A Report on the Indian Automobile Market and Hyundai’s Flotation - Writer: Aniya Sood. Date Written: 11/11/2024

Global Finance Mag

Defined as the 5th largest global economy and with a nominal GDP of $3,940bn (IMF, 2024), India is one of the fastest-growing economies to exist within the environment of globalisation (Mandal, 2024) and has subsequently experienced rapid progression of its various sectors, from clothing and entertainment, emulated by its renowned Bollywood Industry, to manufacturing and automobiles (Sabitha, 2020). India’s stock market has become the second-biggest place in the world for companies to become public, after the US (Mehmood et al., 2021). Consequently, the automotive industry has fostered what is referred to as the continent’s largest IPO this year, delivered by Hyundai Motor India at $3.3bn in terms of listed monetary value and the second largest global IPO after the American warehouse operator Lineage at $5.1bn. This is regarded as “another jewel in the crown after a marvellous year for Indian deal activity”, by Samuel Keer, the head of Equity Capital Markets at Ion Analytics after fewer Asian listings combined with China’s sustained period of economic slowdown. However, while trading was initiated on Tuesday, retail investors have not shown an outstanding amount of interest in the $3.3bn IPO listing justified by low confidence as Indian car sales have experienced a downward trajectory, resulting in just 50% of the shares being bought by the reserved real investors and a collective ‘shunning’ of the IPO. In fact, the initial demand for Hyundai’s IPO was weaker compared to larger Indian IPOs this year, such as the Bajaj Housing Finance which is a mortgage company issuing an IPO worth $782mn. This attracted over 64 times more bids than the number of available shares, thus exemplifying the contrast in interest between Bajaj and Hyundai. However, by the Thursday deadline, large intuitional investors willingly supported the offering and included BlackRock, Vanguard and Fidelity International in combination with the Singaporean Government. 

Hyundai’s Opportunities and Capitalisation

Given the aforementioned nature of India’s economic growth, Hyundai’s Indian market has yielded approximately 18% of its sales on a global basis, thus surpassing Japan in the 3rd largest car market and positioning comfortably behind the USA and China. This amplification in growth is further justified by India’s sales of over 4.25 million cars (TOI, 2023). While Hyundai incurred ample expenses on its IPO promotion, many potential buyers and analysts argue that the price of Hyundai’s Offer was excessively aggressive given how significant this IPO was reflected by its $19bn valuation and represented 26 times its earnings. The translation of this Indian unit equates to around 40% of Hyundai’s South Korean parent company by market capitalisation, with Mumbai bankers proposing that it was a “very full valuation” and Hyundai hardly left much ability for the offer price to increase further. Therefore, this flotation marks a momentous occasion as a listing outside of Hyundai’s domestic market and has assisted in facilitating a worldwide thrust within the automobile market after the sales erosion driven by China. The car company is yet to face its fair share of economic challenges as its listing has arrived at a time of a slowdown in the Indian car market and the nation’s rate of inflation of 5.49% (Ministry of Statistics, 2024).

The Future Intentions of the Car Manufacturer

With such a large IPO issuance and market share of 14.6% after Suzuki at 40% within India (Agarwal et al., 2024), Hyundai intends to reinvest the subsequent proceeds into India’s local ESG initiatives by increasing its capacity for SUVs and introducing its line of electric vehicles, an area of which India has yet to progress as its focus on governance and social parameters exceeds that of environmental emphasis (Maji and Lohia, 2023). The Korean automobile manufacturer has further intentions to invest around $3.8bn in its Indian counterparts within the next 10 years while subjecting its local capacity to expansion by 1.1mn units by 2028. In essence, India is undergoing a period of significant transformation and prospering sales growth (Khanna and Kumar, 2024), thereby prompting car companies such as Hyundai to perceive India as an “alternative market to China”, as vocalised by analysts at the Institute of Automatic Convergence Technology within South Korea (Kay and Junga, 2024).

References

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International Monetary Fund (IMF), 2024. World Economic Outlook Update: The Global Economy in a Sticky Spot. Global Growth is broadly unchanged amid persistent services inflation [online]. Available at: https://www.imf.org/en/Publications/WEO/Issues/2024/07/16/world-economic-outlook-update-july-2024#Overview [Accessed 21 October 2024].

Kay, C. and Junga, S., 2024. Indian investors give short shift to Asia’s biggest IPO of 2024 [online]. Available at: https://www.ft.com/content/2943e10e-b0c2-466f-99e5-0700a5b604b2 [Accessed 21 October 2024].

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Mehmood, W., Rashid, R.M. and Tajuddin, A.H., 2021. A review of IPO underpricing: Evidence from developed, developing and emerging markets. Journal of Contemporary Issues and Thought, 11, pp.1-19.

Ministry of Statistics and Programme Implementation, 2024. Consumer Price Index Numbers on Base 2012=100 for Rural, urban and combined for the Month of September 2024. National Statistics Office: Government of India [online]. Available at: https://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_14oct24.pdf [Accessed 21 October 2024].

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