Hyundai Motor India offers exposure to the country’s dynamic PV market

Hyundai Motor India (HMI), the second largest company in the country. passenger vehicles (PV) manufacturer after Maruti Suzuki Indiaplans to raise up to Rs 27,870 crore through offer for sale (OFS). South Korean promoter Hyundai Motor Company (HMC) will reduce its stake to 82.5% after the SFO from 100%. It also needs to sell its stake in the future to reduce its stake to 75% or less as part of the regulatory requirement. This can have a hangover on HMIs. stock price.

Furthermore, HMI operates in a highly competitive market. The volume market shares of Hyundai and its larger rival Maruti have gradually eroded over the past five years. This apart, the IPO The price does not offer much valuation comfort compared to Maruti, which has a PV almost three times higher. market sharesales volume two and a half times greater and similar profitability. On the positive side, Hyundai has scheduled several new model launches in the coming quarters. internal combustion engine (ICE), as well as electric vehicle (EV) platforms. The plan to expand capacity also bodes well for future growth. Considering these factors, while risk-taking investors may consider the IPO, risk-averse investors may wait to see the stock price trend after the IPO.

Business
Incorporated in 1996, HMI is a full range manufacturer of PV vehicles including hatchbacks, sedans and SUVs in different powertrains. The company has a fully operational plant in Chennai with a capacity of 824,000 units. It is currently setting up another plant at Talegaon in Maharashtra, which once fully operational will take the total capacity to 10,74,000 units over the next three to four years. The company’s PV sales increased 8% year-on-year to 7,77,876 units in FY24. Of this, internal combustion and CNG engines contributed 89.2% and 10.6% respectively, while that electric vehicles represented 0.2%. HMI’s market share in hatchbacks, sedans and SUVs was 12.3%, 20% and 18.4% respectively in FY24.Finance
Revenue rose 21.4% annually between FY22 and FY24 to Rs 69,829 crore, while net profit grew 44.5% to Rs 6,060 crore. Operating margin before depreciation and amortization (EBITDA margin) improved to 13.1% from 11.6% during the period. Peer Maruti’s EBITDA margin also expanded to 13.1% from 6.4% in a like-for-like comparison.

Risks
Due to intense competition, the company’s PV market share has gradually fallen to 14.6% in FY24 from 17.6% in FY20. This may force the company to offer higher discounts to customers in the future to retain market share, thus affecting profitability.Valuation
HMI calls for a FY24 price-earnings (P/E) multiple of up to 26.7. The closest peer, Maruti, is trading at a P/E of 29.8.