Hyundai Makes More Money Than Maruti, Tata: We Explain Why
We all know that India’s largest carmaker is Maruti Suzuki India Limited. However, when it comes to the most profitable automaker in India, you’d be surprised to know that it is actually Hyundai India. Today we will explain to you why, despite being the second-largest car manufacturing giant in India, Hyundai is the one that makes the most amount of profit. Also, Hyundai has left behind Tata Motors and Mahindra, even though these carmakers have managed to increase their profits in recent years.
Indian Carmakers EBITDA (Profit) Analysis
Hyundai Motor India’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin in the nine months ending December 31, 2023, stood at an impressive 12.7%. This figure not only managed to surpass Maruti Suzuki’s 11.4%, but it also managed to leave Tata Motors’ 6.1% behind as well.
Over the past few years, Hyundai has consistently achieved double-digit operating profit margins. For instance, its operating profit margin was 10.4% in FY21. It then increased to 11.6% in FY22 and reached 12.5% in FY23.
On the other hand, Maruti Suzuki’s margins have been in single digits during FY21 and FY22, with 7.6% and 6.5%, respectively. They finally improved to 11% in FY23 and 13% in FY24.
Apart from these two top carmakers, Tata Motors, which stands in the third spot on the podium, managed to see some improvements. Tata Motors’ EBITDA improved to 2% in FY21, 5.3% in FY22, 6.4% in FY23, and 6.5% in FY24.
Why Hyundai Is Making More Margins?
Now, moving away from the stats and figures of EBITDA, we answer the main question as to how Hyundai managed to make more profit margins. The answer to this has many layers. The first is that the South Korean automaker focuses more on premium cars and SUVs.
Hyundai has strategically focused on premium vehicles and sports utility vehicles (SUVs). Hyundai’s best-selling models include the Creta and the Venue, which are priced between Rs 11 lakh and Rs 20 lakh. These models are considerably more expensive than the top-selling models from Maruti and Tata.
Thus, they contribute significantly to Hyundai’s higher margins. For instance, the Hyundai Creta alone sold 16,458 units in March 2024 (it was the best-selling month for Creta). In addition, the Venue also averages monthly sales of 9,500 units. Apart from these, the newly launched Exter is also posting decent sales numbers.
Higher Sales of Premium Models
Hyundai has also successfully managed to capitalize on the growing consumer preference for SUVs. Presently, more than half of its domestic sales now come from SUVs.
In India, the SUV segment accounts for 62.4% of the company’s domestic sales in the first nine months of FY24. On the other hand, Maruti Suzuki’s major sales come from smaller cars like the Swift and WagonR. These cars, although popular, offer thinner profit margins.
Similarly, Tata Motors’ sales are driven by models such as the Punch, Tiago, and Nexon. These, although successful, do not fetch as high margins as Hyundai’s top-selling SUVs.
Hyundai’s Focus on Better Margin Products
Hyundai Motor India has also strategically managed to maintain a decent mix of high-margin products along with affordable options. The company’s higher-end models, such as the Venue, Verna, N-line models and Creta, are feature-rich and cater to the upper middle class.
This class of buyers has seen an increase in spending power after the COVID-19 pandemic. This, along with the high demand for cars like Creta and Alcazar, has helped Hyundai.
On the flip side, Tata Motors’ higher-end models, like the Harrier and Safari, do not sell in volumes. Hence, they are not comparable to Hyundai’s Creta, and this affects the overall profitability of Tata’s passenger vehicle business.
Maruti Suzuki’s Small Car Dominance Might Be in Danger
Maruti Suzuki, despite being the largest carmaker in India, heavily features small, affordable cars in its lineup. Models like the WagonR and Swift dominate its sales charts. However, these cars, while high in volume, offer thinner profit margins.
Over the years, Maruti Suzuki has been known for these smaller cars. But the company in the recent period has emphasized that with the more stringent emission and safety norms and evolving buyer preferences, it has become difficult for them to keep updating their smaller cars.
Mahindra’s Improving Margins
As an honorable mention, it has to be highlighted that India’s largest SUV manufacturer, Mahindra & Mahindra, has also shown significant improvement in its margins. Its successful models like the Thar, XUV700, and Scorpio-N have contributed to its increased profit margins.
The company’s standalone operating margin improved from 7.8% in FY23 to 10.6% in FY24, with a 4.5% boost attributed to its SUV segment. These models have driven higher profitability for Mahindra.
Hyundai IPO Coming Soon
Coming back to Hyundai, the company is gearing up to launch its IPO in India. Hyundai India’s IPO will be the largest IPO in India, where the company is looking to raise $3 billion. It will also be the second IPO from an automaker in India after Maruti Suzuki’s, which launched in 2003.
To raise the reported $3.3-5.6 billion Hyundai Motor India is targeting a valuation between $22-28 billion for its Indian subsidiary. If successful, it could be selling a stake of 15-20% through the IPO. It has to be noted that the stake on offer for sale will be by the Korean parent company.