Hyundai Motor India is set to launch the largest IPO in the Indian stock market history on October 15. The subsidiary of the South Korean major shall be selling its shares in the range of Rs 1,865-1,960 crore to raise a total of Rs 27,856 crore through its initial stake sale. It will be India's biggest primary offering, ranking LIC and Paytm as second and third respectively.
However, some market participants believe that Hyundai Motors India has aggressively priced its IPO, which is entirely an offer-for-sale (OFS) of up to 14,21,94,700 equity shares by its parent Hyundai Motor Company, leaving little room for upside for the investors, who can apply for a minimum of seven equity shares and its multiples thereafter.
The impact of 'rich valuations' can be seen in the grey market premium (GMP) of Hyundai Motor India, which has plunged sharply to Rs 111 per share, suggesting mild gains of about 6 per cent to the investors. However, the premium in the unofficial market stood at Rs 270 apiece a couple of days ago, while it was somewhere around Rs 400 in the beginning of the month.
Brokerage firms, market analysts and experts continue to remain divided on the Hyundai Motor IPO. Some believe that the Chennai-based auto maker deserves command a premium considering its current market share, while others believe that the Indian entity is richly priced considering its little contribution to the global peer.
Hyundai Motor India might not be a great deal for Indian investors, Aequitas Investments said in a recent note. "Despite contributing only 6.5 per cent of Hyundai's global revenues and 8 per cent of its profitability, Hyundai’s India unit will be valued at 42 per cent of the South Korean parent's market capitalisation on listing," it said.
Both Indian and global car makers have been cutting down their guidance for the current year. Aequitas Investments said that car sales were down in September for the third straight month. Maruti Suzuki India commanded a PE of 27 times. Only Ford Motors in the global peer commanded a double digit PE of 11 times, it suggested.
On the contrary, Nomura India differs. Hyundai Motor India deserves a valuation premium vis-a-vis Maruti Suzuki India, said the global brokerage firm in its note in September, considering the latter's ongoing market share decline. "As the second-largest automaker in India, Hyundai Motor India's market share has been stable at 15-17 per cent since 2008," Nomura said.
Other market participants also have a mixed view on the Hyundai Motor IPO and more clarity shall emerge after the company's analyst meet later on Wednesday. Kranthi Bathini, Director of Equity Strategy at WealthMills Securities said that Hyundai Motor India's IPO is aggressively priced, considering the current market sentiments.
"However, if an investor looks at the 25 years journey of the company, it has been able to stand out despite all challenges, where a number of companies have entered the Indian market and lost steam. Hyundai has been consistent in the Indian market and has a strong offering for India's middle-and-upper middle class," he added.
On the other hand, highlighting more positives, Master Capital Services noted that the business's stated RoNW for FY23 was 23.48 per cent, the highest among its peers. This indicates that the company is making good use of the money provided by shareholders to create profits, it said.
"The PV industry saw strong growth and Hyundai is well positioned to take advantage of this growth due to their diverse offerings within the industry as compared to its peers, highlighting diverse market strengths," Master Capital added. "Hyundai's IPO offers potential value growth by expanding investment prospects in the underdeveloped Indian auto market."
Market experts believe that the ongoing robust sentiments for primary markets, renowned brand name of Hyundai Motors and upcoming festive season may attract investors to Hyundai Motor India IPO. However, they believe that such a mega issue may pump-out liquidity from the secondary market, where we may expect some volatility.
The market is abuzz with excitement as Hyundai remains one of the strongest players in the Indian car market, consistently increasing its market share, said Santosh Meena, Head of Research at Swastika Investmart. "Strong demand is expected for the IPO, with robust liquidity in the market. However, it may lead to a potential drying up of liquidity in the secondary market, he said.