Hyundai Motors’s India division is going public. The RHP, published last week technically qualifies the deal as OFS.
The Offer
Deal type – Offer for Sale
Objective – Promoter selling shareholder to get the entire proceeds of the offer, post deductions for
expenses and taxes.
Issued, Subscribed and Paid-Up Capital -
812,541,100 equity shares of FV Rs 10
Offer for sale – 142,194,700 shares; FV Rs 10
(17.5% of total holding)
Price Band – Rs 1,865 to Rs 1,980
Market lot – 7 shares
Issue dates – 15th Oct 2024 to 17th Oct 2024
PV Industry
The domestic passenger vehicle industry has seen a healthy ~16% CAGR growth between FY21 and FY24. The industry is cyclical in nature and recent reports of inventory built up may well be a temporary blip in the otherwise buoyant sector. There are several factors that are working in favor of the industry
Increasing trend towards premiumization – preference for mid-end or top-end version in SUV segment.
A wide range of products across segments, power trains, and price range
Active second-hand market with increasingly shortening ownership periods
Trends in the PV Industry
Currently the market is dominated by 4 public companies – Maruti Suzuki, Hyundai Motors, Tata Motors and Mahindra and Mahindra. Together, these 4 have 80% of the market.
While EVs have made a dent thanks to Tata Motors, the overwhelming demand for conventional fuels is apparent. Though this may well change in the near future. From accounting for 92.8% of all PV sales in FY21, their contribution declined to 80.5% in FY24, a CAGR of 8.2% in volume terms though the industry grew at 16% during this time. However, the growth is expected to moderate – in the range of 4.5% to 6.5% CAGR in the next 5 years.
The demand for SUVs is outstripping all other segments. In FY24 the segment crossed over 50% of the 4.2 million units sold. Hatchbacks are a distant second at 27%Market leader Maruti Suzuki saw its share increase by 0.4% to stand at 41.8% of all vehicles sold, down from 47.8% 3 years ago.
The trend towards electric vehicles is getting stronger with a penetration of 2.3% in FY 24, up from 0.2% 3 years ago.
Hyundai Motors India Limited - History
Hyundai Motors India Limited (hereafter termed HMIL) was incorporated in May 1996. HMIL is part of Hyundai Motor Group, the 3rd largest auto OEM in the world, based on PV sales.
The company has the following businesses:
Manufacturing and sale of motor vehicles, engines, transmission and other parts
Related after-sales activities related to engineering services
Rendering of brokerage services
Every year HMIL pays a royalty and technical assistance fee to the parent Hyundai Motor Company, South Korea. In FY24, the royalty stood at Rs 15,584 million, 2.23% of revenue from operations
Company Structure
Holding company – Hyundai Motor Company.
Subsidiaries
Hyundai Motor India Engineering Private Limited (“HMIEPL”)
Hyundai India Insurance Broking Private Limited (“HIIBPL”)
Business Model
HMIL manufactures and sells passenger vehicles in India and exports vehicles and parts to Europe, Africa and Asia. The company benefits from HMC’s centralized R&D hub with investments in emerging mobility areas, shared mobility and autonomous driving. The global sales network of HMC also helps HMIL identify opportunities for export, inputs for changing customer preferences.
The company has a strong network of dealers and service centers that helps it retain its position in the market.The Chennai manufacturing unit has an annual capacity of 824,000 units as of June 2024. Earlier this year, HMIL bought GM’s Talegaon plant which is expected to commence operations in 2026. The plant has a full capacity of 1,074,000 units.
The company has 13 models at the time of writing of which 2 – Creta and Venue together account for 47.5% of volume sales. In the last 2 years, the overall volume grew by 13% while the volume for these two products grew at 14.32% even as the SUV volume grew at a healthy 24.5%, suggesting a possible plateauing of demand for these block buster products.
STRATEGIES from RHP
Leveraging deep understanding of consumer preferences to successfully expand our passenger vehicle portfolio
Focus on continued premiumization of passenger vehicle portfolio
Calibrated manufacturing capacity expansion and efficient capital allocation
Focus on increasing EV market share
Further strengthening position as the export hub for HMC
Continue to enhance the brand as a trusted brand in India
Further deepen physical-and digital network for sales and services across India
Hyundai Motor India Vs Maruti Suzuki India
Of the 4 players that account for 80% of the total PV market, Hyundai Motors India and Maruti Suzuki India have comparable business models. Other two – Tata Motors and Mahindra & Mahindra have other lines of business and don’t report complete P&L for their PV segment, rendering their comparison with Hyundai India moot.
What works in favor of Hyundai India
1. Return on Capital, Return on Asset and Return on Equity
2. All pricing ratios
3. Sale (volume) per outlet
Risks to the Hyundai India Story
1. No clear USP – the company is trailing Maruti, in almost every product segment.
2. While Maruti has been steadily giving up its total market share year-after-year, HMIL has shown no sign of ability to leverage this opportunity
3. High dependency on 2 models – Creta and Venus – which account for more than 47% of total volume sales
4. Even in the fast growing SUV segment, Mahindra & Mahindra leads followed by Maruti while Hyundai and Tata Motors is almost neck to neck
5. In EV segment the company has had a late start.
Recommendation
Right now, there is no evidence that the price for the OFS is justified by the company’s numbers as of FY24.
Disclosures
1. The recommendation is based on comparative pricing ratios and the fundamentals
2. All data is from RHP of Hyundai Motor and annual report of Maruti Suzuki FY24
3. Numbers quoted in RHP, and annual report respectively have been used in good faith
4. I am a long-term user of products of Maruti Suzuki
5. I have not applied for the OFS, nor do I intend to
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