Hyundai Motor India (HMIL) had a lacklustre listing day closing about 7 per cent below the upper end of its IPO price band (₹1,960) as well as 5. 7 per cent below its open price on Tuesday.  A bumper listing was not expected for two reasons – one, at 26.7 times annualised Q1FY25 earnings, we had indicated in our IPO review that the issue seemed fully priced.

Secondly, there was also Street scepticism on the offer due to factors such as lower single-digit multiple the parent company traded at, the ₹15,435-crore dividend the promoters took out in FY24 (10 times FY23 dividend) as well as the hike in royalty payments to the parent —  at 3.5 per cent of sales from June 2024 onwards vs 2.2 per cent in FY24. The fact that this IPO managed to sail through on the last day with the help of institutional investors at a time when many others are being oversubscribed from the word go, also proves the discomfort of investors.

However, looking at it from a fundamental and financial perspective, the pessimism may be overdone. While it is true that at an overall level, passenger vehicle (PV) sales are past their peak, the utility vehicle (UV) segment is growing faster. In April-September 2024, although PV sales grew at just 0.5 per cent year on year, UV sales grew by a faster 13.2 per cent. With 67 per cent of its sales coming from UVs, Hyundai has a good foothold in the structural shift to UVs by Indian consumers.

Upcoming EV launches

Next, though peers Mahindra and Mahindra and Tata Motors command a bigger share in the electric vehicle (EV) space now, Hyundai’s share can get better with four launches scheduled in FY25, including an EV extension for its successful Creta model. That said, with EV penetration itself only at 2 per cent in this space and no demand-based incentives under PM E-drive, there are no immediate dampeners of being a slow mover in this space. In the traditional PV segment, after market leader Maruti Suzuki, which has a 40.6 per cent volume market share domestically, Hyundai is the second largest player with 14.4 per cent market share. The valuation, being somewhat similar to Maruti’s, captures this as well as the fact that there are not many pure-play PV players in the listed space in India.

Good financials also lend confidence. HMIL’s balance sheet is strong with net debt to EBITDA at -0.9 times in Q1FY25 or in other words, net cash. The company reported EBITDA margins of 13 per cent in FY24 comparable to Maruti or M&M while delivering a revenue/profit growth of 15.8 per cent/28.7 per cent year on year.

Due to these reasons, we recommended that long-term investors subscribe to the issue. IPO investors need not panic at the muted listing and can continue to hold the stock. Fresh investors can make use of the volatility to take exposures. The long-term prospects are still bright as discussed above though management commentary post-Q2 results can provide more clues for the stock’s near-term trajectory.

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