Hyundai Motor India Limited (Subscribe)

HighlightsIssue Size –: 142,194,700 sharesIssue Open/Close – 15 Oct / 17 Oct, 2024Price Band (Rs.)  1865 – 1960Issue Size (Rs.) – 278,701 mnFace Value (Rs) 10Lot Size (shares) 7Hyundai Motor India Limited (HMIL) incorporated on 1996, is a part of Hyundai Motor Group and it is the 3rd largest auto original equipment manufacturer (OEM) in the world based on passenger vehicle sales in CY2023.The company has a track record of manufacturing and selling four-wheeler passenger vehicles that are reliable, feature-rich, innovative and backed by latest technology. They have portfolio of 13 models across multiple passenger vehicle segments by body type such as sedans, hatchbacks, sports-utility vehicles (SUVs) and battery electric vehicles (EVs). They also manufacture parts, such as transmissions and engines.Strong parentage of Hyundai Motor Group (HMG) helps company to benefit from many aspects of their operations including management, R&D, design, product planning, manufacturing, supply chain development, quality control, marketing, distribution, brand, human resources and financing, among others.HMG’s exports network across more than 190 countries helps HMIL pursue export opportunities which is an important revenue and profitability driver for them. Since 1998 and up to FY24, the company cumulatively sold nearly 12 mn passenger vehicles in India and through exports.HMIL also maintain close connections with other affiliates within the HMG across the auto OEM value chain, creating synergies in supply, manufacturing, and product development. For eg. Mobis India Limited (Mobis), their group company, supplies after-sale parts and accessories to their dealers, and Glovis India Pvt limited (Glovis), a company within the HMG, provides transportation of their passenger vehicles to destinations such as dealerships and stockyards on an end-to-end basis.Out of the total proceeds of Rs. 278,701 mn, entire proceeds would go towards existing selling shareholders of the company and HMIL will not receive any proceeds from the offer.Key HighlightsAs per reports Passenger Vehicle Market in India was valued at USD 65.3 bn in 2024 and is expected to registered CAGR of 9.6 pct between 2024-33 and estimated to reach USD 133.8 bn by 2033. As of FY24 Hyundai has 14.61 pct market share (PV Volume) and it well poised to benefits from such huge opportunity.Since HMIL inception and up to Q1FY25, they exported 3.61 mn passenger vehicles to over 150 countries, including to countries in Latin America, Africa, Middle East, Asia, and others. The exports market is a revenue driver for them as they earn higher average selling price (ASP) for exports versus domestic products on an average.HMIL Chennai manufacturing plant had an annual production capacity of 824,000 units as of Q1FY25. They are expanding their manufacturing capabilities in India with the recent acquisition of a manufacturing plant in Talegaon which is expected to commence commercial operations partly in the H2FY26 and HMIL expect annual production capacity across the Chennai and Talegaon manufacturing plants in aggregate 1,074,000 units once the Talegaon Manufacturing Plant is fully operational by FY28EThe company is aiming to maintain capacity utilisation above 90 pct with a healthy mix between domestic sales and exports, they plan to optimise operations across all plants, with a profit-centric approach.HMIL aim is to provide customers with alternate, sustainable fuel options such as hydrogen energy. They have entered into a MoU with the nodal agency for investment promotion of Government of Tamil Nadu and IIT Madras to undertake research on cost-effective green hydrogen energy ecosystem development including establishing a hydrogen innovation centre in India. HMIL seek to leverage the developments from this partnership to build upon alternate fuel strategy in the future.They have a premiumisation strategy, where they focus on selling passenger vehicles that have a higher ASP for the respective passenger vehicles. They intend to bolster sales in the SUV segment and mid-to-high range passenger vehicles in other segments through targeted passenger vehicle introduction across price points and powertrains. They may also explore vehicle leasing to offer last-mile connectivity. HMI’s key growth strategies include (i) To leverage their deep understanding of consumer preferences to successfully expand their passenger vehicle portfolio. (ii) Focus on continued premiumisation of their passenger vehicle portfolio. (iii) Calibrated manufacturing capacity expansion and efficient capital allocation. (iv) Focus on increasing EV market share. (v) Further strengthening their position as the export hub for HMC. (vi) Continue to enhance their brand as a trusted brand in India and (vii) Further deepen their physical-and digital network for sales and services across India.HMIL also intend to collaborate with their stakeholders in export countries with innovative sales strategies. For example, to benefit from incentives offered by Nepal, HMIL recently collaborated with a distributor in Nepal to set up a local passenger vehicle assembly line, and HMIL agreed to provide materials and parts for the assembly of the Venue passenger vehicle model.Sales of the company has grown by 21.40 pct CAGR during the period FY22-24 and EBITDA and Profit grew 29.02 pct CAGR and 44.52 pct CAGR over FY22-24. During FY24, company reported sales of Rs. 698,291 mn which grew by 15.79 pct YoY while EBITDA rose by 20.98 pct YoY to Rs. 91,326 mn as EBITDA margin expanded from 12.52 pct in FY23 to 13.08 pct in FY24. As of FY24 the company reported profit of Rs. 60,600 mn which was grew by 28.68 pct YoY. AS of Q1FY25 company registered sales/EBITDA/Profit of Rs. 173,442 mn/Rs. 23,403 mn/ Rs. 14,897 mn which grew by 4.34 pct YoY/17.17 pct YoY/12.07 pct YoY.Key RiskTwo of their Group Companies, Kia Corporation and Kia India Private Limited, are in a similar line of business which may involve conflict of interests, which could adversely impact HMIL business.Any increase in the royalty fee payable by the Company to HMG under the Royalty Agreement, including up to and exceeding the limits of 5 pct of the annual consolidated turnover of the Company could adversely impact HMIL profitability metrics, including earnings per share.Financial Performance(In Rs. million otherwise stated)FY22FY23FY24Q1FY24Q1FY25Revenue from operations4,73,7846,03,0766,98,2911,66,2351,73,442EBITDA54,86175,48891,32619,97323,403EBITDA Margin %11.58%12.52%13.08%12.01%13.49%Profit29,01647,09360,60013,29214,897Profit Margin %6.05%7.67%8.50%7.81%8.48%Return On Capital Employed %20.37%28.75%62.90%7.63%13.69%Peer comparison based on FY24 FinancialsPeer Comparison   PV Volume Wise Market Share %Operating Sales (In Rs. bn)Operating Margin %Profit Margin %Maruti Suzuki41.84%1,418.5812.42%9.24%Hyundai Motor14.61%698.2912.03%8.50%Tata Motors13.57%523.532.00%NAMahindra & Mahindra10.93%987.6314.90%10.39%Kia Motors*5.84%387.89.20%5.44%Toyota Kirloskar Motor5.84%558.6611.63%8.48%Honda Cars*2.06%141.97.76%9.91%Skoda Auto Volkswagen2.09%189.61.82%0.48%MG Motors*1.05%75.8(8.94) %(10.83) %Nissan Renault1.80%123.65(-0.26) %0.32%Peer ComparisonROCE %Debt Equity RatioCurrent RatioDebt Service CoverageMaruti Suzuki23.80%0.00×0.80×11.90xHyundai Motor62.90%0.07×1.24×27.79xTata Motors15.00%0.46×0.56×0.98xMahindra & Mahindra26.75%0.03×1.40×47.87xKia Motors43.00%0.50×1.47×1.41xToyota Kirloskar Motor57.18%0.41×2.04×30.57xHonda Cars0.20%1.50×1.30×7.20xSkoda Auto Volkswagen4.01%0.56×0.79×3.64xMG Motors (36.00%)(7.81x)0.58x(0.10x)Nissan Renault(-0.48) %0.12×1.32×1.60xValuationHyundai Motor India Limited, part of Hyundai Motor Group is a 3rd largest auto original OEM in the world based on passenger vehicle sales in CY2023. HMIL is well-placed to benefit from continued growth in SUVs, and/or a revival in hatchbacks. At the upper end of the price band of Rs. 1960 the issue is priced at a PE of ~26.7 its FY25E annualised earnings. The issue looks fully priced. One can subscribe this issue from a longer-term perspective.Also read: Why Is Financial Advisory Important?Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.