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The recent earnings report for Hyundai Motor India, revealing a 16 percent decline in net profit for the quarter ending September, has sparked controversy and criticism, particularly from veteran investor Samir Arora. The company's stock price has also taken a hit, falling by over 4 percent on the NSE, a reflection of investor disappointment and concern.
Arora, founder of Helios Capital, expressed his skepticism towards Korean promoters in a cheeky post on X (formerly Twitter). He commented on the company's underperforming results, without explicitly naming Hyundai, stating, "Yeh Koreans to Indian promoters ke bhi baap nikle." This remark alludes to the common practice of overstating growth prospects during IPOs, leading to inflated valuations and subsequent disappointment for investors when those projections fail to materialize.
The Hyundai Motor India IPO was priced at a P/E of 27x, comparable to its main rival Maruti Suzuki. While analysts remain optimistic about Hyundai's long-term prospects, the near-term growth challenges are evident. Notably, the valuation of the Indian arm is significantly higher than its Korean parent, with a P/E ratio of 27x compared to 5x for Hyundai Motor Company.
Retail investors displayed a cautious approach towards the Hyundai Motor India IPO, subscribing to only half their allocated portion. This resulted in a higher allocation for qualified institutional buyers (QIBs), who oversubscribed their portion by almost seven times. The reluctance of retail investors could be attributed to the IPO being an offer-for-sale, allowing Korean promoters to cash in at the highest possible price. Since its issue price of Rs 1,960 per share, Hyundai Motor India shares have declined by over 12 percent.
The company's Q2FY25 consolidated revenue from operations also declined by 7.5 percent to Rs 17,260 crore, compared to Rs 18,660 crore in Q2FY24. The decline in profit and revenue can be attributed to a combination of factors, including lower domestic sales, geopolitical challenges, and export performance. The earnings report, Hyundai's first since listing, highlights the difficulties the company faces in achieving the projected growth trajectory.
Samir Arora's critical observation resonates with concerns about the transparency and accountability of promoters in IPOs. Investors are increasingly vigilant in evaluating the true potential of companies going public, and the Hyundai Motor India case serves as a cautionary tale about the risks associated with inflated valuations and unmet expectations.
Source: Samir Arora's take on Korean promoters, after Hyundai Motor India’s poor Q2 show