Hyundai Motor India Vs LIC: 2 Biggest IPOs In India Struggle With Subscription, What Causes Dull Response?

The much-anticipated Hyundai Motor India IPO has captured headlines as the largest-ever IPO in India and the second-largest globally in 2024. Despite its size and prominence, the offering fell short of expectations on the retail front, with the retail portion being subscribed to only 50% on the final day of the share sale. This underwhelming participation stands in stark contrast to previous large IPOs in India, most notably the Life Insurance Corporation (LIC) IPO in 2022, which saw robust retail interest, getting subscribed twice over.

The Hyundai Motor India IPO marks a historic moment for the company, as it is the first time Hyundai Motor is listing a subsidiary outside its home country, South Korea. However, the muted retail response has raised eyebrows, especially considering the scale of the offering and Hyundai's well-established presence in India as the country's second-largest automaker, trailing only Maruti Suzuki.

Although retail interest was low, the overall subscription for the Hyundai Motor India IPO was buoyed by strong demand from Qualified Institutional Buyers (QIBs). By the end of the three-day bidding period, the IPO was oversubscribed by 2.37 times, primarily due to aggressive QIB participation, which reached 6.97 times the allocated shares. This enthusiasm from institutional investors helped push total bids to Rs 46,288.97 crore, against an IPO size pegged at Rs 27,870 crore at the upper price band.

The Non-Institutional Investors (NII) segment also failed to meet full subscription, with only 60% of the shares allotted to this category being booked. Despite the overall undersubscription from retail and NII participants, the employee portion of the IPO saw enthusiastic bidding, with employees entitled to a Rs 186 per share discount. This segment was oversubscribed by 1.74 times.

Industry experts have pointed to two primary reasons for the lacklustre retail interest: the Offer-for-Sale (OFS) nature of the IPO and high valuations.

Purely Offer-for-Sale (OFS) Component

The Hyundai Motor India IPO was a 100% OFS, meaning all the 14.21 crore equity shares offered were being sold by the parent company, Hyundai Motor Company, with no fresh issue component. As a result, none of the funds raised will directly benefit Hyundai Motor India, leaving potential investors sceptical about the upside.

While the IPO is expected to improve Hyundai Motor India's visibility, brand image, and share liquidity, many retail investors were hesitant to invest in an OFS. Historically, large OFS offerings have been viewed with caution, with some citing the LIC IPO as a cautionary example. LIC, the largest IPO in India before Hyundai's, also had an OFS component that led to concerns about future returns, which may have contributed to the subdued response from retail investors in this case.

High Valuations

The price band for the Hyundai Motor India IPO was set at Rs 1,960 per share, valuing the company at 26 times earnings per share (EPS) for FY24 and approximately 30 times EPS for FY25. These valuations, combined with the fact that the company will not receive any IPO proceeds for expansion or capital expenditure, made the offering less attractive to retail investors. High valuations often signal limited room for near-term growth, and many investors appeared to have reservations about paying such a premium for Hyundai's Indian arm.

A Tale of Two IPOs: Hyundai vs LIC

The comparison between Hyundai's IPO and LIC's 2022 IPO has become a common refrain among market watchers. The LIC IPO saw robust retail interest, with strong backing from individual investors who were enticed by the company's long-standing reputation and more attractive pricing. In contrast, Hyundai's OFS-heavy structure and steep valuation have led to a more cautious approach, particularly from the retail segment, which is traditionally a critical part of large IPOs in India.