Hyundai Shakes Up Indian Auto Industry with Record-Breaking Rs 25,000 Crore IPO

The South Korean automotive leader, Hyundai Motor Company (HMC), is nearing a pivotal milestone as its subsidiary, Hyundai Motor India Ltd (HMIL), prepares to go public on Indian stock exchanges. As the second-largest passenger car manufacturer in India, HMIL's public offering is set to make waves in the Indian automotive industry. 

The recently filed draft red herring prospectus (DRHP) reveals an offer for sale (OFS) of 17.5% of the parent/promoters' shareholding in the Indian entity, totalling a whopping Rs 25,000 crore. This IPO is anticipated to boost the valuation of Hyundai's global operations, which currently lags behind its major competitors like Toyota and BYD, with a market cap of $50 billion.

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Stellar Financials and Growth Prospects

HMIL's financial performance is nothing short of impressive, with FY2023 revenues hitting Rs 59,761 crore and a net worth of Rs 19,778 crore. India represents a critical growth avenue for Hyundai, being the third-largest car market worldwide, following China and the USA. India business has shown a remarkable 11.5% year-on-year growth in Q1 2024, compared to 5% in the US and 6% in Europe.

The auto maker’s two Chennai plants are operating at 94% capacity, with plans to increase manufacturing capacity by 21% to 994,000 units per annum by FY2026. This includes the acquisition of General Motors' facility in Maharashtra, positioning HMIL as a key export hub.

Market Dynamics & Valuations: Hyundai vs Peers 

For investors, HMIL represents an attractive investment option. As the sole pure player alongside Maruti Suzuki in the passenger vehicle segment, HMIL distinguishes itself with its robust financial performance. The company has generated a substantial Rs 17,741 crore in cash and reported a net profit of Rs 4,654 crore, laying a solid foundation for future product development and marketing initiatives.

In the fiercely competitive Indian market, Hyundai holds a robust ~15% share, having sold a record 6.02 lakh vehicles in 2023—up 9% from the previous year. Exports were up 10% at 1.63 lakh units compared to 1.48 lakh units a year ago. This growth puts Hyundai in direct competition with Maruti Suzuki, which has gained market share through its popular SUV launches.

Moreover, HMIL has shown remarkable performance in the compact utility vehicle (CUV) sector, capturing nearly one-third of the market share. It also leads in the electric vehicle (EV) segment, which is evident from its aggressive strategy of planning to introduce four new EV models in India, although specific launch dates are yet to be announced.

When considering its market valuation, HMIL's implied valuation for its upcoming IPO is pegged at about 25 times earnings, mirroring the valuation of market leader Maruti Suzuki India Ltd. In comparison, Tata Motors is trading at nearly 15 times earnings, leaving room for expansion.

Listing to Watch

Industry analysts have expressed confidence in HMIL’s capacity to utilize its parent company's technological prowess and effectively meet the needs of Indian consumers. While HMIL needs to improve its earnings per share (EPS) to match some domestic competitors, its EBITDA margins of 12-13% hold up well against its peers in India.

While no company is without risks, HMIL’s brand strength in India's automotive landscape and the sheer scale of the proposed public offer make this IPO a must-watch. Reports of rallies in stocks of Hyundai’s component suppliers in Korea further underscore the market's optimism surrounding this listing.

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