Hyundai Motor India is aiming for a launch in September or October of the country's largest IPO ever of around US$3bn, riding on its parent's global brand name and strong growth prospects in India.
Local investor interest in multinational companies, India's red-hot stock valuations and a craze for primary issuance also portend well for the IPO.
The benchmark Sensex index is up 7.3% this year and the confirmation in June of a third term for Narendra Modi's government, albeit with a reduced mandate, has boosted expectations for strong economic growth and policy stability.
"At the current market conditions, the deal should sail through," a Mumbai-based ECM banker said.
Hyundai Motor India on June 14 filed for an IPO in which KRX-listed parent Hyundai Motor will sell 142.2m shares, or 17.5% of the capital. At the expected IPO size of US$3bn, the Indian unit's market capitalisation will be US$17bn, nearly 34% of the parent's W70trn (US$50bn).
Hyundai Motor India is the country's second-largest seller of cars after Maruti Suzuki, which listed in 2003.
The listing will enhance the company’s visibility and brand image, and provide liquidity and a public market for its shares in India, Hyundai Motor India said in the filing.
India's largest IPO to date is state-owned Life Insurance Corp of India's Rs206bn (US$2.66bn at the time) float in May 2022.
India's track record of large IPOs has not been great. LIC, which priced its IPO at Rs949 per share, only saw its shares rise above the issue price this year. The stock closed on Thursday at Rs1,027.40.
Paytm, officially called One 97 Communications, raised Rs183bn from its IPO in 2021 and its shares are yet to trade above the issue price of Rs2,150. Earlier this year, the Reserve Bank of India froze the activities of Paytm's payments bank due to breaches of regulations for onboarding customers. Paytm stock closed at Rs411.50 on Thursday.
However, bankers say Hyundai Motors India can break the jinx. "After several decades, Indian investors are getting exposure to a global consumer name," an analyst said.
Multinational companies such as Hindustan Unilever, Colgate-Palmolive India, Pfizer, GlaxoSmithKline Pharmaceuticals and ABB India, which listed decades ago, have commanded higher multiples than their respective Indian peers because of high dividend policies and investors' perception that they have better corporate governance.
"Globally, Hyundai is a better automobile brand than Suzuki and investors will not mind paying a premium for the local unit," the analyst said.
Bonanza for parent
The IPO is likely to be a boost for the parent.
According to a fund manager, Hyundai Motor India is expected to price at a forward P/E multiple of around 20 and this is expected to increase the valuation of its parent, which trades at 5.9 times its forecast 2024 earnings.
The parent is likely to use the IPO proceeds to strengthen shareholder returns instead of investing in India, said Kiwoom Securities in a report.
Foreign sellers of recent Indian blocks have used proceeds to either issue large dividends to shareholders or buy back shares, and Hyundai Motor is expected to follow suit.
Following Hyundai Motor India's IPO filing, the parent's shares rose as much as 6.3% on Monday before closing up 3.9% at W278,500. The stock rose to a record high close of W286,500 on Wednesday before finishing slightly lower on Thursday.
As with many other Indian IPO candidates, Hyundai Motor India increased dividend payments to its parent ahead of the IPO, which may put off some investors. In the nine months to December 31, it paid Rs46.5bn to Hyundai, up substantially from Rs14.9bn in the financial year to March 2023.
On June 10, the Indian unit also signed an agreement under which it is required to pay 3.5% of sales revenue as a royalty to its parent, up from 2.25%–2.5%.
Still, most investors are likely to focus on the growth outlook in India's upbeat auto sector.
Passenger vehicle sales are estimated to have grown by 8.4% in the year to March 2024 to a record high of 4.2 million units, according to the IPO filing.
Hyundai Motor India’s vehicle portfolio has 13 passenger models including saloons, hatchbacks, SUVs and electric vehicles. From 1998 to March this year, it has sold nearly 12 million passenger vehicles in India and through exports.
The company reported revenue of Rs532.9bn and a net profit of Rs43.8bn for the nine months to December. The draft prospectus does not mention comparable figures for 2022 but for the year to March 2023, its revenue was Rs614.4bn and net profit was Rs47.1bn.
Citigroup, HSBC, JP Morgan, Kotak and Morgan Stanley are leading the transaction.
Additional reporting by Sunny Tse