The Hyundai Motor IPO: How the valuations took a reality check

livemint.com:

India's cooling appetite for hatchbacks and sedans is proving to be a double-edged sword for Hyundai Motor India Ltd, as the country's second-largest passenger vehicles maker draws closer to an initial public offering (IPO). After two years of blazing growth, passenger vehicle wholesales in July fell 2.5% from a year earlier, and manufacturers have been offering discounts since May to clear stocks. While falling demand has reduced pressure on Hyundai's stretched production capacity, it has also depressed its expected valuation to $16-20 billion from $25-30 billion earlier, two people aware of the IPO discussions said.

Hyundai’s valuation has been adjusted down due to several factors. The company's capacity utilization was a steep 96% in FY24, limiting its ability to boost production, and putting it at a disadvantage against rivals such as Maruti Suzuki, Tata Motors and Mahindra and Mahindra. However, since car sales have cooled, the capacity constraint poses no imminent challenge; but, it also signals weaker growth prospects overall.

Hyundai Motor did not respond to emailed queries. “The market’s current slowdown has turned Hyundai’s capacity constraints into a less critical issue, but it doesn’t change the fact that their growth is closely tied to the broader market," an industry expert said on the condition of anonymity. Besides, compared to rivals, Hyundai has few new models on way, which has pressured valuation, he added.

Despite an impressive profit of around $720 million projected for FY24, Hyundai Motor India's financials call for caution. This year, the company is expected to pay out higher royalty to the Korean parent and dividends to shareholders, depressing profit and cash balances. Hyundai's production