Drive to Dalal Street

Hyundai's listing will be positive for Indian markets

The filing of a draft red herring prospectus by Hyundai last week indicates the South Korean chaebol is looking to unlock value in its highly successful Indian subsidiary. The prospectus says the parent will be looking to sell a 17.5 per cent stake in the company, amounting to 142 million shares in what is now a 100 per cent subsidiary. Investment bankers estimate this initial public offering (IPO) would help raise around Rs 25,000 crore with an implied valuation of about Rs 1.45 trillion for Hyundai Motors India. Around 35 per cent of the issue would be reserved for retail investors. Hyundai would have to eventually dilute its ownership further to comply with the shareholding norms in listed companies.

The IPO size would be a record, since the largest Indian public issue so far has been of Life Insurance Corporation of India, which raised Rs 21,000 crore in May 2022. This will also be the first large IPO in the automobile segment since 2003, when Maruti was listed. India is the world’s third-largest automobile market (behind China and the US). Hyundai is the third-largest auto manufacturer globally and holds around a 14 per cent market share in the Indian car market. It is number two in India, behind Maruti Suzuki in terms of unit market share, and it may be outpacing the top firm in profit margins because the average selling price per unit is higher due to the larger number of sport utility vehicles (SUVs) it sells. Over 50 per cent of Hyundai sales in India consist of SUVs. Hyundai Motor India generated over Rs 61,571 crore of revenues in 2022-23 with net profits of around Rs 4,709 crore. India operations contributed around 18 per cent in volumes to Hyundai’s global sales and it is the fastest-growing market.

The company has been present in India since 1996, when it set up its facilities in Chennai. It has been continuously focused on greater localisation of components and claims over 90 per cent indigenisation of components, although research and development is from the parent. The Chennai facility is said to be running at 97 per cent capacity. The company has also been looking to use Chennai as an export hub for sales to South Asia, West Asia, and Africa. Hyundai India has also focused on premiumisation, selling vehicles with a higher average price and better margins. It also aims to challenge Tata Motors’ dominance in the electric-vehicle (EV) market.

Although the proceeds would go directly to the parent, it may or may not choose to reinvest some of it in India. There are some implications for investors to consider. The company will eventually sell another tranche of shares to dilute stake. It could be looking to raise funding locally for a big push into EVs, where it may need to set up charging infrastructure, tighten the supply chain, and roll out a stronger distribution network. Overall, however, the move must be welcomed because it would allow Indian investors to be part of one of the largest auto companies operating in India. With public shareholding, its operations would be more open for shareholder scrutiny. For the company, the IPO is well timed because of the high valuations in the Indian stock market. Hopefully, it would encourage other large multinational firms operating in India to list in India and make Indian investors part of the wealth-creation process.