Hyundai Motor Co. is set to offer up to 17.5% of its Indian subsidiary, Hyundai Motor India Ltd (HMIL), in an Initial Public Offering (IPO), aiming to raise $2.5-3 billion at a valuation nearing $20 billion. This move is part of Hyundai’s strategy to address the lower valuations Korean conglomerates face compared to their global peers, which is often referred to as the “Korea discount.” This discount results from factors like low dividends and the opaque nature of the chaebols, South Korean business conglomerates.
Currently, Hyundai Motor Co. trades at a price-to-earnings (P/E) ratio of 5, which is significantly lower than Indian competitors like Maruti Suzuki (P/E of 32), Mahindra & Mahindra (P/E of about 20), and Tata Motors (P/E of about 17).
IPO and Market Impact
The upcoming Hyundai IPO will place Hyundai Motor India among the top listed passenger vehicle makers in India, alongside Maruti Suzuki, Tata Motors, and Mahindra & Mahindra. This listing is expected to increase investor interest in the Indian auto sector. Hyundai Motor India has a diverse range of vehicles, including electric vehicles (EVs), internal combustion engines (ICE), hybrids, and plug-in hybrids. It also has a strong SUV portfolio in India.
According to Jay Kale, an analyst at Elara Capital, this IPO will be the largest in India’s automotive sector since the Life Insurance Corporation of India’s share sale in 2022, which raised over ₹20,000 crore. The IPO is expected to improve Hyundai’s visibility and brand image in India, allowing better cash returns to shareholders. All proceeds from the IPO will go to the parent company in Korea, which plans to enhance its corporate value and market perception through this offering.
Korean Market Challenges
South Korea’s corporate landscape faces a “Korea discount” due to governance issues and low returns to shareholders. The South Korean government’s ‘corporate value-up programme’ encourages companies to return more capital to shareholders and improve governance, aiming to reduce this discount. Despite these efforts, Hyundai Motor’s stock trades at lower valuations compared to its Indian counterparts.
According to Aditya Kondawar of Complete Circle Capital, the proposed IPO in India aims to capitalize on the growing importance of the Indian market for Hyundai. India is Hyundai’s third-largest revenue generator after the US and South Korea. Kondawar estimates a valuation of ₹1.5 trillion for HMIL, with an asking P/E ratio of 25.6.
Revenue and Growth Prospects
Hyundai Motor India’s revenue increased from ₹40,972.25 crore in 2020-21 to ₹60,307.58 crore in 2022-23, driven by strong demand and market presence. Profits also more than doubled from ₹1,881.16 crore to ₹4,709.25 crore over the same period, with improved operational efficiency and a focus on premium SUVs.
The company plans to invest further in its Indian operations, including expanding its EV lineup. Hyundai will introduce four new EV models, including the Creta EV, by late 2024-25. Hyundai’s Chennai plant, its first integrated facility outside Korea, has a production capacity of 824,000 units. An additional 250,000 units will be added with the new Talegaon factory near Pune, operational by the second half of 2025-26.
Investor Benefits
Hyundai’s Indian IPO aligns with the broader strategy to boost the company’s valuation and return more cash to shareholders. This move supports Hyundai’s decision to strengthen its presence in India, including plans for a battery assembly factory and increased production capacity through its purchase of General Motors’ Talegaon facility.
Listing in India sets a model for other Korean firms aiming to enhance their valuations through international listings. The additional capital raised will be used partly for dividend payouts and share buybacks, enhancing shareholder value.
By addressing the “Korea discount” and leveraging the growing Indian market, Hyundai aims to realign its market valuation and improve returns to shareholders through this strategic IPO.
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