Hyundai IPO: Accelerating Toward Long-Term Growth
IPO Overview
Hyundai Motor India Limited (Hyundai) is gearing up for a landmark Initial Public Offering (IPO), set to be the largest in Indian history. The offering is an entirely offer-for-sale issue, allowing existing shareholders to monetize their holdings. With a price band of ₹1865-1960 per share, the issue size at the upper end will be ₹27,870 crore, implying a market cap of ₹1,59,258 crore. Priced at a 19.3x FY27 earnings multiple, the IPO offers investors a chance to capitalize on Hyundai’s strong market presence and promising future in the passenger vehicle (PV) industry.
Investment Highlights
1. Wide Product Portfolio and Market Leadership
Hyundai’s diverse range of offerings includes hatchbacks, sedans, and SUVs, providing an edge over competitors like Maruti Suzuki, which has traditionally been focused on entry-level and compact cars. This product diversification allows Hyundai to cater to a broader spectrum of customers, stabilizing its revenues across market cycles.
The company has also established a significant foothold in the export market, strengthening its position as a global player with higher average selling prices (ASPs) internationally. Hyundai is India’s largest passenger vehicle exporter, which not only enhances profitability but also mitigates domestic market risks.
2. SUV Leadership Fuels Margin Growth
The SUV segment remains Hyundai’s key growth driver. In FY24, Hyundai sold 3,89,000 SUVs, contributing to 63% of its domestic volumes, a stark contrast to Maruti Suzuki’s 36% SUV mix. SUVs, being premium products, command higher ASPs and margins, driving 7.4% CAGR growth in ASPs between FY22 and FY24.
This strategic focus on high-margin segments enabled Hyundai to achieve 100 bps expansion in EBITDA margins, even as commodity prices rose during FY21-FY22. Hyundai’s ability to maintain profitability through an optimized product mix highlights the company’s superior operational model.
3. Operational Efficiency and Capacity Expansion
Hyundai’s operational efficiency is reflected in its 10x asset turnover, outperforming Maruti’s 8x. The company’s plants run in three shifts, ensuring optimal utilization of capacity. Hyundai recently acquired General Motors’ Talegaon plant, which will expand its production capacity from 8.1 lakh units to 10.7 lakh units by FY29. The ₹32,500 crore investment required for this expansion will be funded entirely from internal accruals, underscoring the company’s financial strength.
4. Electric Vehicle Push and Future-Readiness
Hyundai is aggressively preparing for the transition to electric vehicles (EVs). It already has the Kona Electric on the market and plans to launch the Ioniq 5 soon. Hyundai aims to roll out six EV models by 2028 and is investing ₹4,000 crore in manufacturing and infrastructure to support this transition. This focus on future mobility solutions positions Hyundai as a frontrunner in the evolving EV landscape, giving it a competitive edge over peers like Maruti Suzuki, which has been slower to embrace the shift to electric.
5. Valuation and Attractive Pricing
At the upper price band, the IPO is valued at 19.3x FY27E P/E, which we believe is reasonable given Hyundai’s earnings potential. Additionally, the IPO is priced at a 12% discount to Maruti Suzuki’s trailing FY24 P/E, indicating that the company has left value on the table for investors. This makes Hyundai’s IPO not only an attractive long-term bet but also competitively priced compared to industry peers.
Risks to Consider
Supply Chain Dependence:
Hyundai imports about 20% of its cost of goods sold, mainly semiconductor components. Any disruption in global supply chains could impact production and profitability. However, the Indian government’s push for domestic semiconductor manufacturing may reduce this risk over time.
Rising Competition:
Hyundai faces intensifying competition in the SUV and EV segments from new players like Kia and MG Motors, which could put pressure on its market share and pricing power.
Royalty Payments:
Hyundai pays 3.5% of its sales as royalty to its parent company in South Korea. An increase in royalty payments could negatively impact margins.
Conclusion: A Compelling Long-Term Investment
Hyundai Motor India’s IPO presents a solid investment opportunity, backed by its strong market positioning, leadership in SUVs, and aggressive push into EVs. The company’s operational efficiency, combined with a diverse product portfolio and export strength, ensures a stable and scalable business model.
While the size of the IPO may limit listing gains, Hyundai’s growth prospects, competitive pricing, and strategic capacity expansion make it an attractive bet for long-term investors. Investors looking to ride India’s automotive growth story, particularly in high-margin SUVs and EVs, will find Hyundai well-positioned to capitalize on future opportunities.
The image added is for representation purposes only