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Hyundai IPO: Fast forward 25 years — Hyundai’s Second Attempt at an IPO in India!
A global biggie – Hyundai Motor Corporation’s (HMC) Indian unit recently filed its draft papers for an IPO.
HMC holds a 100% stake in Hyundai Motor India (HMI) and is looking to sell a 17.5% stake at a valuation of $30 billion, as per reports. Relatively, its Korean parent has a market capitalization of $48 billion.
Upon receiving approvals, the ₹25,000 crore IPO could be India’s biggest! The proposed IPO is entirely an offer for sale. Hence, HMI will not receive any proceeds from the IPO.
HMC expects that the listing of its equity shares in India
- will enhance its visibility and brand image
- provide liquidity and a public market
What is Chaebol?
Chaebol means a rich family in Korean. Samsung, Hyundai and LG are some of the big chaebols that helped to industrialize South Korea. They are known for low valuations due to various reasons.
What is Korean Discount?
Korean discount refers to typically lower valuations compared to global peers due to lower dividend payouts and geopolitical risks involving North Korea.
HMI’s IPO is expected to help the parent company tackle the Korean discount that suppresses the value of its business.
For perspective, Reuters reported in February that Hyundai was trading at a price-to-book ratio of 0.69 in South Korea, while Tata Motors traded at 6.48 and Maruti Suzuki at 4.96.
Indian markets are near record highs. They have doubled in the past five years. In comparison, KOSPI rose by merely 30%.
How important is India for Hyundai?
India is Hyundai’s third-biggest revenue generator globally, after China and the US. It accounted for 13% of HMC’s sales and contributed 6% to its revenue and profit.
Hyundai is India’s second-largest company in the passenger car segment with a market share of 14.5%, compared to Maruti Suzuki’s 41.7% and 13.8% of Tata Motors: SIAM data.
India is a crucial growth market for Hyundai. It has already invested ₹29,000 crore in India so far and it has decided to put in another ₹36,000 crore to expand infrastructure, R&D and manufacturing capacity.
According to reports, Hyundai will benefit from making in India. Cars can be produced at 30% lower cost than if made in Europe. Europe imposes higher duties on Chinese vehicles. Hyundai may take advantage of the most favoured clauses with European countries.
Hyundai has tied up with Exide for batteries which account for 40% of an EV’s bill of material. Exide has a technology pact with Svolt in China to make lithium-ion batteries.
Meanwhile, Sterling tools has signed up with South Korea’s Yongin Electronics, a major supplier of components to Hyundai and Kia for setting up a component production facility in India.
Why did HMC want to sell its stake earlier?
In 1999, HMC, strapped for cash due to a financial crisis in South Korea, wanted to sell a 14.2% stake in its Indian subsidiary HMI.
Proposals to sell equity to Maruti Suzuki and General Motors were also looked at.
According to reports, the exercise fell through because South Korean Banks that had given loans to the company did not approve of equity dilution.
Its expected valuation of $30 billion is a far cry from the ₹2,000 crore it received in 1999!
Do Indian markets tank after big IPOs?
Some of the prominent instances when the Nifty 50 tanked after big IPOs are after IPOs are: Life Insurance Corporation Of India, One 97 Communications, SBI Cards and Payment Services and New India Assurance Company.
Experts attribute these falls to reasons like rich valuations back then, black swan events and the overall liquidity. In the case of SBI Cards, which debuted in March 2020, the markets were struck by a black swan event (the onset of the Covid-19 pandemic) that affected most global markets including India.