Hyundai Motor India IPO sees slow recovery as analysts raise concerns over high valuation

Hyundai Motor India IPO: Today (Tuesday, October 15), Hyundai Motor India Ltd launched its initial public offering on D-Street, and the first day of bidding was marked by a gradual and consistent pace. The IPO garnered an 18% subscription on the opening day. Among the subscriptions, the share of retail investors is 26%, the share of non-institutional investors is 13% and the share of qualified institutional buyers (QIBs) is 5%. Furthermore, the employee share had a subscription of 79%.

Market analysts have pointed out that historically, larger offerings for sale (OFS) have not been rewarding for investors, citing the example of the Life Insurance Corporation of India (LIC) IPO.

Being the biggest IPO in Indian history has generated significant buzz and curiosity around Hyundai Motor India and its share offering, yet market experts have raised huge concerns about its valuations.

Hyundai Motor India, founded in 1996, is a leading automobile manufacturer in India and a wholly owned subsidiary of Hyundai Motor Company, Korea. It is known for its popular models like the i20, Creta and Venue. The Indian unit will not issue new shares, but its Korean parent company, Hyundai Motor, plans to sell up to 142.2 million shares in the unit, representing a 17.5% stake. All the money raised from the IPO will go to the parent company, which did not provide details on how it will be used.

The share sale of this automaker reinforces India’s position as one of the busiest markets for raising capital this year, with more than 100 companies listed in the September quarter, as per reports. However, fluctuating demand for its shares from individual investors also highlights the challenges the company will encounter in a competitive market filled with incentives and price cuts as the pandemic-induced surge in demand wanes.

Here’s what the experts have to say

Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund

Gulati explained that the upper limit of Hyundai Motor India’s price range is set at $$1960. This translates to a valuation of 26 times earnings per share on a fiscal 24 basis and about 30 times earnings per share on a fiscal 25 basis due to a challenging year.

Despite people’s love for the brand, it is important to recognize that the company is making a full Sale Offer by paying its parent company; capturing the peak of a liquidity-driven bull market, which may not be favorable for investors. Furthermore, Hyundai’s market share has remained stagnant or even declined, with Maruti Suzuki at the top end and Tata Motors (TaMo)+Mahindra & Mahindra competing at the bottom. Considering these factors, I believe the issue price should be at least 100-250 rupees lower. So I will avoid this problem.

“However, I would consider buying the stock once the industry macros/miracles start to improve, better products start to be released by Hyundai (and not Kia!), and the valuation hits the 21-23x mark a year ahead. front. Until then, enjoy the Laughter of Liquidity!”, said Gulati.

Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities

Prashanth Tapse highlighted that based on projected annualized profits for FY25e, the IPO appears to be fully priced, leaving little room for significant listing gains.

Hyundai Korea is planning to sell shares worth $$27,870 Cr through offer for sale (OFS) in the Indian market, valuing the company at ca. $$1.59 million Lac in the highest price range. Despite contributing only around 6.5% of Hyundai’s global revenues and 8% of its profitability, Hyundai India seeks a premium valuation compared to its parent company, which trades at a price-to-earnings ratio of 5 to 6 times and is valued at approximately 42%. of the market capitalization of the South Korean parent company at the time of listing. When compared to its domestic peers, Hyundai Motor India seeks a slightly higher premium for Maruti and lower for M&M based on price-to-earnings ratio, while Hyundai appears to be expensive in terms of price-to-book value.

“Taking all factors into account, the significant question worth a billion dollars is whether Hyundai exceeds valuations compared to Maruti Suzuki, Tata Motor and Mahindra & Mahindra. Investors should also consider IPO offerings that include a 100% Offer for Sale (OFS) worth $$27,870 Cr, which is a cause for concern for new investors. Given the peak valuations coupled with 100% OFS, there is a high probability of a + or -5% flat listing and a low probability of any substantial listing gains,” Tapse advised.

Arun Kejriwal, the founder of Kejriwal Research and Investment Services

Kejriwal stated that merchant bankers and company promoters were pleased to see the gray market premium priced at around $$700-725. Therefore, they decided to increase the issue price for issuing an offer for sale. This led to an increase in the size of the problem by approximately $$3,000 crores and a reduction in premium to around $$100.

In what is being considered the largest issue ever, investors anticipate gains in the share price. If the company expects to keep all the profits for itself, it is mistaken. Given current prices, limited capacity, high prices and a significant decline in the gray market premium, the issuance appears to be costly for listing day and short-term prospects. The reader is advised to consider the long-term investment and make a decision even after listing.

Long-term investment of 2.5 lakh cars in 15 months and four new electric vehicles in 4-5 months would make the offering interesting, Kejriwal believes.

Disclaimer: The opinions and recommendations above are those of individual analysts, experts and brokers, not Mint. We advise investors to consult certified experts before making any investment decision.