Why India's biggest IPO was a failure (Hyundai)?

Introduction
Hyundai Motor India Limited (HMIL) is a prominent automotive manufacturer in India,
established on May 6, 1996, as a wholly-owned subsidiary of South Korea's Hyundai Motor
Company. It has become the second-largest car manufacturer and the largest passenger car
exporter in India, with a PAT of Rs.4653 crore in FY23.
This year Hyundai announced their IPO, in particular, the DRHP filed with the SEBI it was a
offer for sale IPO. Hyundai’s IPO had become by far the largest IPO in size till date
subsequently after Paytm and LIC. Hyundai aimed to raise money worth Rs. 27,856 crores.
This research report talks about why the Hyundai IPO failed even after company being
financial very strong and having a legacy in automobile industry of more than 25 years.

Executive summary
The following are key finding found while doing the research:
1. Weak market sentiments related to the Hyundai IPO.
2. Purpose for the IPO money being raised by the company was to fund to the parent
company in south Korea.
3. High valuation concerning the prospective investor.
4. Retail investors disengagement.
5. Grey market premium (GMP) indicated of not to apply for the IPO.

In-depth analysis
The following are the reasons leading to the failure of Hyundai IPO to have a muted debut in
the Indian stock market:

1. Purpose of raising money through this IPO

By analysing the DRHP paper filed with SEBI, it was found that the HMI was raising
the money from the IPO to transfer it to its parent company in south Korea named
Hyundai motor group and not to be used for the capital expenditure that is required
to grow the business in domestic region of HMI.

There are two main manufacturing plant of Hyundai in India, both of them are
operating at more than 100% capacity. This money raised was not entirely used for
the capex in increasing of operational efficiency of Hyundai’s plants that can cater to
the rising demand for the SUVs.

“The IPO was India's largest in history. The company raised Rs 27,856 crore, which
included an offer-for-sale of 14.2 crore shares, representing a 17.5% stake in the
company.”
2. Large size of the IPO
Considering the historical data related to the large IPOs in India is not great. For
instance,

Vijay Shekhar Sharma's Paytm IPO, which was worth Rs 18,300 crore, ended Day 1
with a loss of 27.25% when it was listed in November 2021.
Later in May 2022, LIC's Rs 20,557 crore IPO—the largest before Hyundai hit the
market—also ended with nearly an 8% loss on debut.

 The history repeated itself is true. Same happened with Hyundai IPO this year.
The company raised Rs 27,856 crore. Hyundai Motor shares ended at Rs 1,845
on the NSE at close of day, falling by Rs 89 or 4.60% from the listing price of
Rs 1,934.

 Analysts noted that historical performance of large IPOs in India has often
resulted in poor listing gains. Summing up the above, the Hyundai IPO had a
muted debut in Indian stock market.

3. High valuation of HMI

The initial public offering (IPO) valued the Indian unit of South Korea’s Hyundai Motor
Company at around $19 billion at the top range of the IPO.
 The prospective investors in Indian stock market considered this valuation
very high and this made the investor concerned about the IPO, making
investor think that is the valuation of $19 billion is justifiable or not.

 Estimates by Emkay Global show that Hyundai is valued at 27.4 times FY25
earnings as against Maruti Suzuki's ask of 25.7 times PE.
The brokerage values Hyundai at 23x core Sep-26 PE, similar to Maruti Suzuki.

4. Grey market premium (GMP) indication

The grey market premium (GMP) for Hyundai’s shares fell from 5 per cent to 2 per
cent, with shares trading at a premium of Rs 45-50 over the issue price of Rs 1,960.
However, the stock showed some recovery from a dip of 3 per cent in pre-listing
trades.

As per analysts, the subdued GMP of Rs 67 or 3.42 per cent, ahead of listing had
already indicated limited enthusiasm for listing gains. On top of that, the company’s
fully priced valuation contributed to the muted debut.

However, the signal for a muted listing became evident after the company's Grey
Market Premium (GMP) witnessed a sharp decline.
 5. Retail investors disengagement
 This is maybe the reason having the higher magnitude in leading to the failure
of Hyundai IPO. The main aim of an IPO is to raise money from the general
public or in other words, retail investors. But in case of Hyundai IPO, it
backfired for them because only 50% of the total shares issued under retail
quota were subscribed by the retail investors.

 Retail investors applied for 2.44 crore shares out of a total retail quota of
4.94 crore shares on the final day of the public issue.

 The parent company of Hyundai Motor India sold a 17.5 per cent stake after
the listing of shares. While the IPO was oversubscribed, the book-building
process was slower than expected.

 A lack of interest from retail investors also contributed to Hyundai's poor Day
1 performance. The retail portion of the IPO was only 50% subscribed,
despite the overall issue being oversubscribed more than two times.

Retail investors typically seek listing gains, which appeared unlikely due to
the high valuation.

Conclusion
Hyundai Motor India's IPO failure highlights the complexities of market dynamics where
even anticipated offerings can falter due to valuation issues, investor sentiment, and broader
economic conditions. As a result, despite being a significant player in India's automotive
market, Hyundai's initial foray into public trading did not meet expectations, raising
questions about future performance and investor confidence in large-scale IPOs within the
Indian context.

Appendix
Reference
Read more at:
https://economictimes.indiatimes.com/markets/stocks/news/hyundai-k-drama-flops-on-d-
street-is-the-largest-ipo-tag-a-crown-of-thorns/articleshow/114453254.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://www.timesnownews.com/business-economy/companies/why-hyundai-india-failed-to-light-
up-d-street-lists-below-ipo-price-article-114456478

https://economictimes.indiatimes.com/markets/stocks/news/hyundai-k-drama-flops-on-d-street-is-
the-largest-ipo-tag-a-crown-of-thorns/articleshow/114453254.cms?from=mdr

https://economictimes.indiatimes.com/markets/ipos/fpos/hyundai-kicks-off-season-1-of-k-drama-
will-indian-ipos-help-koreans-ward-off-k-discount-curse/articleshow/114235817.cms