After Hyundai, these MNCs Could List their Indian Units

It's tough being an IPO investor these days...

While retail investors are not getting allotment in IPOs that are seeing a bumper listing, many are now ranting about their allotment in Hyundai Motor India and the subsequent muted listing.

That's right.

India's biggest IPO - Hyundai Motor India - saw a tepid response from retail investors during subscription.

What followed was a tepid listing on the BSE and NSE - the stock of Hyundai Motor India debuted around 2% or Rs 26 lower from its issue price of Rs 1,960.

The newly listed stock tanked another 7% post listing to touch a low of Rs 1,807.

Whatever the case, Hyundai's IPO marks a historical moment for India.

It gives a deja vu of the 90s when MNCs like Colgate, Unilever and the likes set a trend for listing their units in respective countries.

It also highlights the expensive valuations of Indian share markets.

For context, Suzuki Motor Corp., the parent company of Maruti Suzuki India, is valued at US$ 20 billion on the Tokyo Stock Exchange.

The Indian subsidiary - Maruti Suzuki India, in which Suzuki Motor holds around 58% stake, boasts a market capitalisation of over US$ 45 bn on the Indian stock market.

Hyundai's parent company sold up to 17.5% stake in its Indian subsidiary Hyundai Motor India to capitalise on India's rich market valuations.

Whirlpool Corp, another MNC, has offloaded about 24% stake in its Indian unit Whirlpool of India, earlier this year.

Similarly, if this trend continues, and the Indian markets keep on rising, these multinational companies (MNCs) could also come out with IPOs of their Indian subsidiaries.

Here are three to watch out for...

#1 LG Electronics (LG Electronics India Pvt Ltd.)

First on this list is LG Electronics.

Another South Korean firm like Hyundai, LG Electronics Inc. is reportedly gearing up for an IPO of its Indian unit.

A month ago, it was reported that the company could raise as much as US$ 1.5 bn (Rs 12,612 crores).

LG has tapped banks including Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Morgan Stanley as bankers for the possible listing plan that may take place in 2025.

The reports also added that LG may file the IPO prospectus for LG Electronics India Pvt Ltd as early as this year.

LG Electronics India is a wholly owned subsidiary of LG Electronics. It's a well-established name in various segments such as consumer electronics, home appliances and IT hardware.

Founded by Koo In-Hwoi, LG (Life's Good) has 5 business segments:

• LG Electronics (consumer electronics)
• LG Display (display panels)
• LG Chem (chemicals and batteries)
• LG U+ (telecommunications)
• LG Household & Healthcare (consumer goods)

The Indian unit, LG Electronics India Pvt Ltd has reported steady financials over the years. Here's a table...

Financial Snapshot - LG Electronics India Pvt

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Total Income	1,56,590	1,57,096	1,51,546	1,68,342	1,98,646
Growth (%)	-1%	0%	-4%	11%	18%
Operating Profit	25,604	27,690	25,253	19,143	21,453
OPM (%)	16%	18%	17%	11%	11%
Net Profit	15,345	18,544	16,665	12,056	13,480
NPM (%)	10%	12%	11%	7%	7%
ROCE (%)	61.9	46.2	35.2	27.4	37.4
Debt to Equity(x)	0	0	0	0	0

Data Source: Ace Equity

The upcoming IPO of the Indian unit is the South Korean electronics giant's long term plan to achieve US$ 75 bn in annual revenue by 2030, from its current revenue of approximately US$ 65 bn.

Although LG has not yet determined a valuation, it will be interesting to see how the company fits this IPO in the ever evolving electronics landscape in India.

#2 Coca Cola (Hindustan Coca-Cola Beverages)

Next on the list is Coca Cola.

Coca-Cola's bottling operations in India are managed by Hindustan Coca Cola Beverages and approximately half a dozen franchisees, responsible for the production and distribution of popular beverages such as Coke, Thums Up, Sprite, Minute Maid, Maaza, and Kinley.

In May 2024, it was reported that Hindustan Coca-Cola Beverages (HCCB), a bottling company owned by Coca-Cola India, is reportedly planning an IPO.

The potential IPO size could be around Rs 5,000 to Rs 6,000 crores.

The announcement came at a time when the beverages segment in the fast-moving consumer goods (FMCG) landscape was seeing strong momentum, which explains the rationale to cash in on the market via an IPO.

India's per-capita consumption of soft drinks is pretty low if compared on a global scale, which presents substantial growth opportunities for players like HCCB.

Here's a table showing the financial performance.

Financial Snapshot - Hindustan Coca Cola

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Total Income	94,275	97,889	82,036	1,06,776	1,48,119
Growth (%)	4%	4%	-16%	30%	39%
Operating Profit	8,292	12,216	6,521	11,433	16,491
OPM (%)	9%	12%	8%	11%	11%
Net Profit	3,216	9,745	709	3,771	8,093
NPM (%)	3%	10%	1%	4%	5%
ROCE (%)	4	22.8	2.3	10.4	18.3
Debt to Equity(x)	0.2	0	0	0	0

Data Source: Ace Equity

In March 2024, HCCB had invested around Rs 350 crore in Madhya Pradesh for setting up two manufacturing lines at its Rajgarh plant, taking its investment in the central Indian state to Rs 660 crore.

Earlier this week, it was also reported that the Bhartia brothers, promoters of Jubilant Bhartia Group, are in talks to raise up to Rs 12,500 crore for acquiring a 40% stake in Hindustan Coca-Cola Beverages. For context, the Bhartias were selected by Coca-Cola to collaborate in their bottling operations in India.

Recent developments also show that competition is heating up in the non-alcoholic beverages segment with PepsiCo's bottling partner - Varun Beverages - raising Rs 7,500 crore through a QIP to support its growth initiatives.

As part of its future plans, Hindustan Coca-Cola Beverages is preparing a US$ 1.5 bn capital expenditure programme over five years to invest in new bottling lines and chillers.

It remains to be seen how the above developments pan out.

#3 Walmart (Flipkart India Pvt Ltd. and PhonePe)

Last on this list is Walmart.

Earlier this year, Walmart executives informed that PhonePe and Flipkart IPOs could be in the works, and they may launch the IPOs in two years.

According to reports, Walmart may put PhonePe's IPO ahead of Flipkart, even though Flipkart is a more mature business.

How mature? Look at the net income its India unit generates ever year...

Financial Snapshot of Flipkart India Pvt Ltd.

Rs m, standalone	FY20	FY21	FY22	FY23
Total Income	3,46,101	4,33,566	5,11,757	5,60,129
Growth (%)	-	25%	18%	9%
Operating Profit	-30,834	-23,598	-32,621	-46,757
OPM (%)	-9%	-5%	-6%	-8%
Net Profit	-31,503	-24,448	-34,043	-48,457
NPM (%)	-9%	-6%	-7%	-9%
ROCE (%)	-50	-35.4	-39.4	-43.2
Debt to Equity(x)	0	0.1	0.1	0

Data Source: Ace Equity

There were also some reports suggesting that Flipkart may move its domicile back from Singapore to India. This may provide a significant tax gain for the Indian government. Flipkart Pvt Ltd. is a holding company based in Singapore.

The company was also considering an IPO in 2022-2023 but had to postpone the plan due to financial considerations and global macroeconomic uncertainty.

Interestingly, Flipkart had offered to buy out Zepto for US$ 2 bn and at that time, Zepto demanded US$ 3 bn. Today, Zepto is valued at much higher valuations and Flipkart has already launched its services into quick commerce.

This is an interesting battle, that will play out in the coming years, and it would be interesting to see who wins the quick delivery race.

In Conclusion

MNC companies, for reasons like good corporate governance and strong parentage along with brand support, have always had valuation premium compared to their Indian counterparts.

While this was true 2 or 3 decades ago, when domestic companies were small and many of them were plagued with corporate governance issues, times are changing.

The evolving landscape of India's stock market presents a promising opportunity for multinational companies (MNCs) looking to unlock value through IPOs of their Indian subsidiaries.

As this trend gains momentum, investors should be prepared for a new wave of opportunities. Hyundai's IPO may be just the beginning, with more multinational companies eyeing the rich valuations that Indian subsidiaries command.

What's more interesting is how this shift redefines the narrative. No longer are MNCs solely riding on their brand legacy. Today, they must compete with agile Indian firms that have evolved into formidable players in their own right.

The question now is which MNC company will make the most of India's booming market after Hyundai? Only time will tell.

Stay tuned to this space for more...

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...