Hyundai IPO: I’ll be happy if Hyundai suffers declines; won’t be in a hurry to buy right now: Gurmeet Chadha

Hyundai IPO: Subscribe, Avoid, or Keep It for the Long Term? What is your point of view?
Gurmeet Chadha: Nothing from an immediate profit perspective. He gray market premium is reflecting that. And Korean manufacturers around the world are making multiple single-digit profits for multiple reasons. One is the internal ecosystem that they have in terms of, I wouldn’t call them related party, but in terms of acquisitions and other things that they do.

For Hyundai, of the top 10 suppliers, 35% are internal, which are Hyundai Mobis, Kia and others. Secondly, it is completely OFS. What has worked for them is that their asset turnover is about 10 times higher than 7 to 8 times higher for Maruti. There is this almost negative net working capital. They take two months of credit. And in terms of inventory from dealers and others, they give less credits. So, it’s more like an FMCG.

Over the last three years, in terms of ROCE and overall cash flows, it probably looks like a consumer goods or IT business. It has a market share of 15%. The best part is that UVs now make up two-thirds of the portfolio and others are still getting there. So, the big long-term trigger is the sale of the plants they acquired from General Motors and that is where they want to turn it into an export center, which will increase its capacity by two, two and a half. lakh units and have closed some facilities in China.

Part of this is due to geopolitical events and part is more strategic. They may want to turn this into a hub, because exports account for almost 25-30% of Hyundai. Therefore, it is a decent stock for the long term. There is no immediate excitement with the IPO. Therefore, there is no obligation to subscribe to an IPO. I would love to get it a little cheaper than the current one, say 25-26 times. But overall, it is a very stable company and if you have realistic expectations, you can add it to the portfolio.

When a company goes public, it uses cash to build business or pay down debt. In this case, that’s not going to happen. Hyundai goes public at a time when the auto sector has seen strong representation from other auto companies. Tata Motors is in the list, M&M is in the list, Maruti is in the list. Is there no shortage premium, even if they go public? This is like an IPO which is good for going public, but not something where the business changes dramatically.
Gurmeet Chadha: I agree with you and as I said there is some concern about cannibalization that can happen due to Kia and there are many variants especially in the mid UV segment which are cars costing between Rs 12 to 20 lakh where there is some overlap in terms of models. But one benefit of Hyundai has been that they are always ahead of the curve with their platform, Hyundai AutoEver, in terms of the latest technologies. They have this amazing ability to create attractive cars in every price segment. On the other hand, Maruti was the only pure PV player. M&M and Tata Motors have other businesses too in terms of SOTP. It may be a bit negative for Maruti because it is a pure PV OEM game, which now probably has two players. So Hyundai’s IPO is decent, nothing spectacular. It’s not like you have to rush right away and that’s probably what the gray market premium is telling you. Also the size is too big. The moment they made Rs 27,000 crore, the gray market premium started going down and Hyundai’s overall market capitalization and now with the market capitalization they are reaching. India contributes 10-15% of the global figures, the market capitalization would probably be 40%. 50%. That simply tells us how Korean manufacturers are valued. I am neutral about it. You can also subscribe, but I’ll be happier if I get a slightly bigger price correction in terms of entry discount.

Would you like to come inside?
Gurmeet Chadha: No. The royalties will go up to 3.5%, which brings them closer to Maruti and is a bit surplus. We have seen what has happened to the Maruti movement every time royalties have increased.

Secondly, there is a conflict with Kia and there is a perception that Korean companies have an internal ecosystem in terms of sourcing. Therefore, the localization market would also want to see in terms of transmission, engines, powertrains, etc. One good thing, though, is that it’s probably the only strong player in each powertrain.

So, they have the ICE platform, they are launching two CNG variants this year. As for electric vehicles, they already have two models, Ioniq and Kona, and they will probably come with Creta EV, which I think Creta has been one of the best-selling UVs and if they can come up with a variant that can give a little boost. to the numbers and then they will also have a hybrid platform.

So in all propulsion systems you have the product. They are leaders in innovation and in terms of adding more features. Even in second hand car sales, now in India, one in every four cars is used and they are doing good domestic sales. So they’re present throughout the powertrain and across the range and I think that’s what probably gives them an advantage with the kind of ratings that they have. But like I said, I’m happy to have it on a drop instead of being in a rush to buy it right now.