How IPO-Bound Hyundai India Stacks Up Against Maruti

Hyundai Motor India Ltd. is all set to hit the bourses with its IPO opening on November 15. The Creta-maker is looking to raise Rs 27,870 crore making it the biggest IPO in India, surpassing Life Insurance Corp. of India's Rs 21,000-crore IPO in 2022.

While we look at the key details about the IPO, its also important to see how the number two player in car market competes with the sector's bellwether Maruti Suzuki India Ltd., both in the automobile market and investor portfolio.

Hyundai India's IPO is set to open on Oct. 15 and will be open for subscription till Oct. 17, 2024. Bids can be made for a minimum of seven equity shares and in multiples of seven equity shares, thereafter. The company is offering 14.2 crore shares via offer for sale and there is no fresh issue component in the IPO.

Hyundai India's market cap stands at Rs 1.58 lakh crore, based on the upper end price band of Rs 1,960 per share.

Another key thing to track is the anchor book portion. The IPO is split with 50% of the issue being reserved for qualified institutional buyers. Anchor book allotment is part of this QIB share and roughly 4.24 crore shares are marked, with bidding date of Oct. 14. Again, based on upper price band, the anchor book portion could be around Rs 8,315 crore. Retail and FII portion is 35% and 15%, respectively.

Between fiscal 2021 and fiscal 2024 sales for Hyundai have steadily grown at 8% CAGR from roughly 5.75 lakh units to 7.77 lakh units reported in fiscal 2024. This is despite volatility in the industry. While the growth is not the highest, the company has held its market share at around 14.6% despite competition from Tata Motors Ltd. and Mahindra & Mahindra Ltd.

Another key aspect is the export volumes for Hyundai. The company has a 24% market share for exports which is the highest among all peers. This compares to Maruti's roughly 10% market share for exports.

In fiscal 2024, Hyundai's revenue has grew 15% compared to the previous year. But the margins were the most impressive, growing 60 basis points and continuing the growth momentum in the first quarter of fiscal 2025.

Profits increased 28% in the previous fiscal, aided by increasing share of SUVs leading to higher average selling prices.

The first quarter has also started positively for Hyundai, with sales rising 5% versus just 1% growth for closest rival Maruti and flat sales for Tata Motors.

It will be key for investors to see how Hyundai compares to Maruti, which is the number one player by sales. While Maruti sells three times more volumes and has double the revenue than Hyundai, margins for Hyundai are higher. This is also supported by the export focus of the company along with higher preference of premium models. But despite higher margins, Maruti scores better on profitability.

Maruti is a high cash generation company and that is led by three key factors, which create higher profit margins despite lower margins compared to Hyundai.

Since Maruti has larger capacity, its depreciation compared to its assets or manufacturing capacity is much lower than Hyundai. It also benefits from higher other income component. Lower tax component also aids higher profits.

Before we compare the valuation of both companies, one key difference between the DRHP and RHP filing was discrepancy in net worth and dividend values. While the DRHP only had financial data for the first nine months, the huge dividend payout has reduced Hyundai's net worth by almost half compared to fiscal 2023.

This big payout has reduced its net worth compared to Maruti as well and affected the return on equity. For the first nine months, the ROE was at 22%, 700 basis points higher than Maruti Suzuki. There is expectations of revival of this metric this year. But other ratios such as market capitalisation to profits as well as EV/Ebitda work in favour of the company.

The EV/Ebitda ratio is commonly used as a valuation metric to compare the relative value of different businesses.

Price to earning ratio for both companies is at 26 times for fiscal 2024. Both companies will be closer to 20 times forward P/E.