Hyundai Motor India’s initial public offering (IPO) has received a lacklustre response, with experts advising investors to be cautious due to valuation worries.
Analysts have also questioned its valuation, with a price band of Rs 1,865 to Rs 1,960 per share. This is India’s largest IPO ever, with a target raising of Rs 27,856 crore. It also marks the first automobile IPO since Maruti Suzuki in 2003. Despite the hype around the offering, investor reception has been lacklustre, raising worries about its short-term success.By October 16, the Hyundai IPO had received just 22% subscription, with ordinary investors subscribing 0.32 times, QIBs 0.05 times, and NIIs 0.17 times.
Given these figures, experts advise against anticipating a significant listing day increase. Here’s three reasons why.
The grey market premium (GMP) is a vital measure of IPO performance, and Hyundai’s isn’t setting the market on fire. As of October 16, the GMP is Rs 67, representing a tiny 3.42% projected return, with an estimated listing price of Rs 2,027. This is a long cry from the Rs 570 GMP witnessed only a few weeks ago, indicating stronger optimistic attitude.
Market analysts say the drop in GMP indicates the waning enthusiasm around the IPO. With a larger issue size and a greater valuation than sector rivals like Maruti Suzuki, which trades at a price-to-book value ratio of 4.79 times as opposed to Hyundai’s 13.11 times, meaning that investors have less margin of safety. Amar Nandu, Research Analyst at SAMCO Securities, writes, “Given the size of the IPO, most applicants are likely to receive shares, which could limit any significant post-listing price surge.”
SELLING PRESSURE:
Another element limiting the potential for immediate profits is Hyundai’s promoter stake selling strategy. The company’s promoters are selling a 17.5% share in this IPO, with another 7.5% stake sale planned during the following three years to fulfil regulatory requirements. This imminent selling pressure may decrease demand in the short term, making the IPO less appealing to investors looking for quick gains.
BROADER AUTO INDUSTRY SENTIMENT.
The overall attitude in the car business isn’t helping either. While Hyundai has a good market position and intends to invest Rs 32,000 crore in future expansion, the sector is now experiencing difficulties. Auto sales have slowed, and this is projected to have an impact on the company’s profitability in the coming quarters.
Experts have warned that, while Hyundai compares positively to Maruti Suzuki, its IPO might be tepid. Despite these issues, several brokerages remain bullish on Hyundai’s long-term prospects. ICICI Direct and Jefferies, for example, have suggested a “Subscribe for Long Term” rating, adding that Hyundai’s strong market position and financial health make it a good choice for patient investors.
Hyundai’s dominance in the SUV market—where it generates 67% of its revenue—combined with its emphasis on luxury products provides it a solid foothold. The company’s ambitions for capacity expansion, new product launches, and entry into the electric vehicle (EV) market are also seen positively for long-term growth.
Gaurav Garg, Research Analyst at Lemonn Markets Desk, highlighted Hyundai’s solid operational indicators, such as its local sourcing strategy and remarkable sales growth. “Hyundai has achieved a compound annual growth rate (CAGR) of 21.4% between FY22-24, largely driven by SUV sales,” Garg said, adding that Hyundai’s position in this sector will benefit its future prospects.
A MARATHON, NOT A SPRINT
Experts advise investors hoping for immediate riches from Hyundai’s IPO to keep their expectations in check. The big issue size, high valuation, and broader industry issues make it unlikely that Hyundai will see the rapid listing gains seen in other IPOs in recent months.
Long-term investors, on the other hand, may stay confident in Hyundai’s growth narrative. Its strong market position, strategic focus on EVs, and future development ambitions make it an appealing investment for anyone prepared to go beyond the first listing.
According to Mehta, “If you’re a long-term investor, Hyundai meets the criteria.” However, one should not expect a quick cash from listing.”