Hyundai India IPO: What It Means For The Indian Auto Industry And EV Revolution

Hyundai India IPO: What It Means For The Indian Auto Industry And EV Revolution

As Hyundai, a leading player in the Indian automobile space, is gearing up to spearhead the transition towards electric mobility, its IPO carries major strategic implications for the future of green transport in one of the world's fastest-growing auto markets. It comes at a time when the Indian government is pushing for rapid electrification of vehicles to reduce emissions and dependence on oil imports.

Analysts agree that the IPO will provide growth capital for Hyundai to invest in developing capabilities for manufacturing electric vehicles and batteries locally. This aligns with India's policy direction as well as Hyundai's own global strategy to have environmentally friendly mobility solutions.

The Indian Auto Industry: Current Trends

As per projections, the market is set to grow from USD 116.86 billion in 2023 to USD 217.90 billion by 2031. India sold around 4.2 million passenger vehicles in FY2024, with Hyundai accounting for a 15% share or 630,000 units. The company sells popular models like Creta, i20, Verna across entry, mid and premium segments. The utility vehicle category including SUVs is the fastest growing segment, having doubled its market share to around 25% currently. The broader Indian auto market is expected to be valued at USD 1,318 billion by 2028, a five-fold growth from 2021 levels.

The government has set a target for 30% of all vehicles sold to be electric by 2030. EV sales have expanded rapidly, with 847,439 EVs sold until August 2024 - a 209% year-on-year growth. This presents a significant opportunity for players like Hyundai to lead the transition.

Hyundai’s Role In Shaping The Future Of The Auto Industry

Hyundai Motor India, which began operations in 1998, has emerged as a key stakeholder in the Indian auto industry. It is currently the second largest carmaker with around 15% market share in the passenger vehicle segment as of 2024.

The company has a diverse portfolio spanning entry level hatchbacks to premium SUVs including Creta, Venue, Verna, Tucson and Kona Electric. Hyundai’s SUV range has been particularly successful, now accounting for around 50% of its sales. The manufacturer has outlined extensive investments and strategic plans to drive India’s transition to EVs. It aims to introduce five new EV models by 2030, accelerating its electrification goals by two years. Locally produced EVs like the Creta EV will start rolling out from Hyundai’s plants from 2025.

Hyundai’s Commitment To EVs And Green Mobility

Globally, Hyundai has committed $40 billion towards electrification by 2025. In India, the company has already invested over $5 billion and plans to infuse another $4 billion over the next decade. This will expand capacity at its Chennai plant by 30% to cater to growing demand.

A major part of the investments will go into R&D and building capabilities for producing EVs, batteries and components locally. Hyundai is focused on training workers in new technologies and processes required for EV manufacturing. It also plans to set up 485 EV charging stations by 2030 to provide easy access and address range anxiety issues. The company’s EV expansion aligns with government incentives and stricter fuel economy norms that encourage adoption of green mobility solutions.

IPO Impact On The Indian Auto Sector

Hyundai’s IPO, which will see the parent company sell a 17.5% stake raising around ₹27,870 crore, is expected to have a positive impact on the Indian auto sector. Although an offer for sale (OFS), analysts expect proceeds to support investments in India as it is Hyundai’s second largest market globally. The transition of the country's second largest car brand to EVs will accelerate the shift of the entire industry. It will compel competitors like Maruti Suzuki, Tata Motors and Mahindra & Mahindra to fast track their own electrification plans to remain competitive.

EVs currently comprise less than 5% of total car sales in India. But with Hyundai’s aggressive rollout plans, this is expected to drive rapid growth resulting in a potential 30% EV penetration by 2030. The ripple effects on Indian auto component manufacturers will also be significant. Many will have to adjust their product portfolios and supply chains to cater to the distinct needs of EV manufacturing. This includes a shift towards electronics, semiconductors, batteries and traction motors.

How Hyundai's IPO Supports India’s EV Ambitions

The IPO enables Hyundai to align its strategy with India’s EV ambitions. The government has introduced incentives like the FAME scheme to encourage EV adoption and wants India to become a global EV manufacturing hub. Hyundai’s fund infusion will support localisation of components for EVs. This includes lithium-ion cell manufacturing in technical collaboration with foreign partners to reduce import dependence. Higher local products will make EVs more affordable.

Enhanced R&D spends will boost India’s innovation ecosystem and capabilities in EV technology domains. The company also has export plans targeting developed economies, which will benefit from India’s cost competitiveness.

Investment potential of Hyundai’s IPO

Hyundai IPO has elicited significant interest from investors, although the recent pre-IPO grey market premium has been muted on concerns over stretched valuations. Still, the IPO offers long-term investors several compelling reasons to participate:

Firstly, the company is aggressively expanding its EV portfolio, starting with the launch of the Creta EV in 2025 and adding 14 more models across segments by 2030. This first mover advantage in EVs provides growth potential. Secondly, Hyundai has strong brand equity, a diverse product range and around 15% share of India’s large passenger vehicle market. Its focus on new segments like SUVs has expanded margins.

The company aims to enhance its R&D capabilities significantly, driven by the influx of funds from the IPO. This will aid in developing vehicles suited for Indian conditions and building underlying tech strengths.

Although an OFS, analysts feel the IPO will strategically position Hyundai India for future growth as a manufacturing and export hub for EVs, aligning with parent company objectives and policy initiatives.

Conclusion

Hyundai’s IPO is a landmark event, coming at a time when the Indian auto industry is poised for robust growth and disruption triggered by electrification. The IPO proceeds will provide capital for Hyundai to accelerate its strategic transition towards EVs, aligning with India’s policy direction. This will compel other players to follow suit, catalysing the shift to eco-friendly mobility. Hyundai is focused on enhancing local manufacturing of EVs by investing in infrastructure and R&D. For investors, the IPO offers a chance to potentially benefit from the company’s strong position and the broader industry trends.

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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