner, logistic partner, we are trying finding ways. And we believe that -- and they -- because the back order is very strong. So I think you will see in July itself, the shipments of export would have gone up, one, because of things opening up from Middle East terms of orders; and number two, because that incident is behind us and we have been able to do the production. Mexico, although there was challenges because of tariffs, but it's still holding on, and we are receiving some good orders for next quarter as well. So I think the efforts done in CSA centered in South America -- in January to March quarter and April to June quarter will hold us in good stead going forward as well, because the 23% year-on-year growth and the demand remains steady there. So I think we are -- that is why we are confident. On ASP, as more and more, of course ASP has improved, but please understand because we had to shift from Middle East to CSA, the HACH contribution went up because CSA is more of HACH dominated. But the movement Middle East opens, the Verna opens up. And so that will again give us more opportunity. Also, Middle East is mostly automatic. So that also increases the ASP. So I think that is what all those factors should really help us to increase export and maybe Hari will add some more things here, Hari.

Yes, Chandro, our broader strategy is we are looking at enhancing our SUV mix in exports aspect. So domestically, we are very strong with 70% SUV contribution. But if you see exports, we have hardly 13%, 14% of contribution. So clearly, we can understand there is a lot of headroom here to improve the SUV mix. So that is the broader strategy. So we are working towards that.

The next question is from the line of Gunjan Prithyani with Bank of America.

First question is just clarification on with the Venue third phase, the entire Pune plant is going to be Venue plant, which means we were roughly INR 14,000, INR 15,000 or per month production. That caters to both domestic as well as exports. So the third line will eventually cater both domestic as well as exports. That's the way to think about it, right?

Absolutely. Yes, spot on.

Okay. And on the capacity utilization which you mentioned will go up from 72% to 88% in Chennai plant, is that something that both the launches are ramped up? Or is it that we are expecting 88% in second half? How should I think about this number that you gave on the Chennai capacity utilization?

Yes. So I talked about Plant 1. And what I mentioned was that in 2026 in plant 1, broadly, we are at about 72% capacity utilization. And we believe in 2027, which should be around 90%, 92%, maybe more in Plant 1. Plant, 1 of Chennai. So I mean -- so this is where it is. So '26, in 2026 calendar, 72% in 2027 calendar, 90%, 92%. This is the best I can do to answer your question. I hope it helps you.

This is helpful. Okay. And second question, Tarun, you can give us a little bit more, if you can, to whatever extent, give us a little bit more understanding on the position of the midsize SUV that is due for long during set. And the reason for this question is, I mean, often, we end up comparing midsize Creta and other model in the same category, how should we think about the positioning of this model? And if you indeed with this launch worry about what happens to the Creta volume, so some thoughts around this.

Look, if you see the segment, mid- SUV segment is growing very sharply. And of course, Creta continues to be the market leader here. At the same time, we believe that two models, clearly a space for two models. And the positioning will be very different from the Greta,like I mentioned, it will be kind of a technology-first positioning. We are moving more and more into software-defined vehicles connected mobility platform. Of course, we are having more and more GenZ and digitally native customers. So a lot of things. You have to be more patient because I don't want to divest too much of a marketing strategy, but we have a very, very clear differentiation with the Creta. Don't worry about it. And like I mentioned. Also, if you see, there is a clear space between 4-meter and, say, 4.4 meter. This segment is really, really opening up, and we have seen even the industry, many more models coming in. So I think there is a very clear opening for us, and that is why we have decided to get into this segment.

Got it. And just last quick one if I can on the revenue. If I remember in the last call, you mentioned you sort of come back with what is -- which are the markets where you can cater globally? Because outside of India and Korea venue is roughly 100,000 or 90,000-odd market sizing. But is it that we cater to entire market size outside of India and Korea? Or is there any other way to think about in terms of the potential for the target markets for Venue?

It's not so easy because the regulations are very different in different markets. So if we want to really cater to some of those markets, then we will have to spend a lot in CapEx, et cetera, et cetera, and then it increases the cost for the overall venue. So we have to be very selective. At the same time, there are enough markets where, like I mentioned, that we can do the revenue. We are already looking at doubling the Venue volumes at the minimum. And the response has been very good, in fact, from all the markets. So I think this is a new opportunity, which is kind of opening up, but definitely no. Answer to your question on the developed markets, taking this new Venue. I think the answer is a clear no, because the regulations will be very, very expensive to -- for us to do as of now. But at the same time, we continuously evaluate and see if there are more opportunities there.

The next question is from the line of Amyn Pirani with JPMorgan.