Biggest IPOs of India: Did they help investors make money?

The most awaited Hyundai IPO is hitting the market despite knowing the headwinds that the global and domestic automobile industry is facing with the slowdown kind of scenario pushing inventory to one-year high levels.

Hyundai Motor India is all set to launch country’s largest IPO worth Rs 27,870 crore tomorrow. While one has to wait and watch to see if the automaker helps investors make money, data shows that some of the biggest IPOs of the country including Paytm, and Reliance Power, along with government-owned entities like GIC and New India Assurance saw investors make losses on their investments.

On the other hand, shares of Coal India, Zomato, DLF and HDFC Life are currently trading above their respective issue prices.

“Large offerings have to be timed to ensure there is enough appetite across institutional and wealthy investors. That typically happens at or near the top of the market cycle when several issues have already hit the market and given good returns. Aggressive pricing is another reason why some of the large offerings do not do well post listing. Whether a similar thing will play out this time remains to be seen,” said Deepak Jasani, Head of Retail Research at HDFC Securities.

Notable examples of large IPOs that failed to perform include Paytm (One97 Communications Ltd) and Reliance Power, both of which have consistently traded below their issue prices since their listings. Reliance Power, listed in 2008, is currently down 83% from its issue price, while Paytm's stock, initially priced at Rs 2,150, is yet to surpass its listing price and now trades at around Rs 739 per share, a decline of about 65%.

IPOs of government-backed entities have also delivered lacklustre results. For instance, LIC's IPO, the largest in India's history till date, has delivered a modest 2% return, with its stock currently trading at Rs 967 per share against an issue price of Rs 949. Similarly, GIC India and New India Assurance are both trading below their issue prices, down by approximately 15% and 47% respectively. SBI Cards, which went public in March 2020, also trades at a slight loss, down 1.6% from its issue price.

Conversely, there have been a few success stories. Coal India, which raised around Rs 15,200 crore in its 2010 IPO at an issue price of Rs 245, is one of the rare government-backed companies trading at a 100% premium.

DLF, which launched its Rs 9,187 crore IPO in 2007, initially saw strong performance during the real estate boom but faced a downturn following the global financial crisis in 2008. Zomato's IPO was met with skepticism due to its loss-making status at the time of listing. Despite a sharp correction from its peak of Rs 150 to around Rs 45 per share, Zomato has rebounded strongly and currently trades at approximately Rs 280, making it a significant multi-bagger for investors.

All eyes on Hyundai

The most awaited Hyundai India IPO is hitting the market despite knowing the headwinds that the global and domestic automobile industries are facing with a slowdown-like scenario pushing inventory to one-year high levels.

Globally, automobile giants have slashed future growth guidance and few have downgraded future outlook on weak China demand. Similar headwinds are being witnessed in India with high inventory pushing leading players to offer huge discounts to clear the inventory in this festival season.

On valuation perspective, despite contributing only 6.5% of Hyundai's global revenues and 8% of its profitability, Hyundai’s India is asking for premium valuation even when compared to its parent entity, which is valued at 42% of the South Korean parent's market capitalization on listing.

Amar Nandu, Research Analyst at SAMCO Securities, notes that Hyundai's P/E ratio of 25.6, compared to Maruti Suzuki's 27, appears reasonable. However, its high P/B ratio of 13.11 limits the margin of safety, despite a better ROE. Given the IPO's massive size, ample share allotment is expected, reducing post-issue demand. With a 17.5% stake being sold now and an additional 7.5% expected later, selling pressure is likely. Nandu advises investors to consider avoiding this IPO.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, suggests that Hyundai Motors could be a good long-term investment. However, he warns of potential short-term volatility, which might put pressure on the stock post-listing. For long-term investors, he believes the stock is worth considering.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.