Hyundai Motor India profit drops 16% in Q2 as domestic sales, exports fall

New Delhi: Hyundai Motor India Ltd (HMIL), the country’s second-largest automaker, posted a 16% decline in its second-quarter net profit following its public listing last month, hurt by weak domestic demand and the Red Sea crisis that subdued exports.

The India unit of the South Korean carmaker's net profit for the July-September quarter fell 16% to ₹1,375.47 crore from ₹1,628.46 crore in the same quarter a year ago. Its revenue dropped 7.5% to ₹17,260.38 crore from ₹18,659.69 crore.

Hyundai is the latest passenger vehicle original equipment manufacturer (OEM) to report a tough second quarter in a challenging market marked by declining wholesale dispatches for the first time in over two years.

The company's earnings before interest, taxes, depreciation and amortization (Ebitda) during the September quarter fell 10% to ₹2,205 crore from ₹2,441 crore a year ago, while margins narrowed to 12.8% from 13.1%.

High interest rates, which have made borrowing for vehicle purchases more expensive, and the exhaustion of pent-up demand are adding to headwinds in the domestic market, the company said, maintaining a cautious demand outlook for the near-term.

Domestic sales

In the September quarter, Hyundai Motor India saw domestic sales fall 5.7% to 1.49 lakh units, while exports slid 17% to 42,300 units year-on-year. HMIL's chief operating officer Tarun Garg said that while domestic sales had shown modest sequential growth, overall demand softened in response to cyclical trends, compounded by ongoing geopolitical tensions. The passenger vehicle industry is expected to clock a modest low-single digit growth this fiscal year, he said.

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The Iran-backed Houthi militants in Yemen have been attacking merchant and naval ships in the Red Sea, strangulating trade through the Suez Canal.

The carmaker listed at a discount to its issue price of ₹1,960 on Indian stock exchanges on 22 October amid a tepid passenger vehicles market. Its stock closed marginally lower at ₹1,820 on Tuesday on the National Stock Exchange.

Exports were down, particularly to the Middle East, where the Red Sea crisis created logistical challenges that dampened Q2 shipments. Hyundai is tapping alternative markets in Africa, Mexico, and Latin America to prop up its exports, Unsoo Kim, managing director, Hyundai Motor India, said in a post-earnings conference call.

Although the company is confident of a mid-term recovery, it conceded that macroeconomic and external factors impacting the export markets remain challenging for the near term. Hyundai's domestic competitors like Tata Motors have also warned a cautious near-term outlook for local demand. Maruti Suzuki, India's largest carmaker, also saw a drop in small car sales in July-September slow its revenue growth to the lowest in several quarters.

“While the macroeconomic environment is expected to remain challenging for the auto sector in the near term, we plan to focus on our strength, and don't want to lose out on any potential opportunity to improve our volumes and profitability," Kim said.

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Betting on EV launches

Hyundai is now betting on the launch of its maiden locally-made electric vehicle early next year, a spin on its bestselling mid-size SUV Creta, to spark excitement and drive sales. The carmaker is doubling down on local manufacturing production and leveraging benefits from the central government's production-linked incentive scheme to improve margins and mitigate the higher costs associated with electric vehicle (EV) production.

“We will be launching the Creta EV for mass market in the coming months and we expect it will be a game changer in the EV market,” Kim said.

It is also counting on its strategy to sell more premium SUVs, which drive up per-unit revenues and profitability, to reap benefits in an SUV-crazed market.

“During the quarter, we sold 1,26,636 vehicles in the SUV segment, which accounted for nearly 69% of the overall volumes, highlighting our strength in this segment," Garg said.

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