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Hyundai IPO: Accelerating Toward Long-Term Growth

Hyundai IPO: Accelerating Toward Long-Term Growth

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.

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Hyundai and Kia Set to Surpass 100,000 EV Sales; Hyundai Targets India for Future Growth

Hyundai and Kia Set to Surpass 100,000 EV Sales; Hyundai Targets India for Future Growth

Hyundai and Kia Set to Surpass 100,000 EV Sales; Hyundai Targets India for Future Growth

Hyundai Motor Co. and its affiliate Kia Corp. are on course to sell more than 100,000 electric vehicles (EVs) by the end of October 2024, according to data released on October 13, 2024, reported by Yonhap News Agency. This surge highlights the two South Korean automakers’ increasing focus on electrification, especially as they plan further expansion into emerging EV markets such as India.

From January to September, Hyundai and Kia sold a combined total of 91,348 EV units, representing a robust 30.3% year-on-year growth. Hyundai’s EV sales grew by 4.5%, with 48,297 units sold during the period, while Kia saw an exceptional 80.3% surge, delivering 43,051 units. Market analysts anticipate that their joint EV sales will exceed 100,000 units by the end of October and could touch 120,000 units by the end of 2024.

Hyundai Targets India with Creta EV and a Broader EV Roadmap
Hyundai Motor India recently announced plans to bolster its EV lineup, signaling its intent to tap into the growing demand for electric vehicles in India. At a roadshow event on October 9 ahead of the company’s initial public offering (IPO), Managing Director Unsoo Kim highlighted the company’s focus on mass and premium segments. As part of this strategy, Hyundai will launch the electric version of its best-selling Creta SUV in the final quarter of the fiscal year, alongside plans to roll out four additional EV models over the next few years.

“India’s EV market is still in the early stages of development, but we anticipate strong growth by 2030,” Kim stated. He also underscored Hyundai’s commitment to developing localized supply chains for essential EV components, such as battery packs, powertrains, and battery cells. The company is also investing in expanding India’s EV charging infrastructure to support future growth.

Hyundai’s Chief Operating Officer Tarun Garg reiterated the company’s ambitious roadmap for EVs. “The launch of the Creta EV will be followed by three additional models, which will help accelerate our EV sales in India,” Garg said. This strategic push aligns with Hyundai’s efforts to position itself as a leader in India’s evolving EV market, focusing on both affordability and premium features.

Balancing EVs with a Diversified Powertrain Portfolio
While Hyundai and Kia continue to ramp up their EV sales, Hyundai remains committed to maintaining a diversified product portfolio that includes hybrids and other alternative fuel vehicles. “We have access to advanced technologies across the spectrum—from petrol, diesel, and CNG to hybrids, plug-in hybrids, and even hydrogen-powered vehicles,” Kim noted. “This gives us a competitive advantage to meet varied customer demands in different markets, including India.”

Hyundai has maintained leadership in India’s hybrid vehicle segment since 1998, and the company aims to leverage this experience as it transitions into the EV space. By pursuing a dual strategy of promoting EVs and hybrids, Hyundai intends to address challenges like range anxiety and limited charging infrastructure that are prevalent in India today.

Conclusion
The combined efforts of Hyundai and Kia in ramping up EV sales globally, coupled with Hyundai’s focus on expanding its electric lineup in India, reflect the automakers’ strategic pivot towards electrification. With localized supply chains, new product launches like the Creta EV, and investments in infrastructure, Hyundai aims to capitalize on the growth potential of India’s nascent EV market. As the automotive landscape continues to evolve, Hyundai’s diversified approach with hybrids and EVs positions the company to cater to a wide range of consumers and maintain a competitive edge in both domestic and international markets.

This aggressive push by Hyundai and Kia showcases their commitment to becoming key players in the global EV transition, setting the stage for significant market share gains as consumer preferences shift toward greener mobility solutions.

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