Hyundai’s ₹27,870 Crore IPO: 7 Big Risks You Need to Know Before Tuesday’s Launch

Hyundai Motor India’s massive ₹27,870 crore IPO is set to open on October 15, and it’s important for investors to be aware of some potential risks highlighted in the company’s Red Herring Prospectus (RHP). Here are seven key points to consider before investing:

1. Conflict of Interest: Hyundai’s parent company, Hyundai Motor Company (HMC), also controls Kia Corporation and Kia India, which are competitors in the same market as Hyundai Motor India. This could create conflicts of interest and affect Hyundai’s business.
2. Dependence on Parent Company: Hyundai Motor India heavily relies on HMC for essential parts and materials like engines and transmissions, as well as for research and development. Any problems in their relationship with HMC or other Hyundai Group companies could harm Hyundai’s business and reputation.
3. Royalty Payments: Hyundai pays a royalty fee to its parent company, HMC, which is currently 3.5% of its revenue. If this royalty fee increases, it could hurt the company’s profitability and reduce earnings per share.
4. Supplier Dependence: Hyundai depends on a small number of suppliers for parts and materials. Any disruption in the supply chain or delays from suppliers could negatively impact their production schedules and operations.
5. Rising Costs: If the prices of parts and materials increase, it could affect Hyundai’s overall business and profits.
6. Competition: The Indian car market is highly competitive, with major players like Maruti Suzuki, Tata Motors, and Mahindra & Mahindra dominating. Kia and MG have also been gaining ground. Hyundai will need to compete in this crowded market, which may impact its growth.
7. Market and Sector Risks: While Hyundai’s stock performance will depend on its own operations, it is also influenced by the broader market and auto sector trends. Currently, automakers are facing slowdowns in demand and inventory build-ups, which may affect Hyundai’s IPO performance.

Despite these risks, Hyundai is planning to increase its production capacity by 30% in the next 2-3 years, and the company is set to launch four new models, including an electric version of the Creta, which could strengthen its position in the market.

The auto sector has been performing well in recent weeks, but experts have mixed views on its future. Some are concerned about the slowdown, while others believe Hyundai’s IPO could boost the industry’s prospects.

In Q2 FY25, India’s domestic passenger vehicle (PV) industry saw a small drop in sales volumes, but research firms like LKP suggest that this slowdown might work in Hyundai’s favor as they expand their capacity. Meanwhile, the transition from internal combustion (IC) engines to electric vehicles (EV) continues to evolve, with Tata Motors currently leading in the EV space.

Investors should carefully consider these factors before making any decisions on Hyundai’s IPO.