Hyundai India's IPO

In this week's wrap-up, we delve into anticipated IPO of Hyundai Motor India Limited (HMIL), providing insights into why Hyundai India is going public, its expected valuations, & broader implications for Indian car market.

Hyundai India: Going Public 

Hyundai India, second-largest passenger carmaker in country, has filed its draft red herring prospectus (DRHP) with Securities & Exchange Board of India (SEBI) to launch its initial public offering (IPO). This move comes as India's car market booms, with 4 million cars sold in 2023, positioning country as third-largest car market globally.

Reasons for Hyundai India IPO

1. Market Potential: With India being rapidly growing car market, Hyundai aims to capitalize on this momentum.
2. Electric Vehicle Market: India is also set to become third-largest electric vehicle (EV) market, attracting significant interest from automakers.
3. Local Subsidiary Strategy: Hyundai Motors India, local subsidiary of Korea's Hyundai Motor Company, plans to offload 14.22 crore shares, amounting to 17.5% stake, providing local investors opportunity to participate in company’s growth.

Financial Projections of Hyundai India

Analysts have been evaluating Hyundai India’s financials & projecting potential outcomes:

1. Valuation Estimates
- Price Band: Expected between ₹ 1,265 & ₹ 1,990 per share.
- Market Capitalization: Between ₹ 1,02,800 crore to ₹ 1,61,600 crore.
- Issue Size: Estimated to be between $2.2 billion to $3.4 billion.

2. Comparative Valuations
- Maruti Suzuki Comparison: If valued at 30% discount to 10% premium compared to Maruti Suzuki’s price-to-earnings (P/E) ratio, IPO price band ranges from ₹ 1,265 to ₹ 1,990 per share.
- Price-to-Book Value (P/BV) Comparison: With 20% discount or premium to Maruti Suzuki’s P/BV ratio, price band ranges from ₹ 915 to ₹ 1,375 per share, resulting in market capitalization of ₹ 74,400 crore to ₹ 1,11,500 crore & issue size of $1.6 billion to $2.4 billion.

Hyundai Company Performance

1. Revenue & Profit Margins
- FY23 Revenue: ₹ 60,307 crore.
- Ebitda Margin: 12.7% in 9MFY24, outperforming Maruti Suzuki by 150 basis points.

2. Market Share
- Domestic Market Share: 16%.
- Export Mix: 25% of volume, partly mitigating lower domestic market share.

3. Product Portfolio
- UVs: 60% of HMIL’s volume mix.
- EV Model: Ioniq5, selling 40-50 units per month.

4. Operational Capacity
- Current Capacity: 8.25 lakh units in Chennai.
- Future Capacity: Addition of Talegaon plant to increase capacity to 10.74 lakh units by FY27.
- Investment in Talegaon Plant: ₹ 6,000 crore for 2.5 million capacity.

Hyundai Competitive Analysis

1. Comparative Performance
- Maruti Suzuki: Revenue of ₹ 1,17,571 crore in FY23.
- Tata Motors: Revenue of ₹ 3,45,967 crore in FY23.
- M&M: Revenue of ₹ 1,21,269 crore in FY23.

2. Key Strengths & Weaknesses
- Strengths: High productivity, superior execution, & strong body style innovation.
- Weaknesses: Higher warranty costs, lower R&D spending, & local parts sourcing compared to peers.

Investment Perspective 

According to InCred Equities, Hyundai’s IPO widens investor opportunities in low-penetrated Indian car industry, providing potential value growth. However, consistent high discount of 23-48% for Hyundai Korea compared to global peers in P/E & P/BV valuations must be considered when evaluating Indian entity’s IPO valuation.

Conclusion 

Hyundai India's IPO represents significant development in Indian automotive market, offering investors chance to be part of growing industry. With robust financial projections, diverse product portfolio, & strategic market positioning, Hyundai India’s public offering is poised to attract substantial interest from domestic & international investors alike.