Hyundai Motor India IPO: Biggest Ever in India, But Retail Investors Stay Away – Experts Like Arun Kejriwal & Prashanth Tapse Decode High Valuations and OFS Concerns

The much-awaited Hyundai Motor India IPO, the largest ever in India, did not get much attention from retail investors. By the final day of the share sale, only 50% of the retail portion was subscribed. This IPO is not only India’s biggest, but it is also the second-largest IPO in the world for 2024. It marks the first time Hyundai Motor has listed outside of South Korea.

In recent years, it’s been rare for retail and non-institutional investor portions of major IPOs to remain undersubscribed. Hyundai’s low retail participation stands in contrast to other large Indian stock offerings, such as the Life Insurance Corporation (LIC) IPO in 2022, which saw the retail section oversubscribed by two times.

Despite the lack of interest from retail investors, the IPO still managed to raise ₹46,288.97 crore, thanks to heavy bids from Qualified Institutional Buyers (QIBs) on the second and third days of the offer. The IPO’s total size at the upper price band was set at ₹27,870 crore.

The employee section performed well, with employees receiving a discount of ₹186 per share on the IPO price. According to exchange data, employees subscribed to 1.74 times the shares allocated to them.

Although subscription was slow throughout the three-day bidding period, by the end of the third day, the IPO was oversubscribed by 2.37 times, with QIBs leading the way at 6.97 times. However, non-institutional investors (NII) booked only 60%, and the retail portion stood at just 50%.

Research Analyst Prashanth Tapse from Mehta Equities noted, “Although the overall subscription numbers look fine, the low participation from NIIs and retail investors is concerning. Many retail investors might have chosen to wait for the listing day to watch the stock’s performance before buying. October 22 will be a key day to see how the listing and stock movement unfolds. Post-closing of the subscription, I expect a flat listing with a variation of around 5%. Let’s see.”

Experts Identify Two Key Reasons for Low Retail Interest

1. Pure Offer-for-Sale (OFS) Structure

The Hyundai Motor India IPO is entirely an offer-for-sale (OFS) of 14,21,94,700 equity shares by the promoter, Hyundai Motor Company. This means there is no fresh issue of shares, and Hyundai Motor India, the second-largest carmaker in India after Maruti Suzuki, won’t receive any funds from the IPO.

Hyundai Motor India stated that the listing would help boost its visibility and brand image, as well as provide liquidity and create a public market for the shares.

However, some investors were cautious about the OFS structure, as historically, large OFS issues have not performed well for investors. Many compared this IPO to the LIC IPO, which had a similar structure.

Tapse added, “Though the Hyundai IPO got off to a slow start, it managed to avoid undersubscription, mainly because the offer was too large to fail. QIBs saved the day, but NIIs and retail investors stayed away due to the 100% OFS structure, high valuations, and concerns about excess inventory in the auto sector.”

2. High Valuations

Hyundai Motor India’s IPO price band was set at ₹1,960, which translates to a valuation of 26 times earnings per share (EPS) for FY24 and around 30 times EPS for FY25, making it an expensive offer, according to experts.

Arun Kejriwal, founder of Kejriwal Research and Investment Services, said that the promoters were pleased with the grey market premium, which was around ₹700-725. This encouraged them to increase the issue price during the IPO process.

“The issue was overpriced, which is why it didn’t get the expected response from retail and high-net-worth individuals (HNI). The parent company raising the price mid-process by ₹200 caused this issue,” Kejriwal added.