SBI Securities has issued a Subscribe for Long Term recommendation for the upcoming Initial Public Offering (IPO) of Hyundai Motor India Ltd. (HMIL), one of the leading players in India’s automotive industry. Priced between ₹1,865 and ₹1,960 per share, this IPO is expected to raise ₹27,870 crore, comprising an offer for sale of 14.21 crore shares. As Hyundai expands its manufacturing capacity and strengthens its SUV portfolio, SBI Securities highlights the stock's potential for long-term growth, supported by Hyundai's market positioning and increasing demand for electric vehicles (EVs).

Company Overview and Market Position

Hyundai Motor India Ltd. (HMIL) is part of the globally renowned Hyundai Motor Group, headquartered in South Korea. With a portfolio of 13 models spanning sedans, hatchbacks, SUVs, and electric vehicles (EVs), HMIL has cemented its position as one of the top auto OEMs in India, second only to Maruti Suzuki in terms of market share. HMIL’s dominance in the SUV segment, backed by popular models like Creta and Alcazar, has made it a key player in both domestic and export markets.

Key Highlights of Hyundai Motor India’s IPO

Price Band: ₹1,865 – ₹1,960 per share
Issue Size: ₹27,870 crore through the sale of 14.21 crore shares
Market Cap Post-Issue: ₹1,51,539 – ₹1,59,258 crore
Promoter Stake Post-Issue: 82.5%
IPO Subscription Dates: October 15 – October 17, 2024
Listing: Expected on major Indian stock exchanges

Advanced Technology and Localization Strategies

Hyundai Motor India has been a pioneer in integrating cutting-edge technology across its design, manufacturing, and customer engagement processes. Through its parent company, Hyundai Motor Corporation (HMC), HMIL has access to global automotive trends and technological advancements, particularly through HMC’s technology arm, Hyundai Autoever.

Furthermore, localization plays a significant role in HMIL’s strategy, with 93% of its parts and materials sourced from India, mostly from suppliers located near its Chennai facility. This localized supply chain reduces costs and boosts operational efficiency, giving the company a competitive edge in terms of margins.

Expansion of Manufacturing Capacity

To meet growing demand, Hyundai Motor India is expanding its manufacturing footprint. Its Chennai plant currently has an annual capacity of 8.24 lakh units, and the recent acquisition of a plant in Talegaon, Maharashtra is expected to increase total capacity to 10.74 lakh units by FY26. This expanded capacity will allow Hyundai to ramp up both domestic and export volumes, while continuing to meet increasing demand for its popular SUV models and electric vehicles.

Financial Performance and Valuation

Hyundai Motor India has posted strong financials over the past three years, with revenue growing from ₹47,378 crore in FY22 to an estimated ₹69,829 crore in FY24. EBITDA is projected to rise from ₹5,486 crore in FY22 to ₹9,133 crore by FY24, with EBITDA margins expanding from 11.6% to 13.1% during the same period. Hyundai’s PAT is also expected to grow at a steady pace, from ₹2,902 crore in FY22 to ₹6,060 crore in FY24, reflecting a healthy 8.7% net profit margin.

At the upper price band of ₹1,960, the stock is valued at 26.3x FY24 earnings, which compares favorably with other key players in the sector like Maruti Suzuki and Mahindra & Mahindra.

Growth Prospects and Strategic Focus Areas

Hyundai Motor India is positioned to grow steadily in the coming years, with several strategic initiatives aimed at expanding market share and improving profitability:

SUV Dominance: Hyundai’s focus on the SUV segment has led to a significant portion of its volumes coming from higher-margin vehicles. In FY24, SUVs contributed 63.2% of domestic sales, up from 45.4% in FY21.
EV Growth: Hyundai is focusing on increasing its EV market share to capitalize on growing demand for cleaner, more sustainable mobility solutions. The company has introduced several EV models and plans to scale its production of electric vehicles in the coming years.
Capacity Expansion: The Talegaon plant acquisition, set to begin partial production in 2HFY26, will play a pivotal role in scaling up production and meeting both domestic and export demands.
Focus on Exports: Hyundai is the second-largest car exporter from India, and the capacity expansion will allow the company to boost its export volumes, enhancing its presence in key international markets.

Key Risks to Consider

Despite its strong market position and growth prospects, there are several risks investors should consider:

Raw Material Sourcing: Hyundai’s reliance on critical raw materials, including precious metals like palladium and platinum, could affect its operations if there are supply chain disruptions or price increases.
Supplier Concentration: With nearly 44% of its raw materials sourced from a limited number of suppliers, any disruption in the supply chain could negatively impact production and profitability.
Competitive Market: The Indian auto market is highly competitive, with new entrants and feature-rich models continuously being introduced, which may put pressure on pricing and margins.

Conclusion

Hyundai Motor India’s IPO offers an attractive investment opportunity for long-term investors, driven by its strong market position, expansion in production capacity, and growing focus on electric vehicles. SBI Securities recommends subscribing to the IPO at the upper price band of ₹1,960, with the stock offering healthy margins, robust financials, and a clear path to growth in both domestic and export markets. Investors looking for exposure to India’s thriving automotive sector will find Hyundai Motor India to be a solid option for their portfolio.