Should You Subscribe to the Hyundai India IPO? GMP Drops to 3% Ahead of Launch

Hyundai Motor India Ltd (HMIL) is gearing up for its initial public offer (IPO), which opens for public subscription on October 15. This ₹27,870-crore IPO comes with a fixed price band of ₹1,865-₹1,960 per share, positioning it to become the largest IPO in Indian history, surpassing LIC’s share sale of ₹21,000 crore.

As the IPO approaches, the grey market premium (GMP) has significantly declined to around ₹65. This represents a staggering drop of nearly 90% compared to the GMP of ₹570 observed in the last week of September. Despite this downturn, analysts maintain a 'Subscribe' rating for the IPO, citing strong long-term growth prospects.

ICICI Securities has expressed optimism about HMIL's future, emphasizing steady growth potential bolstered by favourable industry conditions, solid financials, and a robust lineup of SUV models. They project limited listing gains for the IPO but believe that Hyundai India will provide healthy double-digit returns over the medium to long term.

The Indian passenger vehicle market has a low penetration rate, offering considerable growth opportunities. Analysts note that HMIL is well-positioned to capitalize on this growth trend, particularly as the company manufactures not only vehicles but also essential parts such as transmissions and engines. Notably, HMIL has also emerged as India’s second-largest exporter of passenger vehicles from April 2021 to June 2024.

In addition to its domestic focus, Hyundai India has established a strong presence in international markets, with exports contributing 21% to its volumes in FY24. The company aims to leverage its local manufacturing capabilities to become a significant production base in Asia, targeting emerging markets in South Asia, Latin America, Africa, and the Middle East.

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However, some analysts caution that increased competition from new product launches by rivals may impact Hyundai's market share and profitability. While the company has been a strong player domestically, any sharp downturn in the passenger vehicle sector could pose challenges, as this segment is cyclical and subject to seasonal fluctuations.

SBI Securities has also recommended a 'Subscribe for Long Term' rating for the IPO, citing Hyundai's strong brand recognition, blockbuster vehicle models, advanced technology, and high export potential as key advantages. They further highlighted that the capacity expansion at the Talegaon facility will enhance both domestic and export volumes. At the upper price band of ₹1,960, Hyundai India is valued at 26.3x FY24 EPS.

It is important to note that the IPO consists entirely of an offer-for-sale (OFS) of over 14 crore equity shares by the promoter, Hyundai Motor Company, with no fresh issue component. Shares of Hyundai India are expected to be listed on October 22, marking the first initial share sale by an automaker in over two decades, following Maruti Suzuki's listing in 2003.

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In conclusion, while the decline in the grey market premium raises some concerns, analysts remain optimistic about Hyundai India's long-term growth trajectory. Investors looking for exposure to the automotive sector may find this IPO an attractive opportunity.