Hyundai Motor India IPO: India’s biggest IPO sees dull response from retail investors; experts decode key reasons

Hyundai Motor India IPO: The highly anticipated initial public offering of Hyundai Motor India failed to entice retail investors; on the last day of the share sale, just 50% of retail portion was subscribed. According to the records, this IPO is the largest in India and the second-largest in the world in 2024. It marks the debut listing for Hyundai Motor's outside South Korea.

In the recent past on the mainboard IPO segment, it has been uncommon for the retail and non-institutional investors' portions to remain undersubscribed. The very low retail participation in Hyundai Motor IPO contrast with earlier large stock offerings in India; for example, Life Insurance Corp IPO in 2022, which was India's largest issue then, had two times subscription in its retail section.

Despite low retail interest, the Hyundai Motor IPO managed to attract bids amounting to ₹46,288.97 crore backed by aggressive bidding by Qualified Institutional Buyers (QIBs) during the second and third day of the offering. Whereas at the upper end of the price band, the IPO size was pegged at ₹27,870 crore.

The employees' section also saw a huge response, with employees being entitled to a discount of 186 rupees per share on the IPO price. According to exchange data, they bid for 1.74 times the shares allocated to them.

The subscription for the Hyundai Motor India IPO was slow during the entire three-day bidding period. However, by the end of the third day, the issue was oversubscribed by 2.37 times, with QIBs leading the subscription at 6.97 times. The non-institutional investors (NII) portion saw 60% booking, while the retail portion was booked at 50%.

“The subscription figure on a consolidated basis looks good, but the non-participation of NII and retail is a matter of concern. I believe the investors may have opted to wait and watch the listing and later take the price discovery process to accumulate the largest automobile player in India. October 22 would be a great day to watch for the listing and stock behaviour post listing. Post-closing of the subscription process the listing expectation would be flat +or- 5% on the issue allotment price. Fingers crossed,” said Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities.

Experts decode two key reasons

Purely offer-for-sale (OFS) component

Hyundai Motor India IPO consists solely of an offer for sale of 14,21,94,700 equity shares by promoter Hyundai Motor Company, without any fresh issue component.

As the public issue is entirely an OFS, Hyundai Motor India Ltd, the second largest carmaker in India after Maruti Suzuki, will not be getting any proceeds from the IPO.

Hyundai Motor India mentioned that it anticipates the listing of the equity shares to improve its visibility and brand image, as well as to offer liquidity and a public market for the shares.

The Street had some doubts about the OFS component, as historically, bigger OFS have not been profitable for investors. They referred to the Life Insurance Corporation of India (LIC) IPO as an example.

“From a sluggish start, Hyundai IPO finally managed to sailout from the risk of undersubscription demand. We all know that the offer was too big to fail. Hence, QIB investors saved the show on the last day of the subscription process. Despite the QIB category getting oversubscribed, NII and retail investors choose to stay away considering the 100% OFS followed by premium valuation and inventory pileups in the automotive sector,” said Prashanth Tapse.

High Valuations

Hyundai Motor India's upper price band range has been set at ₹1,960. This suggests a valuation of 26 times EPS for FY24 and around 30 times EPS for FY25, signalling a challenging period ahead, experts highlighted.

Arun Kejriwal, founder of Kejriwal Research and Investment Services mentioned that the merchant bankers and company promoters were happy with the grey market premium being around ₹700-725. As a result, they opted to raise the issue price for the offer for sale issue.

“The issue was overpriced and hence did not receive the required subscription in retain and HNI buckets. The parent increasing the price of the issue midway through the IPO process by ₹200 has brought about this situation,” said Arun Kejriwal.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.