Hyundai Motors IPO: Analysts decode likely price band, valuations, issue size m-cap & more

Hyundai Motor India (HMIL) has filed its draft red herring prospectus (DRHP) with the capital market regulator Sebi to launch its initial public offering (IPO). A couple of domestic brokerages have tried to decode the country’s second-largest passenger carmaker's draft papers with their own estimates around free-cash flows (FCF), valuations and expected price band.
 

Gurugram-headquartered Hyundai Motors India is a local subsidiary of Korean automaker Hyundai Motor Company (HMC), wherein the promoter is looking to offload 14.22 crore equity shares or 17.5 per cent stake of the company. Although no specific timeline for the IPO has been announced, the company is likely to debut as early as 2025.
 

Homegrown broke InCred Equities said that Hyundai IPO widens investor opportunity in low penetrated India car industry and hopes to provide value growth while volume growth seems gradual. "Profit margin and RoCE, despite low-scale operation versus the leader, comforts. Adjusted for a new royalty rate, higher warranty and lower R&D, they subside," it said.
 

HMIL has an edge over its peers in the ASP and export mix while comparing poorly in net working capital days, warranty cost, R&D spending and local parts sourcing. Hyundai is strong in body style innovation, high productivity and superior execution. While the profit ratios look better than its peers, it lags Maruti Suzuki in Ebitda and Ebit margins, it said.
 

Its sister concern Kia’s success in the SUV segment by leveraging Hyundai Motor India’s supplier network is only partially captured by Hyundai Motor India’s engine supplies. Similarly, the large related-party transactions with its subsidiaries, forming 30 per cent of its costs, is a cause of concern and is unique to Hyundai among peers, said InCred's note.
 

"InCred feels that the deal is part of the Korea enterprise’s value creation exercise started in 2023. However, consistent high discount of 23-48 per cent for Hyundai Korea versus global peers on P/E and P/BV valuations, despite assuming 15-20 per cent of Hyundai Korea’s value may be coming from group investments, can’t be overlooked in the case of the Indian entity’s initial public offer or IPO valuation," it said.
 

InCred Equities expects the price band in the range of Rs 1,265-1,990 apeice if the company launches IPO between 30 per cent discount to 10 per cent premium compared to the Maruti Suzuki P/E based market capital valuations, commanding a market capitalization of about Rs 1,02,800 crore to  1,61,600 crore. In this case, issue size is seen in the range of $2.2 billion to $3.4 billion.

 

Similarly, if HMIL considers price-to-book value based market capitalization valuation scenario and launched IPO at a discount or premium up to 20 per cent compared to Maruti Suzuki, the price band for the IPO is seen around Rs 915 to 1,375 levels. In such scenario, market capitalization of the company is seen in the range of Rs 74,400 crore to Rs 1,11,500 crore. Issue size is likely to in the range of $1.6 billion to $2.4 billion in this case.

 

However, the price band for the issue has not been announced yet but the company is likely to raise about Rs 25,000 crore from its initial stake sale, making it the largest ever issue on the Indian stock markets so far, leaving behind LIC of India, where the state-run life insurer raised a total of Rs 21,000 crore in May 2022.
 

When it comes to sales in India, Hyundai falls behind its listed-peers like Maruti Suzuki, Tata Motors and Mahindra & Mahindra (M&M). In FY23, HMIL’s revenue was Rs 60,307 crore compared to MSIL’s Rs 1,17,571 crore, Tata Motors’ Rs 3,45,967 crore, and M&M’s Rs 1,21,269 crore.
 

HMIL is a well-diversified PV player with a robust portfolio, strong domestic distribution, stable margin along with a steady exports franchise. HMIL sports 60 per cent UVs in its volume mix, versus 40 per cent for MSIL, operates at 35-40 per cent higher average selling price (ASP), bridging the revenue gap, said ICICI Securities note.
 

Exports mix of HMIL’s volume is 25 per cent, partly mitigating the impact of lower domestic market share at 16 per cent. With lower dependence on entry-level hatchbacks like the i10, HMIL’s distribution is well spread across urban India and partly in rural India via its 1,366 sales touch points, it said.
 

"With better ASP profitable models contributing to the bulk of HMIL’s volumes, its Chennai plant operating at close to full capacity in FY25 and stable input commodity environment, HMIL delivered 12.7 per cent Ebitda margin in 9MFY24, about 150 basis points better than MSIL. Ioniq5 is the sole EV model sold by HMIL in India; it clocks 40–50 units a month and has limited impact on margin currently," it said.
 

From capacity of 8.25 lakh in Chennai, the addition of the Talegaon plant on a fully-ramped-up-basis would take HMIL’s capacity to 10.74 lakh units, potentially by FY27, ICICI Securities said. "Total investment for setting up the Talegaon plant would be Rs 6,000 crore for 2.5 million capacity. HMIL with better cash management on books is operating at an impressive pre-tax RoCE of 27–28 per cent, along with FCF/unit of Rs 60,000," it added.