Hyundai Motor India IPO Debut

By Nandan Mandayam and Dhwani Pandya
BENGALURU/MUMBAI (Reuters) – Hyundai Motor India shares fell 7.2% on their market debut after a lukewarm reception to the country’s largest initial public offering (IPO).

The stock listed at 1,934 rupees on the National Stock Exchange, below its offer price of 1,960 rupees, and dropped to a low of 7.6% before closing at 1,819.60 rupees, valuing the company at 1.48 trillion rupees ($17.6 billion).

As India’s second-largest carmaker with a 15% market share, Hyundai aimed for a $19 billion valuation through the offering. The record $3.3 billion IPO had been oversubscribed more than two-fold last week, largely led by institutional investors. However, high share prices compared to future earnings worried retail investors about potential losses.

According to Dealogic, seven of India’s ten biggest IPOs have seen share price declines on their first trading day, with losses ranging from 5% to 27%. Analysts noted that Hyundai's weak debut reflected its high valuation, short-term struggles in car sales, and an increase in royalty rates paid to its South Korean parent.

Arun Kejriwal, founder of Kejriwal Research, said, "Hyundai's issue has been stiffly priced, weighing down on its listing." He pointed to institutional investors as driving most trading volumes, which were low for an IPO of Hyundai's stature.

This Mumbai listing is Hyundai Motor's first outside of South Korea and is the world’s second-largest IPO this year. Chief Operating Officer Tarun Garg attributed market reactions to investor determination and dismissed concerns over the royalty increase to 3.5% from 2.5% as normal.

Hyundai's market valuation lags behind sector leader Maruti Suzuki's $45 billion, although analysts noted a narrowing gap in price-to-earnings (P/E) ratios.

The IPO valued Hyundai at 26 times its earnings for the fiscal year ending March, compared to Maruti’s 29 multiple.

Industry Slowdown

Indian rivals experienced share declines amid slowing car sales after two years of record figures, with customers postponing purchases due to ongoing inflationary pressures. Hyundai's sales in India from April to September fell 2.6%, while overall car sales saw only a 0.5% increase.

Garg stated the decline was seasonal and anticipated an industry rebound. Maruti shares dropped 2.1%, and Tata Motors fell 2.6%, contributing to a 2.5% decline in the Nifty Auto index.

Hyundai Motor plans to use proceeds from selling a 17.5% stake in its Indian unit to finance research and new product launches amid competition with Tata Motors and Mahindra & Mahindra. Garg expressed confidence in expanding their passenger vehicle portfolio through a deep understanding of consumer preferences.

Long-Term Outlook

Despite the weak listing, some brokerages see long-term value in Hyundai’s stock. Nomura initiated coverage with a “buy” rating and price target of 2,472 rupees, praising Hyundai's diverse SUV range, which accounted for 67% of sales in the April-June quarter. Macquarie provided an “outperform” rating with a price target of 2,235 rupees based on the P/E premium related to Hyundai's SUV focus.

($1 = 84.0700 Indian rupees)