Hyundai Motor India IPO: A closer look

The buzz around Hyundai Motor India's Initial Public Offering (IPO) has been building momentum ever since the automaker filed its Draft Red Herring Prospectus (DRHP) with SEBI. As the Indian arm of the South Korean giant prepares for its stock market debut, many investors are eager to see what this IPO holds for them. With excellent sales records and Hyundai’s strong brand reputation, the IPO has generated significant interest.

If you're considering investing in the Hyundai IPO, the first step is to open a demat account. A demat account allows you to hold shares and securities in an electronic format, which makes it easier to manage your portfolio.

Discover the Hyundai IPO with an in-depth analysis and learn about HDFC Sky’s time-saving ‘One-Click IPO’ feature.

What You Should Know About Hyundai Motor India's IPO

Hyundai Motor India, a major player in the Indian automobile sector, is set to issue 14.22 crore shares through an Offer for Sale (OFS). The IPO will likely take place between October 15 and October 17, 2024, with a listing date of October 22.

Once your demat account is set up, the next tool you’ll need is an online share trading app. These apps enable you to buy, sell, and monitor shares in real-time, providing access to various financial instruments, including stocks, bonds, and mutual funds.

Hyundai Motor India’s growth story

Hyundai Motor India has consistently shown strong growth in the Indian market. In the first half of 2024 alone, the company sold over 2.7 lakh units, a 2% increase compared to the same period the previous year. The company has also made a significant impact with its electric vehicle (EV) lineup, including popular models like the Hyundai Kona and Ioniq.

Quality of performance

Hyundai Motor India has delivered impressive returns, with a three-year average Return on Equity (ROE) of nearly 27% and a Return on Capital Employed (ROCE) of about 29% from FY22 to FY24. These figures reflect the company’s strong operational efficiency and ability to generate profits from shareholder investments.

The company’s Earnings Before Interest and Taxes (EBIT) margin also averaged an industry-leading 9% during this period, showcasing Hyundai's ability to maintain solid profitability across multiple financial years.

Growth trajectory

Hyundai’s revenue and profit have been growing steadily. Between FY22 and FY24, revenue increased by approximately 21% annually, while net profit surged by an impressive 45% per annum.

This strong growth has been driven by the rising demand for passenger vehicles (PVs) in India, particularly in the premium Sport Utility Vehicle (SUV) segment. Hyundai’s strategic focus on the SUV market has led to a significant shift in its revenue composition, with SUVs now contributing 67% of total revenue, up from 52% in March 2022.

Valuation post-IPO

Once the IPO is completed, Hyundai's stock will be valued at a price-to-earnings (P/E) ratio of around 26 times and a price-to-book (P/B) ratio of approximately 13 times. These valuation metrics suggest that Hyundai's stock is priced at a premium, reflecting its position as India’s second-largest carmaker in the PV market, trailing only Maruti Suzuki.

Despite the premium pricing, Hyundai’s growth potential in both the premium SUV and electric vehicle (EV) segments remains a compelling factor for investors.

One of the methods investors can use to predict the movement of the stock price post-IPO is the Elliot wave theory. This theory helps forecast stock price patterns based on recurring fractal waves.

Market overview

Hyundai Motor is well-positioned to capitalise on the growing demand for premium vehicles in India, particularly among younger buyers who are gravitating toward high-end SUVs. Additionally, the company stands to benefit from the rapid expansion of the electric vehicle (EV) market in India.

However, Hyundai faces significant competition from rivals like Tata Motors, Mahindra & Mahindra, and Kia Motors. This competitive pressure has eroded Hyundai’s market share, which fell from 18% in FY20 to 15% by the first quarter of FY25, while competitors have gained ground.

Company strengths

1. Capacity expansion: Hyundai is increasing its production capacity in India from 8.2 lakh units to 10.7 lakh units with the construction of a new plant in Talegaon, Maharashtra. This capacity ramp-up will allow the company to meet the growing demand for PVs in India.

2. Operational efficiency: The company sources 93% of its parts locally near its Chennai plant, enabling streamlined operations and lower inventory costs. Additionally, Hyundai’s common platform architecture allows it to produce multiple models simultaneously, enhancing its manufacturing efficiency.

3. Premiumisation strategy: Hyundai has successfully shifted its focus towards premium vehicles. In FY24, 49% of its revenue came from cars priced above ₹10 lakh and 20% from cars priced over ₹15 lakh. This premiumisation strategy, particularly in the SUV segment, has driven revenue growth and helped Hyundai maintain its competitive edge.

Company weaknesses

1. Declining market share: Hyundai’s market share in the PV segment has declined due to rising competition. Between FY20 and Q1 FY25, Hyundai’s share fell from nearly 18% to 15%, while competitors like Tata Motors and Mahindra & Mahindra have increased their market presence. Tata’s market share rose to 13% from 5%, and Mahindra nearly doubled its share to 12% during this period.

2. Royalty agreement: Hyundai India is required to pay royalty fees to its parent company. This royalty fee can be increased to 5% without shareholder approval, posing a potential risk to profitability. For example, a 1% increase in the royalty fee, based on FY24 revenue, would cost Hyundai India ₹700 crore. Such increases could negatively impact the company’s bottom line.

Financial details and key ratios

The Hyundai IPO, worth ₹27,870 crore, will be offered for sale without a fresh issue. Post-IPO, the company’s market capitalisation is expected to reach ₹1,59,258 crore, with a promoter holding 82.5%.

Financially, Hyundai has demonstrated strong performance, with a 21.4% compound annual growth rate (CAGR) in revenue and a 44.5% CAGR in EBIT and profit after tax (PAT) from FY22 to FY24. The company’s ROE and ROCE are also impressive, averaging 27.4% and 29.3% over the last three years.

With the Hyundai Motor India IPO expected to be heavily subscribed, it's crucial to have access to a share market app that offers real-time updates and seamless trading experiences. Modern trading apps come with features like livestock prices, detailed charts, news updates, and IPO alerts, making them indispensable tools for any investor.

How to apply for IPO using HDFC Sky's One-Click feature

The One-Click IPO feature on HDFC Sky enhances the ease of applying for IPOs, offering a smooth experience. Here’s how you can use it for Hyundai’s IPO:

1. Login to HDFC Sky: Access your account with your credentials.

2. Go to IPO section: Select "Indian Stocks" under your profile and click "IPO."

3. Select Hyundai IPO: Find Hyundai in the IPO list and click "Apply Now."

4. Place your bid: Enter bid details and adjust as needed.

5. Proceed with payment: Select UPI for payment.

6. Approve the mandate: Use your UPI app to authorise the payment.

7. Confirm your order: Finalise by confirming and placing the order.

HDFC Sky’s One-Click IPO key features

• One-click convenience: Apply with minimal paperwork in a few clicks.

• Instant updates: Receive real-time notifications about your application.

• Centralised platform: Manage all your IPOs seamlessly from one platform.

• Anywhere access: Apply from anywhere via the app or portal.

Hyundai’s IPO presents an excellent investment opportunity. With HDFC Sky’s One-Click feature, you can easily participate in this major event, simplifying the entire process.