This Motor Company Had a Tough Quarter on Margins

Volumes recovering, two new SUV launches planned, Pune capacity ramping — the short-term margin pain is real, but the medium-term growth story remains intact

Not every strong business has strong quarters. Hyundai Motor India’s fourth quarter of FY26 was one of those moments where the headline numbers — a 372 basis point margin contraction, PAT down 26% year-on-year — look worse than the underlying business warrants.

BOB Capital Markets, which covers the stock, is direct about the near-term snag but equally direct about why it is maintaining its BUY rating with a target of Rs 2,261, implying 22% upside from the current market price of Rs 1,853.

What Happened 

The top line was decent. Revenue grew approximately 5% year-on-year to Rs 189 billion, driven by volume growth of 8.7% to approximately 208,000 units. Domestic demand picked up 8.5% year-on-year and exports grew 9.4% — a broad-based recovery after a sluggish period. So far, so good.

The margin story is where the quarter gets complicated. Raw material costs rose approximately 8% year-on-year, with RM cost as a share of sales expanding to 73% from 71.3% in the same quarter last year. EBITDA fell 22.4% year-on-year to Rs 19.7 billion, with margins contracting to 10.4%. PAT came in at Rs 12.6 billion, down 26.3% year-on-year.

BOB Capital unpacks the margin damage carefully. Hyundai itself flagged a one-off vendor cost impact of 50-60 basis points, labour code provisions, and ramp-up costs related to the new Pune facility. Lower utilisation at the Chennai plant added further pressure. “Margins were also impacted by lower utilisation at the Chennai facility,” the report notes — a transient drag tied to the transition between production cycles, not a structural deterioration in the business.

Realisations Dipped 

Net realisations dropped 3% year-on-year due to an adverse product mix — specifically, a lower share of SUVs in the sales mix during the quarter. This is the other side of the margin story, and it is equally important to understand. SUVs currently account for approximately 70% of Hyundai’s domestic sales and are the engine of premiumisation and ASP expansion. A temporary dip in SUV share, driven by model cycle timing and capacity constraints, is precisely the kind of thing that corrects itself as new launches arrive.

Discounts, notably, were soft at approximately 1.9% of ASP — down from 2.6% in the previous quarter. Price hikes were implemented in the fourth quarter, with further hikes planned for Q1FY27. These are not the actions of a company under demand pressure; they are the actions of a company managing a capacity transition.

The Launch Pipeline

This is the part of the Hyundai Motor India thesis that BOB Capital wants investors to focus on. Two new SUV nameplates are planned for FY27 — a dedicated compact SUV EV and an ICE SUV in the mid-SUV segment. These are not facelifts or refreshes; they are new entries into segments with strong and growing demand.

To support this, Hyundai has planned capex of Rs 75 billion for FY27 — approximately 45-50% for product development and 30% for the Pune Phase II expansion and Chennai plant upgradation. The Pune facility will add a further 70,000 units of capacity in Phase III by FY30. Total capacity is expected to reach 1.1 million units by FY28. “HMIL’s timely capacity expansion to 1.1mn units by FY28 will help it improve market share and attain growth,” the report states — and the export strategy adds a second growth vector that is less dependent on domestic cycle timing.

The Medium-Term Margin 

Despite the difficult quarter, Hyundai has reiterated its medium-term EBITDA margin guidance of 11-14%. BOB Capital has trimmed its FY27 and FY28 EPS estimates by 3% and 0.2% respectively to account for the near-term growth-over-margin stance, but the structural direction remains unchanged. The brokerage expects EBITDA and PAT CAGR of 14% over FY26-29, supported by healthy cash flow generation even through the capex-heavy period ahead.

The Report Card

The target price is marginally trimmed from Rs 2,287 to Rs 2,261 — a rounding-level adjustment that reflects the small earnings cuts rather than any change in conviction. The 26x FY28E P/E multiple is maintained, consistent with the premium BOB Capital ascribes to Hyundai’s SUV-heavy mix, export diversification and capacity-led growth profile.