Hyundai India’s IPO: A Troubling Debut Despite Buy Ratings
Hyundai India, the second-largest passenger vehicle manufacturer in the country, made headlines recently with its Initial Public Offering (IPO) that raised a staggering ₹27,856 crore, marking it as the largest public issue in India to date. However, despite three prominent brokerages—Nomura, Macquarie, and Motilal Oswal—initiating coverage with buy ratings on the very first day, the stock debuted with a disappointing loss, plummeting up to 6% from its IPO issue price.
A Historical Context of IPO Performance
The disappointing debut of Hyundai’s IPO is not an isolated incident in the Indian market. It mirrors the fate of previous large IPOs, such as Paytm and LIC. When Paytm launched its ₹18,300 crore IPO in November 2021, it ended Day 1 with a staggering loss of 27.25%. Similarly, LIC’s ₹20,557 crore IPO, which held the title of the largest before Hyundai, saw a nearly 8% decline on its debut in May 2022. Out of the seven largest IPOs prior to Hyundai’s, only Coal India managed to generate a profit for investors on listing day, while others like GIC Re, SBI Cards, and Reliance Power recorded losses.
Factors Behind the Lackluster Performance
Several factors contributed to Hyundai’s underwhelming debut. One significant aspect is the sheer size of the IPO. A larger public float often leads to increased supply of shares, which can negatively impact share prices. Additionally, the valuations set for Hyundai left little room for immediate gains. Estimates from Emkay Global indicated that Hyundai is valued at 27.4 times its FY25 earnings, compared to Maruti Suzuki’s 25.7 times PE ratio. This high valuation may have deterred investors looking for quick returns.
Analysts also pointed out that Hyundai’s growth prospects appear limited in the short term. Emkay’s projections forecast a modest 4% to 6% volume and revenue compound annual growth rate (CAGR) for Hyundai over the next few years, primarily due to a lack of major product launches and a back-ended capacity addition strategy. The brokerage expressed a preference for Maruti Suzuki over Hyundai, citing better operational and financial metrics.
Retail Investor Sentiment
Another critical factor influencing Hyundai’s IPO performance was the lack of enthusiasm from retail investors. The retail portion of the IPO was only 50% subscribed, even though the overall issue was oversubscribed more than two times. Retail investors typically seek listing gains, and the high valuation of Hyundai’s shares likely dampened their interest.
Long-Term Prospects
Despite the initial setback, analysts remain optimistic about Hyundai’s long-term growth potential. Shivani Nyati, Head of Wealth at Swastika Investmart, emphasized that Hyundai’s strong fundamentals and strategic focus on the SUV segment could support its long-term growth. Investors with a long-term perspective may find value in holding the stock, as future performance will likely hinge on the company’s competitive market position and product innovations.
Analyst Ratings and Future Expectations
Brokerages have provided varying target prices for Hyundai, reflecting their confidence in the company’s future. Nomura set a target price of ₹2,472, projecting an 8% volume CAGR driven by new model launches and improved EBITDA margins. Macquarie assigned a target price of ₹2,235, citing Hyundai’s favorable portfolio mix and premium positioning. Motilal Oswal’s target price of ₹2,345 suggests a 17% earnings CAGR over the next few years.
Conclusion
Hyundai India’s IPO debut serves as a reminder of the complexities and challenges inherent in the stock market, particularly for large public offerings. While the initial performance may have disappointed, the long-term outlook remains cautiously optimistic, driven by the company’s strong fundamentals and strategic initiatives. Investors will need to weigh the immediate losses against the potential for future growth as they navigate the evolving landscape of the Indian automotive market.