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The upcoming initial public offering (IPO) of Hyundai Motor India, set to be the largest in Indian stock market history, has ignited debate over its valuation. While the company aims to raise a significant Rs 27,856 crore through the sale of shares, market experts are expressing concerns about the pricing, fearing it may leave limited room for growth after listing.
The IPO is an offer-for-sale (OFS) where the parent company, Hyundai Motor Company, will offload its shares, raising concerns among investors. The grey market premium (GMP), a measure of the potential gains for investors, has dropped considerably, reflecting this caution. The GMP, initially around Rs 400 per share, has plummeted to Rs 145, indicating a potential gain of just 7.4%. This sharp decline suggests that investors may be wary of the IPO's aggressive pricing, especially considering Hyundai Motor India's contribution to the global market.
Opinions on the valuation are divided. While some experts believe Hyundai Motor India's strong position in the Indian market justifies the premium, others are skeptical, pointing to its relatively small contribution to Hyundai's global business. Aequitas Investments highlights that Hyundai Motor India accounts for only 6.5% of the parent company's global revenue and 8% of its profitability. Despite this, the Indian unit is set to be valued at 42% of Hyundai Motor Company's market capitalization upon listing, leading to concerns of overpricing. Further fueling skepticism, Aequitas points to the slowdown in the global auto sector, noting that car sales have declined for three consecutive months.
However, global brokerage firm Nomura India takes a different stance, suggesting that Hyundai Motor India deserves a premium valuation over Maruti Suzuki due to its stable market share in India, which has remained between 15-17% since 2008. Nomura also highlights Maruti's declining market share, giving Hyundai a long-term advantage. Other market participants hold mixed opinions, awaiting further clarity from Hyundai Motor India's upcoming analyst meeting.
Despite the debate, Hyundai's strong brand name and the upcoming festive season, which typically boosts consumer spending, are expected to attract significant attention to the IPO. The company's established position as a leading car manufacturer in India and its consistent market share growth are positive factors. However, experts caution that the IPO's massive size could impact liquidity in the secondary market, potentially leading to volatility.
While Hyundai Motor India's IPO is likely to see robust demand, investors are advised to proceed with caution, considering the potential for fluctuations in the secondary market as funds get diverted towards the IPO. The valuation concerns and market dynamics will be closely watched as the IPO unfolds.
Source: Hyundai Motor IPO: GMP crashes due to rich valuation fears. Check here