The Rs 27,856 crore-initial public offering (IPO) Hyundai Motor India has opended today (Tuesday, October 15) for bidding. The passenger vehicles player is offering its shares in the range of Rs 1,865-1,960 apiece, where investors can apply for a minimum of seven equity shares and its multiples thereafter. India's largest ever IPO thus far can be subscribed until Thursday, October 17.
Chennai-based Hyundai Motor India, Incorporated in May 1996, is a part of South Korea's Hyundai Motor Group, which is the third largest auto original equipment manufacturer (OEM) in the world based on passenger vehicle sales. The company also manufactures parts such as transmissions and engines.
The IPO of Hyundai Motors India will be entirely an offer for sale by South Korean auto major Hyundai Motor Company, who will offload up to 14,21,94,700 equity shares. The company will not receive any proceeds from the issue and will command a total market capitalization of Rs 1.59 lakh crore.
Hyundai Motor India mobilized Rs 8,315.3 crore from 225 anchor investors as it allocated 42.4 million shares to 225 funds at Rs 1,960 apiece. It included marquee names like Singapore government’s sovereign wealth fund (GIC), New World Fund, Fidelity, Baillie Gifford, Vanguard, City of New York Group Trust, Moorea Fund, Blackrock, ICICI Prudential MF, SBI MF, HDFC MF and more.
Hyundai Motor India provides mobility solutions, operating a network of 1,366 sales points and 1,550 service points across India. The company has sold nearly 12 million passenger vehicles in India and through exports to Africa, the Middle East, Bangladesh, Nepal, Bhutan and Sri Lanka. It has partnered with 363 dealer companies for distribution and sales in India.
Hyundai Motor India manufactures and sells four-wheeler passenger vehicles, including models such as sedans, hatchbacks, SUVs, and electric vehicles (EVs). The company's models include the Grand i10 NIOS, i20, i20 N Line, AURA, Elantra, Venue, Venue N Line, Verna, Creta, Creta N Line, Alcazar, Tucson, and the all-electric SUV Ioniq 5.
The grey market premium (GMP) for Hyundai Motor India has been falling consistently, since the official announcement of the issue. Last heard, the company was commanding a premium of Rs 45 in the unofficial market, suggesting a listing pop of merely 2 per cent for the investors. The GMP stood at Rs 65 a day ago.
For the quarter ended on June 30, 2024, Hyundai Motor India reported a net profit of Rs 1,489.65 crore with a revenue of Rs 17,567.98 crore. The auto maker reported a net profit of Rs 6,060.04 crore with a revenue of Rs 71,302.33 crore for the financial year ended on March 31, 2024.
The issue includes a reservation of 7,78,400 equity shares for the eligible employees of the company, who will get a discount of Rs 186 per share. Hyundai Motor India has reserved 50 per cent of the net offer for qualified institutional bidders (QIBs), while non-institutional investors (NIIs) have 15 per cent of the allocation. Retail investors will get the remaining 35 per cent.
Kotak Mahindra Capital, JP Morgan India, Citigroup Global Markets India, HSBC Securities & Capital Markets and Morgan Stanley India Company are the book running lead managers of the Hyundai Motor IPO, while Kfin Technologies is the registrar for the issue. Shares of the company shall be listed on both BSE & NSE with October 22, Tuesday as the tentative date of listing.
It is the first time after 2003 when a car-maker in India is launching its IPO. Back then Maruti Suzuki launched its primary offering. Here's what a host of brokerage firms said about the IPO of Hyundai Motor India:
Nirmal Bang Securities Rating: Neutral We primarily compared Hyundai Motor with Maruti Suzuki. Hyundai Motor’s revenue for FY24 is significantly lower than Maruti Suzuki. However, Hyundai’s asset turnover ratio of 2.7 times is higher than Maruti Suzuki’s 1.7 times, indicating more efficient asset utilization. Hyundai’s revenue CAGR is also lower than Maruti Suzuki showing slower growth, said Nirmal Bang Securities.
"While Hyundai's P/E ratio of 26.3 is slightly lower than Maruti Suzuki’s 29.9, suggesting the stock is already fully priced. The parent’s focus is divided between its two companies viz. Hyundai Motor India and Kia, Kia is perceived as a superior brand and is privately held by the parent which could impact future growth of Hyundai Motor India," it added with a 'neutral' rating.
ICICI Direct Research Rating: Subscribe Sales and PAT at HMIL has grown at a CAGR of 19.4 per cent and 47.7 per cent respectively over FY21-24, led by 11 per cent sales volume CAGR and consistent improvement in EBITDA margin profile. It will command a valuation of 26 times P/E, 16.5 times EV/EBITDA and 2.3 times P/S on FY24 basis which is at a tad discount to industry leader, said ICICI Direct Research.
"We assign 'subscribe' rating on HMIL given steady growth prospects amid industry tailwinds, robust financials & healthy SUV product slate. We expect limited listing gains to this IPO, however expect HMIL to deliver healthy double-digit portfolio returns over the medium to long term," it added.
Canara Bank Securities Rating: Subscribe for long term Despite Hyundai Motor India's growth potential and strong market presence, the issue comes with higher valuations. The P/E ratio of 26.28 times is above the industry average of 24.41 times and far higher than its parent company Hyundai Motor Global’s P/E of 5 times, said Canara Bank Securities.
"However, HMI: boasts industry-leading return ratios, with a RoE of 56.82 per cent and RoCE of 62.9 per cent, significantly surpassing the listed peer averages of 23.25 per cent and 21.85 per cent, respectively. We recommend 'subscribe' to this issue for long-term gains," it added.
Chola Securities Rating: Subscribe Hyundai Motors India is the third-largest OEM in the global passenger vehicle market and the second-largest in the Indian domestic market since 2019. It is having strong parentage from Hyundai Motors Company in South Korea, HMI effectively leverages new technologies to enhance operational and manufacturing efficiency, said Chola Securities.
"As of June 30, 2024, HMI Ltd holds a 14.6 per cent market share in the passenger vehicle segment, due to its extensive product offerings. The company is planning to expand its EV portfolio by launching 4 new models including Creta EV by Q4FY25. The IPO is reasonably priced, in line with its peers. We recommend a 'Subscribe' rating for Hyundai Motors India," it said.
StoxBox Rating: Avoid The recent depletion of HMIL’s cash and bank balances following hefty dividends by the Indian entity to its South Koran parent raises doubt about its expansion plans which would now be largely driven by external borrowings, thereby impacting its financial performance going ahead, said StoxBox with an 'avoid' rating to the issue. It will reassess ratings in future following sustained business performance in upcoming quarters.
IDBI Capital Rating: Subscribe HMIL, the second-largest player in the Indian PV market with a 15-18 per cent market share and plans to invest Rs 20,000 crore over the next decade to boost production and increase battery capacity to 75,000 units annually by FY25, said IDBI Capital in its IPO note.
"With a production capacity of 824,000 units, HMIL operates through 364 dealers and 1,377 sales points in India, it has the highest dealer satisfaction score at 852. The company also exports to Latin America, Africa, and the Middle East, positioning itself well to capitalize on premiumisation and EV demand trends," it added.
Swastika Investmart Rating: Subscribe with caution Hyundai is the second-largest passenger vehicle company, with a strategic shift of Focus on SUVs. The IPO is fully priced with a complete OFS issue, said Swastika Investmart. "Given the IPO's size, listing gain will be limited. Investors with a long-term perspective and a willingness to accept potential listing challenges may consider applying for this IPO," it added.
KR Choksey Research Rating: Subscribe HMIL is strategically positioned to expand its vehicle offerings, enhance its EV capabilities, and invest in localized production, ensuring sustained growth and competitiveness in the evolving automotive landscape, said KR Choksey Research. "We recommend a 'subscribe' rating for Hyundai, reflecting its strong business model and strategic initiatives designed to support sustained long-term growth," it said.
Samco Securities Rating: Avoid HMIL's sales and profit growth declined in the quarter ended June 2024 and are expected to remain subdued due to the high base of last year. Due to the large size of the IPO, there is a high chance of allotment to most applicants, so post-issue demand for the shares is not expected to surge, said SAMCO Securities.
"Furthermore, the promoter is offering a 17.5 per cent stake in the issue, and an additional 7.5 per cent stake sale is anticipated within three years to meet regulatory requirements, which will create selling pressure. Considering these factors, investors may choose to avoid this IPO," it said.
SMIFS Rating: Subscribe SMIFS recommended to subscribe to the issue as Hyundai Motor India with its industry leading market share in SUV segment, premiumization of cars which will help in growth of ASP, increase in production capacity and foray into EV segment will boost future prospects positively.
"It finds the company as a good long term investment as a pure play PV segment company with industry leading market share in SUV segment, premiumization and launch of new EV models aiding revenue and margin improvement, though the valuations seem to be in sync with other listed peers," it said.
Marwadi Financial Services Rating: Subscribe Hyundai Motor India is set to list at a P/E of about 26 times with a market cap of Rs 1,59,258.06 crore, whereas its peers, Maruti Suzuki India, Tata Motors, and Mahindra & Mahindra, are trading at P/E ratios of approximately 27 times, 10 times, and 36 times, respectively, said Marwadi Financial Services. "We assign 'subscribe' rating to this IPO as the company is the second largest auto OEM in India and the leading exporter of passenger vehicles. Also, it is available at reasonable valuation as compared to its peers," it said.
Aditya Birla Capital Rating: Subscribe for long term Hyundai has consistently grown stronger and has been one of the most recognised brands in India since its inception and has been the first- mover in various PV categories. The outlook for Hyundai continues to be strong owing to its strong parentage and leveraging HMC’s technology and R&D capabilities and strong balance sheet, said Aditya Birla Capital.
"However, at the upper price band, Hyundai is available at a rich valuation of 26 times its FY24 EPS, leaving little on the table for investors. We have a 'subscribe' recommendation to this issue for a long term," it added.
Bajaj Capital Rating: Subscribe for long-term HMIL posted steady growth in its top and bottom lines for the last four financial years. In the last three fiscal years, the company has reported an average EPS of Rs 62.56, and an average RoNW of 39.11 per cent. The issue is priced at a P/BV of 13.11 based on its NAV of Rs 149.52 as of June 30, 2024, as well as post-IPO equity capital since this is a secondary issue, Bajaj Capital said.
The issue relatively appears fully priced, but the company is poised for bright prospects post completion of its ongoing expansions. The company reported PAT margins of 6.05-8.48 per cent from FY22 to Q1FY25, while ROCE margins came in the range of 13.69-62.90 per cent, it added with a 'subscribe for long term tag.