Hyundai Motor India IPO: A Deep Dive into India's Largest Upcoming Listing

On the evening of September 24, 2024, the Indian financial markets received notable news as the regulatory body granted its approval for three significant IPOs set to launch soon. These offerings promise to be among the largest public listings the Indian markets have seen in recent times.

The first of these IPOs is from Swiggy, which has increased its IPO target to approximately Rs 11,700 crore, with expectations for its public debut in October 2024. Next in line is Waaree Energies, the parent company of Waaree Renewable Technologies, which is preparing for a Rs 3,000 crore IPO in mid-October, according to industry insiders.

Lastly, we have Hyundai Motor India, a company poised to make history with what is expected to be India’s largest IPO to date. As we await further specifics on the pricing and official dates of these offerings, we turn our attention to analyzing Hyundai Motor India's impending IPO, based on the information currently available.

The Historic Context

Hyundai Motor India is preparing to make a historic move by becoming the first automobile manufacturer to file for a public issue in India in over two decades. The last time an automotive company ventured into the Indian stock market was back in June 2003, when Maruti Suzuki’s Rs 993 crore IPO went public. According to multiple reports, Hyundai’s South Korean parent company intends to divest up to 17.5% of its stake in Hyundai Motor India.

Now, let’s dive deeper into Hyundai Motor’s journey, its market success, the current valuation, and whether participating in its IPO would be a wise investment.

The Company’s Profile

Hyundai Motor is part of the larger Hyundai Motor Group, which ranks as the third largest automobile original equipment manufacturer (OEM) globally, based on passenger vehicle sales. In India, Hyundai has established itself as the second largest auto OEM in the passenger vehicles market for more than a decade, consistently competing with other major players.

Additionally, Hyundai Motor India has maintained its position as the country’s largest exporter of passenger vehicles for nearly two decades. Since its entry into the Indian market in 1998, Hyundai has sold approximately 12 million passenger vehicles domestically and internationally through exports.

Product Line and Investment

Hyundai’s product offerings in India have been relatively straightforward, focusing primarily on affordable and reliable models. Cars such as the Santro and Creta have become household names over the past 28 years. The company has launched around 38 different passenger vehicle models, frequently introducing cutting-edge innovations into the Indian market.

Beyond its vehicles, Hyundai also produces key automobile parts like transmissions and engines. The feedback for Hyundai’s products has generally been positive, receiving praise even from automotive enthusiasts, although not all reviews have been uniformly glowing. Still, the company’s ability to consistently deliver high-performing vehicles speaks to its solid market presence.

Hyundai has invested over $5 billion into its operations in India thus far and has pledged an additional $4 billion over the next ten years. Currently, Hyundai Motor India’s Chennai plant has a production capacity of 8.2 lakh units per year, with plans to increase that number to 9.94 lakh units by the 2026 financial year, once the new Talegaon plant is partially operational.

In the electric vehicle (EV) space, Hyundai is working to localize its supply chain through partnerships with both Indian and global EV suppliers. The company also has plans to introduce new electric vehicle models, set up charging stations, and establish a battery pack assembly facility.

IPO Insights

The draft red herring prospectus filed by Hyundai Motor India leaves much to the imagination, as it includes limited details regarding the pricing of the IPO or the company’s overall valuation. However, media sources estimate that Hyundai is aiming to raise between $2.5 billion to $3 billion, with a potential valuation of up to $30 billion. Some reports even suggest a more conservative figure of $20 billion.

If the estimates hold, this IPO will break records as the largest IPO in Indian history, surpassing the Life Insurance Corporation’s Rs 21,008 crore IPO from 2022. The size of this offering is expected to soak up an immense amount of liquidity, equivalent to 30-35 average mainboard IPOs combined.

It is important to note that this will be a complete Offer for Sale (OFS), meaning no new shares will be issued by the company. Instead, the South Korean parent company will be selling up to 142 million of its 812 million shares.

Valuation Considerations

As Hyundai seeks a valuation of approximately $30 billion, many investors may find it challenging to reconcile this figure. Despite this, some industry analysts suggest that Hyundai could command a valuation premium over its primary competitor, Maruti Suzuki, as the former’s earnings before interest and taxes (EBIT) per vehicle is about twice that of Maruti’s.

At the proposed valuation, Hyundai’s implied EV/EBITDA multiple would be 26x, compared to Maruti’s 24x and Mahindra & Mahindra’s 22.6x. If we apply a more conservative forecast for the next two years, Hyundai’s 2026 EV/EBITDA multiple is expected to be around 21x, while Maruti and Mahindra are estimated at 19x and 17x, respectively.

Interestingly, despite Maruti Suzuki selling 2.75x the number of vehicles that Hyundai sells and earning twice as much revenue, Hyundai’s higher margins on its SUVs have allowed it to edge closer to Maruti in terms of profitability. Maruti’s EBITDA is 1.8x that of Hyundai, and its profit after tax is 2.1x higher.

The fact that Hyundai is valued at a premium, despite these differences, may be a reflection of the shifting dynamics within the Indian automobile market, where Maruti has lost some market share in the lower-priced segment, while Hyundai has capitalized on the growing popularity of higher-margin SUVs.

Final Thoughts

There’s no denying that Hyundai Motor India is a well-established company with a strong market presence and a proven ability to innovate. The company’s plans to launch its first India-made electric vehicle by 2025, followed by five additional EV models by 2030, signals its commitment to staying ahead of the curve. Hyundai’s extensive dealership network is expected to support the installation of 485 EV charging stations by 2030, and the Indian government’s new EV policies could further strengthen the company’s position.

While excitement around this IPO is mounting, driven by media hype and investor sentiment, it’s essential to avoid making decisions based on surface-level analysis. As legendary investor Howard Marks emphasizes, relying on first-order thinking often leads to poor investment choices.

Before deciding whether to invest in Hyundai’s IPO, it’s critical to assess the company beyond just its size and hype. Historically, large IPOs haven’t always lived up to expectations. For instance, Paytm’s massive IPO failed to deliver long-term gains, and other large offerings like Vodafone Idea and Yes Bank have also underperformed post-listing.

As a potential investor, you might want to take a cautious approach by waiting for the stock price to stabilize after its debut. Historically, many of the biggest IPOs have shown a lackluster performance in the initial days of trading.

Hyundai Motor India’s IPO could indeed be an exception, but only time will tell whether it can deliver sustainable returns. For now, while the company’s growth prospects appear solid, the high valuation leaves room for pause.