Dwarfing the issues like Life Insurance Corporation of India Ltd and One 97 Communications Ltd, Hyundai Motor India (HMIL) is set to script history with its Rs 27,856 crore primary offering being launched on Tuesday, October 15. However, the falling grey market premium for the company is raising concerns over its listing prospects for the issue.
It is a trend of Dalal Street that big IPOs usually perform to fail big. In fact, the majority of the mega Dalal Street issues have been proved to be wealth destroyers, getting listed on discounts. Those, which made positive listings, have delivered muted gains, barring a couple of exceptions.
The IPO of Indian arm of the South Korean entity shall be entirely an offer-for-sale (OFS) of up to 14,21,94,700 equity shares in the price band of Rs 1,865-1,960 per shares with a minimum lot size of seven shares and its multiples thereafter. The bidding for the issue shall close on Thursday, October 17, valuing the company at Rs 1.6 lakh crore.
According to the Data from Ace Equity, five out of six IPOs raising more than Rs 9,500 crore after 2010 have delivered negative returns on listing with Coal India being the only exception among them. Reliance Power, which raised about Rs 11,600 crore through IPO in 2008, was listed at a premium of 21.7 per cent.
The five issues included names like LIC of India (down 9 per cent on listing), Paytm (down 9 per cent on listing), General Insurance Corporation of India (down 7 per cent on listing), NMDC (down 2 per cent on listing) and The New India Assurance Company (down 6 per cent on listing). Interestingly, four out of these five names are PSU counters.
The best performing mega-IPO, purely in terms of listing gain, has been Zomato, which was listed in July 2021 after a Rs 9,375 crore stake sale, and delivered a listing pop of 51 per cent to the investors. The Rs 5,000 crore-plus IPO threshold counts PB Fintech in the list as well, which raised a total of Rs 5,951 crore in November 2021, listing a premium of 17 per cent.
In mega-sized IPOs, there is a very high probability of allotment to all applicants. Considering the demand-supply mechanics that determine price in the market, post-IPO demand for such shares is often sparse due to the high allotment ratio, which can limit the post-listing returns, said Amar Nandu, Research analyst at SAMCO Securities.
"Additionally, a large IPO typically implies a large company with a higher valuation and market capitalization. Growth opportunities in larger companies are usually lower due to their stable size and already optimized utilization of resources, compared to smaller companies, which contributes to slower share price growth, although with lesser risk," he said.
Records are meant to be broken and so we have the mammoth Hyundai Motor India. Retail investors, who have been wary of allotments lately due to small issue size and massive over subscriptions, will have a better strike rate and chances of allotment in this issue said Ashish Nanda, President and Head of Digital Business at Kotak Securities,
I advise everyone to evaluate and invest judiciously, suggesting no recommendation for Hyundai's IPO. "This record will also be broken. Many bigger companies will come in the capital markets with even bigger issues. India is a story which has the potential to create disproportionate wealth over the next 2 decades for all Indians," he said.
Hyundai's OFS nature is a big concern for the investors. Last two examples of LIC and Paytm also included a big OFS chunk, wherein investors burnt their hands. The Rs 20,550 crore IPO of LIC was entirely an offer for sale, while the Rs 18,300 crore IPO of Paytm including an OFS component of 10,000 crore.
Mega IPOs often create buzz around liquidity but current market sentiments suggest no shortage of liquidity in the Indian markets, said Kranthi Bathini, Director of Equity Strategy at WealthMills Securities. "Complete OFS nature should not be a concern for the investors as promoters have been investing money for the past three decades and now it's their time to pluck the ripe fruit," he added.
However, the domestic car maker is losing its steam in the grey market as the premium has been crashing sharply. Last heard, Hyundai Motor India was commanding a grey market premium (GMP) of merely Rs 45 per share, suggesting a miniscule listing pop of just 2 per cent to the investors. The GMP was around Rs 65 in a beginning of the day.
The domestic PV industry is an oligopolistic market with few players dominating the entire industry. Maruti Suzuki leads the PV industry in terms of domestic sales volumes. Motor (HMIL) is the second largest contributor to the domestic sales, with 14-15 per cent market share as one of the prominent export players from India, said Sharekhan.
A report from IIFL Securities said that the company's valuations are attractive, relative to other listed OEMs in India. "Hyundai has several facets of operational superiority compared to its peers, but believes that the MPV segment is a portfolio gap, which may be addressed soon. However, a potential weakness in the PV industry in FY25 is a major concern," said the brokerage firm.