The grey market premium (GMP) for Hyundai Motor India’s initial public offering (IPO) has dropped to a mere 0.87%, signaling lukewarm investor sentiment ahead of the IPO’s closing today, Thursday, October 17, 2024. The subdued GMP is a sharp fall from the Rs 147 or 7.5% premium recorded on October 9, just after Hyundai Motor announced its price band for the Indian arm of the South Korean automaker. This decline reflects growing uncertainty about the potential short-term gains from the IPO as it enters its final hours of subscription.
Hyundai Motor India, the second-largest car manufacturer in India, opened its public offering on October 15, 2024, aiming to raise Rs 27,870.16 crore through an offer for sale (OFS). Despite being one of the most anticipated IPOs this year, the response from retail and institutional investors has been tepid so far.
Weak subscription figures so far
As of the second day of subscription, Hyundai Motor India’s IPO had garnered bids for 4,17,21,442 shares against the 9,97,69,810 shares on offer, translating to a subscription rate of just 0.42 times. This indicates that fewer than half of the available shares have been subscribed, signaling a cautious approach from investors.
The breakdown of the subscription data reveals further challenges:
- Retail Individual Investors (RIIs) have subscribed 0.38 times.
- Non-Institutional Investors (NIIs) have subscribed just 0.26 times.
- Qualified Institutional Buyers (QIBs) have subscribed 0.58 times.
In contrast, the employee quota has been oversubscribed, receiving bids for 1.31 times the shares reserved, showing some internal confidence in the offering. However, this small bright spot has not been enough to drive overall enthusiasm for the IPO.
Hyundai Motor India IPO details
Hyundai Motor India’s IPO is an offer for sale (OFS) where the parent company, Hyundai Motor Korea, is offloading 14,21,94,700 shares. Each share has a face value of Rs 10, and the price band for the IPO is set between Rs 1,865 and Rs 1,960 per share. The minimum bid for investors is seven shares, with bids required in multiples of seven.
The IPO aims to raise Rs 27,870.16 crore at the top end of the price band, making it one of the largest offerings in recent times. The subscription window closes today, October 17, 2024, after which the basis of share allotment will be finalized on Friday, October 18, 2024. Shares are expected to be credited to demat accounts on Monday, October 21, 2024, with Hyundai Motor India set to debut on the BSE and NSE on Tuesday, October 22, 2024.
GMP decline: A red flag?
The sharp decline in the GMP — from 7.5% on October 9 to 0.87% today — is causing concern among investors. The grey market premium is often seen as an indicator of investor sentiment and the potential for listing gains. A GMP below 1% suggests that expectations for immediate gains upon listing are minimal. Market participants are now cautious, with many questioning whether to subscribe given the diminished grey market outlook.
Should you subscribe?
Despite the weak subscription data and falling GMP, several brokerage firms are still recommending the Hyundai Motor India IPO for long-term investors. Leading brokerages, including ICICI Direct, KR Choksey Research, SBI Securities, and IDBI Capital, have all assigned a ‘Subscribe’ rating. Their confidence is based on Hyundai Motor’s strong market presence, growth potential, and plans to leverage India’s expanding automotive market.
Other brokerage firms, including Anand Rathi Research, LKP Securities, Arihant Capital, and Aditya Birla Money, have echoed this sentiment. These firms believe that Hyundai Motor India’s long-term prospects outweigh the current market volatility and that the IPO could offer significant returns over time, especially as the company continues to expand its product portfolio and increase its foothold in the electric vehicle (EV) space.
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Risks to consider
While the long-term outlook is promising, potential investors should weigh several risks before subscribing to the IPO:
- Lukewarm Market Sentiment: The low GMP and weak initial subscription numbers may signal limited demand for the stock in the short term.
- Macroeconomic Concerns: Rising interest rates and global market uncertainties could impact investor sentiment, affecting the stock’s performance post-listing.
- High Valuation: At the upper end of the price band, some investors may find the valuation stretched, especially given the lower-than-expected enthusiasm for the offering so far.
As Hyundai Motor India’s IPO closes today, potential investors face a decision between subscribing based on the company’s strong fundamentals and growth prospects or steering clear due to weak demand and a rapidly declining grey market premium. While leading brokerages remain optimistic about the long-term value, the short-term outlook is less certain, with market sentiment clearly subdued.
Investors seeking long-term returns and willing to ride out potential volatility may still find value in Hyundai Motor India. However, those looking for immediate gains should be cautious, as the near-term market response remains tepid.
