Hyundai Motor India IPO: A Good Bet or Just Another Big Ticket?

The Hyundai Motor India IPO has certainly created a buzz in the market. Throughout my career, I’ve seen many IPOs come and go. Each comes with its own set of opportunities and risks. But the question remains—what do you, as an investor, think about the company? Let’s discuss some key aspects of this IPO before arriving at a conclusion.

Hyundai Motor India is coming up with an IPO of approximately ₹27,870.16 crore. Headquartered in South Korea, Hyundai will see the proceeds of this sale flow back to its parent company. With 14.22 crore shares on offer for sale, it's a substantial listing that has caught the market's attention.

So, what does this mean for investors? This IPO isn't about raising fresh capital for expansion; it's a strategic move. Through the 100% Offer for Sale (OFS), the parent company aims to unlock value and possibly reallocate resources globally, while offering Indian investors a chance to invest in its established market presence. Does this change your perspective on its appeal?

Looking at valuation, the company is coming up at a P/E ratio of 26.28. In comparison its parent, Hyundai Motor Company’s P/E ratio in Korea stands at 3.46. There seems to be a significant difference in valuation between the two markets. What could be driving this disparity?

The IPO market in India has seen its fair share of highs and lows. Consider the Paytm IPO in 2021—a massive ₹18,000 crore issue that generated a lot of excitement, yet struggled post-listing.

Similarly, the LIC IPO in 2022 raised ₹21,000 crore but faced challenges in the secondary market.

History has shown us that big names don’t always guarantee big returns. Think back to the Reliance Power IPO in 2008, one of the most highly anticipated listings with a 70x oversubscription. Yet, it saw a 50% drop in its stock price within a year. Investors trusted the brand but perhaps overestimated its potential in a challenging market.

On the other hand, there have been successes too. Consider the IPO of Coal India in 2010. As a disinvestment by the Government of India, it raised over ₹15,000 crore and delivered steady returns in the initial years. It was a play on India's resource-driven economy, much like how Hyundai could be a play on India’s growing auto market.

Hyundai, with its South Korean roots, has been a key player in India’s automotive industry for decades. Its SUVs hold a strong market share, and it is making strides in the EV space too.

Unlike newer brands, Hyundai benefits from a solid brand presence and deep knowledge of Indian consumers. But will this foundation draw in retail investors, or will global market conditions make them more cautious about the IPO?

The timing of an IPO can be as crucial as its fundamentals. Currently, India’s auto sector is showing robust growth. In FY24, the industry grew by 19%, reaching ₹10.22 lakh crore. The SUV segment is particularly strong, contributing over 50% of car sales.

But it is also a time of global uncertainty, with geopolitical events like the Israel-Hamas conflict impacting oil prices and inflation. Rising oil prices can make things more expensive for both car makers and buyers, possibly leading to lower demand for new cars. Plus, when global tensions are high, investors tend to play safe, looking for more secure options instead of taking risks in the stock market. So the question is, could these factors impact how people feel about Hyundai’s IPO?

Investing in the Hyundai Motor India IPO requires careful consideration of the brand’s strengths and the broader market dynamics. Hyundai’s established reputation in India and its strategic growth in the EV segment present a unique opportunity.

Yet, factors like market timing, valuation, and the IPO’s structure should be weighed thoughtfully.

Is this a chance to back a proven player, or do the current conditions suggest a need for caution?

Share your thoughts.

Sources:

Indian automobile industry grows 19% to US$ 122.53 billion (Rs. 10.22 lakh crore) in FY24

Share of SUVs Scales 50% of sales in FY24

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

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