The forthcoming initial public offer (IPO) by Hyundai Motor India, if approved, could be attractively valued, relative to listed OEM players such as Maruti Suzuki India Ltd and Mahindra & Mahindra Ltd, IIFL Securities said in its latest note.
While the IPO price band would be announced later, a few media articles quoted valuations of $18-20 billion for the 100 per cent subsidiary of Hyundai Motor Company, South Korea. As a part of the IPO, the parent is likely to offload 17.5 per cent stake.
IIFL said Hyundai Motor India generated Rs 4,400 crore PAT in 9MFY24. Its back-of-the-envelope calculation -- based on annualisation 9MFY24 PAT and 10 per cent PAT CAGR over FY24-26, would peg FY26 PAT at Rs 7,000 crore.
"A value of $18-20 billion would imply FY26 PE of 21.3-23.7 times. This is cheaper than most Auto OEMs listed in India. Maruti is at 25 times; M&M trades at 28 times core EPS. 2W OEMs range from 22-40 times. Only Tata Motors is relatively cheap at 14 times, due to JLR," IIFL said. IIFL said unlike peers, Hyundai was able to keep its Ebitda margin quite steady between 10-13 per cent over FY18-24, despite sharp industry slowdown and Covid-related disruption. Hyundai’s “revenue per full-time employee” is much higher than peers.
"Its ROCE (excl. cash & investments) was 140-150 per cent in FY23-FY24, which is head and shoulders above peers. Hyundai’s Net Fixed Asset t/o at 8.7 times in FY24 is around double the level of peers, who are between 4-5 times. Potential increase in royalty (from 2.3-2.5 per cent to 3.5 per cent of revenue) is a margin risk," IIFL said.
Hyundai Motor India is the second-largest PV OEM by volumes. It is believed that its IPO will hit the market within 4-6 months.
In an earlier note, Emkay Global said the domestic passenger vehicle industry, as per Hyundai's draft IPO papers, could grow 4.5-6.5 per cent till FY29 with rising contribution from alternative fuels and SUVs.
"We note that HMIL enjoys superior profitability metrics compared with MSIL amid better mix (63 per cent contribution from SUVs vs 25 per cent for MSIL) and premium positioning, though partially offset by lower scale. We maintain REDUCE on MSIL with unchanged estimates as well as target price of Rs 11,200," it said.