Hyundai IPO: Kia Brand Conflict and Liquidity Risks Raised

Hyundai Motor India, a prominent player in the Indian automotive market and part of the Hyundai Motor Group, is set to launch its much-anticipated ₹27,870 crore initial public offering (IPO) on October 15, 2024. This Hyundai IPO will mark the largest offering in India since the ₹21,000 crore LIC IPO. With a price band ranging from ₹1,865 to ₹1,960 per share and a minimum investment threshold of ₹13,720 for one lot of seven shares, retail investors are keenly looking forward to this opportunity.

The company holds a significant position in the Indian passenger vehicle sector, being the second-largest original equipment manufacturer (OEM) since Fiscal 2009. It ranks as the third-largest auto OEM globally for passenger vehicle sales in 2023, according to the CRISIL report.

As Hyundai prepares to go public, concerns remain regarding potential brand conflicts with Kia and liquidity issues that could affect its long-term growth. These factors could impact investor confidence and the company’s performance in the competitive automotive market. Let’s look at them.

Brand Conflict: Hyundai vs Kia

A major point of concern is the conflict of interest between Hyundai Motor India and its sibling brand, Kia. Both brands share resources in various areas, such as vehicle model and engine development, which creates the potential for overlapping markets. As of June 30, 2024, HMC holds a 34.34% stake in Kia Corporation, which functions in India through Kia India. 

Additionally, Hyundai supplies engines to Kia, heightening the risk of product overlap and conflicting interests between the two brands. The red herring prospectus (RHP) reveals that Hyundai has acknowledged the risk of conflicts arising from the shared interests of Hyundai Motor Company and its affiliates, including Kia.

Kia’s entry into the Indian market in FY20 has resulted in a notable decline in Hyundai’s market share. Hyundai closed FY24 with a 15% share of the domestic market, down from 17.5% in FY20, while Kia ended FY24 with a market share of approximately 6%. This shift indicates how Kia’s presence has started to eat into Hyundai’s customer base, especially in the rapidly growing sports utility vehicle (SUV) segment. 

Both companies are poised to launch electric vehicles (EVs) in India, with Kia planning to roll out two EV models by 2025 and a recreational vehicle (RV) EV by 2030. Kia’s strategy includes investing ₹2,000 crore into research and development (R&D) and infrastructure to boost its manufacturing capabilities in India.

Financial Outlook and Liquidity Concerns

As Hyundai Motor India prepares for its market debut with the upcoming Hyundai IPO, maintaining financial health and ensuring sufficient liquidity will be paramount. In March 2024, Hyundai Motor India paid a special dividend to its promoter, Hyundai Motor Company (HMC). This resulted in tax liabilities reported as current liabilities on the balance sheet as of March 31, 2024. 

The tax was settled in the 3 months ending June 30, 2024, leading to a decrease in cash flows from operating activities to ₹92,519.55 million. The company may face challenges in balancing its financial commitments and operational demands against the backdrop of its ongoing rivalry with Kia.

Kia’s rapid success, achieving a net profit of ₹2,122 crore in FY23 within just 4 years of its debut, boldly contrasts with Hyundai’s 20-year journey to reach the same profit milestone. This disparity raises questions about Hyundai’s ability to sustain its competitive edge in an increasingly crowded market.

As the stock listing approaches, Hyundai Motor Share Price will be in focus, marking a new chapter for investors post-IPO.

Conclusion

The Hyundai IPO presents a significant opportunity for investors, especially considering the company’s market stature and past performance. However, the highlighted risks, particularly the brand conflict with Kia and liquidity concerns, cannot be overlooked. As both brands compete in the same segment, investors will need to carefully consider these factors when evaluating Hyundai Motor India’s future prospects.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.