Hyundai Motor India IPO a success for its parent. What about local shareholders?

Stock of Hyundai Motor India Ltd, only the second pure-play passenger vehicle maker to be listed on the Indian stock exchanges after Maruti Suzuki India Ltd, debuted on the National Stock Exchange (NSE) at ₹1,934 on Tuesday, a slight discount to its issue price ₹1,960.

The issue—a milestone for both the company’s parent Hyundai Motor Co. (HMC) and the Indian stock market as the country’s largest public offering so far—is a key part of Hyundai’s strategy to enhance the valuation of its global businesses as part of the South Korean government’s Corporate Value-Up Program.

The programme seeks to improve operational efficiencies in large conglomerates like Hyundai, while enhancing corporate value and returning more cash to shareholders.

By the end of the day, the stock had fallen nearly 5% from its listing price. Despite the lukewarm opening, Hyundai’s initial public offering (IPO) is seen as a pivotal moment for the Indian stock market, showcasing the market’s depth and liquidity.

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Hyundai’s IPO of ₹27,870 crore was the biggest in the country, exceeding state-run Life Insurance Corp. of India’s (LIC) initial share sale of ₹21,000 crore in 2022. It had fixed a price band of ₹1,865-1,960 per share.

The offering consisted of 142.19 million equity shares, with Hyundai Motor Co., the promoter, selling a portion of its stake in the Indian subsidiary. In March this year, Hyundai Motor India paid a special dividend of ₹107.82 billion to Hyundai Motor Co. following strong earnings. This amounted to a dividend of ₹13,270 per equity share. Over the past three years, dividends have increased steadily, from ₹1,838 per share in FY22 to ₹5,727 per share in FY23.

Market reaction and investor sentiment

The mixed market reaction to the IPO has sparked discussions about its implications for retail and institutional investors alike. “It’s a significant moment for the Indian stock market, as we can absorb such a large issue. In 2007, Reliance Power was the biggest IPO with a size of ₹11,563 crore, and although it turned out to be a disaster, the market managed to absorb it. The size and scale of IPOs change over time,” Kranthi Bathini, director of equity strategy at WealthMills Securities, told Mint.

However, while institutional investors displayed strong interest in the IPO, with the qualified institutional buyer (QIB) portion of the share sale oversubscribed by 6.97 times, the retail segment saw a relatively muted response. The subscription for retail investors was at 0.5 times, indicating cautious sentiment among smaller investors. Many retail investors are focused on immediate listing gains, and the stock’s underwhelming debut left some disappointed.

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“The Hyundai IPO shows that for quality offerings from large, reputable companies in consumer-facing sectors, there is no dearth of money despite sluggish market conditions,” Deepak Jasani, head of retail research at HDFC Securities, said. Jasani said institutional players are excited to participate in India’s growth story, especially through an IPO like Hyundai’s, which represents the company’s first listing outside of its home country.

Nevertheless, Jasani noted that non-institutional investors were more reserved in their participation. He pointed out that, despite institutional enthusiasm, non-institutional players remained circumspect, likely due to concerns about the valuation and market volatility. “Even if the money is raised by offer for sale (OFS), investors are still ready to invest in deserving companies,” he added, suggesting that while institutional investors are confident, retail and non-institutional players are more cautious.

How Hyundai fares in comparison to listed peers

From a valuation perspective, the Hyundai IPO has drawn comparisons with Maruti Suzuki, the dominant player in India’s passenger vehicle market. “While Hyundai has established a strong franchise in India, the IPO valuation appears high amid muted earnings growth prospects over the next 12-18 months, owing to a lack of major new product launches, muted capacity expansion, higher royalty payments to the parent and lower treasury income (after one-time dividend payment ahead of IPO),” Chirag Jain, an analyst at Emkay Global Financial Services, noted.

Jain highlighted Hyundai’s return on equity (RoE), which stands at a robust 51% compared to Maruti Suzuki’s 17%. He added that Hyundai’s valuation is justified by its strong profitability, yet pointed out that the high price-to-book (P/B) ratio of 13.11 for Hyundai, compared with 4.48 for Maruti, leaves less room for margin of safety. “I prefer Maruti Suzuki India over Hyundai Motor India as the former is catching up on operational and financial parameters, even on a lower SUV mix, with higher growth optionality,” Jain added.

The market’s reaction to Hyundai’s listing has also led to broader discussions about the future of multinational corporations (MNCs) in India. According to an investment banker who spoke to Mint on the condition of anonymity, “Many MNCs are likely to pursue IPOs despite flat or negative listing performances, as they can still secure higher valuations for their stake during the listing process.” Brands like LG and Whirlpool are speculated to be next in line, with several other MNCs awaiting their turn, having already submitted draft red herring prospectuses to the Securities and Exchange Board of India (Sebi) over the past two years.

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MNCs that have submitted their draft papers and are awaiting their IPOs include Sagility India (formerly Conduent), Niva Bupa Health Insurance Co. (formerly Max Bupa), Hexaware Technologies, Carraro India, International Gemmological Institute India, Hero Motors, One Mobikwik Systems, BMW Ventures, Ebixcash, Afcons Infrastructure and Rubicon Research.

That said, while the broader Indian equity market is trading at higher valuations and investors are more cautious about new investments, it is unfair to assume that the IPO market might face challenges just because of Hyundai Motor’s discounted listing.

Outlook for the Indian IPO market

Hyundai’s IPO comes at a time when passenger vehicle sales in India have been sluggish. Sales trends show a weakening demand in September compared to the previous year, particularly for commercial vehicles and passenger cars. However, the two-wheeler segment remains optimistic, with expectations of double-digit growth during the festive season.

Amar Nandu, research analyst at Samco Securities, said, “For issues of relatively small size and companies with high growth potential, investor interest remains strong for both listing and long-term gains.” He added that while broader market conditions may impact the success of future IPOs, the unique business models and growth potential of individual companies will drive investor interest.

As Hyundai Motor India navigates its post-IPO journey, analysts believe that its strong brand, market presence and focus on electric vehicles position it for long-term success. Whether other MNCs will follow Hyundai’s path and list on the Indian market will depend largely on how the company performs in the coming months and how market sentiment evolves. Investors will be watching closely to see if Hyundai’s debut sets the tone for the next wave of multinational IPOs in India.