Hyundai IPO! OVER-VALUED?

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India stock markets are about to witness its largest IPO ever and the strangest thing is it's not even an Indian company. India's biggest ever IPO Hyundai Motor Hyundai Motor one of the biggest IPOs in the Indian history offering roughly 14.2 Crs. Shares. ?

Will this listing boost India's stock market further? ?

Hyundai Motors India which is the subsidiary of the South Korean car manufacturer Hyundai Motors is all set to launch its IPO on Tuesday 15th of October'2024 the issue will close on 17th of October'2024.

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Why do we say it's the largest IPO ever in India stock markets?

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Well, that's because Hyundai Motors is expected to raise over Rs. 27,876 Crs from this listing that's bigger than any other public offering India has ever seen.

The largest IPO till date was LIRs. 21,000 Crs. and before that PATYM which raised Rs. 18,300 Crs. So, this is a massive deal.

The company has set the price bank at Rs. 1865 to Rs. 1960 per share.

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Now many of you might be wondering why is a South Korean car maker listing one of its subsidiaries in the Indian market other foreign car makers like Honda, Skoda or Toyota aren't exactly lining up to do the same well.

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To understand that you need to look at two things:

a) What India means to Hyundai?

b) Why the company is choosing to go public right now?

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India is the world's fastest growing economy and Hyundai has had a long history here. They entered the markets in 1998 with the iconic Santro.

Today Hyundai is the second largest car maker in India just behind Maruti Suzuki for Hyundai.

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As of March 31, 2024, the company has sold nearly 12 million passenger vehicles in India and through exports.

The company manufactures and sells four-wheeler passenger vehicles, including models such as sedans, hatchbacks, SUVs, and electric vehicles (EVs).

The company's models include the Grand i10 NIOS, i20, i20 N Line, AURA, Elantra, Venue, Venue N Line, Verna, Creta, Creta N Line, Alcazar, Tucson, and the all-electric SUV Ioniq 5.

Company's manufacturing plant is situated near Chennai can produce its full range of vehicle models. The company exports its products to Africa, the Middle East, Bangladesh, Nepal, Bhutan, and Sri Lanka.

India represents a growing market for not just affordable cars but also for the premium section, hybrids, electric vehicles. Hyundai Motors India is a crucial part of their Global partner even though the India arm only contributes 6% to 7% to the parent company's overall revenues the South Korean company expects the India arm to contribute more to its bottom line in the coming years as India's economy matures.

Currently Hyundai India is a wholly owned subsidiary of the company which means 100% of the Hyundai Motors India is owned by the South Korean company Hyundai Motors but with this IPO Hyundai Motors is selling 17.5% of its stake in the Indian unit.

With this move the parent company wants to give the Indian unit more Independence in making growth decisions particularly with new technologies like electric vehicles and hybrids this way they want to compete head-to-head with Maruti, Tata and other Indian car manufacturers but here's the catch, this makes this issue a complete offer for sale.

What does that mean??

Well, a typical IPO can be a fresh issue or an offer for sale or a mix of both.

a). If it's a fresh issue this means the money raised by the company through the IPO

goes directly to the company this way they can put money in expansion projects also pay debt,

b). However, in an offer for sale the existing shareholders sell their stake.

In this case the Hyundai parent company in South Korea is simply selling a portion of their stake and the proceeds from this sale will go directly to the parent company which means the Rs.? 27,876 Crs raised here will go to the Korean company this has sort of dampened investor interest a little because usually investors like to see companies raise money to fund their growth plans.

In Hyundai's case Hyundai motor India won't get any of the funds that they'll be raising from this IPO. That said it's not all doom and gloom.

Hyundai Motor India is sitting on over Rs. 8,500 Crs in cash reserves and they've aggressively been investing on newer Technologies so despite the IPO structure the company still has a lot of potential to grow and innovate especially since it's in a good position but that's not the only concern of investors who've been tracking Hyundai's IPO many investors are paying closeattention to the Grey Market Premium of the company and they're not happy with it. For those, who are unfamiliar with Grey Market, the stocks of the company are also sold before the IPO.

It happens in the grey market and the Grey Market premium is used as a metric to understand the company's potential.?

Initially Hyundai's GMP was quite high it was at Rs. 570 per share but after the price band was announced it dropped nearly 90 % it came down to just Rs. 65 per share which implies a potential gain of maybe around 3.32%.

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Why did this happen?

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Well, the market thinks that the IPO is slightly aggressively priced. Some analysts believe that Hyundai India while strong in the Indian market is being overvalued despite contributing only 6% to 7% to the parent company's Global Revenue. Hyundai India is being valued at nearly 42% of the parent company's overall market cap. Hyundai parent company is valued at around $45 billion and the Indian company is going to be valued at around $19 million based on the IPO this disparity has made some investors cautious.

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Summary

Hyundai Motor’s IPO in India is set to be the largest ever, raising over ?27,000 crores, but concerns about overvaluation and investor interest persist.

Highlights

• ?? Hyundai’s IPO is the largest in Indian history, raising over ?27,000 crores.
• ?? IPO dates: Opens on October 15 and closes on October 17, 2023.
• ?? Price band set between ?1,865 to ?1,960 per share.
• ?? The IPO is an offer for sale; proceeds go to the parent company, not Hyundai India.
• ?? Gray market premium dropped significantly, indicating investor caution.
• ?? Hyundai India contributes only 6-7% to parent revenue but is valued at 42% of its market cap.
• ? Despite concerns, Hyundai India has ?8,500 crores in cash reserves for growth and innovation.

Key Insights

• ???Record-Breaking IPO: Hyundai’s IPO will surpass previous records, highlighting its confidence in the Indian market’s potential. This could encourage more foreign investment in India.
• ???Strategic Independence: By selling 17.5% of Hyundai India, the company aims to grant it more autonomy in decision-making, particularly in electric vehicles and hybrids, crucial for future growth.
• ???Offer for Sale Structure: The IPO being an offer for sale means no new funds for Hyundai India, which may deter some investors who prefer fresh capital for expansion.
• ???Investor Sentiment: The sharp decline in the gray market premium suggests that investors are skeptical about the IPO’s pricing and valuation, pointing to potential overvaluation concerns.
• ???Valuation Disparity: Hyundai India’s valuation at 42% of the parent company raises eyebrows, with analysts suggesting it may not reflect its actual contribution, leading to caution among investors.
• ???Strong Cash Reserves: Despite the IPO structure, Hyundai India’s substantial cash reserves position it well for future investments in technology and innovation.
• ???Market Dynamics: The IPO’s reception could shape future foreign listings in India, affecting how other companies approach the Indian stock market amidst similar circumstances.

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