Hyundai Motor Company is poised to significantly expand its influence over the third-largest Asian economy, following the listing of its Indian subsidiary, by solidifying its long-term presence in the country. By accessing local capital markets, Hyundai can tap into Indian investments, allowing the company to reinvest locally and support its expansion plans.
This move aligns with Hyundai’s localisation strategy, leveraging India’s skilled workforce, resources, and manufacturing capabilities. This will help it utilise India as a hub for manufacturing, not only for domestic needs but also for exports to global markets. By producing global-standard products in India, Hyundai can cater to both Indian consumers and international markets, enhancing its competitiveness and fostering economic growth in the region.
“This IPO shows that HMI is a key part of India and demonstrates our commitment to the Indian market. In 1996, Hyundai Santro was the first car to be built at our plant in Chennai. Since then we launched 38 passenger vehicle models and sold over 12 million vehicles both in India and to international markets. Now after 28 years, we’re going public by launching India’s largest IPO in history,” Euisun Chung, executive chair, Hyundai Motor Group said.
He added that HMI has become an integral part of the Indian community. “From the beginning we knew that India was the future. That’s why we continuously increased our investments and increased our R&D capabilities. Now we’re taking the next big step, which will be even more exciting,” he added.
V Jayasankar, MD, Member of the board, Kotak Mahindra Capital Company, calls it a ‘watershed moment for the equity capital markets.’ “We’re demonstrating to the world that the Indian markets can comfortably absord an issue size of $3.3 billion. It’s the first MNC-owned company to cross 1.5 million shareholders in India and has the 26th largest shareholder base amongst all listed companies in India,” he said. Jayasankar added that HMIL also has the fifth largest number of retail shareholders. “It also has the largest number of retail investors among all auto OEMs and consumer brands. It also has the highest number of high net worth allottees at 43,000+ when you look at the IPOs of last 20 years. These are all historic moments indeed,” he said.
This development is expected to bring increased scrutiny from local stakeholders and a sharper focus on consistent earnings performance. These factors will play a crucial role in determining the long-term trajectory of the stock post-listing. Analysts following the Indian automobile sector believe that the valuation, set by the issue price, already reflects significant earnings growth anticipated in the coming years. However, the near-term outlook for the Indian passenger car industry remains clouded by uncertainty, as inventory levels have swelled to bloated proportions and festival-season retail registrations have been less than encouraging.
It is important to note that, following the listing, Hyundai Motor India’s parent company retains an 82.50% stake in the business. Under local listing laws, they must reduce this to below 75%, within the next three years. This reduction in ownership will likely strengthen the company’s commitment to the Indian market, particularly regarding corporate governance and earnings performance—the two essential pillars of long-term stock value. Typically, an increased supply of equity, without strong financial performance to support it, spells trouble for companies, often resulting in heightened selling pressure from institutional investors if earnings expectations are not met. Dalal Street has no shortage of examples where companies that failed to meet their commitments lost favour with long-only foreign and domestic funds, which provide a price floor in volatile markets, drawn by perceived revenue visibility based on a top-down investment approach, acting as ‘value’ buyers during turbulent times.
A critical point of concern for Hyundai Motor India’s new equity investors will be the impact of the increased royalty rates on the company’s operating margins. Under the new terms, the local unit will pay 3.5% of its revenue in royalties, up from 2.3-2.5% in the previous fiscal year. In FY24, the subsidiary paid Rs 1,566 crore in royalties, as compared to Rs 1,435 crore the previous year, which accounted for 2.25% of revenues. Historically, Hyundai Motor has enjoyed superior operating margins compared to its competitors, due to its lower royalty rates. Any significant erosion in these margins as a result of the higher royalty will be closely monitored by new investors, as it will shape perceptions of the company’s corporate governance. Royalty rates for multinational corporations have long been a contentious issue for proxy advisory firms, and this will likely become a key agenda point for institutional investors during future EGMs.
Another issue under close scrutiny will be the company’s handling of related-party transactions, both in terms of sales and procurement. Roughly one-third of the Indian subsidiary’s raw materials are sourced from the Hyundai group, raising concerns about transfer pricing among investors. Some industry veterans believe Kia India has been able to capture market share, in part, due to preferential treatment from the parent, especially in global component allocation. Any perceived favouritism within the group, leading to market share losses for Hyundai Motor India, will be critically examined by investors. Notably, Hyundai Motor’s market share dropped nearly 300 basis points, from a peak of 18% in FY20 to 15% in FY24.