As Hyundai Motor India gears up for its IPO, investors should consider the performance of previous major IPOs like Paytm, LIC, and Reliance Power to manage expectations and understand potential risks.
Hyundai Motor India is preparing to launch its highly anticipated IPO, aiming to raise ₹27,870.16 crore, making it India's largest IPO to date, surpassing LIC's previous record. The IPO, set to open on October 15, involves an offer for sale (OFS) of 14.22 crore equity shares by Hyundai Motor Company, the South Korean parent. The price band is fixed between ₹1,865 and ₹1,960 per share.
This IPO marks the first by a car manufacturer in India since Maruti Suzuki's IPO in 2003. However, initial enthusiasm appears to be waning, with the grey market premium (GMP) for the Hyundai Motor IPO showing signs of decline.
Historically, many of India’s largest IPOs have struggled to deliver substantial returns. Paytm, Reliance Power, General Insurance Corporation of India, and New India Assurance have resulted in losses for investors. Only a few, like Coal India, Zomato, and HDFC Life Insurance, have provided positive returns by trading above their issue prices.
Analysts attribute the underperformance of large IPOs to aggressive pricing and a significant proportion of shares offered through the OFS route, which could affect Hyundai Motor India’s IPO.
Here's a look at the performance of five major IPOs:
LIC IPO: The ₹21,008 crore IPO debuted in May 2022 at ₹904 per share, below the issue price of ₹948. As of October 14, the stock trades around ₹960, a modest 1.2% return since listing.
Paytm IPO: One97 Communications launched its ₹18,300 crore IPO in November 2021 at ₹2,150 per share. However, the stock has significantly underperformed, trading around ₹724, a decline of over 66% from its issue price.
Coal India: A success story, its ₹15,200 crore IPO in November 2010, priced at ₹245 per share, has delivered exceptional returns. The stock currently trades at approximately ₹500, representing gains of over 104%.
Reliance Power: Listed in February 2008 after its ₹11,560 crore IPO at ₹281 per share, the stock has declined steeply, trading more than 84% below its issue price.
GIC India: Launched in October 2017 with an issue price of ₹912 per share, the stock remains down approximately 14%, even after a 1:1 bonus issue in 2018.
Hyundai Motor India’s IPO is priced at a P/E of 26.3x post-issue, based on the FY24 EPS of ₹74.58. While analysts recommend subscribing for the long term, there are concerns over high valuations and the IPO being fully an OFS.
Anshul Jain, Head of Research at Lakshmishree Investment and Securities, noted that the IPO is 100% OFS, allowing prior investors to exit without impacting the company’s balance sheet. He believes high valuation and the OFS component are key negatives.
In FY24, Hyundai Motor India posted a consolidated total income of ₹71,302.33 crore and a net profit of ₹6,060.04 crore. In Q1 FY25, the company earned a net profit of ₹1,489.65 crore on a total income of ₹17,567.98 crore. Sales volume in Q1 FY25 reached 192,055 units, up 4.72% from 183,403 units in Q1 FY24. Full-year sales volume grew 7.96% YoY in FY24 to 777,876 units.
Bajaj Broking recommends subscribing to the issue for the long term, noting that the company is poised for bright prospects post-completion of its ongoing expansions, despite appearing fully priced. SMIFS also recommends subscribing, citing the company's industry-leading market share in the SUV segment, premiumization, and foray into the EV segment.
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