Hyundai Motor India Ltd: IPO assessment

Firm Profile:

Hyundai Motor India Ltd  is a key participant within the Indian automotive market and operates as a fully-owned subsidiary of South Korea’s Hyundai Motor Firm. Since its institution in 1996, it has grown into one of many nation’s prime automobile producers. The corporate is understood for its innovation, superior know-how, and a variety of automobiles that cater to numerous segments, together with hatchbacks, sedans, SUVs, and electrical automobiles.

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Fashionable fashions from Hyundai’s Indian portfolio embody the Creta, Venue, Verna, i10, i20, Aura, Tuscon and so on. These automobiles are appreciated for his or her reliability, fashionable options, and robust efficiency, contributing to Hyundai’s repute as one of the vital trusted manufacturers within the Indian market.

The corporate’s manufacturing facility is situated in Sriperumbudur, Tamil Nadu, which is among the many largest built-in automobile manufacturing vegetation in India. Geared up with superior robotics, automation, and eco-friendly practices, this plant ensures that Hyundai produces automobiles of worldwide requirements. Hyundai additionally prioritizes analysis and growth, regularly bringing in new applied sciences to boost each the driving expertise and environmental sustainability.

Hyundai Motor India boasts an in depth gross sales and repair community, with dealerships and repair facilities unfold throughout the nation. It additionally focuses on sustainability by providing electrical and hybrid automobiles, alongside actively pursuing inexperienced initiatives to scale back its carbon footprint.

Promoters & Shareholding:

The promoter of the corporate is Hyundai Motor Firm.

Public Subject Particulars:

Supply on the market: OFS of approx. 142,194,700 fairness shares at Rs. 10, aggregating as much as Rs. 27,870.16 Cr.

Whole IPO Dimension: Rs. 27,870.16 Cr.

Value band: Rs. 1865 – Rs. 1960.

Goal: Augmenting its capital base to fulfill its future capital necessities and for basic company functions.

Bid qty: minimal of seven shares (1 lot) for Rs. 13,720 and most of 14 tons.

Supply interval: Tuesday, October 15, 2024 – Thursday, October 17, 2024.

Date of itemizing: Tuesday, October 22, 2024.

Execs:

1. Hyundai Motors India Restricted (HMIL) has held the place of being the second-largest car unique tools producer (OEM) in India by home gross sales quantity for the reason that 2009 fiscal 12 months.
2. Hyundai Motors India Restricted (HMIL) has led the mid-size SUV section in gross sales from FY19 to June 2024, with the Creta capturing a 38% market share.
3. In 2023, Hyundai Motors enhanced its aggressive edge by launching the IONIQ 5 within the premium electrical automobile market.
4. Export gross sales considerably enhance income with greater common promoting costs, providing a pure hedge towards forex fluctuations.
5. Hyundai’s management within the aggressive Indian automotive market is strengthened by its scale, in depth vendor community, operational effectivity, and robust buyer loyalty.

Dangers:

1. Rising costs of key components and supplies might adversely have an effect on enterprise operations and outcomes.
2. As of June 30, 2024, the corporate depends on Mobis India Restricted for 17.91% of spare components. Supply failures might disrupt operations, and ties with different HMC Group Corporations might trigger conflicts of curiosity.
3. HMIL imports round 20% of its components, primarily engine elements and transmission assemblies, from HMC and its associates. It enjoys diminished customs duties of 0% to fifteen% underneath the Complete Financial Partnership Agreements between Korea and India. Any discount or removing of those concessions or new tariffs might considerably elevate sourcing prices.
4. Provide chain disruptions, akin to chip shortages and transport delays, might threaten HMIL’s plant operations and profitability

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Sectorial outlook – The Indian automotive trade, notably the passenger automobile (PV) sector, is about for continued progress, with home gross sales quantity growing at a compound annual progress price (CAGR) of 5% from FY19 to FY24. Regardless of experiencing a contraction of 10% CAGR between FY19 and FY21, the trade rebounded strongly in FY23, reporting a 27% year-on-year restoration pushed by pent-up demand, heightened private mobility wants, and improved provide situations. This momentum continued into FY24, with a projected progress price of 8% YoY, reaching file gross sales of 4.2 million models. In keeping with CRISIL Analysis, total PV volumes are anticipated to develop at a CAGR of 4.5-6.5% between FY24 and FY29, doubtlessly reaching 5.2-5.7 million models by FY29. This progress is supported by rising common automobile ex-factory costs, which have elevated at a CAGR of 7-9% on account of elements like shopper preferences shifting in direction of mid- and high-end automobiles, the emergence of compact SUVs, and the introduction of superior applied sciences.

Hyundai Motors India Restricted (HMIL) is well-positioned to profit from these optimistic tendencies within the Indian auto marketplace for a number of causes. The SUV section has seen exceptional progress, increasing at a CAGR of 23%, considerably outpacing the general trade progress price of 5%. With HMIL’s sturdy SUV choices, such because the Creta and Venue, the corporate is about to seize a bigger share of this profitable market. Moreover, HMIL has a sturdy vary of automobiles throughout key classes, together with hatchbacks, sedans, and SUVs, permitting the corporate to cater to various shopper preferences, notably as demand shifts in direction of bigger automobiles with enhanced options. Moreover, India’s automobile penetration stays low at roughly 26 automobiles per 1,000 individuals, in comparison with a lot greater figures in markets like China, the US, and Europe. This presents vital progress potential for HMIL as rising per capita earnings drives extra customers to buy automobiles. Lastly, the wholesome restoration within the PV trade and the continued demand for private mobility place HMIL to leverage these favorable market situations, enhancing its market share and profitability within the increasing Indian automotive panorama.

The financials (income and internet revenue) are proven within the graph beneath:

Valuation – For the final 3 years common EPS is Rs. 56.3 and the P/E is round 34.8x on the higher value band of Rs. 1960. EPS for FY24 is Rs. 75 so on the higher band value the present P/E is round 26x. It has Maruti Suzuki India Ltd (MSIL) (27x), Tata Motors (10x) and Mahindra & Mahindra (M&M) (35x)as listed friends as per the RHP. The corporate’s P/E is between 26x and 35x. Income and margins has been rising constantly.

Advice – We advise a “Purchase on Dips” method following Hyundai Motors India’s itemizing on account of a number of key considerations. The gray market premium (GMP) for its shares has sharply declined to round ₹45, reflecting solely a modest 3% premium over the problem value. This can be a vital drop of over 89% from its earlier excessive of ₹570, suggesting dampened investor enthusiasm because the IPO nears.

The IPO, which is a proposal on the market (OFS), includes the sale of 14.2 crore shares by Hyundai’s Korean father or mother. In consequence, the Indian operations won’t obtain any of the funds raised, elevating questions in regards to the rapid advantages of the itemizing for Hyundai Motors India. This construction has led to doubts in regards to the progress prospects and long-term worth of the IPO.

Moreover, Hyundai’s ₹27,870 crore IPO gives restricted attraction when in comparison with Maruti Suzuki, which dominates the market with 3 times the passenger automobile share, 2.5 instances the gross sales quantity, and comparable profitability. At ₹1,960, the higher finish of the IPO value band, we imagine the valuation is steep, particularly given Maruti’s stronger market place and scale.

In abstract, whereas Hyundai Motors India is a well-established participant with a powerful model and product providing, the present pricing doesn’t present rapid worth for buyers. We advocate ready for potential post-listing value corrections, making it extra enticing to Purchase on Dips and seize long-term progress at a extra favorable valuation.

Disclaimer:

This text shouldn’t be construed as funding recommendation, please seek the advice of your Funding Adviser earlier than making any sound funding determination.

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