Hyundai IPO might not be a great deal for Indian investors: Report
Oct 6, 2024, 10:38 IST
New Delhi: The upcoming Initial Public Offering (IPO) of Hyundai Motors India has sparked significant interest in the Indian markets, but a recent report by Aequitas Investments suggests it may not be as promising for Indian investors as anticipated.
The report highlighted several concerns, pointing to broader industry challenges and the valuation mismatch as reasons for caution.
It said "Given the headwinds that the Global Automobile Industry is facing coupled with signs of a slowdown in India, the upcoming IPO might not be a great deal for Indian Investors"
Hyundai Motor Company, the parent firm based in South Korea, is set to offload shares worth Rs 25,000 crore through an Offer for Sale (OFS) in the Indian market.
However, the report suggested that the current global headwinds facing the automobile industry, combined with signs of a slowdown in India, may make this IPO less attractive for Indian investors.
One of the key issues flagged in the report is the valuation of Hyundai Motors India. The report noted that despite contributing only 6.5 per cent of Hyundai's global revenue and 8 per cent of its overall profitability, the Indian unit is expected to be valued at approximately 42 per cent of the parent company's market capitalization upon listing.
This valuation discrepancy raises concerns about whether the IPO price is justified given the Indian unit's relatively modest contribution to Hyundai's global business.
"Despite contributing only 6.5 per cent of the global revenues and 8 per cent of the profitability, Hyundai's India unit will be valued at approx. 42 per cent of the Parent Co.'s MCap on listing" the report added.
From Hyundai's perspective, the move makes sense. In South Korea, Hyundai's stock currently trades at a price-to-earnings (P/E) ratio of just 5x, making the sale in India potentially more lucrative. The report argues that Hyundai is looking to take advantage of the relatively higher valuations in India.
It said "From Hyundai's perspective it's a no-brainer as their stock in S.Korea trades at a measly 5x P/E"
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The report highlighted several concerns, pointing to broader industry challenges and the valuation mismatch as reasons for caution.
It said "Given the headwinds that the Global Automobile Industry is facing coupled with signs of a slowdown in India, the upcoming IPO might not be a great deal for Indian Investors"
Hyundai Motor Company, the parent firm based in South Korea, is set to offload shares worth Rs 25,000 crore through an Offer for Sale (OFS) in the Indian market.
However, the report suggested that the current global headwinds facing the automobile industry, combined with signs of a slowdown in India, may make this IPO less attractive for Indian investors.
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This valuation discrepancy raises concerns about whether the IPO price is justified given the Indian unit's relatively modest contribution to Hyundai's global business.
"Despite contributing only 6.5 per cent of the global revenues and 8 per cent of the profitability, Hyundai's India unit will be valued at approx. 42 per cent of the Parent Co.'s MCap on listing" the report added.
From Hyundai's perspective, the move makes sense. In South Korea, Hyundai's stock currently trades at a price-to-earnings (P/E) ratio of just 5x, making the sale in India potentially more lucrative. The report argues that Hyundai is looking to take advantage of the relatively higher valuations in India.
It said "From Hyundai's perspective it's a no-brainer as their stock in S.Korea trades at a measly 5x P/E"
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Hyundai Motor Group, which includes both Hyundai and Kia, is the third-largest automaker globally, having sold 7.3 million vehicles in 2023. While Hyundai Motors India does not have a stake in Kia Motors India, the parent company owns a controlling 34 per cent stake in Kia Motors globally and fully owns Genesis Motors, a luxury brand in South Korea.