Hyundai's ₹31,526-Crore Related-Party Transactions Receive Mixed Advisory Response
Hyundai Motor India Ltd. has come under scrutiny as its proposed related-party transactions worth over ₹31,500 crore face opposition from a prominent corporate governance advisory firm. These transactions, which require shareholder approval following the company's recent listing, highlight the complex supply chain relationships within the Hyundai group.
Corporate Governance Concerns
Stakeholders Empowerment Services (SES), a respected corporate governance research and advisory firm, has recommended that investors vote against the resolutions for related-party transactions with six out of seven entities. The only exception in their recommendation is for transactions with the parent company, Hyundai Motor Co.
This stance contrasts with another advisory firm, Investor Advisory Services, which has voted in favor of approving related-party transactions for all seven entities. This divergence in recommendations puts investors in a position where they must carefully evaluate the governance implications of these substantial transactions.
Scale and Scope of Related-Party Transactions
According to an exchange filing dated February 11, 2025, Hyundai Motor India is seeking approval for related-party transactions with seven entities, totaling ₹31,528 crore. These transactions encompass various activities including:
- Availing and rendering of services
- Purchase and sale of goods
- Purchase of fixed assets
- Other business-related transactions
Key Related Entities and Transaction Values
The filing details the specific entities and the maximum aggregate value of transactions with each:
- Mobis: Transactions not exceeding ₹12,525 crore
- Hyundai Motor Co: ₹4,607 crore
- Hyundai Transys Lear Automotive India: ₹2,556 crore
- Kia India: ₹5,824 crore
- HEC India LLP: ₹3,000 crore
- Hyundai Motor De Mexico S DE RL DE CV: ₹1,852 crore
- PT Hyundai Motor Manufacturing Indonesia: ₹1,164 crore
Supply Chain Dependencies
Analysis of Hyundai India's business operations reveals significant dependencies on related parties within its supply chain. According to multiple brokerage reports, Hyundai India sourced 37% of its parts and revenue in the first quarter of fiscal 2025 from related parties. This figure stood at 38% for the entire FY24.
Mobis India Ltd., which supplies after-sale parts and accessories to dealers, is particularly crucial to Hyundai's operations in India. In its Red Herring Prospectus (RHP), Hyundai Motor India acknowledged that any failure by Mobis to fulfill supply requirements could materially impact the after-sale services provided to customers.
Shareholder Vote Timeline
The company has initiated a postal ballot for these related-party transactions, with e-voting that began on February 12, 2025. Shareholders have until March 13, 2025, 5:00 p.m. IST to cast their votes on these resolutions.
Implications for Investors
These proposed transactions raise several considerations for current and potential investors:
- Corporate governance standards and transparency in related-party dealings
- Operational dependencies on group entities and associated risks
- Pricing mechanisms and fairness in inter-company transactions
- Potential impact on minority shareholder interests
The outcome of the shareholder vote will be closely watched as it may signal investor sentiment regarding Hyundai India's governance practices following its public listing. It also highlights the growing influence of corporate governance advisory firms in shaping investor decisions on critical matters.
As Hyundai continues to expand its presence in the Indian market and works toward its global electric vehicle goals, maintaining transparent and fair related-party transactions will be essential for building investor confidence and ensuring long-term sustainability.
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