Hyundai Motor India IPO: Key Details and Should You Apply Before the Listing?

Hyundai Motor India’s IPO has opened for subscription, marking a major milestone in the Indian capital markets. It is a largest IPO in Indian history, raising a whopping Rs.27,870 crore. This IPO is garnering significant attention from retail and institutional investors alike. In this post, we will delve into the key details of the IPO and the company’s financial health. I will also try to answer whether this IPO is worth considering before its listing?Key Hyundai Motor IPO DetailsHyundai Motor IPO will be open for subscription between October 15, 2024, and October 17, 2024.Below are the key details every investor should be aware of:Price band: Rs. 1865 to Rs. 1960 per share.IPO Size: Rs. 27,870 crore through a complete Offer for Sale (OFS).Issue Size: 14.22 crore shares.Share allotment date: October 18, 2024.Listing date: October 22, 2024.Employee Discount: Rs. 80 per share.Reservation: Allocation for Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), Retail Investors, and Employees.Minimum Investment: Investors can apply for 1 lot, comprising 7 shares, requiring a minimum investment of Rs. 13,720.Anchor Investment: Hyundai has already raised Rs. 8,315 crore from major institutional investors via the anchor book.The IPO is entirely an Offer for Sale (OFS). It means, Hyundai Motor Company (South Korea), will be selling their shares. No new shares are being issued by the company.The South Korean company is selling 14.22 crore number shares.Shareholder CategoryPre-IPO ShareholdingPost-IPO Shareholding (Expected)Hyundai Motor Company (South Korea)100% (812,541,100 shares)~82.5% (668,321,800 shares)Public (Retail, QIB, NII, Anchor Investors)0%~17.5% (144,219,400 shares)Employees (Reserved)0%~0.10% (778,400 shares)How Offer For Sale (OFS) Work?In an Offer for Sale (OFS), the proceeds generated from the sale of shares typically go directly to the selling shareholders. In this case, the proceeds will go to Hyundai Motor Company (South Korea). The funds raised through this process is not likely go to the Hyundai Motor India. Therefore, Hyundai Motors India cannot reinvest the raised capital back into the company’s operations or expansion. However, if Hyundai Motors (S. Korea) decides to voluntarily reinvest those funds in India, it is possible.Explanation:Offer for Sale (OFS): In an OFS, existing shareholders (like promoters or early investors) sell part of their stake in the company. The company does not issue new shares, so no fresh capital is raised for the business itself.Reinvestment: While Hyundai Motor (South Korea) receives the proceeds from the sale, it would need to make a separate decision to reinvest those funds back into Hyundai Motor India, if at all. Such reinvestment would not be part of the IPO process but could occur through other channels, like equity infusion or loan financing.Hyundai Motor India’s Business OverviewHyundai Motor India Limited (HMIL) is a subsidiary of Hyundai Motor Company, South Korea. It is the second-largest automobile manufacturer in India, following Maruti Suzuki.HMIL has a strong presence in both the domestic and international markets, particularly in Africa, the Middle East, and Latin America.HMIL has a diverse portfolio, ranging from sedans to sports utility vehicles (SUVs) and electric vehicles (EVs). Popular models include the Creta, Venue, Verna, and the recently launched Ioniq 5. Ionic is an electric vehicle that highlights Hyundai’s push towards sustainable mobility.Hyundai Motor India Limited (HMIL) has two manufacturing plants. Both are located in Sriperumbudur, which is near Chennai in the state of Tamil Nadu. These plants are part of HMIL’s integrated production facility. The combined production capacity of both the units is 7.5 lakh vehicles annually.The company is also India’s largest exporter of passenger vehicles.Company FinancialsHyundai Motor India’s financials look robust. These numbers clearly state that Hyundai India is perhaps one of the strongest players in India’s automobile sector.Here’s a summary of its financial performance over the last few years:Financial MetricFY2023FY2024Revenue (₹ crore)68,35079,300Profit After Tax (₹ crore)5,6307,270ROCE12.50%13.69%ROE11.80%12.26%Between FY2023 and FY2024, Hyundai’s revenue grew by 16%. It’s Profit After Tax surged by 29%. The company’s Return on Capital Employed (ROCE) stands at 13.69%, and its Return on Equity (ROE) is 12.26%.To get a perspective of the profitability of Hyundai Motors India, let’s look at the ROE of Maruti Suzuki, Tata Motors in the last 15 years. Average ROE of Tata Motos is last 15 years is 10.37% and of Maruti is 14.64%.Why This IPO is SignificantThe Hyundai Motor IPO is significant for several reasons:Largest IPO in India’s History: At Rs.27,870 crore, this IPO is the biggest ever seen in India, surpassing previous records. LIC’s IPO was Rs.20,557 crores and PaytM was 18,300 crores.Participation of Major Institutional Investors: Hyundai has already secured ₹8,315 crore through the anchor portion. Global and domestic institutional investors are participating this way.Potential for Strong Listing Gains: Given the positive sentiment around the auto sector and the scale of this IPO, there’s potential for notable listing gains. It is especially for those looking for short-term profits.Global EV Push: Hyundai’s commitment to expanding its electric vehicle lineup aligns with global trends toward sustainability. The company’s efforts in the EV space could offer long-term growth opportunities.Should You Apply?This is the critical question most of us are asking? Should you subscribe to the Hyundai Motor IPO? The answer can vary depending on the type of investor:For Long-Term Investors: A long-term investor looking for exposure to the automobile sector, Hyundai’s IPO presents an opportunity. In India, Hyundai’s market position is good. The company is also growing its exports. With its push towards electric vehicles, Hyundai India is positioning itself to capitalize on India’s growing automobile market.For Short-Term Traders: If your aim is to make a quick profit from listing gains, Hyundai’s IPO could be an option. Given the massive demand and potential hype around its listing, the share is likely to grow post its listing.Is there a Risk? For an IPO like that of Hyundai Motos India, I think the only risk can be high valuation. So, let’s try to analyze the valuation of the company from P/E perspective. The P/E (Price-to-Earnings) ratio for Hyundai Motor India’s IPO is as follows:Pre-IPO P/E Ratio: 26.28Post-IPO P/E Ratio: 26.73The pre-IPO P/E ratio is calculated based on the pre-issue shareholding data. The numbers are picked from the Red Herring Prospectus (RHP) and the latest fiscal year’s earnings as of March 31, 2024. The post-IPO P/E ratio is based on the post-issue shareholding and annualized earnings as of June 30, 2024.Compare it with the current P/E ratio of Maruti (PE-26.62), M&M (31.97), and Tata Motos (PE-10), Hyundai P/E is not looking too overvalued.My Take: Based on the company’s financials and the current market environment, long-term investors could consider subscribing to the IPO. It is especially for those looking to add a stable auto stock to their portfolio. Hyundai India may be the that best multi-bagger in our portfolio, but it will surely act like a stabiliser for the next decade.Short-term traders should monitor the subscription data and broader market conditions before deciding.Subscription StatusAs of today, October 15, 2024, Hyundai’s IPO has seen moderate interest from different investor categories:Retail Investors: The retail portion has been subscribed 0.19 times so far. This indicates some initial enthusiasm, but there’s room for higher participation over the next two days.QIB (Qualified Institutional Buyers): This category has seen strong demand, with the subscription at 0.36 times. Institutional investors are often considered a good indicator of the IPO’s potential success.NII (Non-Institutional Investors): Subscription for NIIs stands at 0.14 times. We expect this number to rise as the issue approaches its closing date.ConclusionHyundai Motor India’s IPO is a landmark event in the Indian stock market. Its success could set a new benchmark for future offerings.While the company’s financials, market position, and growth potential make it an attractive investment, there are risks tied to the traditional global auto manufacturers.Whether I’m investing in this IPO? I’m not participating in this IPO. Considering the market situation, I want to stay cash-heavy for the moment. But this is not the only reason why I’m not considering this IPO. I’m not able to get a clear perspective of why Hyundai Motors (South Korea) is selling its shares in the first place and getting HMIL listed in BSE and NSE? Till I get this answer, I’ll rather wait, even if it means missing the opportunity.Before investing, always remember that we have the following established listed players in our stock market. Let’s question, why not consider them instead?ParameterHyundai Motor IndiaTata MotorsMaruti SuzukiMarket Capitalization1,59,258.06 crore (as of June 2024)3,37,647 crore (approx., as of 2024)3,91,329 crore (approx., as of 2024)Total Revenue71,302.33 crore (FY 2024)4,43,877 crore (approx., FY 2024)1,45,951.70 crore (approx., FY 2024)Profit After Tax (PAT)6,060.04 crore (FY 2024)31,399.09 crore (FY 2024)13,488.20 crore (FY 2024)Return on Equity (ROE)12.26% (as of June 2024)36% (FY 2024)15.7% (FY 2024)Return on Capital Employed (ROCE)13.69% (as of June 2024)19% (FY 2024)19% (FY 2024)Market Share (India)~15% (Passenger Vehicles, FY 2024)~16.2% (PV + CV Combined, FY 2024)~41% (Passenger Vehicles, FY 2024)Notes:Hyundai Motor India: Data reflects financials as of June 2024 for some parameters.Tata Motors: Market share includes both Passenger Vehicles (PV) and Commercial Vehicles (CV).Maruti Suzuki: The dominant player in India’s Passenger Vehicle segment.What do you think about Hyundai Motor India’s IPO?Share your thoughts in the comments below! 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