Hyundai Motor IPO to hit Street soon; should you apply?

Hyundai Motor IPO: Analysts from ICICI Direct, SBI Securities, and JM Financial have outlined their views on the upcoming IPO—it will be the country's first listing in the auto space in over 20 years. They also highlighted a few key risks related to the business.

ICICI Direct suggests subscribing to the Hyundai Motor India IPO from a medium- to long-term perspective.

"We expect limited listing gains to this IPO, however, expect HMIL to deliver healthy double-digit portfolio returns over medium to long term," analysts at the brokerage wrote in a research report dated October 10, 2024.

ICICI Direct analysts have highlighted two risks about the company:

• High quantum of related-party transactions with the presence of sister company Kia in similar segments may lead to a potential conflict of interest.
• Regulatory led rise in ASP’s and consequent pressure on volume growth.

SBI Securities suggests subscribing to the Hyundai Motor India IPO for a long-term investment horizon, citing the company's good fundamentals and growth prospects.

"At the upper price band of Rs 1,960, Hyundai Motor is valued at 26.3x FY24 EPS," according to the brokerage.

HMIL is the second largest in the Indian PV industry and the second largest exporter of cars from India. Its higher margin comes from SUVs which contribute a higher share of Hyundai’s volumes.

1. Raw material sourcing
2. Supplier concentration
3. Industry slowdown
4. Increase in royalty rate

1. Parts & material sourcing: HMIL's passenger vehicle manufacturing depends on the continuous availability of parts and materials such as precious metals; palladium, platinum and rhodium. The company sources the parts from a combination of domestic and foreign suppliers and any increases in the prices of these parts and materials will affect business and operations.

2. Supplier dependence: The company’s reliance on a few suppliers poses a risk to manufacturing, delivery, and operations if they fail to meet standards. Currently, its top five suppliers account for 44 per cent of its raw material consumption.

3. Industry slowdown: Intense competition and the cyclical nature of the industry may impact business due to a lack of efficiency or market slowdown. Royalty rate hike: A potential increase in royalty rates by the parent company for technology transfer or critical components could affect future earnings.

Geojit Financial Services Senior Research Analyst Saji John predicts Hyundai's upcoming IPO to have a profound impact on the industry.

The automobile company's impressive financial performance and premium product mix, especially in the SUV segment, could alter the competitive landscape in the listed space, according to the analyst.

"If the company's listing is perceived as overvalued, it could negatively impact,” added John.

Hyundai's IPO may force other automakers to reassess their strategies, potentially leading to innovation and improvement, portfolio rebalancing, and decreased market share and sales for competitors like Maruti Suzuki India, he said.
 
According to the Geojit analyst, the IPO's attractiveness to global investors could enhance sector valuation, highlighting growth potential in the automotive market.

Another brokerage, LKP Securities has also assigned a 'subscribe' rating and suggested investing in the stock over the long term period for higher returns.

(Disclaimer: The views/suggestions/recommendations expressed here in this article are solely by investment experts. Zee Business suggests its readers consult their investment advisers before making any financial decision.)