Hyundai Motor India is a part of the Hyundai Motor Group, which is the third largest auto original equipment manufacturer (OEM) in the world based on passenger vehicle sales in CY23. Manufactures and sells reliable, feature-rich, and innovative four-wheeler passenger vehicles backed by the latest technology. Additionally, parts such as transmissions and engines are also manufactured.

Offers 13 models across multiple passenger vehicle segments by body type such as sedans, hatchbacks, sports-utility vehicles (SUVs) and battery electric vehicles (EVs). SUVs make up a significant part of its passenger vehicle lineup, accounting for 67.41% of total domestic sales volume in Q1 FY2025.

The total passenger vehicle sales volume in Q1 FY2025 was 192,055 units, of which domestic sales accounted for 149,455 units and exports totaled 42,600 units. Cumulatively sold more than 1.2 crore units of passenger vehicles in India and through exports since 1998, up to June 30, 2024.

In terms of sales volume by powertrain, internal combustion engines (ICE) represented 88.55% of domestic sales in Q1 FY2025, with CNG at 11.37% and EVs at 0.08%. All exports consisted entirely of ICE vehicles.

Exported 36.1 lakh passenger vehicles since inception to over 150 countries. Aims to become an export hub for HMC to emerging markets, including South Asia, Latin America, Africa, and the Middle East, particularly for passenger vehicle models such as the Verna and Venue. In Q1 FY2025, domestic sales accounted for 76.3% of total revenue, while exports made up 23.7%.

Maintains a strong market presence in India due to (1) a diverse range of products, (2) solid relationships with stakeholders, (3) the well-established Hyundai brand in the country, and (4) the capacity to enter new markets like electric vehicles through innovative approaches.

Synergies are created in supply, manufacturing, and product development by maintaining close connections with other affiliates within the Hyundai Motor Group across the automotive OEM value chain. For example, Mobis India (Mobis), a group company, supplies after-sales parts and accessories to its dealers, while Glovis India (Glovis), also part of the Hyundai Motor Group, provides end-to-end transportation of passenger vehicles to destinations such as dealerships and stockyards.

The company pays 3.5% of its annual turnover to Hyundai Motor Company (HMC) under the Royalty Agreement. Its contribution to Hyundai Motor global sales volumes has increased from 15.48% in CY2018 to 18.19% in CY2023.

With a commitment to localization, a large proportion of parts and materials are obtained from suppliers in India. In Fiscal 2024 and for the three months ending June 30, 2024, about 93% of parts and materials, measured by purchase value, were procured from India.

Operates one manufacturing plant located in Irrungattukottai, Sriperumbudur, Chennai, Tamil Nadu, with a production capacity of 824,000 units as of June 30, 2024.

On track to expand manufacturing capabilities in India with the recent acquisition of a manufacturing plant in Talegaon, Maharashtra, which is expected to commence partial commercial operations in the second half of Fiscal 2026. The annual production capacity is projected to reach 994,000 units when the Talegaon Manufacturing Plant is partially operational, and 1,074,000 units when it is fully operational.

Boost a network of 1,377 sales outlets operated by dealers across 1,036 cities and towns in India as of June 30, 2024. Additionally, provides access to network of 1,561 service centres operated across 957 cities and towns in India as of June 30, 2024.

India‘s EV segment is anticipated to grow significantly by 2030, driven by robust government initiatives. With strong access to HMC‘s EV and battery technology, efforts are underway to develop an EV ecosystem in India. Plans include launching four EV models across both mass and premium segments, including the Creta EV in Q4 of this financial year. Additionally, there are initiatives to localize EV supply chains, such as battery packs, drivetrains, and battery cells.

Entered into a memorandum of understanding with the nodal agency for investment promotion of Government of Tamil Nadu and Indian Institute of Technology Madras to undertake research on cost-effective green hydrogen energy ecosystem development including establishing a hydrogen innovation centre in India.

Plans to concentrate on a premiumization strategy, targeting an increasing share of younger buyers in India.

Offer and its objects

The IPO is complete offer for sale of 14,21,94,700 equity shares aggregating up to Rs 27,870.16 crore by Hyundai Motor Company.

Price band for the IPO is Rs 1865 to Rs 1960 per equity share of face value Rs 10 each.

Proceeds from the offer will not be directly received, and all offer proceeds will go to the selling shareholders, distributed in proportion to the shares sold by them.

Hyundai Motor Company is the Promoter. The promoters and promoter group hold an aggregate of 81,25,41,100 equity shares, aggregating to 100% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 82.5%.

The issue, through the book-building process, will open on 15 October 2024 and will close on 17 October 2024.

Strengths

Established itself as the second largest auto OEM in the Indian passenger vehicle market since fiscal 2009, in terms of domestic sales volumes, and as the second largest exporter of passenger vehicles from April 1, 2021, through June 30, 2024.

The strong backing of Hyundai Motor Group enhances various aspects of operations, including management, research and development, design, product planning, manufacturing, supply chain development, quality control, marketing, distribution, branding, and more.

Focus on localization has resulted in cost savings and improved operational efficiency in the supply chain, which boosted profitability. In Fiscal 2024 and during the three months ending June 30, 2024, approximately 93% of parts and materials, based on purchase value, were procured from India.

Highly automated and flexible manufacturing capabilities. Its Chennai manufacturing plant is optimized to manufacture full range of 13 passenger vehicle models. This flexibility of having a common platform architecture lowers product development costs, reduces time-to-market and streamlines manufacturing process.

Increasing capacity will create greater opportunities for expansion in both domestic and export markets.

Focus on premiumization will help capture demand arising from increasing awareness and preference towards parameters other than price such as exterior and interior design, driving experience, safety, advanced features and aesthetics.

Robust sales, distribution, and after-sales service network across India. As of June 30, 2024, it had 1,377 sales outlets across 1,036 cities and towns in India and 1,561 service centres across India across 957 cities and towns in India.

Gain early access to global trends in automotive, technologies and features, due to its association with the Hyundai Motor Group.

Experienced management team dedicated to achieve profitable growth.

Weaknesses

Its domestic market share in passenger vehicles decreased from 17.6% in Fiscal 2020 to 14.6% in the three months ended June 30, 2024. If such downward trend continues in the future, its business may be adversely affected.

Non-availability or volatility in prices of parts and materials required for operations could adversely affect business.

Any increase in the royalty fee payable to HMC, including up to and exceeding the limits of 5% of the annual consolidated turnover could adversely affect business and profitability.

Heavily reliant on HMC for its export business, revenue from export sales accounted for 22.34% in Fiscal 2024 and 23.70% in the three months ending June 30, 2024. Prior permission from HMC is required for exports, including model and jurisdiction decisions. Any delays by HMC in accessing export markets could significantly affect the business, and foreign exchange volatility may affect margins. In Q1 FY2025, sales to India contributed 76.3% to total revenue, Africa 3.24%, Latin America 7.47%, Middle East and Europe 12.08% and others 0.91%.

Long-term competitiveness and success depends on its EV strategy. However, currently significant portion of its sales volumes are derived from non-EV passenger vehicles, and there is no assurance that its EV strategy will be successful and cost-efficient. In Q1 FY2025, ICE vehicles contributed 88.55% to total sales.

Currently operating at high capacity utilization levels and it may not be able to meet additional product demand if there is a delay in operationalizing the Talegaon Manufacturing Plant. In Q1 FY2025, overall capacity utilization was around 94.05%.

There have been instances of delays in the payment of statutory dues in the past. Such delays could lead to regulatory actions and penalties.

Two of its group companies, KIA Corporation and Kia India, are in a similar line of business, which may involve conflict of interest.

Involved in various legal and regulatory proceedings, including criminal cases, along with the promoter and one of its Subsidiaries.

Valuation

In Q1 FY2025, net sales increased by 4% to Rs 17,344.23 crore as compared to Q1 FY2024. The OPM improved 148 bps to 13.49%, leading to 17% increase in OP to Rs 2340.25 crore. OI decreased 42% to Rs 223.75 crore. Interest cost fell 15% to Rs 31.64 crore. Depreciation cost decreased 5% to Rs 528.98 crore. PBT surged 12% to Rs 2003.38 crore. Tax expenses were Rs 513.73 crore as compared with Rs 459.29 crore. Net profit increased 12% to Rs 1489.65 crore.

Net sales increased 16% to Rs 69,829.06 crore in FY 2024 as compared to FY 2023. The OPM improved 56 bps to 13.08%, leading to 21% increase in OP to Rs 9132.61 crore. OI increased 30% to Rs 1473.27 crore. Interest cost rose 11% to Rs 158.08 crore. Depreciation cost went up 1% to Rs 2207.93 crore. PBT surged 30% to Rs 8239.87 crore. Tax expenses were Rs 2179.83 crore as compared with Rs 1636.33 crore. Net profit soared 29% to Rs 6060.04 crore.

The TTM EPS on post-issue equity works out to Rs 76.56. At the upper price band of Rs 1960, P/E ratio of Hyundai Motor India is 25.60 compared to 5 for its parent company, HMC. The higher valuations is a result of brighter growth prospects in India and a strong domestic consumption story.

Aside from a short-term slowdown, the passenger vehicle industry in India is growing, driven by rising disposable income, a preference for personal mobility, clear and accessible financing options, and improving road infrastructure. Moving forward, a focus on capacity expansion, localization, strategies to capture EV market share, and the goal of becoming an export hub for HMC in emerging markets will support sustained performance.

Listed peers such as Maruti Suzuki India traded at TTM P/E of 27, Tata Motors trades at TTM P/E of 11, and Mahindra & Mahindra at TTM P/E of 36 as on 10 October 2024. The OPM and ROE stood at 13.49% and 56.82% respectively, in FY 2024. These were 13.06% and 15.75% for Maruti Suzuki, 13.60% and 36.97% for Tata Motors, and 17.90% and 17.02% for Mahindra & Mahindra, respectively.