Hyundai, India’s second-biggest car maker behind Maruti Suzuki, plans to raise at least $3 billion (around Rs 25,000 crore) through the IPO, valuing the company at around $18 billion, or around Rs 1.5 lakh crore.
So far, the Rs 21,008 crore public issue of LIC, launched in May 2022, is India’s largest IPO. The Hyundai IPO will be an offer for sale (OFS) of up to 142 million shares, or a 17.5% stake, by its South Korean parent Hyundai Motor Company.
Where Hyundai stands
Hyundai will give investors an opportunity to invest in a highly profitable passenger vehicle manufacturer amidst a massive outperformance of auto companies on the bourses. India is the third-biggest revenue generator globally for Hyundai after the U.S. and South Korea, and it has already invested $5 billion in the country with commitments to pump in another $4 billion over the next decade.
Hyundai entered India in 1996 and its early success in the country, which has been a graveyard for automakers like Ford and General Motors, was due to affordable hatchbacks like the Santro, which has since been discontinued.As customer preferences shifted, Hyundai launched its first locally-made SUV in 2015. The mid-sized Creta was an instant success and is Hyundai’s biggest money spinner. Hyundai now has eight SUVs in its portfolio of 13 cars but its share of India’s total SUV sales of 2.5 million units last fiscal year fell to 19% from 24% three years ago, the IPO papers showed.Hyundai now gets 66% of its domestic volume coming from SUVs, which is higher than the industry average, ET Prime has reported. This rising share of higher-priced, more profitable SUVs has pushed operating profit margins higher, from an average 7% over FY16-23 to 9.5% in FY24 (nine months). However, a 100-basis point (bps) hit from royalty increase could mean earnings per share (EPS) could be flat over FY24-25, as per an ET Prime report. The report estimates that for both the years, Hyundai’s EPS will be around Rs 75, which is very close to the annualised EPS of Rs 72 per share in the nine-month FY24 period. If Hyundai was to be valued at the same forward multiple as Maruti Suzuki — 26x FY25 EPS — it should imply a valuation of around Rs 1,950, ET Prime has reported. However, given the superior free cash flows at Hyundai compared to Maruti Suzuki, investors may want to value it at a slight premium to India’s No. 1 carmaker. If the 142mn share sale by Hyundai is priced at ₹2,000 per share, it will mean the IPO could raise as much as ₹28,000 crore, much higher than the ₹21,000 crore of the LIC IPO.
What may surprise many is the fact that volume growth (both domestic sales and exports) at Hyundai was only 2.4% CAGR (compound annual growth rate) over FY14-24, as per the ET Prime report. Its domestic sales grew 4.9% CAGR, while exports declined 3.5% CAGR during this period. Hyundai has underperformed Maruti Suzuki in this period in volume growth and to a lesser extent in revenue growth. Continuing with the FY22-24 trend, Hyundai may grow slower than Maruti Suzuki in FY25. Hyundai’s monthly sales have been range-bound since July 2023, when its small SUV Exter was launched. The next product launch, the Creta EV, is planned in the last quarter of FY25.
HMIL’s revenue from exports rose 83% to Rs 14,120.92 crore in the last three years, despite geopolitical uncertainties, while revenue from operations in the local market rose 39% to Rs 33,274.83 in the same period. As much as 23.4% of the company’s total revenue came from the sale of vehicles and parts overseas in FY23. In volume terms, exports accounted for about 21% of total vehicle sales in that fiscal year.
Hyundai increased the annual production capacity at its Chennai plant to 824,000 by the end of March. The company says that the Chennai plant will remain the key hub for making SUVs and EVs. The newly acquired Talegaon plant is scheduled to add 170,000 units to its production capacity in the first phase. Hyundai plans to start production at the plant in the second half of FY26. So, the overall production capacity will increase to 994,000 units by FY27.
Where Hyundai is headed
India is a very important market for Hyundai, managing director and CEO Un Soo Kim had said earlier this year when it had acquired the Talegaon plant, which formerly belonged to General Motors. “As we look forward to the next decade of progress for Hyundai Motor India, it is critical for us to augment our manufacturing capacity in India,” he had said. “The Talegaon manufacturing plant will play the role of a catalyst in achieving HMIL’s 1 million annual production capacity milestone.”
If the company operates at 90% capacity utilisation, it will imply sales volume will increase 4.7% CAGR over FY24-27, as per the ET Prime report. If it operates at 94% capacity utilisation, sales volume can increase 6.2% CAGR.
The IPO will drive parent Hyundai Motor’s ambitious strategy to make India a key export hub to expand its global business, besides seeking gains in the domestic market, senior industry executives with knowledge of the matter had told ET in June.
“Hyundai has been constrained by capacity the last couple of years,” an industry executive had told ET. “The company has already enhanced capacity at its manufacturing plant in Chennai to 820,000 units per annum to meet domestic demand. With fresh capacity coming in from Talegaon in 2025, Hyundai is looking at ramping up exports from India which have been received well in markets in Latin America, the Middle East and Africa.”
Some of the money raised will likely be used to enhance capacity to over 1 million units across its facilities in Tamil Nadu and Maharashtra and develop new products, including affordable electric vehicles over the next decade.
The planned expansion will help the South Korean automaker compete with market leader Maruti Suzuki, which is investing about $5 billion to double production capacity to 4 million units per year by 2031.
Hyundai hopes to regain market share from increasingly formidable domestic rivals by launching a series of new SUVs. The SUV rollout will begin with its first India-made electric vehicle early next year and the launch of at least two gasoline-powered models tailored for the market starting in 2026, sources told Reuters last month.
The strategy of adding higher-margin offerings, pursued in tandem with Hyundai’s first listing outside South Korea, indicates its bullish outlook on the world’s third-largest car market as its China footprint shrinks and sales at home decline, Reuters reported. Hyundai’s sales in India have lagged only Maruti Suzuki’s, though a rapidly changing competitive landscape has seen domestic behemoths Tata Motors and Mahindra & Mahindra eat into its market share with new SUVs which, instead of once-favoured small cars, are the hottest selling vehicles. This has lowered Hyundai’s India market share to 14.6% from 17.5% four years ago, while Tata’s share has nearly tripled to 14% over the same period. The next biggest foreign rival, Toyota, has seen its share rise to 6% from 4%. “Hyundai is in a tough spot,” V G Ramakrishnan, managing partner at consultancy Avanteum, told Reuters. “Its primary focus should be on how to retain market share and the only way to do that is with a faster product roll-out.”
The introduction of Hyundai’s India-made electric SUV in 2025 will be followed by four more EVs through the end of the decade as it evaluates plans to make the country a regional EV export hub, sources told Reuters. Hyundai will also launch hybrid cars in India amid a broader strategy to boost global sales by 30% by 2030, unveiled on Wednesday, contributing to its plan of selling higher-priced vehicles in the country to increase margins.
Hyundai has said it would continue this “premiumisation” strategy, which has helped it record some of the highest profit margins among peers in India but has come at the cost of volumes. The automaker will need to maintain a fine balance between market share and margins after its listing, Ramakrishnan told Reuters. “If there is a drop in either one, the company can be questioned by shareholders,” he said. Hyundai’s shrinking market share has come despite hitting its highest-ever sales in India last fiscal year.
(With inputs from agencies)