Hyundai Motor India IPO subscribed 18% on Day 1; GMP corrects further

The initial public offering (IPO) of Hyundai Motor India saw a muted response from the investors during the initial few hours of the bidding process on day one. The issue, which kicked-off for bidding on Tuesday, October 15, was mostly subscribed by retail and HNI investors. The issue was subscribed 18 per cent on day one of the bidding.

Chennai-based Hyundai Motor India is selling its shares in the price band of Rs 1,865-1,960 apiece. Investors can apply for a minimum of seven shares and its multiples thereafter. It is looking to raise Rs 27,856 crore via IPO, making it the largest ever IPO in Indian markets. It is entirely an offer-for-sale (OFS) of 14,21,94,700 shares by its South Korean parent Hyundai Motor Company.

According to the data, the investors made bids for 1,78,10,310 equity shares, or 18 per cent, compared to the 9,97,69,810 equity shares offered for the subscription by 12.00 noon on Tuesday, October 15. The three-day bidding for the issue will conclude on Thursday, October 17.

The allocation for retail investors was subscribed 26 per cent, while the portion reserved for non-institutional investors (NIIs) saw a subscription of 13 per cent. The allocation for employees was booked 80 per cent. However, the quota set aside for qualified institutional bidders (QIBs) quota saw bids 5 per cent for their allocations on first day of bidding.

Chennai-based Hyundai Motor India is a part of South Korea's Hyundai Motor Group, which is the third largest auto original equipment manufacturer (OEM) in the world based on passenger vehicle sales. It manufactures and sells four-wheeler passenger vehicles, including models such as sedans, hatchbacks, SUVs, and electric vehicles (EVs).

The grey market premium (GMP) for Hyundai Motor India has been falling consistently, since the official announcement of the issue. Last heard, the company was commanding a premium of Rs 30 in the unofficial market, suggesting a listing pop of merely 1-2 per cent for the investors. The GMP stood at Rs 45 earlier.

Brokerages mostly have a positive view on the issue and suggest subscribing for a long term citing its strong financial record, strong brand recall, expansion plans, strong market share and focus on premiumization of the products. However, aggressive pricing, depleting cash reserves, large issue size, potential stake sale in future and complete offer for sale nature go against it.

HMIL has the second largest market share in the Indian PV industry after Maruti Suzuki and is also the second largest exporter of cars from India. SUVs (higher margin vehicles) contribute a large share of the company’s volumes which reflects in the relatively higher material and operating margins as well as return ratios, said SBI Securities.

"Strong brand, blockbuster models such as Creta, Alcazar, Venue and Verna, advanced technology and high export potential are key differentiators. The capacity expansion at Talegaon will help HMIL in ramping up both domestic and export volumes. HMIL is valued at 26.3x FY24 EPS. We recommend subscribing to the issue for a long term investment horizon," it said.

Ahead of its IPO Hyundai Motor India raised Rs 8,315.3 crore from 225 anchor investors by allocating 4.24 crore shares to 225 funds at Rs 1,960 apiece. Hyundai India reported a net profit of Rs 1,489.65 crore with a revenue of Rs 17,567.98 crore for Q1FY25. It reported a net profit of Rs 6,060.04 crore with a revenue of Rs 71,302.33 crore for the year ended on March 31, 2024.

Hyundai Motor has been the second largest contributor to these volumes since FY09 and has maintained its position since. It also intends to continue the premiumization of its passenger vehicle portfolio and focus on calibrated manufacturing capacity expansion and efficient capital allocation, said Master Capital Services in its IPO note.

"The company plans on maintaining its strong position by expanding its passenger vehicle portfolio by leveraging its deep understanding of consumer preferences and also focusing on increasing its EV market share. The issue is fully priced and Investors interested in the company can invest in the IPO for long term," it said.

The issue includes a reservation of 7,78,400 equity shares for the eligible employees of the company, who will get a discount of Rs 186 per share. Hyundai Motor India has reserved 50 per cent of the net offer for qualified institutional bidders (QIBs), while non-institutional investors (NIIs) have 15 per cent of the allocation. Retail investors will get the remaining 35 per cent.

VLA Ambala, Co-founder of Stock Market Today said that there are no compelling triggers to encourage subscriptions in the Hyundai IPO. In fact, the availability of numerous well-performing companies with lucrative valuations and ROCE could prove better investment opportunities.

SEBI-registered Research analyst advised investors to adopt the ‘wait-and-watch’ strategy and allow the stock to perform in the secondary market for at least a few quarters before investing in it. "Given the highly price-sensitive and competitive nature of the Indian automotive sector, we would advise retail investors to avoid this IPO and observe its post-listing performance," she said.

Kotak Mahindra, JP Morgan India, Citigroup Global Markets India, HSBC Securities & Capital Markets and Morgan Stanley India are the book running lead managers of the Hyundai Motor IPO, while Kfin Technologies is the registrar for the issue. Shares of the company shall be listed on both BSE and NSE with October 22, Tuesday as the tentative date of listing.