The largest IPO in India of 2024 turned out to be a big flop? But how?
Hyundai Motors India made its debut on the National Stock Exchange (NSE) on October 22,2024 in an Initial Public Offering (IPO) as the “largest in the history of India”. The IPO was valued at ₹27,870.16 crores.
The IPO was made up of an offer for sale of 14.22 crore shares, with a price range of ₹1,865–₹1,960 per share. The minimum investment for retail investors was ₹13,720, which was for 7 shares. The shares of this largest IPO were priced at a discount of 1.32% at the original price of the share making it the third largest successive IPO in India after LIC and Paytm at a discount.
But why is it considered a flop?
Hyundai Motor India IPO, faced low retail interest, with only 50% of its portion subscribed. The offering was entirely an offer for sale, raising concerns about its valuation, which may have deterred retail and non-institutional investors from participating.
The employees' section also saw a huge response, with employees being entitled to a discount of 186 rupees per share on the IPO price.
The subscription for the Hyundai Motor India IPO was slow during the entire three-day bidding period. However, by the end of the third day, the issue was oversubscribed by 2.37 times, with QIBs leading the subscription at 6.97 times. The non-institutional investors (NII) portion saw 60% booking, while the retail portion was booked at 50%.
Let’s decode the real reasons why Hyundai couldn’t turned out to be the way it was anticipated,
- Offer-for-sale (OFS) component
The Street had some doubts about the OFS component, as historically, bigger OFS have not been profitable for investors. They referred to the Life Insurance Corporation of India (LIC) IPO as an example.
- Sky high Valuation
Hyundai Motor India's upper price band range has been set at ₹1,960. This suggests a valuation of 26 times EPS (Earnings per share) for FY24 and around 30 times EPS for FY25, hinting towards the challenging period ahead.
Arun Kejriwal, founder of Kejriwal Research and Investment Services mentioned that the merchant bankers and company promoters were happy with the grey market premium being around ₹700-725. As a result, they opted to raise the issue price for the offer for sale issue.
Although the performance of Hyundai’s IPO turned out to be disappointing it still has the potential to have a healthy growth because of its strong financials.
