Hyundai Exclusive | Valuation left to bankers; we’ve consistently delivered value, will look at dividend policy after 2025; Creta EV could be a game-changer: Management

The IPO market is buzzing with activity, and the biggest of them all opened for subscription on October 15. At Rs 27,870 crore, the IPO of Hyundai Motor India is the largest in terms of issue size in Indian market history, beating that of the government-owned Life Insurance Corporation.

Hyundai is the second largest passenger vehicle company in India, and the issue values the company at $19 billion. Moneycontrol spoke to the top management of the company, including Managing Director Unsoo Kim, COO Tarun Garg, and CFO Wangdo Hur, to understand the company’s growth strategy and other issues concerning investors.

Also read: Hyundai Motor India sets price band at Rs 1,865-1,960 for Rs 27,870-crore IPO

Edited excerpts from the interview:

Before all else, let’s discuss what has been Hyundai’s rare and spectacular journey in India. Lots of players have come and gone. Some of them just packed their bags and went back home against the formidable competition posed by the leading player Maruti. Given your success so far, how do you see growth over the next three to five years, particularly since the money that you're raising is not going to fund growth?

Hyundai has been successful in India for more than 26 plus years now. And, we have always believed in giving respect (to the market and its customers) and we have always believed in introducing India-centric products for the country.

We have a strong advantage in terms of a strong parent because we have access to all (the parent’s) technologies. You have seen our history that we introduced, starting with Santro, I-10, of course, the Creta. Then we introduced the Blue Link through Venue, the Ioniq 5, which raised the benchmark of EVs in India. So, we have always believed in bringing those world-class features and world-class models to India.

At the same time, we have believed in quality of growth. Therefore, not only in terms of volume or market share, we have kept an eagle eye on the margins as well, which has made us sustainable.

You talked about India being not such an easy market. But I think this kind of an approach (of bringing world-class features) has really helped us connect with the Indian communities.

How do you see the growth panning out over the next two to three years? What are the timelines of some of the expansion plans that are underway?

If you see the CAGR for the Indian (auto) industry, it has been 5 percent, whether you see a five-year CAGR or a 10-year CAGR. Even Crisil is forecasting 4.5 percent to 6 percent CAGR for the next five years as well. As you know, we have the current capacity of 824,000. The Pune plant kicks in with phase one in H2 of CY25, which will add 1,70,000 to the capacity. And then an additional 80,000 will come in CY28.

Then the total capacity will be close to 1.1 billion, which is almost 30 percent more than the current capacity. Therefore, it should take care of not only the domestic, but also the export requirements in the next few years.

On that basis, what kind of headroom for growth will you project for the next two to three years?

Like I said, it is always very difficult to exactly pinpoint what kind of growth you can have.

What are your strategies?  

Our strategies are focused around, one, looking for opportunities in terms of introducing new models, new technologies, EV space, premiumisation, which is a key part of our strategy, to introduce features. Going forward, software-defined vehicles, infotainment are becoming popular.

Then we introduced ADAS (advanced driver assistance systems); today, eight out of 13 Hyundai models have ADAS… we believe a lot in safety.

I think all those strategies should help us to really grow sustainably in the future as well. And of course, the capacity will give us headroom for that.

Can you give us a clear picture of the pipeline of products for the next one to three years?

This year we introduced the Creta facelift, which has received a great response from the market. Then last month, we introduced the Alcazar facelift as well. Again, it received a very, very good response from the market. Creta EV is going to be launched in the Q4 of FY25.

I cannot tell you specifically the models, but what I can only tell you is, if you see our history, we have always been ahead of the curve in terms of identifying opportunities and launching products. Therefore, there is no reason to believe that we will not do so in the future.

How do you see the demand scenario pan out over the next one year, near to medium term, because that's been a little iffy?

We are very optimistic about the Indian auto market. I think it has really given a very good growth, if you see the CAGR of 5 percent. But yes, post-COVID, there was a pent-up demand because of which the industry saw a 22 percent growth. And then, of course, 8-8.5 percent growth last year also. So, on a high base of last year, we are looking at a single-digit growth this year, which I think is very good. We are quite optimistic about the auto industry. And I don't see too many headwinds.

Yes, last three months, of course, because of heat waves, floods in some areas, and of course, June, July, August, September are generally off-season months for the industry (have been difficult). Now we enter the festival season, and we are all seeing good footfalls in the showrooms, good inquiries, good bookings, good retails.

I don't think there is any doubt about the mid-term and long-term growth story in India.

You're still not giving us numbers, but I will let that pass. In terms of competition scenario, with respect to Maruti, of course, because it's a leading player with 42 percent market share, you've done better. But with respect to the other Indian players, such as Tata Motors or Mahindra and Mahindra, their market share growth, obviously coming from a smaller base, has been stupendous over the last two to three years. In the hierarchy of competition, if I put Maruti in the first bracket, the Indian players in the second bracket, and everyone else in the third bracket, how do you see yourself placed? Who are the guys you want to punch out and go after?

So, I don't think there is any hierarchy. For all these 26 years, Hyundai has been successful because we believe in strong fundamentals. We believe that we have to give value to the customer, we have to give technology to the customer, and we have to see that how we are able to use the strong R&D capabilities of HMC, at the same time, the knowledge we gain from the market research which we have in India, and marry the two, and bring the world-class technologies to India. I think that has been the mantra, and we want to continue on the same path of quality of growth, looking at volume, looking at market share, looking at profit, and of course, then everything falls into place.

We don't believe in targeting any specific competition or running after something.

Also read: Which investors may drive into anchor book of Hyundai India's $3.3-bn IPO?

In a market like India, where you have these multiple players, each one trying to dominate a certain segment, shouldn't the strategy be very focussed in terms of where and what you will compete against?

I'll give you an example. In 2015, India was primarily a hatch market. SUVs used to contribute only 13% of the industry. Suppose we had just seen the competition, probably we would not have brought in the Creta. But I think what is important is, because of the capabilities of HMC, and our success in US, Korean, European markets, we could see that yes, Indian market will sooner than later go to SUVs, and that is how we were able to launch the Creta. Today if you see, the SUV contribution has reached 50 percent-52 percent for the industry, and 68 percent for us. Therefore, I think what is very important is that, while you have an eye on what is happening, you should have a very strong, fundamental, long-term strategy. I think that helps you to navigate and respond very, very quick to all the challenges which come your way.

Any product that you think can do the same trick that Creta has done for you?

You know, we have always introduced, you know, looked at opportunity. If you see the history, whether it was the i20, which was again a category creator, or the Creta, the Venue, the Xter, I think all of them in their own way have been marquee brands. I cannot divulge the future product portfolio, but Creta EV, which we have already announced in the RHP, could be a very huge opportunity for us because Creta is a very strong brand. And in the EV space, India still has a long way to go. We believe in the EV segment, and this could be a game-changer in the EV market.

Fair enough. One of the concerns investors have is with respect to Kia and Hyundai. How do you really straddle these two platforms? How do you deal with potential conflicts? Are there some ground rules, boundaries, or guiding principles that will ensure investors in the listed entity are protected?

Hyundai Motor Group is the third largest OEM globally, and globally, Hyundai and Kia operate differently according to their strategies and plans. These two brands, Hyundai and Kia, are working successfully in the global market, in the US, European, and Korean markets as well. It is the same in India. The difference is that you will have a listed company, a locally listed company only in India, and that’s why the question of conflict comes up.

Frankly speaking, it's like any other competition. As long as all your policies and strategies are on an arm's-length basis, it doesn't matter. So if I need a product, I raise my hand and request HMC. We don't see too much of a difference. We have always believed in very strict standards of corporate governance. We have a board guided by very strong independent directors. So, going forward, like we have done in the past, we will continue to adopt global standards in terms of governance. I don't think there should be any issues.

The concerns stem from the shareholding structure, where certain segments are not under the listed company directly. For example, your luxury platform. Does that limit your opportunity set?

Kia came to India in 2019. You can see what our sales volume was at that time and how we have been able to increase our sales volume since then. Look at Creta. There's so much competition in that segment, but it continues to not only hold segment leadership, but its volumes keep growing. This year, Creta volumes have grown by double digits compared to last year. It is more about how you leverage your strengths. We have been in India for over 26 years. We have a strong customer base of 8.5 million plus customers. We are into hatches, sedans, and SUVs. We have CNG, petrol, diesel, and turbo models. We believe very strongly in building on these fundamentals. And, of course, competition will take care of itself as long as you are strong in your strategies and fundamentals.

Now, on the luxury segment, do you feel left out? How do you address that segment? Because that's been the fastest-growing segment in India in recent times.

More and more people are wanting luxury—no doubt. Our movement from hatches to SUVs was also a big step up. Then we moved further up with Creta and Alcazar. Going forward, we know the luxury segment is growing very fast. Globally, we have access to all kinds of brands and technologies. So, at the right time, in case there's an opportunity to look at introducing the Genesis brand, which our parent company enjoys, we will do so. At this point in time, we are focusing on the Hyundai brands. We believe that going forward, this will really give us great success.

I understand that Hyundai Indonesia is going through expansion, and that is primarily targeted at exports to the Asian market. Is that going to eat into or reduce the total addressable export market for Hyundai India?

In terms of export, Hyundai is currently the second-largest exporter and the largest exporter on a cumulative basis. HMG, our parent company, has a strong overseas sales network across more than 190 countries. We are positioning HMI as a production hub for emerging markets in the Middle East, Africa, South Asia, and Central and South America. Our product line is very suitable for emerging markets. We are manufacturing and exporting our cost-optimized vehicles to more than 80 countries. We have a healthy mix of export and domestic sales, which gives us not only profit but also some natural hedge against market fluctuations.

But will both Hyundai India and Hyundai Indonesia target exports to the Asian market?

We are segregated by models. It's not about one plant or the other. It is about the models we produce. Our models are very suitable for the Middle East, Latin America, South America, Asia, and Africa. That is the differentiating factor. To the same distributor, both could be exporting, but different models.

The other concern is around related-party transactions. Lots of companies that are owned by MNCs do have related-party transactions, but yours is particularly high at 45%. How do you explain this? How do you assuage investors from what is seen as a governance concern? Will you do things differently after you are listed?

So if you see, what is important is that HMG is now the third-biggest auto OEM in the world. And we have a very strong ecosystem. One reason for our success in India is the access to that ecosystem in terms of quality. For example, when the semiconductor crisis happened after COVID, Hyundai India was able to really come out of the crisis much faster. This is a huge advantage. As far as related-party transactions are concerned, everything is done on an arm's-length basis and certified by our auditors. We have a very strong board guided by independent directors. So it's a win-win.

Also read: IPO-bound Hyundai India paid Rs 10,780-crore special dividend in FY24

What were the considerations when you were thinking of valuing this issue? Hyundai India is just about seven percent or thereabouts of global revenue and profits, but in terms of market cap, it will constitute more than 42% of the parent company. How do you explain this?

Look, we leave the valuation to the bankers. What is more important is our strategy and performance. So, if you look at 2024 financially, we had a revenue of close to ₹70,000 crores and an EBITDA of 13%. We have consistently delivered value. If you look at our history in India, we've always given dividends to our shareholders. Going forward, depending on our capex, cash flow, and industry best practices, once the financial year 2025 is over, we will review our dividend policy. We have always believed in enhancing shareholder value, and we will continue to do that in the future as well.