Hero Motors Withdraws Draft Papers From SEBI For Rs 900 Crore IPO; What's Next For The Company?

Hero Motors, the auto components manufacturer led by Pankaj Munjal, has withdrawn its Draft Red Herring Prospectus (DRHP) that was submitted to the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO) worth Rs 900 crore.

In August 2024, Hero Motors filed its DRHP, proposing a public offering that included a fresh issue of shares amounting to Rs 500 crore and an offer for sale (OFS) of Rs 400 crore by its promoters. The promoters, including OP Munjal Holdings, Bhagyoday Investments, and Hero Cycles, were set to offload significant portions of their shares. OP Munjal Holdings, in particular, had intended to sell Rs 250 crore worth of shares, while Bhagyoday Investments and Hero Cycles were expected to each sell Rs 75 crore worth of shares through the OFS.

The funds raised from the fresh issue were primarily intended to help Hero Motors repay its outstanding debts and finance capital expenditures for expanding its Noida facility. Additionally, the proceeds were to be used to support working capital needs and other general corporate purposes. The company had also considered a pre-IPO placement of Rs 100 crore, which would have been deducted from the fresh issue if executed.

Despite the sudden withdrawal of the IPO, Hero Motors has demonstrated strong financial performance over the past few years. The company, which provides powertrain solutions to automotive original equipment manufacturers (OEMs) across the United States, Europe, and India, has experienced a steady rise in both revenue and profit margins.

From FY22 to FY24, Hero Motors' revenue increased from Rs 914 crore to Rs 1,064 crore, while its gross profit surged from Rs 281 crore to Rs 419 crore. This growth, at a compound annual growth rate (CAGR) of 22%, also improved the company's gross margin, which rose from 30.78% in FY22 to 39.40% in FY24.

The decision to withdraw the IPO could be seen as a strategic move by Hero Motors, considering the broader market conditions and investor sentiment. With global uncertainties and fluctuating stock markets, companies sometimes delay or withdraw IPO plans to reconsider timing or reassess market conditions.

It's also possible that Hero Motors is evaluating alternative funding routes, potentially revisiting the IPO when conditions become more favourable. The lead managers for the now-withdrawn issue were ICICI Securities, DAM Capital Advisors, and JM Financial.