People familiar with the matter disclosed that South Korea’s Hyundai Motor Co. is evaluating a plan to list its local unit to capitalize on India’s IPO boom. The move, occurring almost three decades after the launch of Hyundai Motor India (HMIL), could mark the country’s largest initial public offering if realized. HMIL, ranked as India’s second-largest passenger vehicle seller last year, followed Maruti Suzuki India.
Last week, marquee global investment banks, including Goldman Sachs, Citi, Morgan Stanley, JP Morgan, Bank of America, HSBC, Deutsche Bank, and UBS, pitched IPO proposals to the Hyundai leadership in Seoul. Bankers estimated the company’s value between $22-28 billion. Hyundai is considering a 15-20% dilution to raise $3.3-5.6 billion (27,390 crore to 46,480 crore), sources revealed.
Lack of Response from Hyundai’s Global Head of Communications in Seoul
Queries directed to Hyundai’s global head of communications in Seoul remained unanswered.
The IPO record, established in 2022 by LIC of India with an issue size of 21,000 crore, highlights India’s robust IPO market. Recent data reveals India’s ascent to the position of the fourth-largest equity market globally, surpassing Hong Kong. At the upper band valuation of $28 billion (23.2 lakh crore), HMIL will surpass the valuation of Mahindra and Mahindra, Adani Power, and Bajaj Auto.
Hyundai Explores Better P/E Multiples through Indian Subsidiary Listing
As per BSE data, only Maruti Suzuki (Rs 33.4 lakh crore) and Tata Motors (Rs 29.3 lakh crore) command higher valuations among big Indian auto companies, highlighting their market prominence. Hyundai Motor Co (HMC), listed in South Korea with a market capitalization of $39 billion, aims to bolster its valuation through the listing of its Indian subsidiary, Hyundai Motor India (HMIL). Analysts tracking HMIL perceive this move as part of South Korea’s ‘value-up’ program, targeting underperforming stocks and reducing the ‘Korea discount’ in financial markets.
South Korean automakers presently trade at a low price-to-earnings (P/E) ratio of 4.1-4.6, trailing behind Japanese rivals (7.3) and US counterparts (5.4). Subsidiaries operating in growth markets like India could potentially command higher P/E multiples compared to their parent companies. For instance, Maruti Suzuki trades at 23 times its projected FY25 earnings, while Suzuki Motor Corp, its parent, trades at eight times.
The envisaged Diwali listing, slated between September and November this year, marks a strategic move for Hyundai. Although in preliminary stages, discussions indicate a keen interest in deepening relationships and capturing market opportunities post the national elections this summer. The final decision hinges on various external factors, including market dynamics and macroeconomic conditions.
HMIL’s Valuation Analysis
At $28 billion, HMIL’s valuation reaches 48 times FY23 earnings, while at $22 billion, it stands at 38.4 times. Comparatively, Maruti Suzuki trades at 40 times FY23 earnings. HMIL’s potential for superior multiples stems from its FY23 EBIT per vehicle, which was approximately twice that of Maruti Suzuki. Analysts attribute this advantage to HMIL’s early focus on SUVs, recognizing the market shift away from entry-level hatchbacks.
HMIL, known for its Creta and Venue SUVs, witnessed an 8.9% increase in unit sales in India in 2023, totalling 602,000 units. This growth contributed to a 13 basis points market share gain, placing HMIL at 14.7%. Maruti Suzuki remains the market leader with 41.7%, while Tata Motors follows with 13.5%. Recent trends show HMIL and Tata Motors exchanging positions, with the Indian company demonstrating improved domestic sales.
Hyundai’s Rise in India
In the previous calendar year, India ranked as the third-largest market for the Hyundai Motor Group, trailing only the US and South Korea. In 2023, HMIL accounted for 15% of the group’s global sales, showcasing its significance in the company’s overall operations. The increase in the share of premium vehicles, coupled with healthy capacity utilization, propelled HMIL to achieve its best operating performance and sales in 2023.
The success of the Creta and Venue SUVs enabled Hyundai to surpass mass-market leader Maruti Suzuki in operating margins for the first time in nearly a decade during FY21. Despite selling only about half of Maruti Suzuki’s volumes in that year, Hyundai has been closing the gap in terms of revenue and profitability over the past five years.
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