Hyundai is gearing up for its IPO and that could make Maruti feel some heat

Hyundai Motor Corporation, the South Korean automaker, is gearing up to list its Indian subsidiary and is likely to file papers with the markets regulator Sebi in May or June to raise $3 billion.

This puts the valuation of Hyundai Motor India Ltd, India’s second-biggest automaker by market share, at up to $30 billion. This could be India’s largest IPO, eclipsing the largest yet of $2.6 billion by Life Insurance Corporation (LIC).

The $30 billion valuation here is more than half of its market capitalisation of around $47 billion in Seoul. Amid reports of the Hyundai IPO, there is significant curiosity among investors about the implications for Maruti Suzuki India Ltd (MSIL).

Domestic brokerage Emkay has already revised Maruti Suzuki India Ltd’s (MSIL’s) rating to ‘reduce’ from ‘add’ citing a large upside. Emkay has, however, retained the target price of ₹10,700 per share.

“We believe MSIL could trade at similar valuations as Hyundai, amid Suzuki’s large India dependence and Toyota’s support and alliance, offset by Hyundai’s strong global standing and premium positioning. Potential small-car recovery (akin to commuter motorcycles) and MSIL’s E-SUV launch in October (the industry’s first-born EV launch) are added upside risks,” Emkay analysts wrote in a recent note.

They believe that Maruti Suzuki’s “best of profitability appears to be behind” as India’s car market leader hit peak margin performance in the second quarter of FY24 at nearly 13% backed by factors such as volume growth, new launches (especially SUV mix), positive commodities and forex trends, and low discounts.

The third quarter, however, saw a drop in margin (at 11.7%), with underlying trends weakening for Maruti Suzuki, such as slowing retails amid rising inventory, a rapid run-down in the order book and rising discounts even in sports utility vehicles (SUVs).