Maruti Suzuki, currently the market leader with a 40% share, is just ahead of Hyundai, the second-largest player with a 15% market share.
An offering of around Rs 27,800 crore, Hyundai’s IPO is coming at a premium to Maruti Suzuki. At the upper price band of Rs 1960, Hyundai is asking a valuation of 26x FY25 earnings as against Maruti’s 22x FY25 multiple.
This premium valuation for Hyundai is on the back of strong Korean parent backing, better models and rising SUV share in comparison to Maruti. Analysts said the higher valuation could reflect investors’ expectations of its future growth prospects.
The next leg of rivalry of the top two auto players is already playing out on the SUV front, a segment where Maruti is playing catch up. Hyundai has been a consistent leader in the mid-size SUV sub-segment from FY19.
Consumers in India are increasingly preferring mid-end or top end versions of the vehicles moving away from the traditional fuel-efficient budget friendly small vehicles. The share of SUV sales volume to total passenger vehicles increased from 41.1% in FY22 to 53.5%.Currently, Hyundai offers eight SUV passenger vehicle models in India, across compact, mid-size and large SUV sub-segments, including one EV model. Meanwhile, Maruti has four SUV models in its lineup.”Hyundai’s premium pricing and focus on higher-margin segments like SUVs could pressure Maruti’s profitability and market share in specific segments. The increased competition could drive Maruti to innovate and expand its premium offerings, potentially reshaping the competitive landscape over time,” said Atul Parakh, CEO of Bigul.
However, Maruti’s strong network of dealers and affordable pricing could continue to work in its favor despite pressure from Hyundai.
“With the growing consumer preference for EVs and SUVs, Hyundai’s cutting-edge and competitive models are likely to draw more buyers. The company’s robust brand image and loyal customer base, especially in the SUV and premium car markets, could further diminish Maruti’s market share and sales,” said Saji John, Senior Research analyst, Geojit Financial Services.
The premium product mix of Hyundai means that other automakers also might be forced to innovate and improve their offerings to build investors’ confidence.
Analysts believe the increased competition could also squeeze margins of other incumbents like Mahindra and Mahindra and Tata Motors in the near term.
“Investors might reallocate their portfolios based on Hyundai’s perceived growth potential and valuation, which could put downward pressure on its competitors’ share price,” said John.
Further, Hyundai’s IPO, being the first from a major auto player in India in over two decades, could trigger a sector-wide re-rating. The IPO is likely to attract significant global investor interest and this influx of foreign capital could further enhance the sector’s valuation.
“We expect a re-rating in the sector with the IPO debut. The re-rating would likely be driven by its strategic expansion plans, investment in new technologies and products, and prudent capital allocation,” said Sagar Shetty, Research Analyst, StoxBox.
“Hyundai’s portfolio expansion and manufacturing capabilities highlight the growth potential and investment in the automotive market. The increased competition and innovation driven by Hyundai’s enhanced financial strength post-IPO could push other automakers to reassess their growth potential and market positioning, positively re-rating the sector. Conversely if the listing has been perceived as overvalued then it can negatively impact,” said John.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)