Marquee global investment banks including Goldman Sachs, Citi, Morgan Stanley, JP Morgan, Bank of America, HSBC, Deutsche Bank and UBS, were in Seoul last week to make IPO pitches to the Hyundai leadership, said the people cited above. Bankers valued the company at $22-28 billion, they said. Hyundai is exploring a 15-20% dilution to raise $3.3-5.6 billion (₹27,390 crore to ₹46,480 crore), people said.
Hyundai’s global head of communications in Seoul didn’t respond to queries.
The IPO record was set in 2022 by LIC of India with an issue size of ₹21,000 crore. India recently became the fourth-largest equity market in the world, overtaking Hong Kong. At the upper band of $28 billion (₹23.2 lakh crore), HMIL will be valued at more than Mahindra and Mahindra, Adani Power and Bajaj Auto.
Better P/E Multiples
Among big Indian auto companies, only Maruti Suzuki (Rs 33.4 lakh crore) and Tata Motors (Rs 29.3 lakh crore) are valued higher at current market prices, as per BSE data.
Hyundai Motor Co (HMC) is listed in South Korea at a market capitalisation of $39 billion. Analysts tracking Hyundai Motor India (HMIL) said a listing of the Indian subsidiary would be part of South Korea’s ‘value-up’ programme, aimed at improving the valuation of underperforming stocks and slashing the so-called ‘Korea discount’ in the financial markets.
South Korean automakers are trading at a low price-to-earnings (P/E) ratio of 4.1-4.6, compared with 7.3 for Japanese rivals and 5.4 for those in the US. Subsidiaries based in growth markets such as India could potentially trade at superior P/E multiples than their parents. For instance, Maruti Suzuki trades at 23 times its projected FY25 earnings, while parent Suzuki Motor Corp is at eight times.
The plan envisages a Diwali listing, between September and November this year, said the people cited above. However, these are preliminary discussions and the final contours will evolve upon further deliberations. It will also depend on several external factors, including the vigour of the Indian capital markets and various macroeconomic factors.
“But the work has begun at the headquarters. This is a strategic market and Hyundai wants to deepen the relationship. This, arguably, is the tentpole event for them in India,” said one of the persons cited above. “The momentum is expected to pick up further after the national elections this summer.”
Valuation Calculus
At $28 billion, HMIL will be valued at 48 times FY23 earnings, while at the lower end of the band at $22 billion, it would be 38.4 times.
Maruti Suzuki trades at 40 times FY23 earnings. HMIL may enjoy superior multiples as its FY23 EBIT per vehicle was about twice that of Maruti Suzuki. Analysts attribute this to HMIL switching its focus to SUVs early, recognising the market shift away from entry-level hatchbacks.
The maker of the Creta and Venue SUVs sold 602,000 units in India in 2023, up 8.9% from the year before. It gained 13 basis points of market share in 2023, putting it at 14.7%. Maruti Suzuki led with 41.7%, with Tata Motors at third with 13.5%.
HMIL and Tata Motors have been swapping places in recent months, with the Indian company having improved domestic sales.
India was the third-biggest market for the Hyundai Motor Group after the US and South Korea in the previous calendar year. In 2023, HMIL contributed 15% to the group’s global sales. The rise in the share of premium vehicles, and healthy capacity utilisation saw the company registering its best operating performance and sales in 2023.
The Creta and Venue SUVs helped Hyundai overtake mass-market leader Maruti Suzuki on operating margins for the first time in almost a decade in FY21. It sold just about half of Maruti Suzuki’s volumes that year and has been closing in in terms of revenue and profitability over the past five years.
Strategic Market
India is likely to emerge as the largest market for the company in the near future, HMIL managing director and chief executive Unsoo Kim had said in November, adding that Hyundai expects nearly a fifth of its global sales to come from the country in the next two to three years.
Turnover crossed a milestone of Rs 60,000 crore ($7.2 billion) in FY23, up 27% from FY22. Profit surged 62% to Rs 4,653 crore ($550 million), the highest among non-listed automotive companies in the country.
With India gaining prominence in Hyundai’s ecosystem, the auto giant elevated Tarun Garg, who spent 25 years in Maruti Suzuki, as chief operating officer in January 2023. Gopala Krishnan CS was made chief manufacturing officer (CMO) at the same time, overseeing production, quality management and supply chain. Both have been inducted onto the board of the Indian arm.
Reviewing FY23 operational performance, HMIL’s annual ministry of corporate affairs filing noted, “2022-23 was a busy year for your company. New car models including the Ioniq 5 were launched, production capacity was increased and steps were taken to accelerate growth in the coming years through strategic investments, including the proposed acquisition of a production facility.”
Sales hit a record last year. “This year, our total sales (domestic and exports) will be a record 760,000 units, the highest seen since 2018, when we had sold 710,000 units,” Garg had told ET in November.
Domestic sales grew 18% in FY23, with models Creta, Venue, Alcazar, Tucson, Aura and Grand i10 Nios registering their highest-ever annual numbers. Exports grew 18.4% to 153,000 units, with India becoming a Hyundai production hub for markets such as Africa and even Latin America.
Hyundai is ahead of Maruti in terms of electric vehicles. The market leader doesn’t yet have an EV in its product range.
“To cater to the growing demand and shift towards EVs, Hyundai Motor India is in the process of touching 8.5 lakh units in production capacity and is also accelerating its EV plan to participate in this fast-growing space,” said the annual report for FY23, sourced from business intelligence platform Tofler.
At this year’s World Economic Forum in Davos, HMIL signed a memorandum of understanding with the Maharashtra government for a Rs 7,000-crore investment to modernise the old General Motors Talegaon plant near Pune that it acquired last year. The Talegaon facility will be its second location in India after its two plants in Tamil Nadu.
That investment will be over and above the Rs 20,000 crore announced in August, largely focused on electrification, after the visit of Hyundai Motor Group chairman Euisun Chung. The South Korean car maker has pledged to launch five EV models by the end of the decade in India.
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