The country’s largest initial public offering (IPO) from Hyundai Motor India Ltd (HMIL) will open for subscription on Tuesday amid a drop in its grey market premium (GMP) that may indicate soft listing gains.
However, brokerages are recommending that investors subscribe to the issue with medium- to long-term horizon.
The share float comes at a price band of ₹1,865-1,960.
Analysts at ICICI Direct Research said in a note that HMIL has for long been the second largest automobile firm in the domestic passenger vehicle (PV) market in terms of volumes.
It is also amongst the top three contributors to Hyundai Motor global sales volumes, with the share rising from 15.5 per cent in 2018 to 18.2 per cent in 2023.HMIL’s portfolio includes 13 models across major passenger vehicle segments, and it holds a significant 15 per cent market share in the domestic PV segment.
“We assign subscribe rating on HMIL given steady growth prospects amid industry tailwinds, robust financials and healthy SUV product slate. We expect limited listing gains to this IPO. However, we expect HMIL to deliver healthy double-digit portfolio returns over medium- to long term,’’ the brokerage added.
The markets are keenly watching the response among high net worth individuals and retail investors amid a fall in GMP.
According to IPO Watch, GMP stands at ₹30, down from ₹370 on October 4.
Observers said the issue is likely to be fully subscribed because of participation from qualified institutional buyers.
The said the drop in its GMP could be on account of the fully OFS nature of the IPO apart from tepid conditions now being faced by the domestic automobile sector.
Further, the secondary markets are facing the impact of an escalation in conflict between Israel and Iran that could push up oil prices.
“In the coming years, growth is likely to slow due to the higher base effect. According to FADA, PV dealers are facing record-high inventory levels of 80-85 days, equivalent to 7.9 lakh vehicles worth ₹79,000 crore, indicating weaker demand," said Amar Nandu, research analyst, Samco Securities
“Similarly, the company’s sales and profit growth declined in the quarter ended June 2024 and are expected to remain subdued due to the high base of last year.”
“The issue is fairly valued and not aggressively priced. Due to the large size of the IPO, there is a high chance of allotment to most applicants, so post-issue demand for the shares is not expected to surge."
"Furthermore, the promoter is offering a 17.5 per cent stake in the issue, and an additional 7.5 per cent is anticipated within three years to meet regulatory requirements, which will create selling pressure. Considering these factors, investors may choose to avoid this IPO,’’ Nandu said.
