Hyundai Motor India IPO: Avoid, say these analysts; here’s why

Hyundai Motor India’s biggest-ever domestic IPO has received more than a dozen ‘subscribe’ ratings, but some brokerages are cautious even though they believe the Korean automaker’s Indian arm is well positioned to capitalize on macro trends with a diversified portfolio of products and premiumization of offers.

At 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 on Monday raised Rs 8,315 crore from anchor investors.

The price to book ratio of 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 at SAMCO Securities, who called the IPO fair and non-aggressively priced.

Nandu noted that due to the large size of the IPO, there is a high chance of allotment for most applicants. This would mean that post-issue demand for Hyundai Motor India shares may not increase, he said.

“Further, the promoter is offering a 17.5 percent stake in the issue, and an additional sale of 7.5 percent is anticipated within three years to meet regulatory requirements, which will create selling pressure. Considering these factors, investors may choose to avoid this.

Hyundai India is planning a Rs 32,000 crore expansion. StoxBox, in a note, said the recent depletion of Hyundai Motor India’s cash and bank balances following the Indian entity’s hefty dividends to its South Quran parent company raises doubts about its expansion plans which would now largely be driven by external loans, thus impacting their financial performance in the future. ahead.

It recommended an ‘Avoid’ rating for the issue and said it would reassess its rating in the future following sustained business performance in the coming quarters.

“The issue is currently priced at a P/E of 26.3 times FY24 earnings, which we consider higher, especially given its market share. Other concerns include the fact that the issue is entirely a OFS, a high capitalization post-listing market compared to its parent company (42 percent of the HMC group) and the parent company’s lower valuation on its local stock exchange,” he said.

Given the size of the IPO, the listing gain will be limited, Swastika Investmart said. Investors with a long-term perspective and willing to accept potential listing challenges may consider applying for this IPO, the brokerage said. Most other brokerages have a “subscription with a long-term view” rating on the stock.

At the upper end of the IPO price range of Rs 1,865-1,960, Hyundai Motor India is seeking a valuation of 26 times earnings per share, 16.5 times EV/Ebitda and 2.3 times full-year sales price fiscal 24, which is at a slight discount to the industry leader i.e. Maruti Suzuki India.

ICICI Direct has given a ‘subscription’ to Hyundai Motor India’s Rs 27,856-crore IPO given steady growth prospects amid industry tailwinds, robust financials and a healthy slate of SUV products. “We expect limited listing gains for this IPO, but HMIL can deliver healthy double-digit portfolio returns in the medium to long term,” the brokerage said.