Do you expect big gains from Hyundai IPO? 3 reasons why you shouldn’t

Hyundai Motor India’s initial public offering (IPO) has witnessed tepid subscription so far as experts advised investors to exercise caution, citing valuation concerns.

Analysts had also questioned its valuation, with a price band set at Rs 1,865-1,960 per share. Aiming to raise a whopping Rs 27,856 crore, this is the largest IPO in India’s history. It is also the automaker’s first IPO since Maruti Suzuki’s in 2003. Despite the buzz surrounding the offering, the response from investors has been lukewarm, raising questions about its near-term performance.

As of October 16, Hyundai’s IPO was only 22% oversubscribed, with retail investors subscribing 0.32 times, qualified institutional buyers (QIBs) 0.05 times and non-institutional investors (NIIs) 0.17 times .
Given these numbers, experts advise not to expect a big listing day. Here are three reasons why.

PREMIUM GRAY MARKET

One of the key indicators of IPO performance is the gray market premium (GMP), and Hyundai isn’t setting the markets on fire. As of October 16, GMP stands at Rs 67, translating into a modest expected gain of 3.42%, with an estimated listing price of Rs 2,027. This is a far cry from the GMP of Rs 570 seen just a couple of weeks ago, which suggested more bullish sentiment.

Market experts believe this decline in GMP reflects cooling sentiment around the IPO. With a large issue size and higher valuation than industry peers like Maruti Suzuki, which trades at a price-to-book ratio of 4.79 times compared to Hyundai’s 13.11 times, the margin of safety for investors is reduced.

Amar Nandu, research analyst at SAMCO Securities notes, “Given the size of the IPO, most applicants are likely to receive shares, which could limit any significant post-IPO price increases “.

SALES PRESSURE

Another factor weighing on the potential for quick earnings is the Hyundai promoter’s stake sale plan. The company’s promoters are offloading a 17.5% stake in this IPO, with an additional 7.5% sale planned over the next three years to meet regulatory requirements. This impending selling pressure could dampen short-term demand, making the IPO less attractive to those expecting immediate returns.

FEELING WITH THE AUTOMATIC INDUSTRY

The broader sentiment in the auto industry isn’t helping either. Although Hyundai has a strong market position and plans to invest Rs 32 billion for future growth, the industry is currently facing headwinds. There has been a slowdown in auto sales, which is expected to affect the company’s earnings in the coming quarters.

Experts have warned that while Hyundai compares favorably with Maruti Suzuki, its lineup may be tepid.

Despite these concerns, some brokerages are optimistic about Hyundai’s long-term prospects. ICICI Direct and Jefferies, for example, have recommended a ‘Subscribe Long’ rating, noting that Hyundai’s strong market position and financial health make it a solid bet for patient investors.

Hyundai’s dominance in the SUV market, where it derives 67% of its revenue, along with its focus on premium products, give it a strong foothold. The company’s plans for capacity expansion, new product launches and entry into the electric vehicle (EV) space are also seen as positive for its long-term growth.

Gaurav Garg, research analyst at Lemonn Markets Desk, pointed to Hyundai’s strong operating metrics, including its local sourcing strategy and impressive revenue growth. “Hyundai has achieved a compound annual growth rate (CAGR) of 21.4% in FY22-24, largely driven by its SUV sales,” Garg said, adding that the leadership of Hyundai in this segment will strengthen its future prospects.

A MARATHON, NOT A SPRINT

For those hoping Hyundai’s IPO will deliver quick profits, experts recommend managing expectations. The issue’s large size, high valuation and broader industry challenges make it unlikely that Hyundai will see the explosive share price gains that investors have enjoyed from other IPOs in recent months.

However, for long-term investors, Hyundai’s growth story remains intact. Its strong market position, strategic focus on electric vehicles and plans for future expansion make it an attractive investment for those looking to look beyond the initial listing.

In Mehta’s words, “If you are a long-term investor, Hyundai fits the criteria. But don’t expect a quick buck on the listing.”

As Hyundai Motor India’s IPO continues to unfold, investors will need to weigh the risks and rewards carefully. While short-term gains may be modest, the company’s long-term potential remains promising, especially for those willing to stay the course.

(Disclaimer: The views, opinions, recommendations and suggestions expressed by experts and brokers in this article are their own and do not reflect the views of India Today Group. You are advised to consult a qualified broker or financial advisor before making any real thing.investment or trading decisions).