Hyundai Motor IPO: Why Valuations Were Real-World Verified

India’s declining demand for hatchbacks and sedans is proving to be a double-edged sword for Hyundai Motor India Ltd. as the country’s second-largest passenger car maker edges closer to an initial public offering (IPO).

After two years of meteoric growth, wholesale passenger-car sales fell 2.5% in July from a year earlier, with manufacturers offering discounts since May to clear inventory. While falling demand has eased pressure on Hyundai’s stretched production capacity, it has also cut its expected valuation to $16 billion to $20 billion from $25 billion to $30 billion previously, said two people familiar with the IPO discussions.

Many factors have an influence

Hyundai’s valuation has been revised downward due to several factors.

The company’s capacity utilisation was high at 96% in FY24, which limited its ability to ramp up production and put it at a disadvantage compared to peers like Maruti Suzuki, Tata Motors and Mahindra and Mahindra. However, as car sales have fallen, the capacity squeeze is not an immediate challenge; but it also signals weaker growth prospects overall.

Hyundai Motor did not respond to emailed inquiries.

“The current market slowdown has made Hyundai’s capacity constraints less of a critical issue, but that doesn’t change the fact that its growth is closely tied to the broader market,” an industry expert said on condition of anonymity. Besides, Hyundai has few new models on the road compared to its rivals, which puts pressure on valuations, he added.

Despite an impressive profit of around $720 million forecast for fiscal 2024, Hyundai Motor India’s financials are wary. This year, the company is set to pay higher royalties to its Korean parent and dividends to shareholders, which will drag down profits and cash balances.

Hyundai’s production capacity will only increase in the second half of 2025, when the Talegaon plant near Pune adds 130,000 units to its capacity. Hence, the projected volume growth for fiscal 2025 is 5-6%, as per industry estimates. As such, profits in fiscal 2026 could mirror fiscal 2024 levels or rise marginally to around $800 million.

Multiple PE

At a price-to-earnings multiple of 20, Hyundai could be valued at $16 billion. At $18.5 billion, the P/E ratio would be about 23 times, comparable to market leader Maruti Suzuki. Since Hyundai Motor India filed its IPO prospectus in mid-June, Maruti’s share price-to-earnings ratio has fallen from a median of 28.9 in the past three months to 26 in August.

Despite its strong position and global capabilities in powertrains, including hybrids, Hyundai has seen its market share decline, with its retail market share now at 14.2%.

“It’s a strong franchise; globally, their powertrain capabilities are among the best – they can also bring hybrids to India. They have a very good SUV mix, with around 65% of their portfolio being SUVs. So, their product portfolio is well positioned where the industry is heading. However, their market share growth is slowing down and they have lost market share in the last two years; so their progress relative to their peers will be closely watched,” said Jay Kale, analyst at Elara Capital.

Retail Market Share

Hyundai lost 190 basis points in retail market share between FY22 and FY24, while Mahindra and Tata Motors gained. While Hyundai’s market share erosion has slowed down — losing just 10 basis points between FY23 and FY24 — its progress in the coming years will be closely watched, especially as it launches a series of new models, including the new Alcazar, the refreshed Venue and the much-awaited Creta EV.

“Hyundai has a high capacity utilisation rate in the Indian market and is now looking to add another plant in the near term to prepare for future competition, but at the same time, it needs to invest in new products. Its global brand recognition, coupled with feature-rich and well-designed vehicles, gives it an edge in the market. It is time for them to double down on their investments as they face increasing competition from Tata Motors and Mahindra, who are aggressively expanding their portfolios,” noted Gaurav Vangaal, an analyst at S&P Global Mobility.

Investors remain interested, if cautious, understanding that Hyundai stock offers potential despite broader market challenges. The IPO anchor book is expected to close by the end of this month, with a full launch expected in mid-September.