Hyundai GMP indicates muted listing, analysts advise waiting for better entry

As a result of weak retail subscription, who only bid for half of the portion allocated for them, large institutions were allocated more shares than they expected. QIBs bid 6.97 times for the shares on offer.

Some of the large investors did not bid for as many shares as they wanted as they wanted, considering the issue pricing was not at any discount to India's largest auto player, Maruti, against which it was benchmarked.

According to certain analysts, in the event of a modest listing or if share prices fall upon listing, Hyundai Motor shares might see some buying interest from large players in the latter half of the session.

One large fund manager, on the condition on anonymity, said that he would look to buy Hyundai Motor shares is there was weakness in the stock following the listing, as first day volumes tend to be high, providing a good opportunity to buy.

Previous large IPOs, such as those of LIC and Paytm's parent company One97 Communications Ltd, also experienced significant volatility in their grey market premiums (GMP). The LIC IPO launched in April 2022 and around that time, its GMP traded at a modest Rs 63 above its issue price of Rs 949 per share, only to eventually turn negative.

Paytm's IPO followed a similar pattern. Its GMP initially indicated a premium of Rs 200 per share over the issue price of Rs 2,150, but just a few days before listing, it dropped to a negative Rs 30 per share.

Few analysts reveal that Hyundai India has funneled two-thirds of its cash reserves to its Korean parent in the last two years. More importantly, they say that the dividends paid to the parent company during this period (Rs 17,900 crore) exceeded Hyundai India’s entire profit after tax of the last five years (Rs 17,800 crore).

In FY24 alone, just before the IPO, a massive Rs 13,300 crore dividend was declared — 3x higher than FY23 and 9x higher than FY22. This aggressive cash outflow has left Hyundai India's bank balances slashed to a third of what they were two years ago, even as it plans its largest expansion in decades.

Also Read | Hyundai Motor India shares set for modest listing on Tuesday, say analysts

With its cash reserves depleted, the Indian unit's upcoming capex will heavily rely on loans, pushing up debt and impacting future profits. The company itself confirmed this in its DRHP, stating that reduced cash levels might force it to borrow, which could hurt its profitability and financial health. This strategy raises concerns as Hyundai Motors India now faces increased financial pressure just as it embarks on its growth plans, analysts added.

Given this backdrop, experts advise caution on Hyundai's listing day, recommending investors to wait for a few days to allow the stock price to stabilise before making any decisions. They predict limited price movement on listing, possibly trading Rs 100 to Rs 150 below the issue price post listing. This could attract retail and HNI investors who missed out during the IPO, as well as QIBs looking to buy at lower levels.

Analysts also highlight that market conditions have softened in recent months, cooling the IPO euphoria seen earlier. The Hyundai IPO, being one of the largest ever, may have further strained market liquidity. Additionally, its size implies a higher chance of share allotment for retail investors, which has dampened the GMP as demand appears absorbed by the IPO itself.

In the short term, substantial listing gains are deemed unlikely, with potential profit-taking possibly pushing the stock lower post-listing. Analysts suggest letting initial supply pressures ease before considering any entry, recommending investors look for a significant decline before buying in.

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