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The Initial Public Offering (IPO) of Hyundai Motor India Ltd (HMIL), marking the country's largest maiden share sale in its capital market history, has garnered positive feedback from prominent brokerages and analysts. They anticipate HMIL's continued aggressive growth within the Indian passenger vehicle (PV) market, positioning the company ahead of competitors in terms of certain financial metrics.
Analysts at Bajaj Broking, assigning a 'subscribe' rating with a long-term perspective, highlight that while the IPO price appears fully priced, HMIL's future prospects remain bright after the completion of ongoing expansions. Their analysis, based on FY25 annualized super earnings and FY24 earnings, places the asking price at a P/E of 26.73 and 26.28, respectively.
LKP Securities considers HMIL as the second-best player to invest in as a proxy for the Indian PV theme, alongside market leader Maruti Suzuki. HMIL holds a 15% market share, with SUVs contributing 68% and exports exceeding 20%. The company's revenues have mirrored the growth trajectory of the Indian industry, showcasing strong return ratios. LKP emphasizes HMIL's robust EBITDA margins, reaching 13.8% in Q1 FY25, the highest in the industry, though they acknowledge the current 100% capacity utilization of HMIL's plants may pose a near-term challenge in meeting demand. However, they view the industry slowdown as potentially beneficial for HMIL, considering the company's plans to expand capacity by 30% over the next 2-3 years.
Despite the optimistic outlook, analysts have also raised concerns. Raw material sourcing, supplier concentration, potential industry slowdown, and an increase in royalty payments to its parent company are cited as potential risks that could impact HMIL's performance. The IPO, valued at Rs 27,870 crore, will be open for subscription from October 15th to 17th. At the upper end of the issue price, HMIL's valuation reaches Rs 1.59 lakh crore.
Investors seeking quick profits may be disappointed as listing gains are projected to be limited. The unofficial grey market currently indicates a premium of just Rs 75 (4%) for HMIL shares, suggesting an estimated listing price of Rs 2,035 per share. This premium is significantly lower than the Rs 400 GMP observed at the beginning of the month.
ICICI Direct, while assigning a 'subscribe' rating based on steady growth prospects, robust financials, and a strong SUV product lineup, also anticipates limited listing gains but expects HMIL to deliver healthy double-digit portfolio returns over the medium to long term. Prashanth Tapse, Senior Vice President (Research) at Mehta Equities, corroborates this sentiment, highlighting that the issue appears fully priced based on FY25E expectations, leaving little room for substantial listing gains. Tapse further emphasizes that despite contributing only 6.5% of Hyundai's global revenues and nearly 8% of its profitability, Hyundai India seeks a premium valuation compared to its parent entity, which trades at a 5-6 times PE ratio. Moreover, HMIL's listing valuation represents nearly 42% of its South Korean parent's market capitalization.
Tarun Garg, Chief Operating Officer (COO) at HMIL, encourages investors to assess the company's growth trajectory and its continuous innovation in launching new products and features like dual CNG. Garg highlights HMIL's strong parentage and robust connection with Indian customers as key factors contributing to its strong position. HMIL's financial performance in FY2024 reflects a total income of Rs 71,302 crore and a profit of Rs 6,060 crore, exceeding the Rs 61,436 crore income and Rs 4,709 crore profit of FY2023.
Hyundai's ambitious plans for India, its third-largest market globally after South Korea and the USA, involve investing Rs 32,000 crore between 2023 and 2032. This investment will be directed toward capacity expansion, new product and platform development, and enhancing R&D capabilities. The company's upcoming Pune plant will increase its capacity from 824,000 to close to 1.1 million by 2028. Furthermore, Hyundai is preparing to launch four electric vehicles (EVs) in the medium term, including the electric version of its popular Creta SUV by Q4 FY25. The company is working to localize the production of battery pack assemblies and powertrains for electric vehicles.
Saji John, Senior Research Analyst at Geojit Financial Services, views HMIL's strong financial performance and premium product mix, particularly in the SUV segment, as potential game-changers in the listed space. John emphasizes that Hyundai's cutting-edge and competitive EV models, catering to growing consumer preference, are likely to attract a larger customer base.
The IPO details include an offer period from October 15th to 17th, a price band of Rs 1,865−1,960 per share, a total issue size of Rs 27,870 crore, an offer for sale of 14.2 crore shares, a retail quota of 35%, a QIB quota of 50%, and an NII quota of 15%.
Source: Subscribe with long-term perspective: Street on Hyundai India’s IPO