Hyundai Motor India’s ₹27,870 Crore IPO Offers Investors a Stake in the Dynamic Passenger Vehicle Market Amid Expansion

Hyundai Motor India (HMI), the second-largest passenger vehicle (PV) manufacturer in India after Maruti Suzuki, is planning to raise up to ₹27,870 crore through an offer for sale (OFS). The South Korean parent company, Hyundai Motor Company (HMC), will reduce its stake in HMI from 100% to 82.5%. In the future, HMC will need to further lower its holding to 75% or less due to regulatory requirements, which might affect HMI’s stock price.

Competition

HMI operates in a tough market, with its market share, along with Maruti’s, gradually decreasing over the past five years. The company’s IPO pricing also doesn’t offer much comfort when compared to Maruti, which holds nearly three times the market share, has two-and-a-half times higher sales volume, and similar profitability. However, Hyundai has several new vehicle launches planned, including both traditional internal combustion engine (ICE) vehicles and electric vehicles (EVs). The company’s plan to expand its production capacity is another positive sign for future growth. Investors willing to take risks might consider the IPO, but more cautious investors might want to wait and observe the stock’s performance after the IPO.

Business Operations

Founded in 1996, HMI manufactures a wide range of passenger vehicles, including hatchbacks, sedans, and SUVs, using various powertrains. The company has a large manufacturing plant in Chennai with a capacity of 8.24 lakh units and is building another plant in Talegaon, Maharashtra, which will boost its total capacity to 10.74 lakh units in the next three to four years. In FY24, HMI sold 7,77,876 units, a growth of 8% from the previous year. Of this, 89.2% were ICE vehicles, 10.6% were powered by CNG, and 0.2% were electric vehicles. HMI’s market share in hatchbacks, sedans, and SUVs in FY24 was 12.3%, 20%, and 18.4%, respectively.

Financial Performance

Between FY22 and FY24, HMI’s revenue grew by 21.4% annually to ₹69,829 crore, while its net profit increased by 44.5% to ₹6,060 crore. The company’s EBITDA margin, a measure of operating profit, improved to 13.1% from 11.6% during this period. By comparison, Maruti’s EBITDA margin grew from 6.4% to 13.1%.

Risks

Due to tough competition, HMI’s overall market share in the PV segment dropped to 14.6% in FY24, down from 17.6% in FY20. This might lead to the company offering larger discounts to customers to maintain its market position, which could affect profitability.

For FY24, HMI is seeking a price-to-earnings (P/E) ratio of up to 26.7. Maruti, its closest competitor, trades at a P/E ratio of 29.8.