Hyundai Motor India IPO: Should there be a premium or a discount versus Maruti Suzuki? All you need to know

Hyundai Motor India IPO: The most recent study from InCred Research Services Private Ltd noted that Hyundai Motor India IPO expands investment opportunities in the underdeveloped Indian auto sector and aims to offer value growth while volume growth appears to be modest. Even if the business is smaller than the leader's, profit margin and return on capital employed (RoCE) are nonetheless favourable. After accounting for a modified royalty rate, increased warranty, and decreased research and development (R&D), they decrease. The long-term value gap between the Hyundai Group and its international counterparts is reason for worry. So, whether the IPO commands a premium or discount to Maruti is a bigger question believes InCred.

Since FY09, Hyundai Motor India has been the country's second-largest original equipment manufacturer (OEM) in the passenger vehicle (PV) industry. From FY05 to FY22, it was the biggest exporter of PVs from India.

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IPO at premium or discount?

Through an offer for sale of shares, the promoter intends to sell a 17.50% ownership holding in the company. InCred believes that the transaction is a component of the Korea enterprise's value creation exercise, which began in 2023, given that the substantial cash position on its balance sheet is for self-funding business requirements. Even if it is assumed that 15-20% of Hyundai Korea's value may come from group investments, the company consistently has a large discount of 23–48% on P/E and P/BV values when compared to its worldwide counterparts. This substantial discount cannot be ignored in the context of the Indian entity's IPO valuation.

Will Indian investors’ excitement drive the value unlocking for Hyundai global?

According to InCred, the Nifty Auto Index has consistently increased, outperforming the wider Nifty index by a significant margin, with an incredible 68% return for the last year and an 18% return over the last three months. As a result, the Nifty Auto one-year forward P/E increased, surpassing the 10-year mean level and becoming somewhat closer to +1 standard deviation (SD). The new listing presents an opportunity given the interest that investors have shown in auto stocks.

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Why does Hyundai traditionally trade at a deep discount to peers?

Despite its success in capturing market share in the global automobile industry for SUVs and, more lately, EVs, Hyundai has lagged behind in terms of valuation globally. The substantial non-core interests owned by the listed company, such as Kia Motors, Hyundai E&C, Hyundai Wia, Hyundai Rotem, and others, might be partly to blame for the steep discount compared to worldwide rivals. These investments make up about 15-20% of the market cap valuation when taking into account a 30% discount to the market value of the holding company.

“But a large gap in its valuation to global peers at 23-48% is a cause of concern, which requires Hyundai Motors India management’s explanation and a walk-the- talk on shareholder-friendly policies. Especially where Suzuki Japan leads the peers in the valuation pack, Hyundai and Kia Korea consistently have been at the lowest end of peers,” added InCred.

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Maruti Suzuki’s valuation at risk from alternative options?

The Hyundai IPO in CY24 and the Tata Motors vehicle division demerger in CY25F, according to InCred's analysis, would enhance investment options in the under-penetratedautomobile sector. Given Maruti Suzuki's ambitious capacity build-up strategy and its efforts to provide its finest and most appropriate goods to India at a scalable level, InCred believes that Maruti Suzuki's competitive advantage will endure.

“Maruti Suzuki, over the decades, has built niche products with a large moat, ex-Eritga, Eco, Wagon R and CNG variants, which keeps it ahead of the competition. Short-term challenges from new powertrain technology, we feel, will be addressed with EVs soon to ease investors’ concerns and sustain the premium valuation of Maruti Suzuki,” said InCred in its report.

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