Hyundai Motor Co. is planning to list its Indian subsidiary by year-end to raise $3 billion. They are targeting a valuation of $22–28 billion, which is more than half its global valuation in its home market in South Korea at $47 billion. This would be the first of many such MNCs to list their Indian subsidiary on Dalal Street.
The potential listing of the Hyundai subsidiary could challenge Maruti Suzuki India Ltd., an underperformer when compared to other Indian automakers like Tata Motors Ltd. and Mahindra & Mahindra Ltd., which are currently at lifetime highs.
Market Share Decline
Since the onset of SUVs over the past couple of years, Maruti Suzuki's market share has fallen from 51% in FY20 to 41% in January 2024. Its sales in the mini car segment have eased 42% year-on-year during the April-January period.
Macquarie has downgraded Maruti Suzuki to 'neutral' on pushback of market share/growth upside on recovery in entry level segment in passenger vehicle. Macquarie also said the share in hatchbacks and micro SUVs is down from 67% in FY21 to 58% in FY24 so far and 54% in the third quarter.
"Micro-SUVs, which are competitively priced vs. high-selling hatchback models—like Wagon R, Swift, Hyundai i10, Tiago and Altroz—are redefining the market mix," the brokerage said. After factoring in micro-SUVs, Maruti's market share in overall cars (ex-SUV) has declined from the peak of 63% in FY22 to 55% in FY24 YTD and 53% in 3QFY24, it said.
R.C. Bhargava, Chairman at Maruti Suzuki, had told NDTV Profit in a recent interview that he sees the small car market coming back by 2026, supported by rising income, to have enough surplus to support the revival of the same. He reiterated their long-term plan until 2030–31 to have six pure electric models but mentioned that the first lot of produced EVs would be exported.
In contrast, Hyundai has already launched two of their EVs in the premium segment and will have sold 1,557 vehicles in 2023. This shows Maruti is behind the curve in comparison to Hyundai.
Electric Vehicles Vs Hybrids
Maruti Suzuki's recent launches in the SUV space with the Grand Vitara, New Breeza, Jimny and Fronx could be key for it to regain some of the lost market share. Their preference towards hybrids like the Grand Vitara and Invicto rather than launching EVs, which have been the preferred launches by its competitors, would be a key indicator going forward towards market acceptance. As a strategy, CNG has been key to its volumes as well.
Hyundai push with premium EVs with Kona and Ioniq5 has been the differential strategy by both players. The next major launch by Maruti Suzuki is the electric SUV ‘EVX' around October 2024.
Re-Rating Push?
While the company has been going through a transition with the onset of SUVs, EVs and hybrids and changing industry dynamics, not all is lost. Hyundai's listing may actually be the trigger for a fresh leg up.
Hyundai's market share is 14.9% FY24YTD, with a valuation target of $22–28 billion, according to Emkay. Such a valuation offers up to around 50–45% upside risk to Maruti Suzuki's TP/CMP based on various scenarios for valuations (upper and lower bands) and discounts at par or at a 20% discount to Hyundai, Emkay said.
They also believe Maruti Suzuki could trade at a similar valuation as Hyundai amid the former's large India dependence and Toyota's support and alliance. Citi, while not specifically mentioning Hyundai, has given Maruti Suzuki a 'buy', citing its sustained dominance in the passenger vehicle space with a 42% market share in overall domestic PVs and new launches in SUV space volumes driven by distribution incentives, capacity expansion and the easing of supply constraints.
Way Forward
Micro SUVs, where Hyundai has taken the lead with Exter and Venue, have been key to sustaining its overall market share with competition heating up in this space. With Hyundai exporting a sizable number of vehicles from the country compared to Maruti, a valuation premium cannot be ruled out.
Sector allocation may limit future run-ups, and investors could add the second-largest automaker to their portfolio.
With the launch of their potential IPO, apart from an external push, the upside for Maruti would need company-specific factors for a major push, with the revival of small PV and sustained outperformance needed from SUVs going forward as well, albeit on a higher base for next year.
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