Hyundai Motor India IPO: Limited listing gains? Why this issue is for long-term investors

India's largest initial public offer (IPO) by Hyundai Motor India is all set to hit the stock market on Tuesday and many brokerages believe investors with a long-term horizon should 'subscribe' to the issue, as short-term upside may be limited.  
The grey market premium (GMP) on the Indian arm of Korean auto giant Hyundai Motor Company has plunged to Rs 65 level against as high as Rs 500-570 levels two weeks ago, suggesting a limited listing upside potential. The listing performance of the past biggest IPOs on Dalal Street namely Life Insurance Corporation of India Ltd (LIC) and One 97 Communications Ltd (Paytm) also do not instill confidence.

Add to that is the broader stock market sentiment, which is weak. Automobile players globally have slashed growth guidance on weak China demand. In India also, headwinds are visible with high inventory pushing leading players to offer huge discounts this festival season. Hyundai Motor India is seen as a proxy to the Indian passenger vehicle theme. 

Valuations

At the upper end of the price band Rs 1,865-1,960, Hyundai Motor India is seeking a valuation of 26 times EPS, 16.5 times EV/Ebitda and 2.3 times price-to-sales on FY24 basis, which is at a tad discount to industry leader i.e. Maruti Suzuki India.

ICICI Direct assigned a 'subscribe' to the 27,856-crore Hyundai Motor India IPO, given steady growth prospects amid industry tailwinds, robust financials and healthy SUV product slate. "We expect limited listing gains to this IPO, but HMIL may deliver healthy double-digit portfolio returns over medium- to long-term," the brokerage said.

If one attributes FY25 annualised earnings to the post-IPO fully diluted paid-up equity capital, then the asking IPO price is at a PE of 26.73 times, said Bajaj Broking that believes the IPO is relatively fully-priced. "But the company is poised for bright prospects post completion of its ongoing expansions," it said as it recommended "subscribe with a long-term view," it said.  

What is making analysts recommending 'subscribe' to the issue is the fact that the second-largest car maker with 14-15 per cent market share is expanding its manufacturing  capabilities in India with the recent acquisition of a manufacturing plant  in Talegaon, Maharashtra. The plant is anticipated to commence production partly in 2HFY26 and is expected to increase the company’s  aggregate production capacity to 10.74 lakh units once fully operational. They like Hyundai's parentage and the fact that Hyundai's India unit is focused on localising parts, with 93 per cent of parts in terms of purchase value sourced from  suppliers located in the 4 adjoining districts close to the Chennai facility.

Hyundai India justifies its premium ask considering its leadership in SUV sales, world class brand image followed by better safety ratings and multi segment growth visibility, said Prashanth Tapse, Senior VP (Research), Mehta Equities 

"I believe Indians have shifted from sub Rs 5-7 lac segment to Rs 10-12 lakh segment wherein Hyundai, Tata Motors along with M&M are better placed and have clearly grabbed the market growth better than Maruti Suzuki India. Maruti is continuously facing the heat of rising competition and market share decline, which is benefiting Hyundai Motor India, the second largest automaker in the country," he said.
  
Past IPOs
Until now, it was Life Insurance Corporation of India's Rs 21,008 crore issue in 2022 that was India's biggest IPO. The Rs 18,300-crore IPO by One 97 Communications and Rs 15,199 crore offering by Coal India in 2010 were other prominent IPOs in Indian stocks market history. One thing that makes Hyundai Motor India IPO differ from LIC or Coal India IPOs is the fact that it has a direct listed peer namely Maruti Suzuki India Ltd but LIC and Coal India were and are one of their kinds. In the case of Paytm also, there was no direct listed fintech peer for comparison purposes.  Paytm and LIC shares were listed at 9 per cent discount each. Coal India was a hit at debut, as the scrip jumped 17 per cent on listing in November 2010.

"Following the issuance of equity shares, Hyundai's market capitalisation will stand at Rs 1,59,258 crore, with a market cap-to-sales ratio of 2.28 based on its FY24 earnings. We believe that the issue is fully priced and recommend “Subscribe – Long Term” rating to the IPO," Anand Rathi Share and Stock Brokers.

SBI Securities, Canara Bank Securities, SMIFS Limited and Arihant Capital are a few other brokerages suggesting 'subscribe' to the issue but with a long-term horizon.