Moneycontrol Pro Panorama | South Korean giants seek Indian makeover

The high levels of oversubscription in the primary market indicate that Indian markets have ample liquidity to absorb IPOs.

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Liquidity and premium valuations in the Indian markets are drawing foreign companies to list on Indian exchanges. A recent report by Pantomath Group highlighted that. Given the unprecedented boom in the domestic IPO market, India is poised to become the new frontier for equity funding for global corporations.

The high levels of oversubscription in the primary market, coupled with the substantial cash reserves held by mutual funds and the steady rise in inflows, including SIPs, indicate that Indian markets have ample liquidity to absorb IPOs. Even the high-risk SME segment is attracting strong interest from retail investors.

Given these dynamics, foreign companies with a strong presence in India are considering raising funds locally. According to media reports, South Korean company LG Electronics is contemplating an initial public offering (IPO) for its India business. If it proceeds, LG Electronics Inc. will become the second South Korean conglomerate to tap into the Indian market for capital.

Previously, Hyundai announced plans to raise Rs 25,000 crore from the Indian markets. Unlike Indian companies, South Korean firms are looking to raise funds not only to support their expansion, but also to enhance the valuations of their parent companies. For instance, Hyundai Motor is currently trading at a price-to-book value of 0.49 on the Seoul exchange, whereas Tata Motors and Maruti trade over four times their book value in India.

Even LG Electronics' stock trades at a price-to-book value of just 0.69 in Seoul while Indian electronics players like Havells (though not a direct comparison) and Voltas trade at 16 times and 9.84 times, respectively. South Korean companies face a similar challenge to what Japanese companies experienced over a year ago, with low price-to-earnings ratios being a common issue.

Japan's market regulator urged companies to improve their corporate governance and become more shareholder-friendly by increasing dividends and share buybacks to address this. The Japanese market, buoyed by stronger growth, has since seen a significant turnaround.

South Korean companies are grappling with a similar situation. Family-owned businesses are trading at low valuations due to modest dividend payouts. Currently, one in three South Korean stocks trades below a price-to-book multiple of one.

Raising funds in India will enhance the sum-of-the-parts valuation of the parent company in South Korea while strengthening its presence in the domestic market. For Indian investors, this presents a valuable opportunity to invest in a world-class company with cutting-edge technology. Mutual funds, currently holding significant cash reserves due to limited investment opportunities at current valuations, will find these large IPOs an attractive solution to their surplus.

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Shishir Asthana
Moneycontrol Pro