Hyundai Motor India is gearing up for the launch of its much-anticipated initial public offering (IPO), aiming to raise a staggering ₹27,870.16 crore starting from Tuesday, October 15. This offering is significant not only because of its size but also as it sets a new record for India’s largest IPO, eclipsing the previous record held by the Life Insurance Corporation of India (LIC).
Since the fiscal year 2009 (FY09), Hyundai Motor India has consistently held the position of the second-largest passenger vehicle manufacturer in the country. Unlike many IPOs, Hyundai’s offering is entirely an offer for sale (OFS) comprising 14.22 crore equity shares, sold by its South Korean parent company, Hyundai Motor Company. Investors can expect shares priced between ₹1,865 and ₹1,960.
This IPO not only marks an event in the company’s history but also makes a significant milestone as it is the first IPO by an automobile manufacturer in India since Maruti Suzuki’s offering in 2003. Despite the initial excitement surrounding the IPO, there are indications that market enthusiasm might be declining, with reports of a decreasing grey market premium (GMP).
Historically, many of India’s largest IPOs have failed to provide substantial returns to investors. Notable IPOs like Paytm, Reliance Power, General Insurance Corporation of India, and New India Assurance are examples where investors have seen losses. In contrast, only a select few large IPOs, including Coal India, Zomato, and HDFC Life Insurance, have appreciated over time, with shares trading above their issue prices.
Market analysts have noted that the underperformance of large IPOs can be associated with aggressive pricing strategies and a significant share of the offering being allocated through the OFS route. This trend could influence the post-listing performance of Hyundai Motor India’s IPO, raising concerns among potential investors.
Let’s take a closer look at the five largest IPOs in India to understand their performance:
LIC IPO
The ₹21,008 crore LIC IPO, which debuted in May 2022, remains the largest in Indian history. Shares of LIC started trading at ₹904, which was below the issue price of ₹948. As of October 14, LIC’s stock is trading at approximately ₹960, yielding a modest return of 1.2% since its listing.
Paytm IPO
One97 Communications, the company behind fintech giant Paytm, launched its ₹18,300 crore IPO in November 2021, with an issue price set at ₹2,150. However, the performance of Paytm’s stock has been disappointing, currently trading around ₹724, which represents a staggering decline of over 66% from its initial offering price.
Coal India
Coal India presents a contrasting story as one of the few successful IPOs. Its ₹15,200 crore IPO in November 2010 was priced at ₹245 per share and has delivered impressive returns since, with the stock currently trading at around ₹500 per share, reflecting gains of over 104%, thus qualifying as a multibagger investment.
Reliance Power
Reliance Power, part of the Anil Ambani Group, launched its ₹11,560 crore IPO in February 2008 at an issue price of ₹281 per share. The stock has since seen a dramatic drop, currently trading more than 84% below its issue price.
GIC India
The General Insurance Corporation (GIC) launched its IPO in October 2017 with an issue price of ₹912 per share. Despite a 1:1 bonus issued in 2018, the stock is down nearly 14%, even after accounting for the bonus adjustment.
Hyundai Motor India IPO
Hyundai Motor India’s record-breaking ₹27,870.16 crore IPO will officially open for subscription from October 15 to 17. The chosen price band for the shares has been established between ₹1,865 and ₹1,960 per share.
At the upper end of the price band, ₹1,960, the Hyundai Motor India IPO is set at a price-to-earnings (P/E) ratio of 26.3x based on the projected earnings per share (EPS) of ₹74.58 for FY24.
While several analysts advocate subscribing to the IPO for long-term investment, there are warnings of a potential lackluster listing due to concerns surrounding high valuations and the fact that this IPO is composed entirely of the OFS.
“A significant component of this offering comes from prior investors cashing in on the market hype. With 100% of the IPO being OFS, the company will not benefit from fresh capital on its balance sheet,” stated Anshul Jain, Head of Research at Lakshmishree Investment and Securities.
Jain emphasized that the high valuation and complete reliance on the OFS are significant drawbacks for potential investors considering Hyundai Motor India IPO.
On the financial front, Hyundai Motor India reported a consolidated total income and net profit of ₹71,302.33 crore and ₹6,060.04 crore for FY24. Furthermore, for the first quarter of FY25, which ended on June 30, 2024, the company achieved a net profit of ₹1,489.65 crore on total income of ₹17,567.98 crore.
The sales volume for Q1FY25 reached 192,055 units, marking a 4.72% increase from 183,403 units in Q1FY24. For the entire fiscal year 2024, the sales volume grew by 7.96% year-over-year, totaling 777,876 units.
“The issue is priced at a price-to-book value (P/BV) of 13.11 based on its net asset value (NAV) of ₹149.52 as of June 30, 2024, alongside the post-IPO equity capital since this is a secondary issue. The asking price captures FY25 annualized earnings, indicating a P/E of 26.73, while based on FY24 earnings, the P/E is 26.28. Although the issue seems fully priced, the company appears well-positioned for growth following its ongoing expansions,” commented Bajaj Broking.
In conclusion, Bajaj Broking recommends a ‘Subscribe’ rating to the issue for long-term investors.
SMIFS also advocates subscribing to the IPO, highlighting Hyundai’s industry-leading market share in the SUV segment, the trend towards premiumization of vehicles that could increase average selling prices (ASP), expanded production capacity, and entry into the electric vehicle (EV) segment as key catalysts for future growth.
“We recommend subscribing to the IPO as a solid long-term investment, given Hyundai’s strong market position within the passenger vehicle (PV) segment, the shift towards premium models, and the introduction of new EV models, which should enhance both revenue and margins, despite the valuations aligning with those of other listed peers,” stated SMIFS.
Disclaimer: The views and recommendations mentioned in this article are those of individual analysts or brokerage firms and do not reflect the opinions of our platform. We advise investors to consult certified professionals before making any investment choices.
