Warding Off a Scare: Hyundai India’s Mega IPO Sails Through
Hyundai India recently concluded its much-anticipated Initial Public Offering (IPO), which has generated significant interest and discussion among investors and market analysts alike. The IPO, valued at a staggering ₹27,870 crore, saw a robust overall subscription rate of 2.37 times by the end of the bidding process. This strong performance was primarily driven by institutional investors, reflecting their confidence in the automaker’s long-term prospects in the burgeoning passenger vehicle market.
Subscription Breakdown
While the institutional segment, known as Qualified Institutional Buyers (QIB), was oversubscribed by an impressive 6.97 times, the retail and non-institutional investor categories faced challenges. The retail section was only 50% subscribed, and the non-institutional investors’ portion saw a 60% response. This lukewarm interest from retail investors can be attributed to concerns over the IPO’s pricing, which many deemed expensive given the current market conditions.
Grey Market Performance
As the IPO bidding closed, the Grey Market Premium (GMP) for Hyundai’s shares fell to ₹0, continuing a downward trend observed in the days leading up to the IPO. This decline in GMP raises questions about the short-term performance of the stock post-listing, especially for those investors who may have been hoping for a quick profit.
Analyst Consensus
Despite the mixed subscription results, a consensus among analysts suggests that Hyundai’s IPO is a strong play for long-term investors. With a growing preference among consumers for larger and more premium vehicles, Hyundai is well-positioned to capitalize on this trend. Ten analysts have recommended subscribing to the IPO for long-term gains, emphasizing the company’s historical stability in the Indian market and its loyal customer base, bolstered by reliable after-sales service.
However, potential short-term investors may face disappointment due to the premium price-to-earnings (PE) valuation of 26 times its FY25 earnings. This valuation, coupled with the current GMP, indicates that short-term trading might not yield the expected returns.
Strategic Advantages
Hyundai’s strategic advantages are noteworthy. The company benefits from a strong research and development (R&D) base in Korea and operates an automated factory in Chennai, which enhances operational efficiency and distribution capabilities. Furthermore, Hyundai is making strides to establish itself as a significant player in the electric vehicle (EV) segment, aligning with global trends toward sustainable transportation.
Arihant Capital, a prominent financial advisory firm, expressed optimism about Hyundai’s potential in the Indian passenger vehicle market, stating, "We believe the company can take advantage of the PV market in India with its diverse offerings. We have a Subscribe for long term rating for the issue."
Offer for Sale Structure
It’s important to note that Hyundai’s IPO is structured as an Offer for Sale (OFS) of 14.2 crore shares, entirely offloaded by its parent company, Hyundai Motor Global. Consequently, all proceeds from the IPO will be directed to the selling shareholder. While this means that Hyundai India will not directly benefit from the funds raised, the management has indicated that the proceeds will be utilized for R&D and the development of innovative offerings.
Conclusion
In conclusion, Hyundai India’s IPO has successfully navigated the bidding process, showcasing strong institutional interest while facing challenges in the retail and non-institutional segments. As the company positions itself for future growth in the passenger vehicle market and the EV sector, long-term investors may find value in this offering. However, caution is advised for those looking for short-term gains, given the current valuation and market dynamics. As Hyundai continues to build on its legacy of quality and innovation, it remains a key player to watch in the evolving automotive landscape of India.