Hyundai India Shares Fall 5% on Debut After Record $3.3 Billion IPO

Hyundai Motor India's shares dropped 5% in their market debut following the company's record $3.3 billion initial public offering. Despite institutional investor interest, retail investors showed little enthusiasm, citing concerns about the pricing. The stock was last trading at 1,860 rupees.

Hyundai India's Shares Drop Below IPO Price as Retail Investors Shy Away Due to Pricing Concerns

On October 22, Hyundai Motor India's shares experienced a 5% decline in their market début due to a lackluster response from retail investors to the country's largest-ever initial public offering, which was criticized for its pricing, per Reuters.

The stock was last trading at 1,860 rupees at 0502 GMT, and it was listed on the National Stock Exchange at 1,934 rupees, compared to its offer price of 1,960 rupees. This valuation values the company at 1.51 trillion rupees ($17.96 billion).

The IPO was intended to achieve a valuation of $19 billion for Hyundai, the second-largest vehicle manufacturer in India with a 15% market share.

Last week, institutional investors led the oversubscription of its record $3.3 billion IPO by more than twofold. However, retail investors were discouraged from participating due to pricing concerns, as they were concerned that they would be unable to make gains on the listing.

"Hyundai's issue has been stiffly priced and that seems to be weighing down on its listing as well. Besides, the volumes seen so far are driven only by institutional investors, and is rather poor for an IPO of Hyundai's size," said Arun Kejriwal, founder of Kejriwal Research.

Hyundai Motor's inaugural listing in Mumbai on October 22 marks the company's first foray beyond its native South Korea. This event transpires amid a significant increase in India's equity markets.

Life Insurance Corporation and One97 Communications, the parent company of Paytm, were the two most extensive initial public offerings (IPOs) before Hyundai India. They were listed at substantial discounts of 8% and 9%, respectively.

Analysts Question Hyundai's Valuation Amid Falling Car Sales, But Brokerages See Long-Term Potential

Capitalmind's report published last week indicates that only two of India's ten largest IPOs have outperformed the S&P CNX 500 index since their listing.

Analysts have expressed apprehension regarding the narrower disparity between Hyundai's market valuation and that of Indian market leader Maruti Suzuki, which is $45 billion. This is based on their price-to-earnings (P/E) ratios.

In the issue, Hyundai was valued at 26 times its fiscal 2024 earnings, which is not significantly different from the 29 times multiple for market leader Maruti.

Nevertheless, a few prominent brokerages view the stock as having long-term value.

Nomura initiated its coverage of Hyundai with a "buy" rating and a price target of 2,472 rupees. The brokerage appreciated Hyundai's substantial proportion of SUVs in its portfolio, which accounted for 67% of its sales during the April-June 2024 quarter.

In the same vein, Macquarie analysts initiated coverage with an "outperform" rating and a price target of 2,235 rupees, contending that Hyundai's SUV-centric business was down 1.7%.

Hyundai's listing coincides with a decline in car sales in India, which have experienced record highs for the past two years. Customers are postponing purchases due to continuing concerns regarding inflation. The portfolio demanded a P/E premium.

Rivals Maruti and Tata Motors experienced a 2% decline in stock prices. The Nifty Auto index was down 1.7%.

Hyundai's listing coincides with a decline in car sales in India, which have experienced record highs for the past two years. Customers are postponing purchases due to continuing inflation concerns.