Rating Rationale
October 20, 2023 | Mumbai
Hyundai Motor India Limited
Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities RatedRs.3700 Crore
Long Term RatingCRISIL AAA/Stable (Reaffirmed)
 
Rs.100 Crore Short Term DebtCRISIL A1+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and short term debt of Hyundai Motor India Ltd (HMIL).

 

The rating continues to reflect HMIL’s established position in the domestic and overseas passenger car market, and a robust financial risk profile with strong liquidity. The company also benefits from strong technical and managerial support provided by its parent, Hyundai Motor Company (HMC, rated ‘BBB+/Stable’ by S&P Global Ratings). These strengths are partially offset by exposure to intense competition in the domestic passenger vehicle (PV) industry and susceptibility to fluctuations in foreign exchange (forex) rates.

 

HMIL’s revenues improved by 28% in fiscal 2023, supported by improved demand from its products (volume increase of 18%), especially sport utility vehicles (SUVs), and higher exports (volume increase of 18%), besides price hikes taken to offset increase in input and other costs. Earlier in fiscal 2022, the company’s revenues improved by ~17% on year, on account of improved PV volumes (~6%) backed by pent-up demand and rising share of UVs.

 

In fiscal 2024, HMIL’s performance is expected to benefit from the launch of new models and facelift variants, strong demand from SUV segment, better availability of semiconductors, signs of rebound in economic activity and household income, besides increase in vehicular mobility. HMIL is expected to cross its all-time high peak of 600,000 units in domestic sale volumes this fiscal, which along with price hikes taken, and increasing share of SUVs, will ensuring healthy revenue growth. Nevertheless, steady growth in revenues is expected over the medium term with export volumes turning around from next fiscal supported by recovery from the key export markets.

 

Operating profitability improved to 12.2% in fiscal 2023 from ~11.5% in fiscal 2022, is expected to remain over 12.5-12.7% in medium term due to better operating leverage and price hikes taken on vehicles, to offset inflationary trends in input prices, and volatile forex movements.

 

The financial risk profile remains robust, driven by negligible debt and strong liquidity with cash surpluses of ~Rs 17,875 crore as on March 31, 2023. Capex spend is expected to be largely met out of available surpluses and annual cash generation. Any significant depletion of liquid surplus including due to large outgo to HMC through dividend payout, capital reduction or share buyback will be a key monitorable.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of HMIL and its wholly owned subsidiary and research and development arm, HMIE. CRISIL Ratings has also factored in technical and operational support from HMC. CRISIL Ratings has also applied its parent notch down criteria based on relatively moderate credit profile of the parent.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established position in India’s PV industry and in the export segment: HMIL is India's second-largest manufacturer of PVs after Maruti Suzuki India Ltd (MSIL; 'CRISIL AAA/Stable/CRISIL A1+').

 

On YTD Aug 2023 basis, HMIL had a market share of ~15% in domestic PV sales (~14.5% in fiscal 2023) and domestic sale volumes increased by 7.4% (252,834 units) over corresponding period of fiscal 2023. Its market share in both domestic passenger cars and domestic SUV segments were also similar at ~15-16% till YTD Aug 2023. Earlier, in fiscal 2023, the company sold 720,511 units (610,760 units in fiscal 2022) including 567,592 units in the domestic market (481,500 in fiscal 2022) with the balance exported. Both domestic and export sale volumes increased by 18% in fiscal 2023, leading to overall volume growth of 18%. With improved semiconductor activity, new launches including facelifts of existing models, and a material order backlog, HMIL is well positioned to consolidate its market position in the domestic market and register healthy double-digit growth in revenues in fiscal 2024, though competition, especially in the SUV segment, is intensifying, with a few players with material product offerings. The mid-size segment where HMIL has limited presence is witnessing rebound after launch of its new model ‘New Verna’ aided the growth, with HMIL improving its market share in the segment.

 

HMIL’s established presence in the domestic PV market is underpinned by the strong position of the Grand i10 Nios, Aura, and i20 in the compact car segment and Creta, Venue, Alcazar and Tucson in the SUV segment. HMIL also had launched New Verna in fiscal 2023, aiding HMIL to become one of the highest selling models in mid-size segment. In July 2019, it entered the EV segment by launching Kona Electric, India's first all-electric SUV. Subsequently, in fiscal 2023, HMIL launched ioniq 5, premium electric SUV and Exter (ICE variant) in fiscal 2024.

 

HMIL’s status as a global sourcing hub for cars makes it a key subsidiary to HMC. It is the second largest exporter of PVs from India next to MSIL, besides being HMC's global sourcing hub for PVs (especially Verna and Creta). Share of exports in total sales volumes, which declined from 26% in fiscal 2020 to 18% in fiscal 2021, improved to 21% in fiscal 2023 and were sustained at similar levels at the end of August 2023. Given the expectation of robust demand in the domestic market, the company is expected to focus more on the domestic segment over the medium term. HMIL’s presence in both domestic and overseas markets cushions the impact of a slowdown in any particular market.

 

  • Strong linkages with HMC: HMIL has access to HMC's superior technology and expertise in the passenger car segment, and receives product development, operational and technological support from the parent. HMC has helped the company launch several models from its product portfolio in the Indian market. HMIL is an integral part of the parent's global supply chain. The company also receives strong managerial support from the parent; HMC elects the board of directors and appoints key management personnel. The company will continue to receive support from HMC, especially on the operational and technology fronts, given the strategic importance of the Indian market for the Hyundai group. Moreover, HMIL accounted for around 7-8% of HMC's global volume in CY2022.

 

  • Robust financial risk profile: HMIL continues to maintain a robust financial profile, supported by strong annual cash generation, low debt and sizeable net worth. Capex spend has ranged between Rs.1000-3000 crores annually, and has been funded largely from accruals in the past, resulting in strong debt protection metrics – as on March 31, 2023, interest cover was over 61 times, while gearing was low at 0.06 times. Further, the total debt was Rs 1159 crore at the end of March 31, 2023, bulk of which comprised interest-free sales tax loans. These loans have a nominal annual repayment schedule spread over long tenures, thereby providing additional financial flexibility. Cash accrual was over Rs.5406 crore in fiscal 2023, despite dividend payout of Rs. 1493 crore. With strong cash generation to continue, and capex spending expected at ~around Rs.4000 crores per annum over the medium term, debt protection metrics will continue to remain strong.

 

Cash surplus was close to Rs 17,875 crore as of March 31, 2023. Sizeable reduction in cash surplus due to large dividend payout, share capital reduction or share buyback would remain a key monitorable.

 

Weaknesses:

  • Intense competition in the domestic PV industry: Competition in the Indian PV market has intensified with players launching new models regularly, especially in the compact and mid-size segments. With more players and models vying for a share of the growing pie, price competition has intensified, resulting in a loss of overall market share at 17% as of August 2023 (YTD), as compared to fiscal 2020 levels at 19.1%. HMIL’s position and operating profitability will depend on its ability to launch successful variants and models in the domestic market. The domestic demand for PVs in India registered a strong growth of 26.7% in fiscal 2023 due to healthy pent-up demand created by two years of slump in sales volumes owing to a pandemic induced disrupted supply chain. The orderbooks of auto OEMs were further supported by plethora of launches in the growing UV category, which had witnessed high traction, along with multiple facelifts of existing models and easing semiconductor supplies drove record sales. Domestic PV demand is expected to register 6-8% growth in fiscal 2024, over a high base due to healthy demand confirmed by strong order books along with multiple new models launches in the growing UV segment backed by eased up semiconductor shortage resulting in lesser waiting periods.

 

  • Susceptibility to fluctuations in forex rates: Imports are sizeable (~20% of raw materials in value terms) and royalty payments (over Rs 1,400 crore annually). Although exports (~23% of revenue from operations in fiscal 2023) offer a natural hedge, the company faces forex-related risks. Discounting of export usance bills reduces the time gap in realisation of bills.

Liquidity: Superior

The liquid surplus was sizeable at Rs 17,875 crore as on March 31, 2023. Average utilisation of the fund-based limit of Rs 3,700 crore was negligible in the past 12 months. Debt repayments pertaining to interest free sales tax loan are modest at ~Rs.120 crore annually. Expected cash accrual of more than ~Rs.8,000 crore annually will cover capex of around Rs.4000 crore expected, besides meeting incremental working capital needs, leading to continued superior liquidity position.

Outlook: Stable

HMIL’s credit profile is expected to remain stable over the medium term, backed by its healthy and established market position in domestic and export markets PV markets, good demand for PVs, especially SUVs, good operating efficiencies. Its financial risk profile is also expected to remain robust, supported by healthy cash flow generating ability and solid liquidity position.

Rating Sensitivity factors

Downward Factors:

  • Sluggish business performance, resulting in material decline, and considerable reduction in operating profitability (to below 5-6%), impacting cash generation
  • Larger-than-anticipated debt-funded capex or acquisition,  leading to sustained moderation in debt protection metrics
  • Significant reduction in liquid surplus due to buyback or capital reduction of material dividend payout, or by way of support provided to group companies.

About the Company

Incorporated in 1996 as a 100% subsidiary of HMC, HMIL is the second-largest player in the Indian passenger car industry and the second largest exporter of PVs. The company has access to HMC’s technology and large product portfolio and pays royalty to the parent on both domestic and overseas sales. The plant in Sriperumbudur in Tamil Nadu is HMC’s first fully integrated production facility, and second-largest facility, outside South Korea. HMIL’s models include Aura, i20 and Grand i10 Nios in the compact segment; Verna in the mid-size segment; and Creta, Venue, Exter, Alcazar, Tucson, Kona and ioniq5 in the SUV segment. The company can manufacture 7,80,000 cars annually.

About HMC

HMC, the largest automobile manufacturer in South Korea, was incorporated in December 1967. The company and its subsidiaries manufacture and distribute motor vehicles and parts and manufacture trains. The company’s shares have been listed on the Korea Exchange since June 1974, and the global depositary receipts issued by it are listed on the London Stock Exchange and Luxembourg Stock Exchange.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

63,394

47,043

Profit After Tax (PAT)

Rs.Crore

4,709

2,862

PAT Margin

%

7.43

6.1

Adjusted debt/Adjusted networth

Times

0.06

0.06

Interest coverage

Times

60.93

45.42

CRISIL Ratings adjusted numbers

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Packing Credit* NA NA NA 3700 NA CRISIL AAA/Stable
NA Short Term Debt  NA NA 7-365 days 100 Simple CRISIL A1+

*Interchangeable with Letter of Credit, Buyers Credit, Short Term Loan, Intra Day Overdraft, Bill Discounting, WCDL and Bank Guarantee

Exchange rate of INR 80.32 has been used for conversion of USD facilities to INR.

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Hyundai Motor India

Engineering Pvt Ltd

Full consolidation

Wholly owned subsidiary

Hyundai India Insurance and Broking Private Limited

Full consolidation

Wholly owned subsidiary
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 3700.0 CRISIL AAA/Stable   -- 31-10-22 CRISIL A1+ / CRISIL AAA/Stable 01-11-21 CRISIL A1+ / CRISIL AAA/Stable 04-12-20 CRISIL A1+ / CRISIL AAA/Stable CRISIL A1+
      --   --   -- 14-09-21 CRISIL A1+ / CRISIL AAA/Stable 05-11-20 CRISIL A1+ --
      --   --   --   -- 23-09-20 CRISIL A1+ --
      --   --   --   -- 14-04-20 CRISIL A1+ --
Non-Fund Based Facilities ST   --   --   -- 14-09-21 CRISIL A1+ 04-12-20 CRISIL A1+ CRISIL A1+
      --   --   --   -- 05-11-20 CRISIL A1+ --
      --   --   --   -- 23-09-20 CRISIL A1+ --
      --   --   --   -- 14-04-20 CRISIL A1+ --
Short Term Debt ST 100.0 CRISIL A1+   -- 31-10-22 CRISIL A1+ 01-11-21 CRISIL A1+ 04-12-20 CRISIL A1+ CRISIL A1+
      --   --   -- 14-09-21 CRISIL A1+ 05-11-20 CRISIL A1+ --
      --   --   --   -- 23-09-20 CRISIL A1+ --
      --   --   --   -- 14-04-20 CRISIL A1+ --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Packing Credit* 537 HDFC Bank Limited CRISIL AAA/Stable
Packing Credit* 129 Shinhan Bank CRISIL AAA/Stable
Packing Credit* 675 Standard Chartered Bank Limited CRISIL AAA/Stable
Packing Credit* 522 Citibank N. A. CRISIL AAA/Stable
Packing Credit* 161 Woori Bank CRISIL AAA/Stable
Packing Credit* 387 ICICI Bank Limited CRISIL AAA/Stable
Packing Credit* 365 The Hongkong and Shanghai Banking Corporation Limited CRISIL AAA/Stable
Packing Credit* 402 MUFG Bank Limited CRISIL AAA/Stable
Packing Credit* 402 DBS Bank Limited CRISIL AAA/Stable
Packing Credit* 120 KEB Hana Bank CRISIL AAA/Stable

*Interchangeable with Letter of Credit, Buyers Credit, Short Term Loan, Intra Day Overdraft, Bill Discounting, WCDL and Bank Guarantee

Exchange rate of INR 80.32 has been used for conversion of USD facilities to INR.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Auto Component Suppliers
Mapping global scale ratings onto CRISIL scale
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
Criteria for notching down standalone ratings of companies based on support extended to parent

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