Hyundai Motors India Ltd. filed its draft red herring prospectus for its much-talked-about initial public offer with the Securities and Exchange Board of India over the weekend.
Here is a look at how the company's valuations compare with those of market leader Maruti Suzuki India Ltd.
The company's Ebitda margins have steadily increased by 230 basis points from fiscal 2021 levels to come in at 12.7%.
The company sold roughly 7.7 lakh vehicles in the previous year, which was roughly one-third of what Maruti Suzuki did in the previous fiscal.
Notably, it's Ebitda margins were 110 basis points higher than those of its nearest peer. But Maruti continues to have higher profitability.
There are three key reasons contributing to higher profitability for Maruti Suzuki: lower depreciation, higher other income components, and lower tax. When compared to Hyundai, Maruti’s depreciation/property, plant and equipment ratio is much lower, along with the tax-to-PBT ratio. Profitability is also higher for Maruti, aided by higher other income compared to Hyundai.
Strong Exports
The company has seen exports grow by 60% in fiscal 2021. Exports now contribute roughly 24% to total sales. The share of the Middle East and Europe has almost doubled to 12%. Europe is a key market with regulations on bans on Chinese companies or higher duties imposed on them. This helps multiple players operating in the market, including Hyundai.
The share of exports for Maruti stood at 10% in FY24. It aims to cross-export volumes of roughly 3 lakh units in FY25, it said in its earnings call. They currently export to 100+ countries as well.
Market Share
One of Hyundai’s greatest feats is maintaining its number-two market share position, especially in the past year. The company has seen heightened competition with multiple launches from the likes of Tata Motors Ltd. and Mahindra and Mahindra Ltd. With 14.6% market share at the end of fiscal 2024, multiple launches in the pipeline augur well for Hyundai, with Creta's electric vehicle version being one of the most awaited launches. It is also looking to launch three to four more electric vehicles over the next few years, increasing its presence in the space.
Maruti Suzuki, on the back of launches in the SUV space, has seen its market share rise to 41.7% in FY24. Over the past couple of years, the company’s market share fell from a high of 50% on the back of slower small car sales and being a late entrant.
Valuation Comparison
Hyundai's return on equity has been strong for the past fiscal at 22.2%. This is much higher than the 15.7% ROE for Maruti. While clarity on the total issue size and the valuation of the company is still awaited, the indicative valuation could be close to $25 billion or Rs 2 lakh crore, according to people with knowledge of the matter.
Taking this into consideration, along with profitability and revenue, puts Hyundai's valuation slightly higher than Maruti's. This is due to the higher profitability of Maruti, as discussed before. On a total market capitalisation of roughly Rs 2 lakh crore, when compared to profits, 45 times is higher than the 30 times of Maruti Suzuki, while on a revenue basis, it is slightly higher than three times of Maruti Suzuki.
Taking Maruti's three-times price as a sales metric, Hyundai's market capitalisation would stand at Rs 2.07 lakh crore after multiplying this with Hyundai's sales. Therefore, the company's 81 crore shares would have a price of Rs 2,563 apiece. This is based on indicative numbers.
Using the same calculations, we could get an EPS of Rs 72 per share and a final price-to-earnings ratio of 36 times for FY24. This compares to Maruti Suzuki at 29 times, and the price to earn is higher.
In conclusion
While the current price for earning multiples might be higher, it would be key to note how the company communicates about future launches and further filling product gaps. Hyundai is the only company with exports forming almost one-fourth of its total sales. While Maruti has 10% volumes from exports, Tata Motors and M&M are both in the low single digits.
The company already has premium electric vehicles on the market, unlike Maruti Suzuki.
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