Can Hyundai get a higher valuation than Maruti?

HMI will have to dilute its stake further to reduce the parent firm’s holding to 65% to comply with Sebi rules. Photo: Babu Ponnapan
HMI will have to dilute its stake further to reduce the parent firm’s holding to 65% to comply with Sebi rules. Photo: Babu Ponnapan


  • Maruti Suzuki India generally trades at a PE multiple of 28-29x thanks to its dominant share of the passenger-car market, but HMI is second in terms of volume and has a higher average selling price than Maruti as SUVs comprise around 60% of its sales.

The draft red herring prospectus (DRHP) of Hyundai Motor India Limited (HMIL) has led to much excitement in the primary market. Assuming Sebi clears the DRHP, it will be a huge issue, aiming to raise a record 25,000 crore or so with an offer for sale (OFS) of 142 million-plus shares, or around 17.5% stake.

The entire proceeds would go to the giant parent, which is the third-largest auto manufacturer in the world (behind Toyota and Volkswagen). Retail reservation for the IPO is 35%.

There are some interesting points for potential investors to ponder. First, HMIL will have to dilute stake further to bring the parent’s holding down to 65% to comply with Sebi regulations. This means there must be further stake sales at some stage. Be braced for that.

Also read: Hyundai may beat Korea discount with IPO in India

Second, the market is right now trading close to record levels. So, if the IPO goes through quickly (it could take several months for Sebi to clear), it should get a good valuation.

So, will Hyundai get a better valuation than Maruti? That depends on the metric you consider.

Market value

Let’s start with market capitalisation. The market expectation is that HMIL will get a valuation of around 1.43 trillion (calculated on the basis of 25,000 crore IPO for 17.5%). Purely from a theoretical comparison point of view, Maruti’s market cap on the BSE was 3.84 trillion on Thursday.

Another factor is that Hyundai is a much bigger parent with a market cap of $49 billion while Suzuki has a market cap of around $22.6 billion.


Then, let’s come to price-earnings. Purely on known sales and financial data and also on the parent’s brand value, the price-earnings discount for HMIL should be close to that of Maruti Suzuki India, or even perhaps, exceed it.

Maruti Suzuki generally trades at a price-earnings ratio of around 28-29x (on the basis of trailing consolidated four quarters earnings, which in this case is FY24).

Based on news reports and the DRHP, HMIL aims to sell around 142 million shares, looking to raise around 25,000 cr. This implies a price of about 1,760 per share (the DRHP doesn’t have the price band).

If we annualise its nine-month EPS of 53.94, we can calculate a likely EPS of 71.9 for FY24. That implies the IPO is asking for a PE of about 24-25x, which is a lower PE than Maruti’s 28-29x.

However, given the factors listed above, it’s possible the market will consider this pricing conservative, which means the stock could list at premium.

Also read | Auto sector investment vroom: Sign of a private capex revival?

Profit margins

Maruti reported consolidated sales of 1,41,661 crore in FY24 with an operating profit of 17,964 cr. Maruti’s operating profit margin has hovered around the 13-14% mark in FY24, after a poor Q1 when it dipped to 9%, pulling the FY24 OPM down to 12.7%.

For Hyundai, according to the DRHP, HMIL had an Ebitda of 7,750 crore on total income of 53,298 crore during April-Dec 2023 (first three quarters of FY24). That’s an operating margin of around 14.5%, which is an improvement on the 14.1% OPM HMIL registered in FY23.

Market position

Maruti has dominant market share in the domestic passenger car market, but HMIL is No. 2 in terms of volumes. Maruti sold 2,135,323 vehicles in FY24, a growth of 8.6% over FY23. Domestic sales was at 1,852,256 units and exports at 283,067 units.

In the same period, HMIL’s domestic sales were at 614,721 units, 8.3% growth over FY23, while exports grew 6.7% to 163,155 units.

In terms of average selling price (ASP), Hyundai is ahead since around 60% of HMIL’s sales are in the SUV category, which leads to higher ASP compared to Maruti that has dominance in entry-level categories.

Also read: Maruti Suzuki may revamp small-car portfolio

Moreover, HMIL has focused on premiumisation, pushing higher-end vehicles. Of course, Maruti, too, has been moving on the premiumisation route for a few years now, with a sizeable chunk of its sales now coming from premium models such as Baleno, Brezza, and Grand Vitara.

The India operations contributed around 18% in volumes to Hyundai’s global sales and India is Hyundai’s fastest-growing market. For Suzuki, too, India is its second biggest market with nearly 33% share of global sales.

HMIL could potentially offer a wider range of vehicles, including multiple electric vehicles (EVs), trucks, etc. Hyundai also has higher ASP per unit and a somewhat better operating margin compared to Maruti, and similar growth rates albeit on a smaller base. The OPM is a key metric for many investors.

HMIL also exports around 25% of its total production versus around 13% for Maruti – that could be considered an upside.

HMIL’s Chennai facilities are running at 97% capacity, so investments in capacity expansion could well be on the cards. The company uses Chennai as an export hub for sales to South Asia, West Asia, Africa, etc., apart from domestic sales.

HMIL has also stated its intentions to challenge Tata Motors’ dominance in the electric-vehicle (EV) market. In that case, it may need to add new production lines, set up new supply chains, charging infrastructure, and strengthen the distribution network and so on.

All of that will take significant investments. Once this IPO establishes valuations, the next tranche of stake sales may be utilised for such investments (or the parent may even decide to bring the proceeds of this IPO back into HMIL).

The IPO allows for valuation discovery for HMIL, and it allows Indian investors to participate in the wealth-creation process of a successful business operating in one of the country’s largest industries.

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