Ahead of the opening of the highly-anticipated initial public offering (IPO) of Hyundai Motor India next week, the grey market premium (GMP) of its shares crashed by over 70% in the unlisted market. The GMP of Hyundai Motor shares have dropped from its peak of ₹570 on September 27 to ₹165 on October 10, indicating the listing price to be around ₹2,125, a premium of 8.4% over the issue price.
The GMP has witnessed sharp correction in three sessions, from ₹270 on October 7 to ₹147 on October 8, after the auto major announced the price band for its upcoming IPO at ₹1,865-1,960 per share. The drop in the GMP of Hyundai Motor shares can be attributed to its “rich valuations” coupled with volatility in the domestic equity market amid escalated geo-political tensions.
“The most awaited & largest IPO is hitting the market despite knowing the headwinds that the global & domestic automobile industry is facing slowdown kind of scenario is pushing inventory to one year high,” says Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.
“Hyundai Motor India is seeking a slightly higher premium to Maruti and lower to M&M based on price earnings ratio while the company stands to be expensive in terms of price to book value. Hyundai India justifies its premium ask considering its leadership in SUV sales, world class brand image followed by better safety ratings, multi segment growth visibility largely been driven by its popular SUVs, particularly the Creta, Exter, and Venue models in the Indian market,” says Tapse.
“On valuation perse based on annualised FY25e expectation the issue appears fully priced-in leaving no room for any healthy listing gain,” he adds.
Despite contributing only 6.5% of Hyundai's global revenues and 8% of its profitability, Hyundai’s India is asking for premium valuation even when compared to its South Korean parent entity, Hyundai Motor Group, which is trading at 5-6-time price-to-earnings (PE) ratio and valued 42% of the South Korean parent's market capitalisation on listing.
Despite global headwinds and domestic inventory pressure, the country’s largest-ever IPO is eagerly awaited by investors and is expected to garner good response when it opens for subscription on October 15.
Domestic brokerage Anand Rathi has recommended “Subscribe – Long Term” rating to the IPO, saying that HMIL has consistently held the position as the leading auto OEM in India by sales volume in the mid-size SUV sub-segment from Fiscal Year 2019 through the three months ending on June 30, 2024.
“At the upper band the company is valuing at 26.2x its FY24 earnings along with being valued at 26.7x if we annualize FY25 earnings. Following the issuance of equity shares, the company's market capitalisation stands at ₹1,59,258 crore, with a market cap-to-sales ratio of 2.28 based on its FY24 earnings,” it says in a note.
Hyundai Motor India, the country's second-largest car maker, looks to raise ₹27,870 crore at a valuation of ₹1.59 lakh crore. If this IPO becomes successful, this will be India’s largest public issue, surpassing the record ₹20,557 crore raised by the state-owned insurer Life Insurance Corporation (LIC) of India in 2022. Also, this is going to be Hyundai Motor Company’s first IPO outside South Korea and also the first automobile issue in 20 years, after Maruti Suzuki’s listing in 2003.
The three-day IPO of Hyundai Motor India will open for subscription on October 15 and close on October 17, 2024. The allotment of Hyundai Motor shares to eligible applicants is expected to be finalised on October 18, 2024, while the tentative date for listing of the stock on the BSE and NSE is October 22, 2024.
The issue is entirely an offer for sale of 14.22 crore shares by Hyundai Motor India’s South Korean parent. Since the public issue is completely an OFS, the company will not receive any proceeds from the IPO. The lot size of the IPO is 7 shares and multiple thereafter. So, the minimum application amount for retail investors is ₹13,720 for one lot, while the maximum is 14 lots or 98 shares for ₹192,080.
(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)
