Moneycontrol Pro Panorama | Hyundai's Listing: What changes for investors

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Hyundai India's landmark IPO, the largest in the country's market history, opens tomorrow, with the company set to raise Rs 27,870 crore. The issue is priced between Rs 1,865 and Rs 1,960 per share, making it the second-largest IPO globally in 2024. This offering will surpass LIC's previous record of Rs 21,008.48 crore.

The IPO is structured entirely as an Offer for Sale (OFS) involving 142,194,700 shares, reducing Hyundai Motor Company's stake in its Indian arm from 100 percent to 82.50 percent.

At first glance, the massive size of this IPO signals that India's primary market is evolving, with the capacity to absorb larger issues, which may encourage other major Indian corporations to tap into the market as well. However, some negative sentiment has surfaced on social media because the IPO is an Offer for Sale (OFS). Critics argue that the company is taking advantage of the current market optimism without channelling any of the proceeds towards its growth.

That said, there's nothing inherently wrong with an OFS; many public sector undertakings (PSUs) have been listed through this method.
There were also complaints about Hyundai increasing the royalty paid to its parent company just before the IPO. However, even after the hike, Hyundai's royalty rate of 3.5 percent remains lower than Maruti's, which paid around 3.75 percent to Suzuki in FY23. Maruti's newer brands even pay up to 5 percent in royalties.

For investors, the key focus should be on how well the company is managed, whether it meets its growth targets, and how efficiently it operates. Hyundai's listing will allow investors to evaluate its performance and compare it with its competitors in the market.

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Shishir Asthana

Principal Analyst, Research|Moneycontrol

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In terms of size, Hyundai is India's second-largest passenger vehicle company, though the gap between it and the market leader, Maruti, is substantial. Maruti holds a 43 percent market share while Hyundai's share is around 15 percent.

Despite this difference, Hyundai is the most efficient player in the industry. The company generates revenue per employee of Rs 113.4 million, significantly higher than Maruti's Rs 67.9 million, Tata Motors' Rs 43.2 million (standalone), and M&M's Rs 37.9 million. Additionally, Hyundai's net asset turnover ratio is double that of its competitors, indicating that the Korean automaker utilises its assets more effectively than other industry players.

According to a report by IIFL Securities, Hyundai boasts of the best-in-class Return on Equity (RoE) at 29.3 percent, significantly higher than Maruti's 16.8 percent, M&M's 20.3 percent, and Tata Passenger Vehicles (PV). Similarly, Hyundai's Return on Capital Employed (RoCE), excluding cash and investments, stands at an impressive 149.3 percent — nearly three times that of Maruti's 53.6 percent, M&M's 53.3 percent, and Tata PV's 18.9 percent.

While Hyundai's IPO won't alter its day-to-day operations, its listing on the stock exchange introduces a new benchmark for the auto industry. Analysts will now have an additional metric for comparing competitors, particularly in terms of operational efficiency. An analysis in Moneycontrol calls the Hyundai IPO a unique opportunity for investors to capitalise on an auto major’s steady growth performance.

As the auto industry shifts towards electric vehicles (EVs), the competitive landscape is set to evolve significantly. In addition to product offerings, companies will increasingly be measured against key financial metrics. Hyundai India's solid track record, supported by its Korean parent's product pipeline and research strength, positions it well to remain a dominant player in this changing environment.

It wouldn't be surprising to see fund managers adjusting their portfolios, potentially reallocating investments to Hyundai at the expense of other auto players. Ultimately, the most efficient company that matches or exceeds industry growth rates will likely attract the largest share of investment.

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Shishir Asthana
Moneycontrol Pro