India is set to witness its largest-ever IPO as Hyundai Motor India (HMIL), the country's second-largest carmaker, filed its draft red herring prospectus (DRHP) with market regulator SEBI on June 14.
The public issue comprises an offer for sale (OFS) of 142.2 million equity shares of Rs 10 each in face value, representing a 17.5 percent stake dilution by the promoters.
Here are some key details about the IPO:
Offer Structure:
50 percent shares reserved for QIBs
35 percent for retail individual investors
15 percent for non-institutional investors
Why is Hyundai Going Public?
Hyundai aims to capitalise on India’s growing market potential, enhance its valuation, and address the "Korean Discount"—a term used to describe the lower valuations of South Korean firms compared to their international counterparts. By listing its Indian counterpart, Hyundai aims to unlock higher valuations and attract a broader investor base. Per the DRHP, it is an offer for sale (OFS) of existing promoters, which will unlock value in the Indian business.
Hyundai has invested $5.04 billion (Rs 29740 crores approx) in its India operations since inception until December 2023. HMIL’s FY2023 financials portray a profitable business built in India over two decades, with annual revenue close to Rs 59,761 crore and a net worth of Rs 19,778 crore. Given the optimism in the Indian equity markets, the company believes it is an opportune moment for the promoters to partially dilute their stake. The company's India operations have been growing at a faster pace than the rest of the world, and listing would improve value recognition.
Hyundai Motor India's Financial Performance: During the nine months ended December 2023, Hyundai Motor India's revenue from operations was pegged Rs 52,157.9 crore. The profit for the period was Rs 4,382.87 crore. Hyundai Motor India's EBITDA (earnings before interest, tax, depreciation, and amortisation) stood at Rs 6,610.7 crore for nine months into FY24 , commanding an EBITDA margin of 12.67 percent. The South Korean company's net worth was Rs 19,777.91 crore for the period. Revenue of Hyundai India vs. Peers: Hyundai Motor India's revenue from operations at the end of FY23 was the lowest among listed peers at Rs 60,307.58 crore. In comparison, Maruti Suzuki India reported revenue from operations worth Rs 117,571.3 crore at the end of FY23; Tata Motors Rs 345,966.97 crore; and M&M Rs 121,268.55 crore. EPS of Hyundai India: Hyundai Motor India's earnings per share (EPS) stood at Rs 57.96 per share (diluted) at the end of FY23 vs. Rs 271.82 (Maruti Suzuki); Rs 6.3 (Tata Motors); and Rs 91.96 (M&M). (is the number in bold correct?)
Top Risks to Consider Before Applying for the Hyundai IPO:
In its Draft Red Herring Prospectus (DRHP), the company has disclosed some risks associated with its line of business:
1. Two of their group companies, Kia Corporation and Kia India Private Limited, are in a similar line of business, which may involve conflict of interest and could adversely impact their business. “We have entered into and may continue to enter into related party transactions with HMC and companies within the Hyundai Motor Group that may involve conflicts of interest, which could adversely impact our business,” highlighted the prospectus.
2. They currently manufacture passenger vehicles and parts only at the Chennai Manufacturing Plant. Any disruptions or stoppages at their manufacturing plants, including at the Talegaon Manufacturing Plant once it is operational, could adversely impact their operations, financial condition, and results of operations.
3. The unavailability, reduction, or elimination of government incentives could have a material adverse effect on their business, prospects, financial condition, results of operations, and cash flows. Hyundai Motor India benefits from several incentives offered by the Government of India and state governments, such as electricity tax exemptions, investment promotion subsidies, and customs duty drawbacks. Any delay, reduction, or unfavourable application of these incentives due to policy changes may adversely affect their financial condition and operations.
4. The company substantially depends on the sales of SUV models in India. Any decrease in the demand for or disruption in the manufacture of SUVs, or any other passenger vehicle models they rely on in the future, could adversely impact its operations.
5. Hyundai sources parts such as trims, engines, and transmissions, and materials such as steel from a combination of domestic and foreign suppliers. An increase in the prices of parts and materials could adversely affect its business.
What’s in it for Investors?
With MSIL being the only pure play in passenger vehicles (PVs), HMIL undoubtedly presents an opportunity for investors. The other two listed PV companies, Tata Motors and M&M, have other businesses too. Over the years, Hyundai’s earnings trajectory has shown robust growth, with its EPS growing from 23.15 in FY 21 to 57.96 in FY 23. Strong cash flows will support future investments into product development, marketing, and sales initiatives.
Analysts are confident that with support from its parent on technology and its ability to cater to the domestic customer, the company is capable of garnering a dominant share in some segments, such as CUVs and EVs. So far, it has carved a niche with new launches in these two auto segments.
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