Hyundai Motor India Ltd IPO: A Cautious Excitement
As India’s largest initial public offering (IPO) of Hyundai Motor India Ltd (HMIL) opens for public subscription on Tuesday, October 15, the atmosphere is charged with both excitement and caution. Hyundai aims to capitalize on India’s bullish market, where nearly 260 companies have collectively raised over $9 billion so far in 2024. This IPO, which positions Hyundai as India’s second-largest automaker after Maruti Suzuki, is a complete offer for sale (OFS) of 14.2 crore shares by its Korean parent company, priced between Rs 1,865 and Rs 1,960.
Market Sentiment and Grey Market Premium
Despite the enthusiasm surrounding the IPO, recent market corrections have cast a shadow over investor sentiment. The grey market premium (GMP)—a rough indicator of listing potential—has been declining. Currently, Hyundai’s shares are trading with a GMP of Rs 60 in the unlisted market, translating to a mere 3% premium over the upper price band of Rs 1,960. This is a significant drop from a premium of Rs 570 just two weeks ago, indicating waning interest. While grey market premiums can fluctuate rapidly, they often reflect the market’s overall sentiment towards an IPO.
High Valuation Concerns
One of the primary concerns surrounding Hyundai’s IPO is its high valuation. The Rs 27,870 crore IPO does not provide much comfort when compared to Maruti Suzuki, which boasts nearly three times the passenger vehicle market share, two-and-a-half times higher sales volume, and similar profitability. At the upper end of the price band, Hyundai is asking for a price-to-earnings (PE) valuation of 26x FY25 earnings, compared to Maruti’s PE of 22x. This valuation is also above the industry average of 24.41x and significantly higher than Hyundai Motor Global’s PE of 5x.
Many analysts believe that the expensive pricing could limit listing gains. "The GMP has declined significantly due to recent market corrections. While this might dampen enthusiasm around the IPO in the short term, it does not necessarily reflect the long-term potential of Hyundai’s business," noted Abhishek Jain, Head of Research at Arihant Capital Markets. However, some experts argue that the premium valuation is justified, given Hyundai’s strong backing from its Korean parent, its premium models, and its growing share in the SUV market.
Structure of the IPO: Offer for Sale
The Hyundai IPO is structured as an offer for sale (OFS), meaning that the 14.2 crore shares will be offloaded by the Korean parent, and the company itself will not receive any proceeds. This raises questions about the IPO’s true value. While an OFS allows existing shareholders to cash in on their investments, it does not provide new funds for strategic growth initiatives, unlike a fresh equity sale.
Despite this limitation, Hyundai can still pursue strategic capacity expansions to achieve long-term growth, thanks to its existing cash reserves. The Korean parent company, which ranks as the third-largest original equipment manufacturer globally, has stated that the IPO proceeds will be invested in new products, future technology, and research and development capabilities. Any advancements made by the parent company are likely to benefit the Indian unit as well.
Hyundai has ambitious plans to establish India as a global manufacturing and export hub. Analysts believe that this IPO is a crucial step in that direction, with several new model launches planned in the coming quarters across both internal combustion engine (ICE) and electric vehicle (EV) platforms. The company has earmarked an investment of Rs 32,000 crore in India over the next decade.
Long-Term Investment Potential
Despite the immediate concerns, there is a broad consensus among analysts that Hyundai’s IPO could represent a strong long-term investment. Many brokerages have assigned a "subscribe" rating for the IPO, particularly for long-term investors, reflecting a cautious approach to immediate listing gains. "We expect limited listing gains from this IPO; however, we anticipate Hyundai India to deliver healthy double-digit portfolio returns over the medium to long term," stated ICICI Direct in a recent note. Similarly, Bajaj Broking noted that while the issue appears fully priced, the company’s prospects post-expansion are promising.
In conclusion, while the Hyundai IPO presents a mix of excitement and caution, it offers investors an opportunity to participate in the evolving growth story of one of India’s leading automakers. With strategic plans in place and a focus on future technologies, Hyundai aims to solidify its position in the competitive Indian automotive market.