Why Hyundai is again eyeing IPO in India, 25 years after its failed attempt

Hyundai needs the money especially for EVs but it could have sold equity in the South Korean parent company, which is much bigger and already listed

In 1999, South Korean carmaker Hyundai Motor Company (HMC), strapped for cash due to the financial meltdown in its home country, wanted to dilute its stake in its Indian subsidiary, Hyundai Motor India Ltd (HMIL), and applied to the Foreign Investment Promotion Board for selling 14.2 per cent equity.

Investment bankers received interest from many, including UTI and American insurance giant AIG, with the condition that HMIL would float an initial public offer (IPO) in five years. Proposals to sell equity to Maruti Suzuki and General Motors were also looked at.

The exercise fell through because South Korean banks, which had given loans to the company, did not approve the equity dilution, according to a book by former HMIL  President B V R Subbu.

Twenty-five years later, HMIL IPO is making news once again. The company has applied to the Securities and Exchange Board of India for an IPO to offload 17.5 per cent of its stake in the Indian arm to raise an expected Rs 25,000 crore, which would make it the largest IPO in the country, overtaking Life Insurance Corporation’s issue. The IPO would value HMIL at $30 billion (about Rs 2.5 trillion).

That is a far cry from the valuation of Rs 2,000 crore it was getting in 1999.

That is how far Hyundai has travelled in India. It is the second largest carmaker in the country by market share, next only to Maruti Suzuki.

But why does Hyundai want to raise money in India by selling equity in its Indian arm to fund its global expansion? Sure, it needs the money especially for electric vehicles. But it could have sold equity in the South Korean parent company, which is much bigger and already listed.

Hyundai declined to comment on this story.

Korean discount

There is something known as the “Korean discount”. Listed companies in South Korea trade at a substantial discount to their global peers. Experts talk about pressure from Hyundai’s shareholders to bring back money from overseas operations to shore up the holding company’s valuation.

A study by Robeco says the price-to-book ratio of South Korean companies is a mere 34 per cent of that of emerging markets. For instance, the price-to-earnings ratio of Hyundai in South Korea is 5.6 times. Maruti Suzuki in India is at 29.96 times. According to bankers, what Hyundai is looking at is to get a similar valuation ranging from 25 to 30 times.

India is a growth market. According to S&P India, the country led the global growth of light vehicle sales, growing by 35 per cent between the pre-pandemic 2019 and 2023. South Korea’s market in this period declined by 1.18 per cent. India’s car sales are expected to rise from 5.5 million in 2025 to 8.1 million by 2035.

India is also highly profitable — it is the second most profitable among Hyundai’s major subsidiaries and sixth on revenues. India’s share in Hyundai’s global sales has gone up from 15.5 per cent in 2018 to 18.19 per cent in 2023 —which makes it one of the three largest markets for Hyundai.

Global drive

HMC has announced an investment of $50 billion in electric vehicles in the next three years, out of which $26 billion will be used to expand the infrastructure, research and development, and manufacturing capacity. It has big plans for India as well. Having invested Rs 29,000 crore in the country so far, it has decided to put in another Rs 36,000 crore, which will include increasing its overall plant capacity from 824,000 vehicles annually to 1.07 million once the factory acquired from General Motors becomes fully operational. Money will also go into R&D and building an EV supply chain to hasten localisation.

Hyundai watchers say the company could be looking to make India a hub for electric vehicles exports to Europe. There are many advantages in doing so, one of which is India’s production linked incentive scheme, for which Hyundai is eligible. Secondly, logistics costs from India are far lower than in exporting from South Korea to Europe.

“They will take advantage of the most favoured clauses with European countries and benefit on taxes by making in India. And they can produce the car at 30 per cent lower cost than if it was made in Europe,” says Subbu.

Also, the market will become more attractive for Hyundai as Europe imposes higher duties on Chinese electric vehicles.

High on local

In many ways, Hyundai’s EV strategy is similar to Suzuki’s. The Japanese company’s Indian unit will launch its first electric vehicle in the country this year. It will be assembled in India but will initially be for exports to Europe, as revealed by Maruti Suzuki Chairman R C Bhargava.

Like Maruti, Hyundai too enjoys high localisation in India, which reduces cost. It could replicate that for EVs.

“They already have the supply chain, except for the battery and the motor. They have their software centre in Hyderabad, they have the Foxconns for electronics, and they can easily begin with 60 to 70 per cent localisation,” says Subbu.  

For batteries, which account for 40 per cent of an EV’s bill of material, Hyundai has tied up with Exide. The latter has a technology pact with Svolt in China to make lithium ion batteries. Sterling Tools has signed up South Korea’s Yongin Electronics, a major supplier of components to Hyundai and Kia for setting up a component production facility in India.

Hyundai, unlike many European and US carmakers, has always brought its latest cars to India, usually at the same time as their global launch. So, one can expect it to follow the same approach in EVs.

The plans to launch four EV models in the next few years, which could land in India sooner rather than later. With a capacity expansion and large investments on the anvil, the South Korean giant clearly wants more in India.

But first, there is the IPO.