India’s biggest IPO, launched by the local arm of South Korean auto giant Hyundai Motor Company (HMC), is struggling to sail through amidst a low subscription rate.
At the end of the second day of bidding, Hyundai Motor India Ltd (HMIL) IPO was subscribed just 0.42 times or 42%. This is lower than the day two subscription status of the next two biggest IPOs – Paytm and LIC. While the Rs 18,300 crore IPO of loss-making Paytm was subscribed 48%, the Rs 21,000 crore maiden share sale of LIC was fully subscribed at the end of day two.
So far, Hyundai has received bids for 4.17 crore shares against 9.97 crore shares on offer, according to data available at the BSE. The portion for retail individual investors (RIIs) was subscribed 38%, while the non-institutional investors’ category received 26% subscription. The portion for qualified institutional buyers (QIBs) was subscribed 58%. Only the employee portion was fully subscribed.
On day one, Hyundai’s issue was subscribed 0.18 times. This is similar to the day one subscription status of Paytm. LIC’s issue was subscribed 0.67 times at the end of its first day of bidding.
The three-day bidding for the Hyundai issue will conclude on Thursday. HMIL is selling its shares in the price band of Rs 1,865-1,960 apiece. At the top end of the price band, the IPO is valued at Rs 27,870 crore with the company’s market capitalisation estimated at approximately Rs 1.6 lakh crore post-listing.
According to market experts, there are many factors why the IPO is receiving a lukewarm response. Most analysts believe that valuation-wise, the issue is fully priced and leaves no room for investors to make money from listing. At the upper price band of Rs 1,960, HMIL is available at a premium valuation of 26.7x P/E ratio based on FY25E post-issue annualised earnings per share (EPS).
The street is also not excited given the entire issue is an offer for sale (OFS), meaning Hyundai Motor India will not receive any funds from the IPO. Analysts also stated that since the promoter – Hyundai Motor Company- is offering a 17.5% stake in the issue, an additional 7.5% stake sale is anticipated within three years to meet regulatory requirements. This may create selling pressure in future.
Most analysts have given a ‘subscribe for long term’ rating to the IPO and expect no major listing gains. Few brokerages have also advised investors to avoid the mega IPO. Add to this, the grey market premium (GMP) for HMIL has come down to just Rs 31 in the unofficial market, suggesting a listing gain of merely 1-2% for the investors. The GMP was hovering around Rs 400 at the start of the month.
Ahead of the IPO launch, Hyundai on Monday raised Rs 8,315 crore from anchor investors. Hyundai allotted 4.24 crore shares to 225 funds at Rs 1,960 apiece, the higher end of its issue price band. Marquee global investors and domestic mutual funds participated in the anchor round.
