In this week’s roundup, we will discuss the expected IPO of Hyundai Motor India Limited (HMIL), why Hyundai India is going public, its anticipated valuation, and the potential impact it will have on the Indian car market.
Hyundai India: Going Public
Hyundai India, the country’s second-largest passenger car manufacturer, has filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) to launch its Initial Public Offering (IPO). This move comes at a time when India’s car market is growing rapidly, with the country set to become the third-largest car market globally, having sold 4 million cars in 2023.
Reasons for Hyundai India IPO:
- Market Potential: India is a rapidly growing car market, and Hyundai aims to capitalize on this momentum.
- Electric Vehicle Market: India is set to become the third-largest electric vehicle (EV) market, attracting significant interest from vehicle manufacturers.
- Local Subsidiary Strategy: Hyundai Motors India, the local subsidiary of Hyundai Motor Co. from Korea, plans to sell 142.22 million shares, equivalent to a 17.5% stake, providing local investors an opportunity to participate in the company’s growth.
Analysts are evaluating Hyundai India’s financial position and estimating potential outcomes:
- Valuation Estimates
- Price Band: Expected between ₹1,265 and ₹1,990 per share.
- Market Capitalization: Between ₹1,02,800 crore and ₹1,61,600 crore.
- Issue Size: Estimated between $2.2 billion and $3.4 billion.
- Comparative Valuation
- Maruti Suzuki Comparison: Based on the price-to-earnings (P/E) ratio of Maruti Suzuki, Hyundai is valued at a 30% discount to a 10% premium, with the IPO price band between ₹1,265 and ₹1,990 per share.
- Price-to-Book Value (P/BV) Comparison: With a 20% discount or premium to Maruti Suzuki’s P/BV ratio, the price band is ₹915 to ₹1,375 per share, resulting in a market capitalization between ₹74,400 crore and ₹1,11,500 crore, and an issue size of $1.6 billion to $2.4 billion.
Hyundai Company Performance
- Revenue and Profit Margin
- FY23 Revenue: ₹60,307 crore.
- EBITDA Margin: 12.7% in QFY24, surpassing Maruti Suzuki by 150 basis points.
- Market Share
- Domestic Market Share: 16%.
- Export Mix: 25% of volume, partially offsetting the lower share in the domestic market.
- Production Portfolio
- UV (Utility Vehicles): 60% of H.M.I.L.’s volume mix.
- EV Models: Ioniq5, with monthly sales of 40-50 units.
- Operational Efficiency
- Current Capacity: 8.25 lakh units in Chennai.
- Future Capacity: With the addition of the Talegaon plant, capacity is expected to reach 10.74 lakh units by FY27.
Hyundai Competitive Analysis
- Comparative Performance
- Maruti Suzuki: ₹1,17,571 crore revenue in FY23.
- Tata Motors: ₹3,45,967 crore revenue in FY23.
- M&M (Mahindra & Mahindra): ₹1,21,269 crore revenue in FY23.
- Key Strengths and Weaknesses
- Strengths: High productivity, excellent execution, and strong innovation in body styles.
- Weaknesses: Higher warranty costs compared to competitors, lower R&D expenditure, and dependence on local sourcing.
Investment Outlook
According to Incred Equities, Hyundai’s IPO presents an opportunity for investors in the Indian automotive industry, with potential for value appreciation. However, when evaluating Hyundai’s IPO valuation, a consistent premium of 23-48% for global peers’ P/E and P/BV ratios should be considered, which reflects the higher discount applied to the Indian component in Hyundai’s IPO valuation.
Conclusion:
The Hyundai India IPO signifies significant growth in the Indian automotive market, offering investors the opportunity to be part of an expanding industry. With strong financial projections, a diversified product portfolio, and strategic market positioning, Hyundai India’s public offering is poised to attract substantial interest from both domestic and international investors.
Disclaimer: Investments/trading in the securities market are subject to market risks. Past performance is not indicative of future results. There is a significant risk of loss while trading and investing in the securities market, including equities and derivatives.
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