Hyundai Motor India (HMIL) shares rebounded 6% today, a day after its muted stock market debut, raising fresh questions among investors about the stock’s long-term prospects. The company’s listing performance, which saw the stock closing 7% below the upper range of its IPO price band, was seen as underwhelming by many analysts. However, the rebound reflects renewed interest, with several prominent brokerages remaining optimistic about the company’s future growth, despite initial concerns over its high valuation and other headwinds.
Analyst Ratings and Price Targets
Ahead of the listing, key brokerages initiated coverage with favorable ratings. Macquarie and Nomura were among the most bullish, issuing positive outlooks:
- Nomura: The brokerage issued a ‘buy’ rating with a target price of ₹2,472. It expressed confidence in Hyundai’s long-term growth, particularly its strong presence in the utility vehicle (UV) segment, which has been a major driver of sales growth.
- Macquarie: Taking a similarly positive stance, Macquarie assigned an ‘outperform’ rating and set a target price of ₹2,235, citing Hyundai’s technological innovation, premium brand perception, and steady market share.
- Motilal Oswal: Domestic brokerage Motilal Oswal followed suit today, initiating a ‘buy’ rating with a target price of ₹2,345. The firm is particularly optimistic about Hyundai’s 8% compound annual growth rate (CAGR) in volume over the next two years, despite expecting a challenging FY25 for the passenger vehicle (PV) market in India. It also forecasts a 17% earnings CAGR from FY25 to FY27, driven by recovery in consumer demand and market conditions.
However, not all analysts were equally enthusiastic. Emkay issued a “reduce” rating with a target price of ₹1,750, reflecting caution about the stock’s valuation.
Concerns Over Valuation
Many analysts cited Hyundai’s high valuation as a key reason for its weak debut. The stock was priced at 26.7 times its annualised Q1 FY25 earnings, which many viewed as fully priced given the company’s growth prospects. This caution was reflected in the IPO’s lackluster performance, as market participants hesitated to jump in at such a high valuation.
Motilal Oswal, while optimistic about Hyundai’s growth, acknowledged the headwinds. It compared Hyundai to its main competitor, Maruti Suzuki, noting that Hyundai’s 27x forward price-earnings ratio (PER) was slightly above Maruti’s 26x. However, Motilal believes that Hyundai’s technological capabilities, financial performance, and strong brand give it a slight advantage, justifying the target price of ₹2,345.
Challenges and Investor Concerns
Despite the bullish outlook from several brokerages, Hyundai Motor’s IPO faced notable challenges that could weigh on future performance:
- Dividend Payout: A substantial ₹15,435 crore dividend payout in FY24, ten times that of FY23, raised concerns among investors. The large payout, combined with questions over the company’s capital allocation strategy, led to skepticism during the listing process.
- Royalty Hike: Another point of concern was a planned hike in royalty payments from 2.2% to 3.5% of sales starting in June 2024. The increased royalty burden is expected to impact profitability, a factor that weighed on sentiment during the IPO.
Market Outlook and Growth Potential
Despite these concerns, Hyundai Motor India’s long-term prospects remain strong, particularly given its dominant position in the utility vehicle segment. UV sales in India surged by 13.2% year-on-year in the April-September 2024 period, significantly outpacing the broader PV market, which grew by just 0.5% during the same period. With 67% of Hyundai’s total sales coming from UVs, the company is well-positioned to capitalize on this consumer shift.
This focus on UVs, combined with Hyundai’s ongoing technological advancements, including its investments in electric vehicles (EVs) and autonomous driving technology, offers a compelling growth story for long-term investors.
Final Thoughts: Should You Buy Hyundai Motor Shares?
The 6% rebound in Hyundai Motor shares suggests that investors are cautiously optimistic about the stock’s future, despite the weak debut. The positive ratings from brokerages like Nomura, Macquarie, and Motilal Oswal reflect confidence in the company’s long-term growth potential, especially as it continues to capitalize on its market position in the UV segment.
However, concerns over valuation, dividend payouts, and royalty hikes mean that Hyundai’s stock may face volatility in the near term. Investors should weigh these factors carefully and consider their risk tolerance before making a decision. For those with a long-term perspective, Hyundai’s strong fundamentals and growth potential in the Indian auto market could make it a worthwhile investment, particularly if the stock experiences further price corrections.
As always, potential investors are advised to consult with certified financial advisors before making any investment decisions.
Disclaimer: The views and recommendations mentioned in this article are those of individual analysts and broking firms, and do not represent the views of the publisher. Investors are advised to perform their own research and consider their risk tolerance before making investment decisions.
