Hyundai’s Ambitious IPO Drive To List Indian Arm For Record-Breaking Debut This Diwali

Hyundai is considering a strategic move to list its local unit in India, tapping into the country’s thriving IPO market, according to sources familiar with the matter.

The initiative, coming almost thirty years after the establishment of Hyundai Motor India (HMIL), and has the potential to become the largest initial public offering in the nation’s history.

HMIL, which emerged as India’s second-largest passenger vehicle seller last year, stands as a significant player in the automotive industry, trailing only Maruti Suzuki India.

Top-tier global investment banks, including Goldman Sachs, Citi, Morgan Stanley, JP Morgan, Bank of America, HSBC, Deutsche Bank, and UBS, visited Seoul recently to present IPO proposals to Hyundai’s leadership, as revealed by the sources.

These financial institutions have assessed the company’s value to be in the range of $22-28 billion; Hyundai is contemplating a 15-20% dilution to raise an estimated $3.3-5.6 billion (equivalent to ₹27,390 crore to ₹46,480 crore), sources added.

The current IPO record in India, set by LIC of India in 2022 with an issue size of ₹21,000 crore, reflects the growing prominence of the country’s equity market, which recently surpassed Hong Kong to become the fourth-largest globally.

At the upper valuation of $28 billion (₹23.2 lakh crore), HMIL’s market capitalization would exceed that of Mahindra and Mahindra, Adani Power, and Bajaj Auto.

In terms of price-to-earnings (P/E) multiples, only Maruti Suzuki (valued at ₹33.4 lakh crore) and Tata Motors (valued at ₹29.3 lakh crore) command higher valuations among major Indian auto companies, according to BSE data.

Hyundai Motor Co (HMC), listed in South Korea with a market capitalization of $39 billion, is closely monitored by analysts who suggest that a potential listing of its Indian subsidiary, HMIL, could be part of South Korea’s initiative to enhance the valuation of underperforming stocks and mitigate the perceived ‘Korea discount’ in financial markets.

South Korean automakers are currently trading at relatively low price-to-earnings (P/E) ratios, ranging from 4.1 to 4.6, in contrast to Japanese rivals at 7.3 and those in the US at 5.4.

Hence, subsidiaries operating in high-growth markets such as India have the potential to command higher P/E multiples compared to their parent companies. For example, Maruti Suzuki trades at 23 times its projected FY25 earnings, while its parent, Suzuki Motor Corp, trades at eight times.

According to the sources mentioned earlier, the plan is to aim for a Diwali listing, scheduled between September and November this year. However, these discussions are in preliminary stages, and further deliberations will shape the final details.
Several external factors, including the strength of the Indian capital markets and various macroeconomic conditions, will also influence the decision-making process.

“This is a strategic market, and Hyundai is keen on strengthening its presence,” remarked one of the individuals cited previously. “It could be considered a pivotal event for them in India. We anticipate further momentum following the national elections this summer.”

Valuation Analysis
At a valuation of $28 billion, HMIL would be priced at 48 times its FY23 earnings, while at the lower end of the spectrum, at $22 billion, the ratio would stand at 38.4 times.

Maruti Suzuki currently trades at 40 times its FY23 earnings. HMIL could potentially command higher multiples due to its FY23 EBIT per vehicle being approximately twice that of Maruti Suzuki. Analysts attribute this to HMIL’s early shift in focus to SUVs, recognizing the evolving market preference away from entry-level hatchbacks.

With sales of 602,000 units in India in 2023, marking an 8.9% increase from the previous year, HMIL secured a market share of 14.7%.
Maruti Suzuki maintained its leadership position with a market share of 41.7%, while Tata Motors ranked third with 13.5%.

In recent months, HMIL and Tata Motors have been trading positions, with the Indian company showing improvement in domestic sales.
India emerged as the third-largest market for the Hyundai Motor Group in the preceding calendar year. In 2023, HMIL contributed 15% to the group’s global sales.

The growing share of premium vehicles and robust capacity utilization propelled the company to achieve its best operating performance and sales in 2023.

Likewise, the success of models like the Creta and Venue SUVs enabled Hyundai to surpass mass-market leader Maruti Suzuki in operating margins for the first time in almost a decade in FY21.

This, despite selling approximately half the volume of Maruti Suzuki that year, Hyundai has still managed to steadily close the gap in terms of revenue and profitability over the past five years.

Emergence of India as a Key Market
In November, HMIL’s Managing Director and Chief Executive Officer, Unsoo Kim, forecasted that India is poised to become the company’s largest market in the near future, estimating that nearly a fifth of its global sales would originate from India within the next two to three years.

In FY23, turnover surpassed a significant milestone, reaching Rs 60,000 crore ($7.2 billion), marking a 27% increase from FY22. Profits soared by 62% to Rs 4,653 crore ($550 million), positioning HMIL as the highest-earning non-listed automotive company in the country.

Elevated Focus on India
With India assuming greater importance in Hyundai’s global strategy, the automotive giant appointed Tarun Garg, who had 25 years of experience at Maruti Suzuki, as Chief Operating Officer in January 2023.

At the same time, Gopala Krishnan CS was appointed as Chief Manufacturing Officer (CMO), responsible for overseeing production, quality management, and supply chain operations. Both executives were also inducted onto the board of the Indian subsidiary.

Operational Overview
HMIL’s annual filing with the Ministry of Corporate Affairs for FY23 highlighted a busy year marked by the launch of new car models such as the Ioniq 5, expansion of production capacity, and strategic investments aimed at accelerating future growth, including the proposed acquisition of a production facility.

Sales Performance
Total sales, including domestic and exports, reached a record high last year, with an anticipated figure of 760,000 units, the highest since 2018, as disclosed by Tarun Garg in an interview in November.

Whereas domestic sales grew by 18% in FY23, several models, including Creta, Venue, Alcazar, Tucson, Aura, and Grand i10 Nios, achieved their highest annual numbers.
At the same time, exports also surged by 18.4% to 153,000 units, positioning India as a vital production hub for Hyundai in markets such as Africa and Latin America.

Electric Vehicle Leadership
Hyundai has taken a leading position in the electric vehicle (EV) segment, outpacing Maruti Suzuki, which is yet to introduce an EV in its product lineup. The company is strategically expanding its production capacity and accelerating its EV plans to capitalize on the growing demand for electric vehicles.

At the World Economic Forum in Davos, HMIL also signed a memorandum of understanding with the Maharashtra government for a Rs 7,000-crore investment to modernize the former General Motors Talegaon plant near Pune, acquired by Hyundai last year.

This investment, coupled with the Rs 20,000 crore announced earlier in August, primarily focused on electrification, underscores Hyundai’s commitment to India’s automotive sector.

Moreover, Hyundai has pledged to launch five EV models in India by the end of the decade.

The Last Bit: Hyundai’s strategic initiatives in India are in line with the automotive giant’s desire to solidify its position as a key player in the country’s automotive market.

Hyundai is poised to capitalize on India’s growing demand for automobiles with ambitious plans for expansion, heightened investment in infrastructure, and a sharp focus on emerging trends such as electric vehicles,

Likewise, the company’s strong financial performance, coupled with its proactive approach to innovation and market adaptation, positions it for sustained success and leadership in the Indian automotive industry in the years to come.