Hyundai Motor India IPO review (Apply)

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Review By Dilip Davda on October 10, 2024

•    The company belongs to third largest global auto OEM company HMC, and the second largest auto OEM company in India.
•    It has posted consistent growth in its top and bottom lines for the reported periods. 
•    Based on annualized FY25 and FY24 performances, the issue appears fully priced. 
•    It is set for bright prospects ahead post completion of its ongoing expansion plans.
•    Investors may park funds for the medium to long term rewards.

PREFACE:
This historic mega IPO became the talk of the town ever since it filed its DRHP. AT the time of filing DRHP, an indication was given for an IPO size of Rs.  25000 cr. for 17.50% dilution, and now when we have RHP and the price band announcement, the issue size is around Rs. 27870 cr. making it a biggest IPO on the Indian stock market as of now. The company currently has 100% holding from Hyundai Motor Company - Korea. This being a historic mega IPO will have fair chance of allotment across the board. This is a pure medium to long term investment story for investors, as the company is poised for bright prospects ahead post completion of ongoing expansion plans.

ABOUT COMPANY:
Hyundai Motor India Ltd.  (HMIL) is a part of the Hyundai Motor Group, the third largest auto original equipment manufacturer ("OEM") in the world based on passenger vehicle sales in CY2023, according to the CRISIL Report. It has been the second largest auto OEM in the Indian passenger vehicles market since Fiscal 2009 (in terms of domestic sales volumes) according to the CRISIL Report. The company has a track record of manufacturing and selling four-wheeler passenger vehicles that are reliable, safe, feature-rich, innovative and backed by latest technology. This is demonstrated in its 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"). 

HMIL also manufactures parts, such as transmissions and engines that it uses for own manufacturing process or sales. It has been India's second largest exporter of passenger vehicles from April 1, 2021 through June 30, 2024, according to the CRISIL Report. Since 1998 and up to June 30, 2024, it has cumulatively sold more than 12 million units of passenger vehicles in India and through exports. Its current market position is because of (i) its wide product offerings, (ii) stakeholder relationships and operations; (iii) the strong Hyundai brand in India; (iv) its ability to leverage new technologies to enhance operational and manufacturing efficiency; and (v) its ability to expand into new businesses such as EVs through innovation. In CY2023, it was among the top three contributors to HMC's global sales volumes, and contribution to HMC's sales volumes has increased from 15.48% in CY2018 to 18.19% in CY2023.

HMIL's business model is founded on the fundamental pillars. First, "strong parentage" of Hyundai Motor Group. It is a part of the Hyundai Motor Group, which is the third largest auto OEM in the world based on passenger vehicle sales in CY2023, according to the CRISIL Report. It has the support of HMC in many aspects of operations including management, R&D, design, product planning, manufacturing, supply chain development, quality control, marketing, distribution, brand, human resources and financing, among others. The company benefits from HMC's centralised R&D hub that oversees global R&D initiatives for the Hyundai Motor Group. HMC has invested an aggregate amount of Rs. 1,875.03 billion (KRW 30,392.56 billion or US$26.04 billion) towards global R&D from CY2014 to June 30, 2024. including towards emerging mobility areas such as electrification, shared mobility and autonomous driving. HMC's R&D capabilities, coupled with information flow within the Hyundai Motor Group on emerging global trends and latest customer preferences, enables HMIL to identify customer preferences in a timely fashion. These further helps to introduce new passenger vehicles, technologies and features in India in a short time-to-market. It also benefits from implementing HMC's manufacturing practices and quality management system in operations. HMC's sales network across more than 190 countries helps it pursue export opportunities which is an important revenue and profitability driver. Additionally, the company benefits from the strong "Hyundai" brand. Globally, "Hyundai" is focused on delivering an outstanding customer experience, grounded in design leadership, engineering excellence and exceptional value in every passenger vehicle they sell, according to Interbrand. As per Interbrand's "Best Global Brands 2023", the Hyundai brand value has been growing for the past 13 years, and in 2023 Hyundai's brand value grew 18% year-on-year to reach Rs. 1,695.57 billion (US$20.41 billion) making it the 32nd most valuable brand globally, up three places from 2022. 

It also maintains close connections with other affiliates within the Hyundai Motor Group across the auto OEM value chain, creating synergies in supply, manufacturing, and product development. For example, Mobis India Limited ("Mobis"), its Group Company, supplies after-sale parts and accessories to dealers, and Glovis India Private limited ("Glovis"), a company within the Hyundai Motor Group, provides transportation of passenger vehicles to destinations such as dealerships and stockyards on an end-to-end basis. It deploys technology that is integrated across its operations, including in product design, manufacturing, and customer and dealer engagement. As a key part of the Hyundai Motor Group, it gains early access to global trends in automotive, technologies and features, including from HMC's dedicated technology arm covering passenger vehicle IT services, smart manufacturing, mobility services, data security services and enterprise IT services - Hyundai Autoever. 

It leverages global insights and R&D capabilities to introduce technology, design and aesthetics in its passenger vehicles that are tailored for the Indian market. HMIL's manufacturing plant located at Irrungattukottai, Sriperumbudur in Chennai, Tamil Nadu ("Chennai Manufacturing Plant") was HMC's first global integrated manufacturing plant outside Korea. The Chennai Manufacturing Plant had a production capacity of 824,000 units as of June 30, 2024. Leveraging Hyundai Autoever, HMC's "smart factory" platform, HMIL is able to produce flexibly customised passenger vehicles and parts using automated manufacturing processes.

In addition to benefitting from the strength of the "Hyundai" brand globally, it has established "Hyundai" as a trusted brand in India. It has received the highest number of the Indian Car of the Year (ICOTY) awards over the years (based on data provided in the CRISIL report). The eight passenger vehicle models that have received this accolade are i10 (2008), Grand i10 (2014), Elite i20 (2015), Creta (2016), Verna (2018), Venue (2020), i20 (2021) and Exter (2024). Further IONIQ 5 also won the Green Car of the Year award in 2024. 

To connect with its customers as a trusted, aspirational and inclusive brand in India, it deploys innovative marketing initiatives across fashion, music, game shows and sports events. HMIL carefully a 360-degree viewpoint across passenger vehicle purchase, insurance, maintenance and after-sale services.

Its value proposition to customers is to manufacture passenger vehicles that are feature rich, reliable and innovative at a competitive price point. To achieve this and enhance profitability, it focuses on localisation of parts and materials. Under its localised supply chain ecosystem, it sources majority of parts and materials from suppliers based in India. In Fiscal 2024 and in the three months ended June 30, 2024, it sourced approximately 93% and 93% of parts and materials in terms of purchase value in India from the four adjoining districts close to Chennai Manufacturing Plant, respectively. It is expanding manufacturing capabilities in India with the recent acquisition of a manufacturing plant in Talegaon, Maharashtra ("Talegaon Manufacturing Plant") which is expected to commence commercial operations partly in the second half of Fiscal 2026. The company expects its annual production capacity across the Chennai and Talegaon manufacturing plants in aggregate to increase to 994,000 units when the Talegaon Manufacturing Plant is partly operational and to 1,074,000 units once the Talegaon Manufacturing Plant is fully operational.

In line with its commitment to India, it is taking steps to develop an EV supply chain and manufacturing capabilities in India through EV parts localisation and developing an EV platform in India. Its current portfolio of passenger vehicles caters to a diverse customer base offering "something for everyone". Its portfolio of 13 passenger vehicle models (including N Line models which are passenger vehicle models that feature sporty performance features) across major passenger vehicle segments by body type include sedans (Aura and Verna), hatchbacks (Grand i10 NIOS, i20 and i20 N Line) and SUVs (Exter, Venue, Venue N Line, Creta, Creta N Line, Alcazar, Tucson and IONIQ 5). Together, the passenger vehicle segments in which it is present in India accounted for approximately 88% of the total passenger vehicle sales volume in India in Fiscal 2024 and approximately 87% for the three months ended June 30, 2024, based on the data provided in the CRISIL Report.  As of June 30, 2024, the Company had 5,672 full-time employees and 10,171 off-roll employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 142194700 equity shares of Rs. 10 each worth Rs. 27870.16 cr. (at the upper cap). The company has announced a price band of Rs. 1865 - Rs. 1960 per share. This issue is totally secondary issue by way of an Offer for Sale (OFS). The issue opens for subscription on October 15, 2024, and will close on October 17, 2024. The minimum application to be made is for 7 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 17.50% of the post-IPO paid-up equity capital of the company. This being a pure secondary issue, no funds are going to the company. The issue is being made to avail the listing benefits and unlock the valuation of the company post listing. 

The company has reserved 778400 shares for its eligible employees and offering them a discount of Rs. 186 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., J. P. Morgan India Pvt. Ltd., and Morgan Stanley India Co. Pvt. Ltd., while KFin Technologies Ltd. is the registrar to the issue. 

The company has issued entire equity shares at par value so far. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10 per share. 

Post IPO, company's current paid-up equity capital of Rs. 812.54 cr. will remain same as this is a pure OFS. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 159258.06 cr. Market capitalization to revenue from operations is at 2.28 at the upper price band. Its Chennai plant is operating at a capacity utilization of 97.10% (FY 24).

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 41404.65 cr. / Rs. 1881.16 cr. (FY21), Rs. 47966.05 cr. / Rs. 2901.59 cr. (FY22), Rs. 61436.64 cr. / Rs. 4709.25 cr. (FY23), and Rs. 71302.33 cr. / Rs. 6060.04 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 1489.65 cr. on a total income of Rs. 17567.98 cr., against Rs. 1329.19 cr. and Rs. 17011.61 cr. respectively for the corresponding previous Q1 of FY24. Thus it posted steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, the company has reported an average EPS of Rs. 62.56, and an average RoNW of 39.11%. The issue is priced at a P/BV of 13.11 based on its NAV of Rs. 149.52 as of June 30, 2024, as well as post-IPO equity capital since this is a secondary issue.

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 26.73, and based on FY24 earnings, the P/E stands at 26.28. The issue relatively appears fully priced, but the company is poised for bright prospects post completion of its ongoing expansions.

The company reported PAT margins of 6.05% (FY22), 7.67% (FY23), 8.50% (FY24), 8.48% (Q1-FY25), and RoCE margins of 20.37%, 28.75%, 62.90%, 13.69% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has declared dividends of 167.30% (FY21), 183.80% (FY22), 572.70% (FY23), and 1327% (FY24). It has adopted a dividend policy in June 2024, based on its financial performance and future prospects. The company has been a liberal dividend paying company so far.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Maruti Suzuki, Tata Motors, and Mahindra & Mahindra as their listed peers, they are trading at a P/E of 27.5, 10.1, and 36.1 (as of October 10, 2024 -at around 10.35 hrs). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The five BRLMs associated with this issue have handled 35 public offers in the last three fiscals, out of which 5 issues closed below the offer price on listing date. 

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