Hyundai Motor India IPO: Here’s what management says about valuations and EV plans

Valuations of Hyundai Motor India (HMIL) are the talk of the town ahead of its initial public offerings (IPO), which is going to hit the primary market on October 15. However, the management in an interaction with media on Friday said that the valuation is decided on the basis of the feedback from informed investors on the company’s fundamentals, growth profile, and the large market that the company caters.

Hyundai Motor India, the country’s second-largest car manufacturer after Maruti Suzuki, is aiming to raise Rs 27,856 crore at the upper price band of Rs 1,960. The public offer will close for subscription on October 17 and the company will not receive any proceeds from the offer. The RHP reveals that the company has invested Rs 30,103 crore ($5.09 billion) in India operations as of June 30, 2024 in tangible fixed assets and capital work in progress since inception. It has an investment commitment of around Rs 32,000 crore in aggregate for future initiatives.

When asked about valuations, Tarun Garg, COO, Hyundai Motor India said, “Investors should judge us from the quality of growth and continuous innovation in launching not only big products but also small innovations like dual CNG. The volumes have been good. We have maintained the number two position with consistently growing market share.”

“We reported a 13% EBITDA margin in FY24 with a nearly Rs 70,000 crore revenue. The value proposition Hyundai Motor India has always offered is because of its strong parentage and the robust connection we have with Indian customers. This puts us in a strong position to do well. Lastly, the capacity addition which is happening next year will add 250,000 to our capacity,” Garg said, adding this is a 30% capacity addition which will help us to look both at the domestic market as well as the export market.

Garg further highlighted Hyundai’s strong focus on exports. On a cumulative basis, Hyundai is the number one exporter from India.

The majority of brokerages have also given a ‘Subscribe’ rating to the IPO of Hyundai Motor India with limited listing gains.

“We assign a ‘Subscribe’ rating on HMIL given steady growth prospects amid industry tailwinds, robust financials, and a 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,” ICICI direct said in a report.

Sales and profit after tax of the company has grown at a CAGR of 19.4% and 47.7% respectively over FY21-24, led by 11% sales volume CAGR and consistent improvement in EBITDA margin profile.

From the low base of FY21, passenger vehicle sales rebounded and grew at a strong pace, reaching a historic high of 4.2 million units in FY24. In FY24, Hyundai held a market share across select OEMs in India of 12% for hatchbacks, 22% for sedans and 18% for SUVs.

HMIL clocked EBITDA margins of 13.1% in FY24 with return on capital employed placed at over 50%. “At the upper end of the price band, HMIL will command a valuation of around 26 times P/E (price-to-earnings), around 16.5x EV/EBITDA and 2.3 times P/S (price-to-sales) on FY24 basis which is at a tad discount to industry leader i.e. Maruti Suzuki India,” ICICI Direct said.

To increase its presence in the electric vehicle (EV) space, MD Unsoo Kim said that the company is planning to launch four EV models in this financial year. “We are also investing in the EV charging ecosystem. The EV market in India will grow strongly by 2030,” he said.

At the upper price band, the IPO is coming with an underlying P/E valuation of 26.3x on its FY24 earnings compared to Maruti Suzuki’s P/E valuation of 30.4x its FY24 earnings, according to Sharekhan.

Bajaj Broking has given ‘Subscribe for long term’ ratings to the forthcoming IPO. “The issue relatively appears fully priced, but the company is poised for bright prospects post-completion of its ongoing expansions,” the brokerage said. Shares of Hyundai Motor India were trading at a premium of 5% in the unlisted market on October 11.