Hyundai India’s ₹27,000 Cr IPO: A game changer in the Indian auto sector ?

Hyundai India’s ₹27,000 Cr IPO: A Game Changer In The Indian Auto Sector ?

Hyundai Motor India Limited is set to launch its initial public offering (IPO) valued at about ₹27,000 crore, making it one of the largest IPOs in India's history. This move comes at a pivotal time for both Hyundai and the Indian automotive industry, as the sector experiences rapid changes driven by electric vehicle (EV) adoption, policy reforms, and dynamic consumer demand. The Indian automotive market is increasingly becoming competitive, with both domestic and international players vying for a piece of the growing pie, especially in the EV space.

This article provides an overview of Hyundai India's operations, the key details of its upcoming IPO, its financial performance, expansion plans into electric vehicles, and the reasons it represents an attractive investment opportunity.

Auto Sector In India – An Overview Of The Present Day

India's automotive sector is one of the most competitive in the world, with a large number of players ranging from domestic giants like Tata Motors and Mahindra & Mahindra to international stalwarts such as Maruti Suzuki, Honda, and Toyota. The industry is poised to grow, driven by favourable market conditions, increasing disposable incomes, and government initiatives like the Production Linked Incentive (PLI) scheme. However, the most significant transformation is the shift towards electric vehicles (EVs), which is reshaping the competitive dynamics.

With the government’s push for cleaner technologies, many automakers are racing to establish an early foothold in the EV space. Tata Motors, for example, has already made significant strides with its Nexon EV and Tigor EV models, capturing a substantial share of the nascent EV market. Mahindra & Mahindra, too, is accelerating its EV strategy with ambitious plans. International players like MG Motors and BYD have also entered the Indian EV market, adding to the competitive pressure.

Hyundai’s entry into the EV race adds a new level of competition, as the company looks to leverage its global EV expertise and apply it to the Indian context. Against this backdrop, Hyundai India’s upcoming IPO seems to be timed impeccably to capitalise on both, the burgeoning demand for passenger vehicles and the impending EV transition.

Why Is Hyundai Going Public?

Hyundai India IPO comes at a time when the company has solidified its position within India's fast-growing automobile market. The IPO is an offer for sale (OFS) by the parent company Hyundai Motor Company, which will sell a portion of its stake in the Indian subsidiary.

While Hyundai India is already strongly capitalised, the IPO is more of a strategic move rather than a capital-raising exercise. Below are the key objectives behind the public listing:

• Enhancing Hyundai's brand visibility, positioning it as an independent publicly traded company.
• Aligning with Hyundai Motor Company's global strategy to make India an export and manufacturing hub.
• Transitioning focus towards electric vehicles, future mobility solutions, and next-generation technologies.
• Providing an opportunity for Indian investors to participate in Hyundai's growth story.
• Leveraging the currently favourable IPO and stock market conditions in India.

Hyundai India’s Financial Performance

• Revenue and profitability: Hyundai Motor India reported a gross revenue of over ₹60,000 crore in FY23, reflecting a 16% increase from the previous year. Its profit after tax grew by 29% to exceed ₹4,700 crore. In comparison, Maruti Suzuki, a leading competitor, had a revenue of ₹117,571.3 crore in FY23, while Tata Motors reported ₹345,966.97 crore. Despite Maruti's larger revenue scale, Hyundai's profitability metrics are noteworthy. For instance, Hyundai's operating profit margin has consistently been over 15% for the past five years, surpassing Tata Motors' 6.5% in FY24 and closely following Maruti Suzuki's 13%.

• Market share and sales: Hyundai holds a 15% market share in India's passenger vehicle segment, making it the second-largest car manufacturer in the country after Maruti Suzuki, which commands a 42% market share. Despite Maruti's dominance in sales volume, Hyundai's focus on high-margin SUVs like the Creta has bolstered its profitability and market position.

• Return on equity (ROE): Hyundai's ROE rose to 22% in FY23, indicating strong shareholder value creation. This is higher than Maruti Suzuki's ROE of approximately 15%, showcasing Hyundai's efficient use of equity capital compared to its peers.

• Export performance: Hyundai also leads in export volumes with a 24% market share, significantly higher than Maruti Suzuki's roughly 10% share. This export strength contributes to Hyundai's robust financial performance and strategic positioning.

Hyundai's Expansion Into Electric Vehicles

A key reason behind Hyundai's IPO is to facilitate its strategic expansion into electric vehicles in India. With the government's push towards zero-emission mobility, Hyundai is gearing up to launch new EV models and augment manufacturing capacity.

Below are some of Hyundai's upcoming plans in the EV space.

• Launching 6 new EV models in India by 2028, starting with the Ioniq 5 SUV in 2023.
• Setting up a dedicated EV manufacturing plant in India with an annual capacity of 1 lakh units by 2025.
• Developing a localised end-to-end EV ecosystem spanning R&D, battery manufacturing, charging infrastructure, and supply chain.
• Investing over ₹15,000 crore towards electrification initiatives in India over the next 5 years.
• Expanding the range of EV powertrains on offer beyond the current 72V and 136V architectures.

Why Should Investors Consider Hyundai’s IPO?

Hyundai India's public listing is a rare opportunity for investors to gain exposure to a leading automaker with strong growth prospects. Here are some of the factors that make Hyundai's IPO an attractive bet.

• India’s passenger vehicle industry is poised to become the 3rd largest by 2026, indicating strong medium-term growth.
• Hyundai already has an established brand, wide distribution network, and extensive product portfolio to leverage.
• The company is among the best-positioned OEMs to capitalise on India's EV shift due to early investments.
• Backing from the larger Hyundai Motor Company ecosystem provides technological and R&D strength.
• The balance sheet is robust enough to support expansion plans without substantial capital requirements.
• Attractive valuation compared to listed industry peers like Maruti Suzuki, M&M, and Tata Motors.

Conclusion

With the IPO acting as a catalyst, Hyundai India seems poised to disrupt the segments it operates in by leveraging electric vehicle technology and its inherent strengths. For Indian investors, this presents a unique opportunity to participate in the growth narrative of one of the country's automotive success stories. The oversubscribed pre-IPO placement indicates strong investor appetite already.

As the Indian auto industry becomes increasingly competitive, particularly in the EV space, Hyundai’s IPO could serve as a game changer, providing the company with the momentum to stay ahead of its rivals.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

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