Everybody is comparing Hyundai with Maruti. But is it unfair comparison? Because Maruti’s market share is 40% plus, Hyundai’s market share is 15%. Maruti has got a huge advantage in terms of distribution. Maruti has got a huge advantage in terms of the brand they have. So, do you think one should not compare Hyundai with Maruti and say, okay, Maruti is X and this is 0.8X, so one should buy it?
Shashank Kanodia: Yes, so, the market share difference remains, but the point we have to take is the long runway of growth that is available for Hyundai to largely capture India. But despite it being one of the largest automotive markets, we have just got 26 cars per 1,000 people in India versus 200 for China and maybe 500 and above for the developed nations like the US and Europe. Secondly, these guys have largely driven the SUV drive in India. So, as a percentage of sales domestically, 60% of sales in the SUV segment, but for Hyundai Motors India, it has been roughly 63%. They consistently have doing 20% of exports vis-à-vis the rest of the counterparts and largely in terms of margins.
Margin profile with 25% really have much of a choice, because if you consider maybe Tata Motors, M&M, and Maruti, so Tata Motors has a JLR as a leg, which is the largest of the pie and for M&M, it is largely the tractors and the parts which comes into play. So, we really do not have much of a choice when Hyundai is kind of a direct comparison to Maruti.
And some of the positives which stand apart from Hyundai vis-à-vis Maruti has been the higher share of SUV sales, the higher margin that they realise, and as well as the greater share of exports that they do.You really do not have much of a pure players listed to the Indian PV space. So, if one wants to, as an investor with a long-term horizon, if really one wants to have a play on domestic PV space, you have just got Maruti as an option before.
Now, you have Hyundai as an option. You can see a good amount of shift happening from institutional side, from maybe Maruti to Hyundai, even they have a superior product, their margins, their return ratios are better. So, I feel it is here for good and it is a decent issue to subscribe to.
We were talking about this risk of the potential increase in the royalty rate by the parent company. How much of a risk is that?
Shashank Kanodia: Yes, so currently even Maruti pays 3.5% royalty of its parent and effectively what we have been given to understand that the royalty rates are increasing from 2.3% to 2.7% for Hyundai, so that is something which is already disclosed, so I think it is not really a potential risk and it has been seen across the MNCs that these guys charge a decent amount of royalty for the R&D support that the parent provides as well as the market access that the parent provides to the Hyundai Motors India in terms of export play.
So, we have to understand this fact cumulatively over the last decade Hyundai Global has spent $26 billion on advanced technologies like electrification, ADAS and roughly Hyundai Motors India exported , cumulatively is the largest exporter of passenger vehicles exporting more than 36 lakh odd units over the last decade and since inception of Hyundai Motors.
We do not really see much of a risk to it but we would agree to his point that the issue size is fairly large as well as the valuation at which it commands it is kind of coming in terms of 26 times trailing price to earnings. The listing seems to be limited but over the medium to long term horizon I think we can certainly look at this issue.