Hyundai Motor India IPO: Public Issue Subscribed 18% On Day 1, GMP Hints Tepid Listing; Check Details

Hyundai Motor India's much-anticipated Rs 27,870 crore Initial Public Offering (IPO), the largest in India's history, witnessed a measured response on its first day of subscription, with 18% of the total offer being subscribed. This IPO has garnered attention as it marks the first major share sale by an automaker in over two decades, following Maruti Suzuki's 2003 listing.

The subscription breakdown showed a diverse response across various investor categories. The retail portion saw 26% subscription as retail investors bid for 1.3 crore shares against the 4.94 crore shares offered. Non-institutional investors (NIIs), who generally account for a significant chunk of high-value bids, placed bids for 27.66 lakh shares, representing 13% of their allocated portion. Meanwhile, employees of Hyundai Motor India showed substantial interest, with 80% of their portion being subscribed, totalling 6.19 lakh shares out of the 7.78 lakh shares set aside. However, the Qualified Institutional Buyers (QIB) portion was subscribed to just 5%, indicating a cautious start from institutional players.

Hyundai Motor India has already managed to mobilize Rs 8,315.3 crore from 225 anchor investors prior to the public issue opening. This anchor book participation includes marquee global institutional names such as the Government of Singapore, New World Fund Inc, Monetary Authority of Singapore, Fidelity, Government Pension Fund Global, and American Funds Insurance Series New World Fund. These institutions invested Rs 2,191.66 crore in Hyundai.

Hyundai finalised the allocation of 4.2 crore equity shares to anchor investors at a price of Rs 1,960 per share. Other major investors in this allocation included financial giants like Baillie Gifford, Vanguard, City of New York Group Trust, Blackrock, JP Morgan, and Goldman Sachs, among others, who have now become shareholders in Hyundai through the anchor book.

The Hyundai IPO comes at an interesting time for India's passenger vehicle (PV) industry. According to market experts, the PV industry rebounded sharply in fiscal 2024, reaching a record high of 4.2 million vehicles sold, after the economic recovery post-COVID. However, with inventory levels rising to record highs and weaker demand, analysts expect growth in the PV segment to slow in the coming years. This backdrop of slower demand is reflected in Hyundai's performance, as the company saw a decline in sales and profit growth for the quarter ending June 2024.

From a valuation perspective, the Hyundai Motor India IPO appears fairly valued but not aggressively priced. According to Amar Nandu, Research Analyst at SAMCO Securities, Hyundai's trailing-twelve-month P/E ratio stands at 25.6, slightly lower than its peer Maruti Suzuki's P/E of 27.6. However, Hyundai's Price-to-Book (P/B) ratio of 13.11 is significantly higher than Maruti's 4.79, indicating a limited margin of safety despite Hyundai's better Return on Equity (ROE). Investors may view this as a cautious signal, given the already large size of the IPO and the selling pressure anticipated due to future regulatory requirements for promoter stake reduction.

The Hyundai IPO is entirely an Offer-for-Sale (OFS) by its Korean promoter, Hyundai Motor Company (HMC), meaning there will be no fresh issue component. The OFS comprises 14.21 crore equity shares, with HMC diluting a 17.5% stake in its Indian subsidiary. Furthermore, HMC is expected to offload an additional 7.5% stake within the next three years to meet regulatory norms, potentially exerting selling pressure in the future.

Hyundai Motor India's IPO is set to eclipse the previous record held by Life Insurance Corporation (LIC) of India, making it the largest IPO ever in the country. The scale of the offer has attracted the attention of both domestic and international investors, and it is expected to be a landmark event in the Indian capital markets.

Among the anchor investors, a significant portion-1.46 crore shares or 34.42%-was allocated to 21 domestic mutual funds, including prominent names such as ICICI Prudential Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, and Nippon India Mutual Fund. This strong domestic interest is seen as a positive sign.

As the Hyundai Motor India IPO moves through its subscription phase, there are several factors investors will need to consider. On the positive side, the strong anchor investor participation and Hyundai's brand reputation as the second-largest carmaker in India provide solid footing for the offer. However, investors are also weighing the company's recent financial performance, valuation metrics, and the likelihood of post-issue selling pressure as the promoter further reduces its stake.