Ashika Stock Broking has issued a SUBSCRIBE recommendation for Hyundai Motor India Limited IPO. Hyundai Motor India, a subsidiary of Hyundai Motor Company (HMC), has maintained a robust position in the Indian automotive market, being the second-largest OEM in terms of domestic sales since FY09. The IPO opened on October 15, 2024, and will close on October 17, 2024. Hyundai aims to raise between Rs. 26,519 crore and Rs. 27,870 crore. The company’s strong manufacturing capabilities, future EV expansion, and diversified product portfolio make this IPO a key opportunity for long-term investors.

IPO Details

Issue Size and Price Band
The public issue comprises 14,21,94,700 equity shares, with a face value of Rs. 10 each. The price band for the IPO is set between Rs. 1865 and Rs. 1960, with the total issue size ranging between Rs. 26,519 crore and Rs. 27,870 crore. The offer consists entirely of Offer for Sale (OFS) by Hyundai Motor Company, the parent entity, and no new capital will be raised.

Lot Size and Market Cap
Investors must bid for a minimum of 7 shares per lot. Post-issue, the market capitalization of HMIL is expected to be Rs. 1,59,258 crore.

Company Overview

Leading Position in the Indian Market
Hyundai Motor India has been the second-largest passenger vehicle manufacturer in India since FY09, known for its reliable, technologically advanced, and feature-rich vehicles. The company offers 13 models across different segments, including sedans, hatchbacks, SUVs, and EVs, further enhancing its brand presence.

Expanding Manufacturing Capabilities
The company’s Chennai plant has been operational since 1997 and houses two facilities with an integrated production capability for engines, transmissions, and EV components. Additionally, HMIL has acquired the Talegaon Manufacturing Plant from General Motors India, which is expected to commence operations in FY26, increasing their annual production capacity to over 1 million units.

Key Strengths of Hyundai Motor India

Diversified Product Portfolio
Hyundai’s product lineup spans across various segments, allowing it to cater to a wide customer base. The company’s portfolio includes sedans, hatchbacks, and SUVs, along with electric vehicles (EVs), positioning it to benefit from India’s transition towards EV adoption.

Strong Export Performance
HMIL has been India’s second-largest exporter of passenger vehicles since 2021, accounting for 22.3% of its revenue from exports in FY24. The company’s geographical reach spans across key regions like Africa, Latin America, the Middle East, and Europe, providing a diversified revenue stream.

Future Growth Plans

EV Strategy and Capacity Expansion
The company plans to launch four new EV models by FY25, including the highly anticipated Creta EV. The Talegaon plant acquisition will further boost production capacity and enhance Hyundai’s EV production capabilities. By aligning with India's growing EV market, Hyundai aims to become a major player in this segment, with its localization strategy in Talegaon reducing reliance on imports.

Capacity Utilization Above 90%
Hyundai aims to keep its production capacity utilization at above 90%, optimizing operations to balance domestic sales and exports. The current production capacity at the Chennai plant stands at 824,000 units annually, which will increase with the full operationalization of the Talegaon facility.

Financial Highlights

Revenue and Profit Growth
Hyundai Motor India’s revenue from operations has consistently grown, reaching Rs. 69,829 crore in FY24. The company posted a net profit of Rs. 6,060 crore for the same period, with a profit margin of 8.7% and an operating margin of 13.1%. This solid financial performance underscores the company’s profitability and growth potential in the competitive Indian automotive market.

Geographical Revenue Mix
In FY24, 77.7% of Hyundai's revenue came from domestic operations, while 22.3% was generated from exports. The company’s strong foothold in export markets continues to provide resilience and revenue diversification.

Comparative Analysis

Strong Performance Among Peers
Compared to competitors like Maruti Suzuki, Tata Motors, and Mahindra & Mahindra, Hyundai has demonstrated a higher return on capital employed (ROCE) of 62.9%, significantly outperforming its peers. Its return on net worth (RONW) is also notable at 56.8%, making it a leader in terms of capital efficiency.

Valuation and Multiples
At the upper end of the price band (Rs. 1960), Hyundai Motor India is valued at a P/E multiple of 26.3x, which is reasonable given the company’s market position, profitability, and future growth prospects. The price-to-book value (P/BV) stands at 13.1x, reflecting the company’s strong financial standing and market capitalization.

Investment Outlook and Recommendation

Buy Recommendation with Target Price of Rs. 1960
Given the company's robust growth trajectory, expanding production capabilities, and increasing presence in the EV market, Ashika Stock Broking recommends a BUY rating for the Hyundai Motor India IPO. The target price of Rs. 1960 per share reflects the company’s potential for capital appreciation, providing an attractive investment opportunity for both retail and institutional investors.

Risks to Consider
Investors should note the potential risks, including fluctuations in raw material costs, changing government regulations in the automotive sector, and competition from other global and domestic auto manufacturers. However, Hyundai’s diversified portfolio, strong export base, and future-focused strategies, particularly in the EV segment, mitigate these risks effectively.

In conclusion, Hyundai Motor India Ltd. offers a promising investment opportunity with its solid fundamentals, consistent market leadership, and proactive approach towards the future of mobility in India. The IPO is well-positioned to deliver strong returns to long-term investors.