Hyundai’s IPO Valuation Faces Reality Check as India’s Car Demand Slows, Challenging Maruti Suzuki and Tata Motors

Hyundai Motor India Ltd, the country’s second-largest carmaker, is preparing for an initial public offering (IPO), but the company’s valuation has taken a hit due to slowing demand for cars like hatchbacks and sedans in India.

After two years of rapid growth, passenger vehicle sales in July fell by 2.5% compared to the same time last year. To clear out old stock, car manufacturers have been offering discounts since May. This drop in demand has eased some pressure on Hyundai’s production capacity, but it has also lowered the company’s expected valuation to between $16-20 billion, down from the earlier estimate of $25-30 billion, according to people familiar with the IPO discussions.

Challenges Affecting Valuation

Several factors have contributed to Hyundai’s lower valuation. In the financial year 2024 (FY24), the company’s production capacity was stretched to 96%, making it difficult to increase production. This put Hyundai at a disadvantage compared to competitors like Maruti Suzuki, Tata Motors, and Mahindra and Mahindra. Although the recent slowdown in car sales means the capacity issue isn’t as pressing, it also suggests weaker growth prospects for the company.

Hyundai Motor did not respond to questions sent by email.

An industry expert, who wished to remain anonymous, pointed out that while the market slowdown has made Hyundai’s production limitations less of an immediate concern, the company’s growth is still heavily dependent on the overall market. Additionally, Hyundai has fewer new models in the pipeline compared to its rivals, which has also impacted its valuation.

Despite expecting a strong profit of around $720 million for FY24, Hyundai’s financials require careful consideration. The company is set to pay higher royalties to its Korean parent company and more dividends to shareholders this year, which will reduce its profits and cash reserves.

Hyundai’s production capacity is expected to increase in the second half of 2025 when its new factory in Talegaon, near Pune, adds 130,000 units of capacity. Because of this, the company’s volume growth for FY25 is estimated to be a modest 5-6%. As a result, profits for FY26 may remain at FY24 levels or see a slight increase to around $800 million.

Price-to-Earnings Multiple

With a price-to-earnings (P-E) multiple of 20, Hyundai’s valuation could be around $16 billion. If the valuation reaches $18.5 billion, the P-E ratio would be approximately 23 times, which is close to that of market leader Maruti Suzuki. Since Hyundai Motor India filed its IPO prospectus in mid-June, Maruti’s P-E ratio has dropped from a median of 28.9 over the past three months to 26 in August.

Although Hyundai has a strong brand and global expertise in various powertrains, including hybrids, its market share has declined. Currently, Hyundai holds a 14.2% share of the retail market.

“It is a strong franchise; globally, their capabilities across powertrains are among the best—they can launch hybrids in India as well. They have a very good SUV mix, with around 65% of their portfolio consisting of SUVs. So, their product portfolio is positioned correctly where the industry is moving. However, the growth in market share has been moderating, and in the last two years, they have lost market share; so, their progress vis-à-vis others will be keenly watched,” said Jay Kale, an analyst at Elara Capital.

Retail Market Share

Between FY22 and FY24, Hyundai lost 190 basis points in retail market share, while competitors like Mahindra and Tata Motors gained ground. Although Hyundai’s market share loss slowed, with only a 10 basis point drop between FY23 and FY24, the company’s progress will be closely monitored, especially as it rolls out new models like the updated Alcazar, the refreshed Venue, and the much-anticipated Creta EV.

“Hyundai has a high capacity utilization rate in the Indian market, and is currently looking to add another plant in the short term as it prepares for future competition, but it simultaneously needs to invest in new products. Their global brand recognition, coupled with feature-rich and well-designed vehicles, gives them an edge in the market. It’s time for them to double down their investments now as they face growing competition from Tata Motors and Mahindra, both of which are aggressively expanding their portfolios,” noted Gaurav Vangaal, an analyst at S&P Global Mobility.

Investors are still interested in Hyundai’s stock, but they remain cautious given the challenges in the broader market. The IPO’s anchor book is expected to be finalized by the end of this month, with the full launch anticipated by mid-September.