India File: Hyundai Motor's big bet on India
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Oct 15 - By Ira Dugal, Editor Financial News, with global Reuters staff
Hello, I'm Ira Dugal and I head financial news for Reuters in India. Join me each Tuesday as I lead you through the biggest stories out of India, and Asia.
Hyundai Motor India's $3 billion initial public offering – the country's largest to date - opened to retail investors on Tuesday. The IPO hopes to capitalise on the long runway for growth in India's auto market. That's our focus this week.
Canada has expelled six Indian diplomats that it says were linked to the murder of a Sikh separatist leader. The allegations had prompted India to expel Canadian diplomats hours before that. Read the latest on the spat here.
The rupee has fallen to a record low while the economy is strong and forex reserves are at a record high. A contradiction? Scroll down to get more on that in "Market Matters".
THIS WEEK IN ASIA
** ASEAN urges early accord on South China Sea code, end to Myanmar violence
** In Hiroshima, Nobel Prize brings survivors hope, sense of duty
** China's stimulus message leaves investors wanting
** What SoftBank founder Masayoshi Son can teach us about investing
** China-Europe rivalry heats up at Paris car show as EV tariffs loom
HYUNDAI INDIA'S MEGA IPO
Hyundai Motor opened a $3 billion public offering of its Indian unit to retail investors on Tuesday, the company's first listing outside South Korea and India's largest.
BlackRock and Fidelity were among the big names buying when the issue opened to institutional investors on Monday.
For Hyundai, in the India market since 1996 and the second-largest car seller there with a 15% share, the choice of India for its first public listing outside South Korea is hardly surprising.
India is already the world's third-largest car market and has plenty of room for growth, analysts say, with only 26 cars per 1,000 people compared with around 200 in China and around 500 or more in the U.S. and Europe, according to a report from brokerage ICICI Direct Research.
Hyundai is particularly well-placed to capture two pivotal trends in the Indian car market: a preference for SUVs and a push towards hybrid and electric vehicles.
For more on the latest in the global auto industry, check out our weekly Auto File newsletter from autos correspondent Nick Carey. You can subscribe here.
The offering of Hyundai Motors India shares, to be priced in a band of 1,865 to 1,960 rupees ($22-23) and valuing the unit around $19 billion, is also well-timed.
The country's primary markets are on track for a record year with more than $9 billion raised by 260 companies so far. Recent public offerings have listed with strong gains and the S&P BSE IPO Index of newly listed companies is up 33% year-to-date, compared with the 13% gain on the benchmark BSE Sensex index.
What may prove to be a damper for Hyundai's India public offering is its pricing.
At the upper end of the price band, shares are valued at 26 times the price-to-earnings ratio, based on actual 2023/24 earnings, according to ICICI Direct. This is only a small discount to industry leader Maruti Suzuki India, which trades at a PE ratio of about 27.75 times, according to LSEG data.
Hyundai, which has scaled back in China and was forced to exit Russia, sees India as both a promising market and a future export hub. It offers eight SUVs in its 13-model India portfolio and plans to roll out its first India-made electric vehicle, also an SUV, early next year.
That will help it to gain market share as more Indians opt for utility vehicles over sedans, brokerage IDBI Capital said in a note last week, listing the issue as a subscribe.
It faces challenges, however, from aggressive domestic rivals such as Tata Motors and Mahindra & Mahindra, which have nibbled away at its market share in recent years, while carmakers' sales in India slowed in the latest quarter for the first time in two-and-a-half years.
In the longer term, Hyundai's diversified electric vehicle portfolio, across battery EVs, hybrid EVs, plug-in hybrid EVs and other technologies, will allow it to calibrate its EV strategy in India as the market evolves, Axis Capital said in its IPO note.
But again, there are challenges. EVs made up only 2% of the 4.2 million cars sold in India last year, and competition is likely to be stiff, including from domestic companies.
While both the federal and state governments have been offering incentives to curb pollution and promote cleaner vehicles, they have at times been working at cross purposes, for example by promoting hybrids at the expense of EVs. Moreover, customer preferences are still evolving and sales growth of EVs has faltered.
Will Hyundai's bet on India pay off? Write to me at ira.dugal@thomsonreuters.com.
QUOTE OF THE WEEK
"Ratan Tata was a visionary leader whose dedication to improving lives left an indelible mark on India - and the world."
Bill Gates on Ratan Tata, who died last week. Tata put the conglomerate he ran for 21 years - until 2012 - onto the global map. He was accorded a state funeral.
His step-brother, Noel Tata, will take over the reins of a powerful charity that controls the Tata group.
MARKET MATTERS
The rupee is trading close to record lows, dragged down by rising oil prices and foreign investor sales of Indian equities.
This despite India's fast-growing economy - the top among major markets - and its inclusion in global bond indexes. But behind this contradiction is an apparent policy choice.
The Reserve Bank of India has opted to absorb large inflows, buying dollars earlier in the year to keep exports competitive and to boost foreign exchange reserves, which are now above $700 billion.
Those reserves would give the authorities plenty of leeway to step in and support the rupee if it starts falling at a more alarming rate.
Rupee falls to record low https://reut.rs/4dLHOD1
By Ira Dugal; Editing by Edmund Klamann
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