Hyundai Motor India Ltd (HMIL) successfully concluded its ₹27,870-crore initial public offering (IPO) on Thursday, October 17, with an overall subscription of 2.37 times. The IPO saw strong interest from institutional investors, particularly Qualified Institutional Buyers (QIBs), who oversubscribed their portion more than six times.
However, the response from retail investors was much weaker, with the retail quota only subscribed 50% of the shares reserved for them. Despite being India’s largest IPO in terms of share sale, the public offering struggled to gain traction with retail investors.
Reasons for Weak Retail Demand:
Complete Offer-For-Sale (OFS) Structure:
The ₹27,870-crore Hyundai Motor India IPO was entirely an offer-for-sale (OFS) of 14.22 crore shares, with South Korea’s Hyundai Motor Company offloading a 17.5% stake. The fact that all proceeds from the IPO would go to the selling promoter, rather than the Indian arm of the company, raised concerns among retail investors. Additionally, the full OFS structure indicated that existing shareholders were exiting, which contributed to the hesitation among retail participants.
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High Valuation:
Another major reason for the lukewarm retail interest was the high valuation of the IPO. Priced between ₹1,865 and ₹1,960 per share, Hyundai Motor India’s valuation was seen as too high by market experts. At the upper end of the price band, the company was valued at 26 times P/E, 16.5 times EV/EBITDA, and 2.3 times P/S based on FY24 estimates. Retail investors, typically looking for quick returns, were deterred by the limited upside potential at these valuation levels.
Concerns Over Dividend Payments and Return on Equity (RoE):
Investors were also concerned about the large dividend payments made to Hyundai’s South Korean parent company. This raised questions about Hyundai Motor India’s ability to reinvest in business growth and improve its Return on Equity (RoE). Additionally, increasing royalty payments to the Korean parent further fueled concerns, making the IPO less attractive to retail investors.
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Competitive Challenges in the Indian Market:
Despite being the second-largest car manufacturer in India, Hyundai Motor India faces stiff competition from domestic players like Tata Motors and Mahindra & Mahindra, particularly in the growing SUV segment. Additionally, Kia Motors, which is owned by Hyundai’s Korean parent but operates independently, poses a further competitive threat. Kia’s expanding SUV lineup could hurt Hyundai’s market share in India, adding to the concerns of potential investors.
