Hyundai Motor India’s Much-Anticipated IPO: A Deep Dive
Hyundai Motor India’s initial public offering (IPO) opened on October 15, 2024, generating significant buzz in the financial markets. Priced between Rs 1,865 and Rs 1,960 per share, this IPO is set to raise an impressive Rs 27,856 crore, making it the largest public offering in India’s history. This marks a historic moment as it is the first time an automaker has gone public in India since Maruti Suzuki in 2003.
IPO Details and Market Sentiment
Hyundai Motor India is offering shares at a price-to-book value ratio of 13.11 times, a stark contrast to Maruti Suzuki’s 4.79 times. This elevated valuation raises concerns about the margin of safety for investors. Amar Nandu, a Research Analyst at SAMCO Securities, emphasizes that while Hyundai boasts a superior return on equity (ROE), the high valuation could deter potential investors.
The sheer size of the IPO suggests that most applicants are likely to receive an allotment, which may limit any significant price surge post-listing. This could dampen the hopes of those looking for quick gains. Notably, Hyundai’s promoters are offering a 17.5% stake in this issue, with an additional 7.5% stake sale anticipated within three years to comply with regulatory requirements. This could lead to selling pressure in the future, making the IPO less appealing for short-term investors.
Concerns About Expansion Plans
Hyundai India has ambitious plans for expansion, with a proposed investment of Rs 32,000 crore. However, concerns have emerged regarding the company’s ability to finance this growth. A report from StoxBox highlights that Hyundai’s cash and bank reserves have significantly dwindled due to substantial dividend payouts to its South Korean parent company. This situation leaves the company reliant on external borrowing, which could impact its financial stability in the long run.
StoxBox has advised investors to approach the IPO with caution, citing uncertainties about Hyundai’s future financial performance. They plan to reassess their rating once clearer indicators of business performance emerge over the next few quarters.
Beyond the Short-Term Listing Gains
Despite the cautionary sentiments, some brokerages, including ICICI Direct and Jefferies, remain optimistic about Hyundai’s long-term prospects. They argue that the company’s solid market position and robust financials make it an attractive investment for those willing to look beyond immediate listing performance. Currently, Hyundai’s grey market premium (GMP) stands at Rs 40, reflecting a modest 2.04% premium over the issue price. This is a significant decline from the Rs 570 GMP observed just two weeks prior, indicating a cooling in market sentiment.
A Long-Term Investment Opportunity
Gaurav Garg, a Research Analyst at Lemonn Markets Desk, underscores Hyundai’s operational strengths, particularly its local sourcing strategy and impressive revenue growth. The company has achieved a compound annual growth rate (CAGR) of 21.4% between FY22-24, largely driven by the popularity of its SUVs, which constitute 67% of its 2024 revenue. Hyundai’s leadership in the SUV segment, coupled with its focus on higher-value vehicles, positions it favorably for long-term success.
Garg also notes that Hyundai’s proactive approach to adapting to market trends, including its ventures into electric vehicles (EVs) and new energy initiatives, will be crucial for sustaining growth. This makes the IPO an appealing choice for long-term investors, even if the immediate listing gains appear modest.
A Marathon, Not a Sprint
While Hyundai’s IPO is undeniably exciting, experts caution that this is a long-term investment rather than a quick win. The company’s broader strategy, which includes ventures into EVs and potential listings of subsidiaries, could drive significant growth over time. For investors with a patient outlook, Hyundai’s future prospects are promising, even if the initial listing gains aren’t as spectacular as anticipated.
As the IPO unfolds, investors should closely monitor Hyundai’s performance and overall strategy. While short-term gains may not be as high as expected, the company’s long-term growth narrative positions it as a strong contender in India’s automotive market.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed in this article are those of the experts and brokerages and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading decisions.)
Published On: October 15, 2024