Hyundai Motor India Limited IPO: Check IPO Date, Lot Size, Price & Details

About the Company:

Hyundai Motor India Limited, which manufactures and sells passenger vehicles as well as parts like transmissions and engines, has been the second-largest auto OEM in the Indian passenger vehicle market since fiscal 2009 in terms of domestic sales volumes, according to the CRISIL Report. The company is a subsidiary of Hyundai Motor Company (HMC), South Korea, the third-largest auto OEM in the world based on passenger vehicle sales in CY2023.

Since its inception, the company has invested ₹301.03 billion (US$5.09 billion) in India in tangible fixed assets and capital work-in-progress as of June 30, 2024. From 1998 up to June 30, 2024, it has cumulatively sold more than 12 million units of passenger vehicles in India and through exports. Additionally, it has been India’s second-largest exporter of passenger vehicles from fiscal 2022 through June 30, 2024, according to the CRISIL Report.

Currently, its vehicle portfolio includes 13 passenger vehicle models across sedans, hatchbacks, SUVs, and battery electric vehicles (EVs), with top models such as the Creta, Verna, Aura, etc. The company’s revenue in FY24 was composed of 86% from passenger vehicle sales and 6% from parts.

At present, the company operates two manufacturing plants in Chennai, with an installed annual capacity of 8,24,000 units, where it is operating at over 90% utilization. In December 2023, it acquired the Talegaon Manufacturing Plant, which is expected to begin partial commercial operations in the second half of fiscal 2026. Management expects the combined annual production capacity of the Chennai and Talegaon plants to increase to 9,94,000 units once the Talegaon plant is partly operational, and to 10,74,000 units when fully operational.

IPO Details:

Objects of the Offer:

The company will not receive any proceeds from the IPO and all the net proceeds will be received by the Promoter selling shareholder - Hyundai Motor Company, which is selling 17.5% stake of the company.

The company’s objects of the Offer are to -

(i) carry out the Offer for Sale of up to 14,21,94,700 equity shares by the Promoter selling shareholder; and

(ii) achieve the benefits of listing the equity shares on the Stock Exchanges.

Key Strengths and Opportunities:

• Strong Parentage of Hyundai Motor Group: The company benefits from the strong global brand of "Hyundai". It also leverages HMC's centralized R&D hub, particularly in emerging areas like electrification, shared mobility, and autonomous driving. Additionally, HMC's sales network in over 190 countries supports Hyundai Motor India's export opportunities, which are key drivers of its revenue and profitability.
• Advanced Technology Deployment: It has integrated technology across its operations, including product design, manufacturing, and customer and dealer engagement. By leveraging Hyundai Autoever, HMC’s “smart factory” platform, it can flexibly produce customized passenger vehicles and parts using automated manufacturing processes. Additionally, to digitize its sales network, it has launched the “myHyundai” app for customers and the “H-Smart” app for dealers.
• Pan-India Sales, Distribution and After-Sale Services Network: As of June 30, 2024, the company had 1,377 sales outlets across 1,036 cities and towns in India, 1,561 service centers across 957 cities and towns, and a network of 364 dealers. It also offers a "Doorstep Service Programme" to provide after-sales services to customers in primary rural markets and emerging cities via mobile service vans, which have served customers in 113 cities and towns as of June 30, 2024.
• Focus on Premiumization of Passenger Vehicle Portfolio: The company follows a premiumization strategy by focusing on selling passenger vehicles with a higher average selling price (ASP). The contribution of passenger vehicles with an ex-showroom average selling price (ASP) greater than ₹15,00,000 to domestic sales has increased from 13.93% in fiscal 2022 to 19.81% in fiscal 2024, and reached 21.53% in the three months ended June 30, 2024. Premiumization ensures a better return on equity for the shareholders.

Risk factors:

• Material Price Increases and Supplier Dependency: Increases in the prices of parts and materials essential for operations could negatively impact the company's business and results. In fiscal 2024, the total cost of materials consumed accounted for 71.94% of total income. The company relies on a limited number of suppliers for parts and materials, so any disruption in supply, delays, or failure to meet quality standards could adversely affect its operations
• Conflict of Interests with Other Group Companies: HMC holds a 34.34% stake in Kia Corporation, which functions in the automobile industry in India through its subsidiary, Kia India Private Limited. The company also supplies engines to Kia for their vehicles. Due to potential product overlaps between their offerings, conflicts of interest may arise, negatively impacting the company's business and future prospects.
• Dependency on HMC for Export Revenue: It relies heavily on HMC for its export business, which constituted 22.34% of its revenue from operations in fiscal 2024 and 23.70% in the three months ended June 30, 2024. The company requires HMC's prior approval for exports, including details regarding the model and jurisdiction. Any failure or delay by HMC approving exports could have significant impacts on its operations.
• Outstanding Legal Proceedings and Contingent Liabilities: The company, one of its subsidiaries, and its promoter are involved in ongoing legal proceedings, and any adverse rulings could negatively affect the company's reputation, financial results. The total amount involved in these proceedings against the company including its subsidiaries is ₹6,242 crore.

Financial Snapshot:

Notes:

• Return on Net Worth is calculated as Profit for the period/year attributable to shareholders of the company as a percentage of Net Worth.
• Return On Capital Employed is calculated as EBIT as a percentage of Capital Employed (Total equity plus Total non-current liabilities).
• Profit for the Period/Year Margin is calculated on total income, while EBITDA Margin (Excluding Other Income) and EBIT Margin (Excluding Other Income) are calculated on Revenue from operations.
• Total Borrowings include current and non-current borrowings.

Conclusion:

Considering the outlook for the Indian Passenger Vehicle Industry, PV sales rebounded from the low base of fiscal 2021, growing at a healthy pace to reach a historic high of 4.2 million vehicles in fiscal 2024 as the economy recovered from the COVID-19 phase. However, in the coming years, growth is likely to slow due to the higher base effect. According to FADA’s September 2024 press release, PV dealers are facing record-high inventory levels of 80-85 days, equivalent to 7.9 lakh vehicles worth ₹79,000 crore, indicating weaker demand. Similarly, the company'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. The trailing-twelve-month P/E ratio of Hyundai is 25.6 after considering the June 2024 quarter results, whereas the P/E multiple for peer Maruti Suzuki is 27.6. While the P/B ratio for Maruti Suzuki is 4.79, it is 13.11 for Hyundai, which reduces the margin of safety despite Hyundai's better ROE. Therefore, from a valuation perspective, the issue is fairly valued and not aggressively priced. Additionally, due to the large size of the IPO—Rs. 27,870.16 crore, the largest to date—there is a high chance of allotment to most applicants, so post-issue demand for the shares is not expected to surge. Furthermore, the promoter is offering a 17.5% stake in the issue, and an additional 7.5% 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.