Hyundai IPO's Drive to Finish line Gets Difficult as Doubts Rise Among Investors

Hyundai IPO: Just a month ago, investors were riding high on the primary market boom, with listing premiums soaring into triple digits. Hyundai's Rs 27,856 crore IPO—this year's most anticipated and the largest public offering—initially drew the same excitement. However, with the grey market premium (GMP) now dipping below Rs 100, a wave of concern seems to have emerged, sparking doubts among investors.

On Monday, the shares of Hyundai Motor India were trading at a grey market premium (GMP) of Rs 60, marking a rather dull premium of just 3 per cent.

Analysts attribute that the sharp drop in the listing came post the release of Hyundai IPO's price band, fixed at Rs 1865-Rs 1960, which many believe is already on the higher side. Plus, considering that the issue consists of no fresh issue and only OFS (offer for sale), investors are already wary about what's in it for them.

"The main element of concern in this scenario is that the company is expected to be valued at approximately 40 per cent of the parent company's market capitalisation upon listing despite contributing only 6.5 per cent to global revenue. The declining GMP could indicate a moderating demand for the issue in the markets, further impacting its listing gains," said Sagar Shetty, Research Analyst, StoxBox.

While the mega IPO has its own plus points, such as being one of the top sellers in the passenger vehicle (PV) segment with a strong focus on premiumisation, which gives the company an edge over others, the same can turn into a double-whammy as well.

The heightened competition has already caused the company's PV market share to slip from 17.5 per cent in FY20 to just 14.6 per cent in FY24. Also the outlook for the domestic automobile sector isn't looking too bright, with retail sales plummeting by 9.26 per cent year-on-year last month as per data from FADA. (Federation of Automobile Dealers Associations)

The company's a price-to-earnings multiple stands at 26.7 for FY24. As for its peer, Maruti Suzuki, the PE ratio stands at 26.83 as of now. On top of that, there’s a regulatory requirement at play. The promoters of the company will be reducing their stake to 82.5 per cent via OFS. To comply with regulations, the company needs to offload more stakes and bring the holding down to 75 per cent.

"In CY2023, Hyundai Motors India was among the top three contributors to HMC’s global sales volumes, and their contribution to HMC’s sales volumes has increased from 15.48 per cent in CY2018 to 18.19 per cent in CY2023. We believe that the issue is fully priced and recommend 'Subscribe – Long Term' rating to the IPO," Anand Rathi Brokerage House stated in its report.

Most brokerage houses have largely assigned a 'subscribe for the long term' rating to the IPO.

However, as the bidding process is all set to begin, a 'move with caution' banner is still well present in the primary market.