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Hyundai Motor India (HMI), the second-largest passenger vehicle (PV) manufacturer in India, is poised to raise substantial capital through an offer for sale (OFS). The promoter, Hyundai Motor Company (HMC) of South Korea, intends to reduce its stake from 100% to 82.5% following the OFS. To comply with regulatory requirements, HMC will need to further dilute its stake to 75% or lower in the future, which could potentially impact HMI's stock price. The IPO price does not provide significant valuation comfort compared to Maruti, HMI's larger rival, considering Maruti's significantly higher PV market share, sales volume, and comparable profitability. Despite these concerns, Hyundai's planned new model launches in the coming quarters, spanning both internal combustion engine (ICE) and electric vehicle (EV) platforms, alongside the company's capacity expansion plans, offer a positive outlook for future growth. Risk-taking investors might find the IPO attractive, while risk-averse investors may prefer to observe the stock price trend post-IPO.
Established in 1996, HMI is a full-range manufacturer of PVs, including hatchbacks, sedans, and SUVs across various powertrains. The company operates a fully functional plant in Chennai with a capacity of 8,24,000 units and is currently setting up another plant in Talegaon, Maharashtra. Once fully operational, the total capacity will reach 10,74,000 units over the next three to four years. In FY24, HMI's PV sales grew by 8% year-on-year to 7,77,876 units, with ICE and CNG powertrains contributing 89.2% and 10.6%, respectively, while EVs accounted for 0.2%. The company's market share in hatchbacks, sedans, and SUVs stood at 12.3%, 20%, and 18.4%, respectively, in FY24.
HMI's revenue grew by 21.4% annually between FY22 and FY24, reaching Rs 69,829 crore, while net profit increased by 44.5% to Rs 6,060 crore. The company's EBITDA margin improved from 11.6% to 13.1% during the same period, matching that of its peer, Maruti. However, intense competition in the market has led to a gradual decline in HMI's PV market share, from 17.6% in FY20 to 14.6% in FY24. This may force the company to offer higher customer discounts in the future to maintain market share, potentially impacting profitability. HMI's IPO price translates to an FY24 price-earnings (P/E) multiple of up to 26.7, while its closest peer, Maruti, trades at a P/E of 29.8. While the IPO may seem attractive to some investors, the valuation compared to Maruti, coupled with the competitive market dynamics and potential future challenges, requires careful consideration.
Source: Hyundai IPO: Hyundai Motor India’s IPO opens tomorrow