Hyundai Motor India Ltd: IPO evaluation

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 automotive producers. The corporate is understood for its innovation, superior expertise, and a variety of autos that cater to varied segments, together with hatchbacks, sedans, SUVs, and electrical vehicles.

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Well-liked fashions from Hyundai’s Indian portfolio embrace the Creta, Venue, Verna, i10, i20, Aura, Tuscon and many others. These autos are appreciated for his or her reliability, fashionable options, and powerful efficiency, contributing to Hyundai’s fame as one of the crucial trusted manufacturers within the Indian market.

The corporate’s manufacturing facility is positioned in Sriperumbudur, Tamil Nadu, which is among the many largest built-in automotive manufacturing vegetation in India. Geared up with superior robotics, automation, and eco-friendly practices, this plant ensures that Hyundai produces autos of world requirements. Hyundai additionally prioritizes analysis and improvement, frequently bringing in new applied sciences to reinforce each the driving expertise and environmental sustainability.

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

Promoters & Shareholding:

The promoter of the corporate is Hyundai Motor Firm.

Public Situation Particulars:

Provide 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 Measurement: Rs. 27,870.16 Cr.

Worth band: Rs. 1865 – Rs. 1960.

Goal: Augmenting its capital base to satisfy 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 heaps.

Provide 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 vehicle authentic gear 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 phase 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 car market.
4. Export gross sales considerably increase income with larger common promoting costs, providing a pure hedge in opposition to foreign money fluctuations.
5. Hyundai’s management within the aggressive Indian automotive market is strengthened by its scale, in depth seller community, operational effectivity, and powerful buyer loyalty.

Dangers:

1. Rising costs of key components and supplies may 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 may disrupt operations, and ties with different HMC Group Firms could 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 lowered customs duties of 0% to fifteen% underneath the Complete Financial Partnership Agreements between Korea and India. Any discount or elimination of those concessions or new tariffs may considerably increase sourcing prices.
4. Provide chain disruptions, similar to chip shortages and delivery delays, may threaten HMIL’s plant operations and profitability

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Sectorial outlook – The Indian automotive trade, significantly the passenger car (PV) sector, is ready for continued development, with home gross sales quantity growing at a compound annual development 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 development price of 8% YoY, reaching file gross sales of 4.2 million items. In line with CRISIL Analysis, general PV volumes are anticipated to develop at a CAGR of 4.5-6.5% between FY24 and FY29, probably reaching 5.2-5.7 million items by FY29. This development is supported by rising common car ex-factory costs, which have elevated at a CAGR of 7-9% resulting from elements like shopper preferences shifting in the direction of mid- and high-end autos, the emergence of compact SUVs, and the introduction of superior applied sciences.

Hyundai Motors India Restricted (HMIL) is well-positioned to learn from these optimistic tendencies within the Indian auto marketplace for a number of causes. The SUV phase has seen exceptional development, increasing at a CAGR of 23%, considerably outpacing the general trade development price of 5%. With HMIL’s robust SUV choices, such because the Creta and Venue, the corporate is ready to seize a bigger share of this profitable market. Moreover, HMIL has a sturdy vary of autos throughout key classes, together with hatchbacks, sedans, and SUVs, permitting the corporate to cater to various shopper preferences, significantly as demand shifts in the direction of bigger autos with enhanced options. Moreover, India’s automotive penetration stays low at roughly 26 vehicles per 1,000 folks, in comparison with a lot larger figures in markets like China, the US, and Europe. This presents important development potential for HMIL as rising per capita earnings drives extra customers to buy autos. 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” strategy following Hyundai Motors India’s itemizing resulting from a number of key issues. The gray market premium (GMP) for its shares has sharply declined to round ₹45, reflecting solely a modest 3% premium over the problem value. It is a important 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), entails the sale of 14.2 crore shares by Hyundai’s Korean dad or mum. Consequently, 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 development prospects and long-term worth of the IPO.

Moreover, Hyundai’s ₹27,870 crore IPO affords restricted enchantment when in comparison with Maruti Suzuki, which dominates the market with thrice the passenger car share, 2.5 instances the gross sales quantity, and comparable profitability. At ₹1,960, the higher finish of the IPO value band, we consider 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 robust 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 development 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 resolution.

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