Hyundai Motor India IPO: Retail investors were not drawn to Hyundai Motor India’s much-anticipated initial public offering, as just 50% of the shares were subscribed on the final day of the share sale. Based on available records, this initial public offering (IPO) is the biggest in India and the second-biggest globally in 2024. It is Hyundai Motor’s first listing outside of South Korea.
It has not been unusual for the retail and non-institutional investor sections of the mainboard IPO segment to remain undersubscribed in the recent past. In comparison to previous significant stock offerings in India, such as Life Insurance Corp’s IPO in 2022, which was the country’s largest issue at the time, the very low retail participation in Hyundai Motor’s IPO is noteworthy. The retail segment of that offering received two times as many subscriptions.
The Hyundai Motor’s initial public offering (IPO) attracted bids of ₹46,288.97 crore on the second and third day of the offering, despite little retail interest. This was made possible by the strong buying of Qualified Institutional Buyers (QIBs). On the other hand, the IPO size at the top of the pricing range was set at ₹27,870 crore.
There was also a great deal of interest in the employees’ segment, as employees were eligible for an IPO price reduction of 186 rupees per share. Based on exchange data, their bid exceeded the allotted shares by 1.74 times.
Throughout the three-day bidding period, there was a delayed subscription for the Hyundai Motor India IPO. The issue was oversubscribed by 2.37 times after the third day, with QIBs leading the subscription at 6.97 times. The retail portion was booked at 50%, while the non-institutional investors (NII) portion got 60% booking.
“The subscription figure on a consolidated basis looks good, but the non-participation of NII and retail is a matter of concern. I believe the investors may have opted to wait and watch the listing and later take the price discovery process to accumulate the largest automobile player in India. October 22 would be a great day to watch for the listing and stock behaviour post-listing. Post-closing of the subscription process the listing expectation would be flat+ or – 5% on the issue allotment price. Fingers crossed,” said Prashanth Tapse, Research Analyst and Senior Vice President of Research at Mehta Equities.
Two Reasons By Experts
Purely offer-for-sale (OFS) component
The promoter Hyundai Motor Company is the only party offering 14,21,94,700 equity shares for sale as part of the Hyundai Motor India IPO; there is no new issue component.
Hyundai Motor India Ltd., India’s second-largest automaker after Maruti Suzuki, will not get any profits from the IPO because the public issuance is just an OFS.
According to Hyundai Motor India, the listing of the equity shares will increase the company’s visibility and brand recognition and provide liquidity and a public market for the shares.
Given that larger OFS has historically not produced profits for investors, the Street was rather sceptical about the OFS component. As an example, they cited the Life Insurance Corporation of India’s (LIC) initial public offering.
“From a sluggish start, Hyundai IPO finally managed to sail out from the risk of undersubscription demand. We all know that the offer was too big to fail. Hence, QIB investors saved the show on the last day of the subscription process. Despite the QIB category getting oversubscribed, NII and retail investors choose to stay away considering the 100% OFS followed by premium valuation and inventory pileups in the automotive sector,” said Prashanth Tapse.
High Valuations
The upper pricing range for Hyundai Motor India is ₹1,960. Experts noted that this indicates a price of almost 30 times EPS for FY25 and 26 times EPS for FY24, indicating a difficult time ahead.
The creator of Kejriwal Research and Investment Services, Arun Kejriwal, stated that merchant bankers and business promoters were content with the grey market premium, which was between ₹700 and ₹725. They decided to increase the issue price for the offer for sale issuance as a result.
“The issue was overpriced and hence did not receive the required subscription in retain and HNI buckets. The parent increasing the price of the issue midway through the IPO process by ₹200 has brought about this situation,” said Arun Kejriwal.
