Hyundai India deserves valuation premium to Maruti, says Nomura note

Korean automaker's Indian unit expanding market share and benefits from being part of larger Hyundai Motor Company, it says

Hyundai Motor India (HMI), which is expected to make its stock market debut soon, may command a valuation multiple that is higher than automobile market leader Maruti Suzuki India (MSIL), brokerage Nomura has said in a note.

MSIL, the largest automaker in the country, commands a market capitalisation of Rs 4.13 trillion ($48 billion) – 22.6 times its estimated earnings for FY25.

In its draft red herring prospectus, HMI has set its valuation between Rs 1.5 trillion and Rs 1.7 trillion ($18 billion and $20 billion).

In FY23 and nine months of FY24, HMIL posted net profit of Rs 4,709 crore and Rs 4,383 crore, respectively.

Nomura's note did not provide projections for HMI’s profits for FY25 but said it expects its sales to accelerate, underpinned by new car launches.

HMI's market share growth and potential benefits of being part of the larger Hyundai Motor Company group could mean the valuation premium of the country’s second largest carmaker could be higher than MSIL's, said the brokerage.

HMI has got the Securities and Exchange Board of India's approval to launch its initial public offering (IPO). The maiden share sale – pegged at Rs 25,000 crore – is expected to be launched in early-November.

Through the IPO, parent Hyundai Motor Company will divest 17.5 per cent stake in its Indian arm. Besides raising funds for the Seoul-headquartered parent, the IPO is aimed at enhancing HMI’s visibility, brand image, and liquidity in the Indian market.

Hyundai Motor India's market share has remained stable at 15-17 per cent since 2008. The company recorded its highest-ever domestic sales of 602,000 units in 2023, driven by strong performance in compact and mid-size SUVs like Creta, Exter, and Venue, the brokerage has noted.

Going ahead, Nomura said the company's sales are expected to accelerate supported by the launch of new models such as the Creta EV and petrol-HEV SUV Ni1i. Additionally, the growing demand for electric vehicles and hybrid electric vehicles in India presents a significant opportunity for HMI.

The IPO is also expected to unlock value for the parent.

“If HMI’s market cap ends up at $18-20 billion, the value of the Indian entity would represent 45-50.5 per cent of the consolidated HMC entity’s market cap. Equity method income from HMI has represented 7-8 per cent of HMC’s consolidated net income in 2023-1H24. This will likely raise investors’ attention on HMC’s valuation which is underestimated by the market, in our view. Meanwhile, we think HMC shareholders’ interest lies in whether HMC will return a part of its IPO proceeds back to shareholders,” said Nomura's note.

At its Investor Day on August 28, HMC’s chief executive officer had indicated that the company would announce plans on the IPO proceeds after the offering.