The largest domestic IPO ever by Hyundai Motor India has received over a dozen 'subscribe' ratings, but a few brokerages are cautious, even as they believe the Indian arm of Korean carmaker is well-positioned to capitalise on the macro trends with diverse product portfolio and premiumisation of offerings.
By 12 pm, the Rs 27,870.16-crore IPO received bids for 95,60,628 shares, which was 10 per cent of the total issue size of 9,97,69,810 shares. Hyundai had on Monday raised Rs 8,315 crore from anchor investors.
The price to book value ratio for Maruti Suzuki India is 4.79 times, while it is 13.11 times for Hyundai Motor India. This reduces the margin of safety despite Hyundai's better return on equity (ROE), said Amar Nandu, Research Analyst, SAMCO Securities, who called the IPO fairly-valued and not aggressively priced.
Nandu noted that due to the large size of the IPO, there is a high chance of allotment to most applicants. This would mean post-issue demand for the Hyundai Motor India shares may not surge, he said.
"Furthermore, the promoter is offering a 17.5 per cent stake in the issue, and an additional 7.5 per cent stake sale is anticipated within three years to meet regulatory requirements, which will create selling pressure. Considering these factors, investors may choose to avoid this IPO," he said.
Hyundai India is reportedly planning to invest Rs 32,000 crore in India over the next 10 years. StoxBox in a note said the recent depletion of Hyundai Motor India's cash and bank balances following hefty dividends by the Indian entity to its South Korean parent raises doubt about its expansion plans that would now be largely driven by external borrowings, thereby impacting its financial performance going ahead.
It recommended an 'Avoid' rating to the issue and said it would reassess its rating in future following sustained business performance in upcoming quarters.
"Currently, the issue is priced at a P/E of 26.3 times of FY24 earnings, which we consider it on the higher end, especially given its market share. Other concerns include the issue being entirely an OFS, a high post-listing market capitalisation compared to its parent company (42 per ecnt of the HMC group), and the parent company's lower valuation in its home stock exchange," it said.
Given the IPO's size, listing gain will be limited, said Swastika Investmart. Investors with a long-term perspective and a willingness to accept potential listing challenges may consider applying for this IPO, the broking firm said. Most other brokerages have "subscribe with long-term view" rating on the stock.
At the upper end of the IPO price band of Rs 1,865-1,960, Hyundai Motor India is seeking a valuation of 26 times EPS, 16.5 times EV/Ebitda and 2.3 times price-to-sales on FY24 basis, which is at a tad discount to industry leader i.e. Maruti Suzuki India.
ICICI Direct assigned a 'subscribe' to the 27,856-crore Hyundai Motor India IPO, given steady growth prospects amid industry tailwinds, robust financials and healthy SUV product slate. "We expect limited listing gains to this IPO, but HMIL may deliver healthy double-digit portfolio returns over medium- to long-term," the brokerage said.