Hyundai Motor India IPO Struggles on First Day Amid Valuation Concerns

Hyundai Motor India Ltd launched its initial public offering (IPO) on October 15, but the first day of bidding saw a slow start, with only 18% of the offering subscribed. Retail investors showed more interest, with a subscription rate of 26%, while non-institutional investors subscribed at 13% and qualified institutional buyers (QIBs) at just 5%. The employee portion saw a much higher subscription rate of 79%.

Analysts are concerned about the high valuations associated with this IPO, especially since larger Offer for Sale (OFS) offerings, like the Life Insurance Corporation of India (LIC) IPO, have historically underperformed. Although Hyundai’s IPO has created excitement as one of India’s largest, experts warn that the valuation may be excessive.

Hyundai Motor India, a wholly-owned subsidiary of South Korea’s Hyundai Motor Company, is known for popular models such as the i20, Creta, and Venue. The company isn’t issuing new shares; instead, Hyundai Motor plans to sell up to 142.2 million shares, which is a 17.5% stake in the Indian unit. The entire proceeds will go to the parent company, but it hasn’t disclosed how the funds will be used.

Market analysts note that the demand from individual investors for Hyundai’s shares reflects the challenges ahead, particularly as the surge in demand caused by the pandemic starts to fade.

Expert Opinions

Mohit Gulati, CIO of ITI Growth Opportunities Fund:

Gulati noted that Hyundai’s upper price band is set at ₹1,960, resulting in a valuation of 26 times earnings per share (EPS) for FY24 and around 30 times for FY25, which is challenging. He pointed out that Hyundai’s market share is stagnating, and he believes the IPO price should be lowered by ₹100-250. He plans to wait for better market conditions before considering an investment.

Prashanth Tapse, Senior VP of Research at Mehta Equities:

Tapse mentioned that the IPO appears fully priced, with limited room for significant listing gains. Hyundai plans to raise ₹27,870 crore through this OFS while aiming for a high valuation despite contributing only a small fraction to Hyundai’s global revenues. He cautioned that investors should be wary of the 100% OFS, suggesting it could lead to a flat listing.

Arun Kejriwal, Founder of Kejriwal Research and Investment Services:

Kejriwal observed that the grey market premium for the IPO initially was around ₹700-725, prompting an increase in the issue price and size. He believes the current pricing and limited capacity make the IPO seem expensive for short-term investors. However, he sees potential in the long term due to plans for new electric vehicles and production capacity.

In conclusion, while the Hyundai Motor India IPO has generated considerable interest, investors should carefully consider the high valuations and the nature of the offering before deciding.