Hyundai's bold $3 billion IPO: Game changer for India's auto market?
Hyundai Motor
South Korea's Hyundai Motor Company plans to sell up to 17.5 per cent of its stake in Hyundai Motor India Ltd (HMIL) through an initial public offering (IPO). This IPO could raise between $2.5 billion and $3 billion, potentially setting a new record as India's largest IPO to date.
Hyundai is expected to file the necessary documentation with the Securities and Exchange Board of India (SEBI) as early as Friday. Once approved, the listing will take place on the Bombay stock exchange. This offering marks Hyundai's first listing outside of South Korea. Unlike typical IPOs, no new shares will be issued. Instead, the South Korean parent company will divest part of its existing stake in HMIL through an "offer for sale" route.
Investment banks including Kotak Mahindra, Citibank, Morgan Stanley, JP Morgan, and HSBC are onboard to facilitate this significant financial transaction. The final approval from SEBI is anticipated within 60 to 90 days, suggesting the IPO could go live by September or October.
In FY23, HMIL reported revenues of approximately Rs 60,000 crore and profits of Rs 4,653 crore, making it the most profitable non-listed car manufacturer in India. The company sold 614,717 passenger vehicles in 2023-24, representing an 8.3 per cent year-on-year growth and holding a 14.6 per cent share of the domestic market.
The IPO aims to leverage the burgeoning market potential in India, where Hyundai has been a significant player for over 27 years. Known for popular models like the Santro and Creta, HMIL is the second-largest carmaker in India, trailing only Maruti Suzuki.
The funds raised from the IPO will support Hyundai’s extensive expansion and innovation plans in India. Key initiatives include:
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Capacity expansion: Hyundai plans to enhance production capabilities at its existing plants and the newly acquired Talegaon plant from General Motors.
Electric vehicle development: The company will invest in the development and manufacturing of electric vehicles (EVs), targeting both affordable and premium segments. Plans also include setting up a charging network and a battery manufacturing unit.
Cell manufacturing: Establishing cell manufacturing facilities in India to reduce the costs of EV production.
Export enhancement: Increasing exports from India to position the country as a strong global manufacturing hub.
Despite the optimistic outlook, Hyundai acknowledges several risks in its IPO filing. These include its dependence on the South Korean parent company for funds and strategic direction, and the potential reduction of government incentives for EV manufacturers. Listing these risk factors is a regulatory requirement and highlights the challenges Hyundai might face in its growth trajectory.
This IPO, if successful, will surpass the previous record set by the state-owned Life Insurance Corporation of India's $2.7 billion IPO in 2022. Hyundai's decision to go public in India comes as the country becomes an increasingly important market, contributing about 14 per cent of Hyundai's total global sales in 2023.