Breaking Down India's Biggest IPO: Should You Subscribe To Hyundai India IPO | Hyundai IPO Analysis
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00:00Hello and welcome and the whole country is talking with a much anticipated Hyundai IPO
00:14which opens for subscription tomorrow. I am Samina Nalwala and over the next half an hour
00:18we will analyze for you whether or not this makes a good investment for you. First up
00:23remember Hyundai is one of India's largest and most awaited IPO of our times and is slated
00:29to open for subscription tomorrow which is Tuesday the 15th and will conclude on Thursday
00:34October 17th. The price band of this issue is in the price range of 1865 to 1960 rupees
00:42with a total issue of 22,870 crores. 8000 crores is slated for the anchor investors
00:50which opens today and we will by later on in the day have more details of which anchor
00:54investors have subscribed to this much anticipated IPO. Well before we go into the conversation
01:01with our analyst, Puneet is joining me with more details about the business and who its
01:05competitors are. Hi Puneet, thanks for joining in. Puneet, you know Hyundai is a household
01:12name worldwide. We do understand it's an MNC that's looking to list in India. This is also
01:19one of the largest IPOs of our times. While we know what the business does, you want to
01:25tell us a little bit more about the details of the business, the space Hyundai operates
01:29in, what does it have to do with the parent company and of course why is it looking at
01:33a listing in India? Yeah I think the last question is the most interesting right because
01:37they are listed of course in the Korean stock market but they have chosen to list in India
01:42and you know when we spoke to the management as well they said they wanted to Indianize
01:45the business. I think that's the focus that you know India is a key focus market. They've
01:49spent 20 years in India and it's imperative to see that you know the kind of achievements
01:54that they've done in the last 20 years was specifically you know if you look as you rightly
01:58said you know the upper price band is around 1960. It's the largest issue upwards of what
02:0227,000 odd crores that the company is looking to raise and today is when the anchor book
02:06opens. So anchor book will be about 8,300 odd crores. So it's a big anchor book by the
02:11end of the today we will get to know what's the investment by the by mutual fund guys
02:16and other big investors looking into the IPO. That's going to be the first indication to
02:19look at but it's also key to see that you know about the company as well because in
02:23the fiscal year of FY24 specifically between April 2023 and March 2024 the company sold
02:30about 7.7 lakh units and that was the second highest by any other car maker in India. The
02:36highest is of course Maruti Suzuki but Hyundai came at roughly about 7.7 lakh units that
02:41they sold in the last year and was also heartening to see is that out of that 24 percent was
02:45exported out of India to other countries such as Southeast and Southeast Asia. So that's
02:50one of the key things. They are the highest exporter of cars out of India that's higher
02:54than Maruti as well who has around 10 percent of that of the total cars they produce. When
02:59you look at the growth as well compared to the last year it was about 7.2 lakhs in 2023
03:03so about a 10 percent growth that they managed to do. And apart from that when you look at
03:07Q1 numbers as well which we got in the first in the RHP filings that's also shown a 5 percent
03:13growth that's higher than you know that's its peers such as Maruti as well as you know
03:17someone like a Tata Motors as well. Just converting that to you know the financial aspect as well
03:22for FY24 specifically they reported roughly 69 to 70 thousand crores of revenue while
03:28margins was one of the main things that I want to talk about is 13.1 percent for FY24
03:34specifically and that's higher than roughly 12.5 percent that the company reported on
03:38margins in FY23. Now we look at the profits as well roughly about 6,000 odd crores of
03:44profits that they did for FY24 and in Q1 as well the margins have grown by roughly 150
03:49basis points to come in at 13.5 percent for Q1 FY25 while profitability has also grown
03:55by roughly about 6 to 7 percent coming at 1489. So that's just roughly putting in a
04:00picture of the sales as well as how does the financial look at for someone like a Hyundai India.
04:05You know before we go into comparing it to its peers they are looking to raise upward
04:11of 3 billion dollars which is 22,000 crore rupees that is of course by selling 17.5 percent
04:18stake in the India division valuing the business at a whopping 19 billion dollars. What is
04:25the plan of allocation of these funds if they successfully raise the 23,000 crores that
04:30they are looking to raise? What are they planning to do with the money? Any idea?
04:33I think one of the major I think things that we talk about in this IPO is it's completely
04:38offer for sale. It's a complete OFS no fresh issues so no amount whatever is raised in
04:45this IPO will not go to the company which is listed in India eventually which is Hyundai
04:49India. So basically the global parent is going to take forward this particular amount that
04:54they are raising and that's also as part of the value unlocking process is what the parent
04:59has said. So they are looking to list in India, Indianize the business but majorly
05:03it's an OFS company to have such a big amount. Right and that's what could be something and
05:08reason I brought out to be honest right because there is value unlocking the parent is looking
05:12to make a little bit of an exit here. But let's go across to Vineet Bulinchkar, Head
05:16of Research at Ventura Securities and Puneet Gupta, Director of Indian ASEAN Automotive
05:21Market and S&P Global Mobility. Thank you gentlemen for joining us today on the show.
05:27Vineet, I'll start with you first. This is the largest IPO of our times. Hyundai IPO in
05:33the early part of this month was going through a lot more excitement and enthusiasm amongst
05:38retail investors. But as we get closer to tomorrow when the subscription opens, what
05:44are your thoughts and feelings? Are you excited about this IPO? Are you recommending it to
05:48your clients? You know, more than Hyundai, you know, if the market is able to absorb
05:55this IPO and stay there, you know, maintain valuations overall of the market. I think
06:01that will be a great thing for the Indian markets considering the, you know, when we
06:08are verifying the depth of the Indian markets. So to that extent, I think it will be a great
06:14thing. On the valuation part, I think the valuation is kind of steep, leaving very little
06:20for the investor on the table. So to that extent, I don't think that this IPO will,
06:28you know, excite me too much. Third thing is that, you know, as far as the performance
06:33is concerned, we believe that the market trend can sustain for Hyundai given the fact that,
06:39you know, they're adding capacities and already most of their plants are at peak capacity
06:44utilization. So adding capacity will help them push volume and increasing premiumization,
06:51export and sedan to SUV trends are going to benefit the company to grow. So growth is
06:58not a criteria. Margins will also expand. But I think that the valuations are a little
07:04too steep and hence leaving very little upside for the investor.
07:09Mr. Gupta, thank you for joining us and I'll start with you as well. What are you making
07:15of this beast of an IPO that is going to open to subscription tomorrow? This is the largest
07:21of our times and comes from an MNC. The last one that was this big was an LIC. How do you
07:26feel about Hyundai? What do you feel about the business model and also your thoughts
07:31on the fact that this is going to be an OFS, which also means that all the money raised
07:35is going to make its way into expansion. Right. So I think if we talk about Hyundai,
07:41you know, 25 years back when Hyundai entered, you know, they really transformed the industry.
07:46And today, how I see Hyundai is, you know, that India is at its inflection point in terms
07:51of car sales. And, you know, clearly, if you see number one and number two today, you know,
07:57number one, Maruti Suzuki sells around one and a half lakh cars a month, whereas Hyundai
08:02sells around 50000. So you can clearly see the gap between number one and number two.
08:06And clearly, you know, this IPO will will bring, you know, obviously right now that
08:12entire money may not come directly for investment investments. But I think what we can really
08:17see is the kind of trust what consumers will have, the kind of trust what supplier partners
08:22will have, the kind of trust what Hyundai will have in India. And, you know, because
08:26obviously still they have a big portion of Hyundai India for sale, you know, going forward.
08:32So I think clearly I see them, you know, clearly because we track more from automotive
08:36market perspective. So I can clearly see Hyundai, you know, has a lot of potential here because
08:41there are a lot of segments, white space, which is yet to be unexplored. You know, for
08:46example, midsize SUVs, you know, so Hyundai doesn't have any product like Scorpio XUV
08:52700, which is clearly a white space today. They don't have any adventure off road SUVs
08:57like TAR, which is itself becoming a big cluster segment today. You know, so similarly, you
09:02know, when they exited, you know, a small car segment. So there is a clear potential
09:06because currently Maruti is only the player which is having a lion's share there. You
09:12know, then EVs is a big thing, you know, and clearly India being a diverse market and a
09:16need and there is a diverse, you know, pocket size, diverse need. So primarily, you know,
09:21Hyundai being a global organization which has access to all technologies, you know,
09:25it may be hybrids, it may be PHEVs, it may be electrics, you know, so Hyundai has a
09:30potential, you know, to invest in those technologies, even in India, localize them in
09:35India and also export from India, you know. And one thing which I think one of the
09:40panelists also said was, you know, that Hyundai, when they entered India, you know, and
09:45there was a time when they were also exporting 40 to 50 percent of the cars which they
09:50were making in India for the global markets. Right. So but now, you know, if you see
09:54their exports have gone down to less than 20 percent. So clearly, you know, there is a
09:58huge potential, you know, for India. And primarily this is the step one. But going
10:03forward, we can see, you know, them exploring different segments, you know, different
10:08powertrains. I think in India we are talking about powertrain pluralism, where, you
10:12know, where there is a need for multi-fuel types, you know, they can invest in R&D in a
10:17big way, you know, because we have seen players like Renault-Nissan, how they are
10:21exploiting the Indian manpower, you know, because and then we have a lot to do with AI
10:27and IT going forward. So I think Hyundai has a long, long way to go in India. And
10:31obviously, I think this IPO will help them really take a big leap, you know, from 50,000
10:38wherever they are today to the next one.
10:40Well, it also shows and brings in vested interest from retail investors who would want to
10:44participate in the long term growth story of Hyundai. Vineet, let's talk about
10:49valuations. Some argue that this subscription is priced to perfection. So there's not too
10:54much room for investors in the near term to make a quick buck. So if you're looking at this
10:59subscription, you may want to look at it from a long term time horizon. Would you agree
11:04with me, Vineet? Do you feel like the upside may be capped at least around listing?
11:10So, you know, we did some number crunching and based on our internal assessment, what we
11:16think is, you know, we are getting a, you know, post listing market cap of about two
11:20lakh crores. That works out to about 2,500 crores on a on the listing basis post IPO.
11:31You know, here we have assumed that they will do about 5,000 crores of CAPEX. But, you
11:35know, if you simply take the CAPEX to 8,000, the value of the business on a cash flow
11:41basis comes to about 1,900 to 2,000 bucks. So if that were to be the case, then it, you
11:48know, it remains fully valued. You know, so for a IPO of Hyundai size, if you're getting
11:56just a 20% upside from here, you know, it'll be very quickly caught in. And I think our
12:02estimates earlier when I told you about a 2,500 value was that, you know, the CAPEX would
12:07be minimal. But if you consider the outsize CAPEX giving the new capacity that is coming
12:13up, you know, it could lead to lower returns on the stock.
12:19Neeta, Gupta, what do you think? Price to perfection is what some argue. Do you agree?
12:24Do you feel like this is a well-priced subscription? And that may mean that in the near
12:30term, you may not see too much upside on the counter.
12:34Yeah, so generally we stay away from, you know, commenting on the commercials, but
12:40definitely, you know, I can see that Indian auto industry is growing, right? So we are
12:44talking about almost, you know, from the 5 million cars or light vehicles today to almost
12:497.5 million in next 10 years, you know, and obviously Hyundai being number two. So they
12:54have a clear potential to grow, you know, and clearly one thing which I really want
12:59to point out is, you know, that even the average size of the car, average price of
13:03the car today in India, which has gone up to like $15,000, you know, just 10 years back,
13:09it was roughly around $7,000, $8,000. So I think clearly in terms of margin
13:13profitability, average price of the car, you know, India now stands, you know, quite
13:18attractive for Hyundai, you know, and obviously if you localize and specifically with the
13:23support from government of India, you know, government being pretty proactive in terms
13:27of production linked incentive scheme, which I think Hyundai is yet to explore, you know,
13:32most of these schemes, but I think they can clearly take out the advantage, you know,
13:36invest in India in big way and clearly, you know, churn out, you know, and being a very
13:42attractive proposition for the consumers, because one thing we should not forget, right,
13:46we are talking about 1.4 billion people, you know, whom really India needs to mobilize,
13:52you know, and with the aspiration rising of an average Indian to own a car, you know,
13:57so clearly Hyundai is one of the players which really understand the pulse of the consumer
14:02pretty well, you know, and clearly have been able to give the products just in a line to
14:07the need of the consumer and they are priced little premium also, you know, to their
14:12competitors. So I think clearly there is, there is, you know, a big market size, I think
14:18clearly a profitable, you know, company, you know, for the investors and for the retail investors, yeah.
14:29So Puneet and Vinit, both sound constructive on this one, but Puneet, I'm going to come to you now
14:33and Mr. Gupta, just bear with me, we'll come back to you in a minute as well. Puneet, how does Hyundai
14:38compare to its listed peers like Maruti and M&M? I know M&M is an expensive stock, but so is the growth.
14:44Yeah, definitely. I think M&M, as you rightly said, more pricing in the premium model specifically,
14:49but for Hyundai, you know, they sell roughly, we spoke about 7.7 lakh units, roughly one-third
14:54of what Maruti does. Maruti sold about 21.3 lakh units in the previous year, but I also want to
14:59look at the revenue, right? So despite selling three times the volumes of someone like Hyundai,
15:04Maruti has doubled the revenues, but margins are lower than compared to someone like Hyundai.
15:08So Hyundai had reported roughly 13.1% margins, while Maruti was at about 11.7%. And while you
15:14see that, you know, Mahindra has higher margins, they also have, you know, products in the premium
15:19category, as well as, you know, the tractor division, where the average selling price of
15:23the total automotive division goes higher as well. Specifically, I've also carved out the profit as
15:28a percentage of the total revenue as well. And that's one of the key metrics that I want to talk
15:31about, because that when compared to someone like Maruti, as well as M&M, is much higher for Hyundai
15:37coming at roughly about 15%. And this is based on the FI 24 numbers. So that's one of the key
15:42positives as well, comparing on like-to-like basis, the profitability has been strong for
15:46someone like Hyundai. Their market cap also, as you know, the indication is on the upper price band
15:51and the 14 crore shares that they are selling, it comes to about 1.58 lakh crores. When you compare
15:56that to Maruti, Maruti is upwards of about 4 lakh crores of market cap, while Mahindra and Mahindra
16:01is also inching towards that, you know, 4 lakh markets. It's taken over from Tata Motors. And
16:07the reason why Tata Motors is not in this particular list is also because it has the JLR division,
16:11and that is, you know, roughly 70% of their total revenue. So when you look at the current price to
16:16earnings, and we'll go back to our guest as well for this, it's currently coming at roughly 26
16:21times for Hyundai. When you compare that to Maruti, it's around the similar range of 27 to 28 times
16:26price to earnings for FI24 specifically, while Mahindra is currently priced at a premium. And
16:31that's because some of the models like the XUV300XO, as well as, you know, the XUV700 has done
16:37well. But for Hyundai specifically, as our guests have been pointing out, their products are priced
16:41at a premium because of the confidence that they've been able to instill over the last, you
16:45know, 20 years that they've been operational in India. So let me just go back to Mr. Gupta and
16:51just talk about, you know, the valuation as well, which he spoke about, as well as the, you know,
16:55a segment that they are very strong as is the compact SUV segment, they operate the Exeter as
16:59well as the venue there. And there they have, you know, Mahindra is still getting into there with
17:04one of their products, but it's been able to capture and essentially create a market with
17:09that compact SUV segment. So talk to us on, you know, valuations for someone like a Hyundai going
17:14forward as well, because that is in line with Maruti, while also having another big addition,
17:19which is the compact SUV space, something that Maruti is not currently presented, it has the
17:23France, but that's a price above 8 lakhs. So talk to us on these two aspects, Mr. Gupta.
17:29Yeah, so I think from compact SUV segment, you know, clearly Hyundai is a winner, right? And
17:36obviously, if you compare it with Maruti, but I think one best thing about Hyundai is, you know,
17:40that they are always able to sell, you know, their cars at a little premium, you know, in a specific
17:46segment, and they are also able to create new segments, you know, which is like, if you see
17:51Hyundai Creta, when it came, you know, Grand i10 when it came, i20 when it came, so they were the
17:56first movers in their respective categories. And actually, they moved the market and rest of them
18:01actually followed, you know. So similarly, I think in terms of, you know, overall sales, you know,
18:08so obviously, in terms of future products, I think the best part about Hyundai is, you know, that they
18:14are, they clearly have technologies with them, you know, today, there are a lot of companies
18:19who are banking on just maybe one diesel fuel, right. So obviously, the risk element with those
18:24companies can be relatively higher. But if you see players like Hyundai with get hold of technologies
18:29like PHEVs or HEVs or EVs, you know, so I think they may have, you know, going forward, a more
18:37stable and a much more profitable, you know, direction. The only thing is that obviously,
18:43they have to work in that direction, you know, to make the things more profitable. But otherwise,
18:47you know, obviously, if you see average price of the car, Maruti versus Hyundai, definitely, you know,
18:52Hyundai scores above Maruti, you know, but if you compare it with Mahindra, you know, so Mahindra is
18:57much higher than Hyundai there. So I think clearly Hyundai have, you know, a scope to both
19:05increase average price of the car, you know, means give better offerings to the Indian consumers
19:09in terms of mid-size SUVs or adventure SUVs, you know, and parallelly, they are one of the OEMs,
19:15which can actually grow, you know, in terms of market size, you know, and really compete with
19:21players like Maruti Suzuki and take, because as I said earlier, right, so if Maruti sells
19:26one and a half lakh vehicles a month, you know, Hyundai just sells less than 50,000 a month. So
19:31clearly, there is a big gap, you know, which obviously Hyundai as an OEM would like to explore,
19:37you know, obviously, apart from exports, which they can really plan to build on.
19:43In fact, my colleague Sajith caught up with the management of Hyundai India and began by asking
19:48about the factors that drove one of India's largest automakers to finally go public.
19:53Listen into that slice of that conversation.
19:57One reason for success of HMI in India has been our ability to spot the trends.
20:01When we launched the Creta in 2015, the SUV contribution was only 13%. Who would have
20:08thought that a car like Creta can sell 15,000 vehicles a month, but we were able to do it.
20:13Today, if you see our SUV contribution, in fact, January to September period has already reached
20:1968%, much higher than the industry average of 52%. In fact, in September, it reached 70%
20:25for the month of September. So you can see that there is still some upside.
20:29We launched the Exter last year, which was which really had a very good response.
20:33We had six airbags as standard, which has really helped us to really touch the heart
20:38and the mind of the customers. So we believe that there is still upside to it. At the same time,
20:43we don't want to be only a 100% SUV player. We are very strong in the sedan space as well. We
20:49have the Aura and the Venue. We have in the hatch segment, we have the Nios, the i20. So we are a
20:55complete player with different kind of powertrain as well. In a country as big as India, one solution
21:00will not work. So at the entry level, we are offering the customer petrol and CNG. And you
21:05can see the penetration in models like Aura or CNG has reached 85%. In the SUV segment, we offer
21:11the customers petrol and diesel. In the Verna segment, we offer the customers petrol and turbo.
21:16And of course, we have an Ioniq 5 as an EV. So I think this kind of different kind of powertrains
21:20to different kind of geographies, because Indian geographies also behave very differently.
21:24Like somewhere in UP, CNG is very, very popular. Whereas in Telangana, Andhra Pradesh and Punjab,
21:31diesel is very popular. In Delhi, petrol is very popular. So different powertrains,
21:36different segments help us to really, really grow. SUV segment, I think, like I said,
21:40we have always been very, very bullish on the SUV segment. And going forward also, we'll see
21:46what kind of opportunities exist. Of course, competition is always there. India in the
21:50markets has always had competition. But we believe as long as we are able to identify trends,
21:55as long as we're able to give new features, new technology, I think we can always get
22:00the love and affection of the customers. Well, that's the management extremely
22:04optimistic and of course, talking to us about the future and the commitment to grow the India
22:09market. Vineet, as we wrap up this edition, what is your recommendation? Do you have a
22:14subscribe rating on Hyundai's mega IPO that opens tomorrow?
22:20So we know we would like to sell on listing is what we are advising our investors.
22:27Subscribe but sell on listing. Puneet, what do you think? What is your recommendation with the
22:34way valuations are and the price band the subscription is opening? And do you recommend
22:39our viewers to subscribe to the Hyundai IPO? Yeah, so I think, you know, as I said, so India
22:47is a great automotive story and there is a part of this story, you know, and that to being a number
22:53two player, you know, so they really they really can have a head start. So so clearly, you know,
23:00I believe, you know, in the Hyundai India story. And obviously, I think it should be a win win for
23:07everybody who should be a part of this story. Vineet, just one follow up because you didn't
23:15mention the sell on listing days for any kind of gains but because of the size of the IPO and
23:21previously we've seen for LIC as well that generally these kind of IPOs don't get a lot of
23:25listing gains. So is there anything, any kind of listing gain that you are anticipating and hence
23:30the rating that you've given on a selling on the listing day as well? I think 10 to 15 percent
23:36upside is max what we're expecting. But for the long term, you do prefer to keep something with
23:42some other like something like a Maruti or something is that is that the definitely we
23:45like Maruti, we believe that Maruti is absolutely underpriced. And, you know, we have a target of
23:5114,500 on the stock. Well, thank you very much. That's a view coming in. Vineet Pudinchkar has
23:57subscribed to Hyundai IPO but does believe that it could see a 15 to 20 percent upside on listing day
24:02and could be a listing day gain story. Puneet Gupta, on the other hand, believes that this is
24:07a great story to be invested in and has subscribed to the Hyundai IPO. With that, we're completely
24:12out of time. Thanks for watching. And of course, keep your eyes tuned in for the big mega IPO
24:17that opens the subscription. Thank you.