Hyundai Motor India IPO: Should It Be Priced Higher or Lower Than Maruti Suzuki? Key Insights

The Hyundai Motor India IPO is creating a buzz in the investment world. According to InCred Research Services Private Ltd, this IPO presents new investment opportunities in the Indian auto sector, which is still growing. Although Hyundai is smaller than the market leader, it has good profit margins and a strong return on capital employed (RoCE).

However, there are concerns about the long-term value gap between Hyundai and its global counterparts, particularly after adjusting for factors like royalty rates, warranties, and research and development costs. The big question is whether the IPO should be priced at a premium or a discount compared to Maruti Suzuki.

Hyundai’s Market Position

Since 2009, Hyundai Motor India has been the second-largest original equipment manufacturer (OEM) in India’s passenger vehicle (PV) market. From 2005 to 2022, it was the top exporter of PVs from India.

IPO Pricing: Premium or Discount?

The promoter plans to sell a 17.50% stake in the company through an offer for sale of shares. InCred suggests that this move is part of a value creation strategy that Hyundai Korea started in 2023. Despite Hyundai’s solid cash position for self-funding, it consistently trades at a significant discount of 23-48% on price-to-earnings (P/E) and price-to-book value (P/BV) ratios compared to global peers. This discount cannot be overlooked when evaluating the IPO’s valuation.

Investor Excitement and Hyundai’s Global Value

The Nifty Auto Index has outperformed the broader Nifty index, with a 68% return over the last year and an 18% return over the last three months. This trend could benefit Hyundai’s new listing, given investors’ interest in auto stocks.

Hyundai’s Global Valuation Challenge

Despite its success in capturing market share in the global SUV and electric vehicle markets, Hyundai trades at a lower valuation than its peers. This could be due to its significant non-core interests, such as Kia Motors and Hyundai E&C, which make up about 15-20% of its market cap. These investments contribute to Hyundai’s steep discount compared to global competitors.

Maruti Suzuki’s Competitive Edge

InCred’s analysis suggests that Hyundai’s IPO and Tata Motors’ vehicle division demerger will expand investment options in the auto sector. Despite these developments, Maruti Suzuki’s strong market position and product offerings should help it maintain its competitive advantage. Maruti’s niche products, such as the Ertiga, Eco, Wagon R, and CNG variants, keep it ahead of the competition. While new powertrain technologies pose short-term challenges, Maruti’s upcoming electric vehicles (EVs) should address investor concerns and sustain its premium valuation.