Hyundai Motor India Limited (HMIL), the Indian arm of South Korean auto giant Hyundai Motor Co, is gearing up to launch a massive $3 billion IPO, which could become the largest initial public offering (IPO) in India’s corporate history. This offering is set to surpass the previous record held by the $2.7 billion IPO of Life Insurance Corporation (LIC) in 2022.
India’s market regulator SEBI has given the green light for the IPO expected to launch in October after reviewing the draft papers filed by Hyundai in June. Once finalized, this IPO, structured as an Offer for Sale (OFS) by the promoter, will not only mark Hyundai’s debut on the Indian stock exchanges but will also make it India Inc.’s largest-ever IPO.

Key details of Hyundai Motor India’s IPO

IPO size: Hyundai Motor India is aiming to raise around $3 billion through its IPO, with a target valuation ranging between $18 billion and $20 billion.

Offer structure: The IPO involves the sale of 142,194,700 equity shares with a face value of ₹10 each by the Promoter Selling Shareholder.

Strategic benefits: Hyundai expects the listing to enhance its visibility, brand image, and provide increased liquidity in the Indian market.

As of FY24, Hyundai Motor India was the second-largest car manufacturer in India, trailing only behind Maruti Suzuki in terms of passenger vehicle sales. Hyundai offers a diverse portfolio of 13 models, including sedans, hatchbacks, SUVs, and battery electric vehicles (EVs), and has played a crucial role in India’s automotive export market.

Hyundai has been the second-largest auto original equipment manufacturer (OEM) in India’s passenger vehicle market since Fiscal 2009. The company has been India’s largest exporter of passenger vehicles since Fiscal 2005, contributing significantly to Hyundai Motor Co’s global sales, with its share rising from 15.48% in 2018 to 18.19% in 2023.

Hyundai’s planned IPO comes at a time when its main competitor, Maruti Suzuki, has seen a 20.25% rise in share prices over the past year, with a market cap of approximately ₹4,00,000 crore ($48 billion). The listing of Hyundai’s Indian arm is expected to attract significant investor attention, potentially altering the competitive landscape in India’s automotive sector.

While Hyundai’s IPO is poised to make a significant impact, it comes amid an environment of geopolitical shocks and supply chain disruptions that could affect global commodity prices. The current account deficit is expected to widen, adding to the challenges for the Indian economy. However, Hyundai’s strong position in both domestic sales and exports provides a stable foundation for its future growth.

With SEBI’s final approval, Hyundai’s much-anticipated $3 billion IPO is set to not only break records but also further strengthen the company’s standing in the Indian automotive market and beyond

The Insurance Regulatory and Development Authority of India (IRDAI) has issued a new master circular on life insurance product regulations, retaining the provisions for higher special surrender values (SSV). This move ensures higher premature exit payouts for policyholders but poses challenges for life insurers.

On June 12, IRDAI upheld the higher SSV provisions for endowment policies, despite concerns from insurers. This decision means that policyholders who exit their policies prematurely due to mis-selling or an inability to pay premiums will receive higher payouts compared to the current scenario. Previously, policyholders lost the entire premium if they exited after the first year, but now they will get a portion of their premiums back.

An actuary from a private life insurance company noted that the increase in surrender values is substantial in the early policy years, benefiting many policyholders who surrender their policies early. Although the increase in surrender values will be lower in the later years, it will still be higher than before.

IRDAI stated that the SSV should at least equal the present value of the paid-up sum assured and future benefits, using a formula: (number of premiums paid X sum assured) / total number of premiums payable. In the draft circular issued last month, insurers were required to use the 10-year G-sec yield for discounting purposes. The final circular allows a maximum spread of 50 basis points over the 10-year G-sec yield for discounting, which reduces the surrender value by approximately 4-5% compared to the draft proposals.

Life insurers had opposed the higher SSVs, arguing that these products are designed for long-term goals, not liquidity. The CEO of a large private life insurance company highlighted the industry’s concerns, stating that reserving will need to increase and more capital will be required. The industry had proposed a complete refund of premiums in cases of mis-selling instead of higher surrender values, due to the difficulty in recouping commissions paid in the initial years.

Overall, while the new regulations by IRDAI are set to benefit policyholders with higher premature exit payouts, they also present significant challenges for life insurers in terms of increased reserving and capital requirements.

Shares of Life Insurance Corporation of India have fallen close to 15 percent from their post-IPO high of Rs 920 in less than three weeks of listing on May 17.

On June 6, the stock fell nearly 2 percent to hit a new low of Rs 785 with its market capitalisation briefly declining below Rs 5 lakh crore.

Shares of the company have remained under pressure since their listing on rising questions over its ability to compete with nimbler private sector rivals and the impact of ongoing market volatility on its embedded value.

Last week, brokerage firm Emkay Global Financial Services initiated coverage on the stock with a ‘hold’ rating and price target of Rs 875 per share.

“LIC’s valuation on price-to-embedded value appears cheaper when compared with listed private players; this is justified by the fact that LIC adds merely 1.0-1.5 percent of EV each year from VNB, as against 8-11 percent in the case of private life insurers,” Emkay Global said in a note.