Hyundai Motor India IPO: The initial public offering of Hyundai Motor India Ltd (HMIL), the Indian arm of South Korean automaker Hyundai, received a subdued 18 per cent subscription on the first day of bidding on Tuesday. The Rs 27,870.2-crore IPO, which is a complete offer-for-sale (OFS) where the company’s South Korean parent will be diluting some of the stake, will be closed on October 17.

Now, till 10:03 am on the second day of bidding on Wednesday, the IPO received a 0.20 times subscription garnering bids for 1,95,13,256 shares as against the 9,97,69,810 shares on offer.

The category for non-institutional investors received 0.15 times subscription, while the portion for retail individual investors (RIIs) got subscribed 0.29 times. The QIB category received a 0.05 times subscription.

The Hyundai Motor India IPO is India’s biggest IPO comfortably surpassing LIC’s Rs 21,000-crore IPO, which was until now the biggest IPO in the country’s history.

Hyundai Motor India IPO: Key Dates

The IPO will remain opened for public between October 15 and October 17. Anchor investors submitted bids worth Rs 8,315 crore on October 14. The share allotment will take place on October 18, while Hyundai Motor India’s shares will be listed on BSE and NSE on October 22.

Hyundai Motor India IPO: Price Band and Lot Size

The price band of the much-awaited IPO has been fixed in the range of Rs 1,865 to Rs 1,960 per share.

Investors can bid for the IPO for a minimum of 7 equity shares and in multiples of 7 equity shares thereafter.

Hyundai Motor India IPO GMP Today

According to market observers, unlisted shares of Hyundai Motor India Ltd are trading Rs 63 higher in the grey market than its issue price. The Rs 63 grey market premium or GMP means the grey market is expecting a 3.21 per cent listing gain from the public issue. The GMP is based on market sentiments and keeps changing.

‘Grey market premium’ indicates investors’ readiness to pay more than the issue price.

Hyundai Motor India IPO: Analysts’ Recommendations

This IPO marks a significant milestone for the Indian auto industry, as it is the first automaker’s initial share sale in over two decades, following Japanese automaker Maruti Suzuki’s listing in 2003. Most brokerages have given a ‘buy’ ratings to the IPO.

Hyundai Motor India IPO recommendations from various brokerages.

Giving a ‘Buy’ recommendation, Bajaj Broking in its IPO note said, “For the last three fiscals, the company has reported an average EPS (earning per share) of Rs 62.56, and an average RoNW (return on net worth) of 39.11 per cent. The issue is priced at a P/BV (price-to-book value) of 13.11 based on its NAV (net asset value) of Rs 149.52 as of June 30, 2024, as well as post-IPO equity capital since this is a secondary issue.”

If one attributes FY25 annualised super earnings to its post-IPO fully diluted paidup equity capital, then the asking price is at a price-to-earning (P/E) of 26.73, and based on FY24 earnings, the P/E stands at 26.28, it said.

“The issue relatively appears fully priced, but the company is poised for bright prospects post completion of its ongoing expansions,” said Bajaj Broking.

Hyundai Motor India reported profit after tax (PAT) margins of 6.05 per cent (FY22), 7.67 per cent (FY23), 8.50% (FY24), 8.48% (Q1-FY25), and RoCE (return of capital employed) margins of 20.37 per cent, 28.75 per cent, 62.90 per cent, 13.69 per cent for the referred periods, respectively.

Another brokerage Master Capital Services in its IPO note said, “Hyundai’s IPO offers potential value growth by expanding investment prospects in the underdeveloped Indian auto market.”

Another brokerage LKP Securities also recommended a ‘subscribe for long term’.

“We believe it (Hyundai Motor India IPO) is the second best player to play as a proxy to the Indian PV (passenger vehicle) theme along with the likes of Maruti Suzuki. The company has about 15 per cent market share on the back of 68 15 per cent share coming from the SUVs, while more than 20 per cent share coming from exports. Its revenues are growing along with the industry in India and have strong return ratios as well. Its EBITDA margins at 13.8 per cent in Q1 FY25 are best among the industry. The current capacity utilisation of HMI’s plants is nearly 100 per cent, due to which in near future the company may not be able to cater to the demand,” LKP stated.

However, since the PV industry is slightly in a slow lane currently, this may augur well for the company, as HMI is expanding its capacity by 30 per cent in the next 2 to 3 years. With new model launches (4 in mid-term, including the new Creta EV), HMI should give a strong fight to its rivals. At the upper end of the price band, on FY 24 earnings, the stock should trade at 26x times which is a fair value as compared to its closest peer Maruti Suzuki (29x FY 24 earnings). “Therefore, on all favourable parameters, we assign a SUBSCRIBE rating on the stock. We recommend investing in this stock over the long term for higher returns,” LKP said.

Saji John, senior research analyst at Geojit Financial Services, said, “Hyundai’s impressive financial performance and premium product mix, especially in the SUV segment, could alter the competitive landscape in the listed space. This could force other automakers to innovate and improve their offerings to build investors’ confidence. Investors might reallocate their portfolios based on Hyundai’s perceived growth potential and valuation, which could put downward pressure on its competitors’ share price.”

Hyundai’s emphasis on innovation, particularly in the EV sector, strategically places it to gain a larger market share and command higher prices. With the growing consumer preference for EVs, Hyundai’s cutting-edge and competitive models are likely to draw more buyers. The company’s robust brand image and loyal customer base, especially in the SUV and premium car markets, could further diminish Maruti’s market share and sales. Additionally, Hyundai’s strong reputation for quality and safety is a significant factor in attracting customers, John added.

“Hyundai’s IPO being the first major auto IPO in India in over two decades could attract significant global investor interest. This influx of foreign investment could further enhance the sector’s valuation. The company’s portfolio expansion and manufacturing capabilities highlight the growth potential and investment in the automotive market. The increased competition and innovation driven by Hyundai’s enhanced financial strength post-IPO could push other automakers to reassess their growth potential and market positioning, positively re-rating the sector. Conversely if the listing has been perceived as overvalued then it can negatively impact,” John said.

Mirae Asset Capital Markets in its note said, “On financial metrics, HMIL exhibits superior operating margins relative to its closest competitor. At the upper price band of INR 1,960, HMIL is priced at a PE of 26.3x FY24 EPS, in comparison to Maruti Suzuki Ltd., which trades at 30.8x FY24 EPS.”

Hyundai Motor India IPO: More Details

Hyundai Motor India commenced operations in India in 1996 and currently sells 13 models across segments.

In its draft papers, Hyundai Motor India said, “Further, our Company expects that listing of the Equity Shares will enhance our visibility and brand image and provide liquidity and a public market for the Equity Shares in India.”

Hyundai set up its India operations in 1996, starting off with the Santro hatchback, once its most sold car. Hyundai holds India’s no.2 carmaker spot, coming in behind Maruti Suzuki. It currently has a roughly 15% share in the country’s competitive car market. It sold 614,721 cars in India and exported 163,155 units in the year to March 2024

Hyundai has one factory outside of Chennai in southern Tamil Nadu state, also dubbed the Detroit of Asia. The factory has a capacity of 824,000 units per year and is running at a utilisation rate of 94 per cent, leaving little room for growth that would help compete with Maruti Suzuki.

Hyundai aims to reach production of about 1 million units a year with the acquisition of a former General Motors plant in western Maharashtra state. The plant is expected to start operations only by the second half of the year to March 2026.

Hyundai has 1,377 dealers across India. In India, the carmaker sells 13 models, with the ‘Creta’ and ‘Venue’ sport utility vehicles as well as the ‘Grand i10 Nios’ hatchback among its top-selling models.

Hyundai’s current factory is also a key export hub, which manufactures cars that are shipped to South Africa, the Middle East as well as Latin America.

Citi, HSBC Securities, JP Morgan, Kotak Mahindra Capital and Morgan Stanley are the investment banks advising on the transaction and law firm Shardul Amarchand Mangaldas is the company counsel. Cyril Amarchand Mangaldas is the banks’ counsel and Latham and Watkins is acting as the international counsel.