Hyundai Motors IPO: Top risks to know before applying; SUVs, EVs, and more

According to the company's DRHP, it sources parts such as trims, engines and transmissions, and materials such as steel from a combination of domestic and foreign suppliers

South Korean auto major Hyundai Motor Co's (HMCs) Indian subsidiary, Hyundai Motor India Limited, (HMIL) intends to sell around 17.5 per cent of its stake through an initial public offering (IPO), aiming to raise up to $3 billion (approximately Rs 25,000 crore), Business Standard reported earlier. 

This move marks HMCs first listing outside of South Korea, if successful, the IPO's proceeds will surpass the Rs 21,000 crore raised in Life Insurance Corporation's (LIC) recent share sale, potentially setting a new record in India.

This will be the second major public offering by a car manufacturer since Maruti Suzuki's listing in 2003. HMIL, positioned as India's second-largest carmaker following Maruti Suzuki, plans to offer approximately 140 million shares out of its total 800 million shares. 

Also Read: Hyundai Motor India files draft papers to raise around $3 bn through IPO

According to Autocar Professional, Hyundai's India division concluded FY23 with revenues amounting to Rs 60,000 crore and profits reaching Rs 4,653 crore.  India represented about 1 per cent of Hyundai's global sales in 2023, with popular models such as i20, Verna, Creta, Aura, and Tucson. Amidst the IPO buzz for India’s second biggest car maker, what are some top risks to consider?

In its Draft Red Herring Prospectus (DRHP), the company has disclosed some risks associated with its line of business. 

Top risks to know before you apply for Hyundai IPO

1) According to the company’s Draft Red Herring Prospectus (DRHP), it sources parts such as trims, engines and transmissions, and materials such as steel from a combination of domestic and foreign suppliers. And an increase in the prices of parts and materials could adversely affect its business.

2) The company, its subsidiaries and its promoter HMC are involved in outstanding legal proceedings and any adverse outcome in any of these proceedings may adversely impact its business, and financial condition. 

3) Two of HMIL's group companies, Kia Corporation and Kia India Private Limited, are in a similar line of business which may involve conflict of interests, which could impact its business.

4) Hyundai Motor India currently manufactures its passenger vehicles and parts only at the Chennai Manufacturing Plant. Any disruptions or stoppages at the plant, including at the Talegaon Manufacturing Plant once it is operational, could negatively impact its  operations.

5) Any actual or perceived defects in the passenger vehicles and parts or the sales and after-sale services provided through dealers or third parties may adversely impact its brand. 

6) The unavailability, reduction or elimination of government incentives could have a material adverse effect on Hyundia’s India business, prospects, financial condition, and cash flows. 

7) The company noted that its success depends on HMC’s ability to identify market trends and meet evolving customer demands, while maintaining or improving our profitability.

8) Hyundai Motor India’s global operations involve challenges and risks that could increase the company’s costs, affect its results of operations and require increased time and attention from the management. 

9) The company substantially depends on the sales of SUV models in India. Any decrease in the demand for or disruption in the manufacture of SUVs, or any other passenger vehicle models we rely on in the future, could adversely impact its operations. 

10) The technology platform and software deployed in passenger vehicles is critical for the company’s success, it said. And the failure to maintain, upgrade or adapt these platforms and software could negatively impact the operations. 

11) The company’s long-term competitiveness depends on the evolution of the EV market and the adoption of alternative fuels in India. Its failure to recognise these market trends and meet customer demands for EVs, may negatively impact its business. 

12) The company revealed that its warranty reserves may be insufficient to cover future warranty claims, which could adversely affect financial condition and results of operations. 

13) There have been certain instances of delays in payment of statutory dues by Hyundai Motor India in the past. Any delay in payment of statutory dues by our company in future, may result in the imposition of penalties.

14) Foreign exchange rate fluctuations can adversely affect its financial results due to sales and expenses in different currencies and the value of our Equity Shares.