Hyundai to launch country’s largest IPO, expand in premium cars

Hyundai's Indian safari that began with small car Santro in 1998 has reached a milestone, with the Korean conglomerate set to open the country's biggest initial public offering (IPO) next week.

The carmaker that has moved into high-end models over the years will roll out more such vehicles, as the country's second-largest carmaker looks to tap growing wealth in the world's fastest growing major economy. Hyundai Motor India Ltd will have access to all propulsion technologies, including electric and hybrid from its Korean parent, the company management said.

“The Indian customer is evolving. We believe that the customer does not want to compromise now,” Tarun Garg, chief operating officer of Hyundai Motor India said. “Even (if you see) the first-time buyer behaviour, everybody is trying to really move to cars which have design, which have technology, which have space, which have safety, and this is where we want to be.”

The share sale, Hyundai's first outside its home market, is poised to take the crown of the biggest Indian IPO, so far held by state-owned Life Insurance Corp. of India.

For parent Hyundai Motor Co., it took seven years to finalize plans, until the Indian unit filed draft IPO papers in June.

Also read: Hyundai's journey in India has been through SUVs

"We first pitched the idea along with our Korean counterparts way back in 2016-17," an investment banker aware of the IPO timeline said. “We had a couple of in-person meetings and several video calls, over which the company finalized its plan to list the Indian unit. The difference between a large organisation such as Hyundai is that they are very thorough and were well aware of the listing process in India. It takes time for such corporations to make decisions, but once they make it, they are very swift with the execution,” the banker said on the condition of anonymity. Hyundai Motor appointed Citi as the lead banker in August 2023, and brought other bankers by the end of the year.

The ₹27,856 crore IPO, Hyundai’s first outside its home market, is being pitched as a strategic decision that will give the Indian unit more independence, said people with knowledge of the company’s plans.

According to a second banker, Hyundai began seriously considering an IPO after a nudge from a large investor. “One large global investor told them about the interest in such an IPO and how that idea would find takers,” the banker said on condition of anonymity.

Also read: Ten 10 things to know from Hyundai's RHP

S&P Global Mobility projects a growth rate of 4% for 2024 in India's light vehicle segment, with longer-term expectations of growth stabilizing between 4% and 6% annually through 2031.

While Hyundai's Indian unit contributes just 6-7% to the parent's total revenues and profits, it is valued at $19 billion, compared to its Korean parent’s valuation of $45 billion. The Indian firm is valued at 26 times its FY24 revenues, while the Korean parent has a PE ratio of 4.86 times. The shares will be priced at ₹1865-1960 each.

“The listing will give the Indian unit the independence and equal footing as Maruti Suzuki in India. They will be better suited to take organic and inorganic growth decisions,” said a third banker aware of the company’s plans.

According to the first banker, the multiples that the Indian market can offer today is unparalleled. "The sheer depth of our capital markets and the ability to sell large trades easily gives us a lot of confidence to execute such a large IPO,” the banker said, the company was conservative with IPO pricing, and leaves money for the table for IPO investors.

Also read: The Hyundai Motor IPO: How the valuations took a reality check

Hyundai’s IPO is entirely secondary, with the parent selling a 17.5% stake. Since the float was large, the company did not want to sell more stake. It has to comply with the listing guidelines in India and eventually bring down its stake to 74%. “Had the company sold less, it would have to come to the market twice to bring down the stake. This is something they did not want,” the banker said.

While Hyundai sells hybrid cars in various markets, it has stayed away from that segment in India. In fact, along with peers Maruti Suzuki and Toyota, Hyundai is actively lobbying the government to reserve fiscal and tax incentives only for EVs.

“The government is also incentivizing EVs—whether it is through the (concessional) GST structure, the various state government schemes, PLI (production-linked incentive) scheme, and now the latest scheme on the charging infrastructure. So that is why you can see that our focus is also in line with what the government is wanting,” Garg said. However, Hyundai can bring hybrid cars to India in a relatively short time with the help of its parent if the market shifts in that direction, he said.

Also read: Hyundai's IPO may inspire other MNCs to list in India for valuation gains

The IPO is likely to set another record. The banks Kotak Mahindra Capital, Citigroup Global, HSBC Securities, JP Morgan, and Morgan Stanley are likely to have their biggest paydays with the IPO, with almost $40 million being made in fees from the deal.

Even though the growing geopolitical conflicts in West Asia has turned India's secondary market choppy over the past few days, raising uncertainties over India's oil security as an importer, the growth in the country's automotive sector is less likely to be impacted at the moment.

“India's domestic market is a significant draw for global automakers,” said Gaurav Vangaal, associate director, light vehicle production forecast, Indian subcontinent, S&P Global Mobility said in a note on Tuesday. “With its stable supply chain, light vehicle production growth in India is expected to maintain a steady pace,” he said.

Also read: Hyundai India bets big on premium cars and EVs on course to world’s largest IPO

Hyundai’s focus on premium vehicles, however, comes at a time of concerns about customer exuberance in India coming to an end. The resurgence of cost consciousness amongst Indian car buyers is reflected in Hyundai’s weighted average retail price, which fell 17% year-on-year in September, as per data from market intelligence firm Jato Dynamics.

The trend was echoed across the market with only two out of the top dozen carmakers in the market seeing a year-on-year increase in their weighted average retail price in September, Mint reported on Monday.

“We have very strong eyes and ears to the ground. In case we find that wherever there is an opportunity in any segment, we will definitely look at it,” Garg said.

Vangaal of S&P said India is expected to become a major player in global light vehicle production. As the 3rd largest market in light vehicle sales and the 4th largest in light vehicle production, India's low car penetration rate of just 38 vehicles per 1,000 people presents a massive growth opportunity, he said.

“A significant driver of this growth is the anticipated increase in exports from major manufacturers like Maruti Suzuki and Hyundai which may benefit from the growing demand for affordable vehicles in emerging markets,” added Vangaal.