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Hyundai IPO Hits a Speed Bump With 42% Subscription On Day 2 : 4 Reasons Why

Hyundai IPO Hits a Speed Bump With 42% Subscription On Day 2 : 4 Reasons Why
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Hyundai Motor India (HMI) has dominated the automotive market since its 1996 launch in India. Understandably, when the country’s second-largest car manufacturer’s (after Maruti) IPO launched on 15 October, it was met with much anticipation. However, the ₹27,870 crore IPO, the largest in India’s history, saw merely 0.18 times subscription on its opening day. While the subscription stood at 42% on Day 2, it shot up marginally to 51% on the closing day, with its GMP sinking to below 1%. Source: Mint

Market experts are attributing the lukewarm response to many factors. Here’s a lowdown on what these are and how the IPO has performed so far:

All You Need To Know About the Hyundai IPO

  • The IPO has a price range of ₹1,865 to ₹1,960 per share
  • The NII portion, comprising high-net-worth individuals, was subscribed 0.13 times, while retail investors subscribed 0.26 times. The portion for employees (discounted price of ₹186 per share) was subscribed 0.8 times (80%).
  • 35% of share reservation is for retail investors, 50% for qualified institutional buyers (QIBs), and 15% for NIIs.
  • ₹8,315 crore (about 30% of the IPO size) was raised from 225 anchor investors, including funds owned by the Singapore government

Source: Economic Times

Hyundai IPO – One of the Largest in India in 2024

Hyundai is one of the largest IPOs in India this year and joins the ranks of other big names in various sectors: 

SrIssue NameIssue Size (Rs Cr)Listing DateOffer Price (Rs)Total Subscription (Rs in Crores)
1Hyundai Motors India27,870.16Oct 22, 20241,865 – 1,96041,889.50
2Vodafone Idea Limited18,000Apr 25, 2024111,25,820
3Bajaj Housing Finance Limited6,560Sep 16, 2024704,42,340.8
4Ola Electric Mobility Limited6,145.56Aug 09, 20247627,347.74
5Bharti Hexacom Limited4,275Apr 12, 20245701,27,737
Source: Chittorgarh

However, despite the initial buzz, Hyundai’s IPO witnessed an unexpected slowdown. Here are the top reasons why. 

4 Factors Why Hyundai IPO Didn’t Shift into Top Gear

High Offer Price 

One of the biggest concerns investors have raised is the IPO pricing. Many analysts believe the offer price was at the higher end of the spectrum, discouraging potential buyers. Indian investors have become accustomed to a fair IPO bump, and the prospect of limited gains or losses has reduced the enthusiasm.

A more attractive pricing could have garnered wider support from retail and institutional investors, creating a positive buzz around the listing. Instead, the high valuation may have deterred many potential buyers, who may now wait for a more favorable entry point.

Massive Cash Outflow to Korea

Hyundai Motor India’s substantial dividend payouts to its South Korean parent company have also raised investor concerns. The large amount of money transferred from India has created a negative perception, particularly when the government actively promotes foreign direct investment (FDI) in the automotive sector.

While the company has clarified the legal nature of these transactions, the sheer amount of the cash outflow has raised questions. A more transparent communication strategy could have helped minimize concerns and highlight the positive aspects of these transactions, including Hyundai’s success in the Indian market.

Concerns About Financial Stability

The decrease in cash and bank balances due to dividend payments has also increased concerns about Hyundai’s expansion plans. Investors may be worried that the company may have to rely heavily on external borrowings to fund its future growth, potentially impacting its financial performance and stability.

While the company’s balance sheet is light on assets and the cash flow from operations is robust, which could mitigate financial stability concerns, a more proactive communication strategy would have been beneficial in addressing investor anxieties and maintaining confidence.

Prioritizing South Korean Interests

There is a perception that Hyundai Motor Company’s primary motivation for the IPO was to improve its valuation back home in South Korea. This suggests that the company may have prioritized its interests over those of Indian investors.

While the IPO could have been a win-win situation for both parties, the focus on maximizing benefits for South Korean shareholders may have alienated Indian investors. A more balanced approach considering the interests of domestic and foreign investors would have been more conducive to the IPO’s success.

Conclusion

Hyundai was among India’s most anticipated IPOs. However, its slow performance offers valuable lessons for future issuers. A well-thought-out pricing strategy, transparent communication, and a focus on aligning the interests of all stakeholders are crucial for attracting investor interest and ensuring the success of an IPO. By addressing these mistakes, Hyundai can learn from this experience and position itself for future growth in the Indian market.

FAQ

  1. Why did Hyundai Motor India’s IPO not receive the expected subscription levels?

    Several factors contributed to the slow subscription for Hyundai’s IPO. These include the IPO’s perceived high price, the company’s substantial dividend payouts to its South Korean parent, concerns about its financial stability, and the perception that Hyundai Motor Company prioritized its interests over those of Indian investors.

  2. What was the subscription rate for Hyundai’s IPO on Day 3?

    The subscription rate for Hyundai’s IPO on Day 3 was 51%.
    Source: cnbcTV 18.com

  3. How much did Hyundai Motor India raise from anchor investors?

    Hyundai Motor India raised ₹8,315 crore (about 30% of the IPO size) from 225 anchor investors.

  4. What’s Hyundai’s IPO subscription among different investor categories?

    The subscription for Hyundai’s IPO was moderate across all investor categories. Retail investors subscribed 0.26 times, qualified institutional buyers (QIBs) subscribed 0.41 times, and non-institutional investors (NIIs) subscribed 0.13 times.

  5. What lessons can be learned from Hyundai’s IPO experience?

    Hyundai’s IPO experience highlights the importance of fair pricing, transparent communication, and balancing the interests of all stakeholders. By addressing these factors, future issuers can improve their chances of attracting investor interest and ensuring the success of their IPOs.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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