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 "Hyundai")
Hyundai (Photo: Shutterstock)
Hyundai Motor India (HMIL) on Monday raised Rs 8,315 crore from key investors, paving the way for the largest-ever inaugural share sale in the country.
The Indian arm of South Korean automaker Hyundai Motor Company (HMC) has allotted 42.4 million shares to 225 funds at Rs 1,960 apiece, the upper end of its price band.
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Investors receiving allocations included the Singapore government’s sovereign wealth fund (GIC), the New World Fund and Fidelity. The allotment included 21 domestic mutual funds (MFs), such as ICICI Prudential MF, SBI MF and HDFC MF, which applied under 83 schemes.
Although HMIL’s initial public offering (IPO) is the largest ever in the country, the size of its flagship issue is smaller than that of digital payments company One97 Communications (Paytm), which launched an IPO in stock market of Rs 18,300 crore in 2021. Since Paytm was a loss-making company, it had to reserve a higher share of shares for qualified institutional buyers, thereby enabling a larger benchmark allocation.
Anchor allocations are given to big-name investors a day before the IPO to instill confidence and provide guidance to other investors.
HMIL’s IPO, open to all categories of investors on Tuesday and closed on Thursday, is seen as a crucial test to gauge the depth and attractiveness of domestic stock markets.
Through the IPO, Seoul-headquartered HMC is divesting its 17.5 percent stake and will raise Rs 27,870 crore at the top. The IPO does not provide for any new fundraising.
The price band of the issue is Rs 1,865 to Rs 1,960 per share, which pegs a valuation of Rs 1.51 trillion to Rs 1.59 trillion for the country’s second-largest passenger car maker.
In its IPO, HMIL is targeting a valuation of 26.3 times its 2023-24 (FY24) earnings, around 10% lower than market leader Maruti Suzuki India (MSIL).
Some analysts believe that HMIL can command a similar or higher premium than MSIL, given its superior margins and return profile, even though its volumes, market share and distribution reach are about a third of those. from MSIL. At the same time, they warn that the stock may not generate eye-popping returns immediately after listing.
“We believe Hyundai’s prospects remain strong due to its strong parentage, parent technology exploitation and research and development capabilities, as well as a strong balance sheet. However, at the upper price band, Hyundai is available at a rich valuation of 26 times its FY24 earnings per share, which leaves little room for investors,” observed Aditya Birla Capital, which recommends investors with a longer holding period to address the problem.
ICICI Securities has also issued a “subscribe” note; However, the brokerage suggests that listing gains could be limited, given the large issuance sizes and competitive landscape. The brokerage believes that the company is poised to generate healthy double-digit portfolio returns over the medium to long term.
First publication: October 14, 2024 | 9:34 p.m. STI