ICICI Securities has issued a "SUBSCRIBE" call for Hyundai Motors India's (HMIL) Initial Public Offering (IPO), highlighting the company's strong growth prospects and its strategic positioning in the Indian passenger vehicle (PV) market. With a price band set between ₹1,865-1,960 per share, HMIL is poised for long-term growth, driven by its leadership in the expanding SUV segment, a strategic push toward electric vehicles (EVs), and capital-efficient operations. Despite limited potential for immediate listing gains, the IPO is expected to deliver healthy double-digit returns over the medium to long term.

Credible Player in the Indian PV Market

Hyundai Motors India (HMIL) has long held a prominent position in the Indian passenger vehicle (PV) market, boasting a 15% market share. The company is recognized as the second-largest auto original equipment manufacturer (OEM) in India and a significant contributor to Hyundai Motor’s global sales, contributing 18.2% to global volumes in 2023. With a diversified portfolio, including popular models such as the Creta and Verna, HMIL is well-positioned to capitalize on India’s growing PV market.

Key Financial Highlights

HMIL has demonstrated robust financial performance over the past three years. From FY21 to FY24, the company’s net sales grew at a compound annual growth rate (CAGR) of 19.4%, while its profit after tax (PAT) increased at a CAGR of 47.7%. HMIL also reported strong EBITDA margins, reaching 13.1% in FY24. At the upper end of the IPO price band, the company is valued at 26x P/E, which remains at a discount compared to the industry leader, Maruti Suzuki. This underscores the attractiveness of HMIL’s valuation for investors.

Strength in the SUV Segment

HMIL's success is heavily driven by its strong presence in the SUV segment, which accounts for 63% of its total sales. The company’s flagship model, the Creta, continues to lead the mid-size SUV market with a 38% market share as of Q1FY25. This segment's growth is expected to continue as the company launches new models like the Exter and prepares to introduce its Creta EV by Q4FY25. With the Indian SUV market rapidly expanding, HMIL's SUV product line is well-positioned to capture future growth opportunities.

Focus on Electric Vehicles and Capacity Expansion

HMIL is strategically focusing on the electric vehicle (EV) market, with plans to launch four new EV models by 2025. The introduction of the Creta EV, set for Q4FY25, demonstrates the company’s commitment to becoming a key player in the EV space. Additionally, HMIL is increasing its production capacity through the acquisition of the Talegaon plant, which will add 250,000 units annually by H2FY26, further supporting its long-term growth in both domestic and export markets.

IPO Details and Valuation

The IPO, which opens on October 15, 2024, aims to raise ₹28,000 crore through an Offer for Sale (OFS). At the upper price band of ₹1,960 per share, HMIL’s market capitalization will stand at approximately ₹1.6 lakh crore. The IPO offers 50% of its shares to qualified institutional buyers (QIB), 15% to non-institutional investors, and 35% to retail investors. While listing gains are expected to be limited, the IPO presents a strong investment case for long-term returns.

Risks and Concerns

Key risks associated with HMIL include a high level of related party transactions, particularly with sister company Kia, which could pose potential conflicts of interest. Additionally, the company faces challenges related to rising average selling prices (ASPs) due to regulatory pressures and potential volume growth limitations. Supply chain disruptions, such as semiconductor shortages, could also affect the company’s operations and profitability.

Long-Term Outlook

Despite the risks, ICICI Securities maintains a positive outlook for HMIL, citing strong financial performance, a well-diversified product portfolio, and leadership in key vehicle segments. Investors are advised to subscribe to the IPO for medium to long-term gains, with HMIL expected to deliver healthy returns as the company continues to expand its product offerings and tap into the growing EV market.