Subscribe with long-term perspective: Street on Hyundai India’s IPO

Investors who are expecting to make quick money with the IPO may be left disappointed as listing gains are expected to be limited.
Hyundai Motor logo
Hyundai Motor logo(File photo | Reuters)
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The Initial Public Offering (IPO) by Hyundai Motor India Ltd (HMIL), the country’s biggest maiden share sale in its capital market history, has received a thumbs up from major brokerages and analysts.

Giving a ‘subscribe for long-term’ rating at large, the Street believes HMIL will continue its aggressive growth in the Indian passenger vehicle market and remain ahead of the competition on certain financial metrics. 

“If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 26.73, and based on FY24 earnings, the P/E stands at 26.28. The issue relatively appears fully priced, but the company is poised for bright prospects post-completion of its ongoing expansions,” said analysts at Bajaj Broking while giving a 'subscribe' rating to the IPO with a long-term perspective. 

Analysts at LKP Securities believe that HMIL is the second best player to play as a proxy to the Indian PV theme, along with market leader Maruti Suzuki. HMIL has about 15% market share on the back of 68% share coming from sports utility vehicles (SUVs) and >20% share coming from exports. 

“Its revenues are growing along with the industry in India and have strong return ratios as well. Its EBITDA margins at 13.8% in Q1 FY25 are the best in the industry. The current capacity utilization of HMI’s plants is 100%, due to which in the near future the company may not be able to cater to the demand,” said LKP. It added the slowdown in the PV industry may augur well for the company, as HMIL is expanding its capacity by 30% in the next 2 to 3 years. 

Analysts, however, also raised certain concerns such as raw material sourcing, supplier concentration, industry slowdown and an increase in royalty rate to its parent company that may affect HMIL. The Rs 27,870 crore IPO will remain open between October 15 and 17. At the upper end of the issue price, HMIL is valued at Rs 1.59 lakh crore. 

Limited Listing Gain

Investors who are expecting to make quick money with the IPO may be left disappointed as listing gains are expected to be limited. In the unofficial grey market, HMIL shares were commanding a premium of just Rs 75 or 4%, indicating an estimated listing price of Rs 2,035 per share. The GMP was about Rs 400 at the start of the month. 

"We expect limited listing gains to this IPO; however, we also expect the company to deliver healthy double-digit portfolio returns over the medium to long term," said brokerage firm ICICI Direct while giving a 'subscribe' rating on the issue on the back of steady growth prospects amid industry tailwinds, robust financials and a healthy SUV product slate.

Prashanth Tapse, Senior vice president(Research) at Mehta Equities, underscored that based on annualised FY25E expectations, the issue appears fully priced in, leaving no room for any healthy listing gain. 

Tapse added that despite contributing only about 6.5% of Hyundai's global revenues and nearly 8% of its profitability, Hyundai’s India is asking for a premium valuation even when compared to its parent entity, which is trading at 5-6 times PE ratio and valued nearly 42% of the South Korean parent's market capitalisation on the listing. 

Meanwhile, Tarun Garg, Chief Operating Officer (COO) at HMIL said that investors should judge them on 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 a 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,” added Garg.

Hyundai India reported a total income of Rs 71,302 crore in FY2024  and a profit of Rs 6,060 crore as against a total income of Rs 61,436 crore and a profit of Rs 4,709 crore in FY2023.

Big India Plans

For its third biggest market (India) outside the home turf South Korea and the USA, Hyundai plans to invest Rs 32,000 crore between 2023 and 2032. The investment includes capacity expansion, new product and platform development and enhancing R&D capabilities among other things. The company’s upcoming plant in Pune would increase its capacity from 824,000 to almost close to 1.1 million by 2028.

The company is also lining up to launch four electric vehicles (EVs) in the medium term, including the electric version of its popular SUV Creta by Q4 FY25, in the mass and mass premium segments. Efforts are underway to localise the production of battery pack assemblies and powertrains for electric vehicles.

Saji John, Senior Research Analyst at Geojit Financial Services, said that Impressive financial performance and premium product mix, especially in the SUV segment, could alter the competitive landscape in the listed space. John added that with the growing consumer preference for EVs, Hyundai’s cutting-edge and competitive models are likely to draw more buyers. 

Issue Details 

Offer Date: Oct. 15 to Oct. 17 

Price Band: Rs 1,865−1,960 per share 

Total Issue Size: Rs 27,870 crore 

Offer For Sale: 14.2 crore shares 

Retail quota: 35% 

QIB quota: 50%

NII quota: 15%

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