Hyundai Motors India's IPO: A Cautious Tale for Investors

Hyundai Motors India's upcoming IPO has raised interest but also caution. Aequitas Investments' report warns of valuation concerns amid global automotive headwinds and an Indian slowdown. Despite contributing modestly to Hyundai's global earnings, the Indian unit's high valuation at listing poses questions for potential investors.

The much-anticipated Initial Public Offering (IPO) of Hyundai Motors India has garnered significant attention in the Indian market, though recent findings by Aequitas Investments signal a word of caution for potential investors.

According to the report, despite the initial enthusiasm, global challenges affecting the automotive industry and signs of an economic slowdown in India suggest that this may not be the golden opportunity many investors are hoping for. The South Korean parent company, Hyundai Motor Company, plans to release shares worth Rs 25,000 crore through an Offer for Sale (OFS) in India.

Aequitas highlights a key concern: the valuation of Hyundai Motors India. Although the Indian division contributes just 6.5% to Hyundai's global revenue and 8% to its overall profitability, it is expected to be valued at around 42% of the parent company's market capitalization upon listing. This mismatch in valuation raises questions about the IPO's appeal.

While the discrepancy may pose a risk for Indian investors, Hyundai sees the move as strategically sound. With its stock trading at a mere 5x price-to-earnings (P/E) ratio in South Korea, the automaker stands to benefit from higher valuations in the Indian market.

On a broader scale, Hyundai Motor Group, which includes Kia, stands as the third-largest automaker worldwide, having achieved sales of 7.3 million vehicles in 2023. Though Hyundai Motors India does not share in Kia Motors India's fortunes, the parent company holds a significant 34% stake in Kia globally, in addition to fully owning the luxury brand Genesis Motors.

(With inputs from agencies.)