(Bloomberg) -- Shares of Hyundai Motor India Ltd. slid 7.2% in their Mumbai debut on Tuesday, following the nation’s largest-ever initial public offering that drew poor response from retail investors.
The stock finished its first trading session at 1,819.60 rupees after shares were priced at 1,960 rupees apiece, the top of the IPO’s marketed range. South Korea’s Hyundai Motor Co. sold a 17.5% stake in its Indian unit via the deal, seeking to benefit from the investor frenzy for share sales in the South Asian nation, which is one of the world’s most vibrant venues for listings this year.
Retail investors had bought only about half the portion reserved for them in the Hyundai IPO. Overall too, book-building was slower than some had anticipated, with the offering eventually oversubscribed more than two times only after institutions flooded in on the last day of a three-day bidding period.
Individual traders were turned off by the parent company getting all of the deal proceeds as well as cooling demand in India’s auto industry, analysts said earlier. The poor retail interest for the deal stood in contrast to the frenzy seen in some recent IPOs, particularly smaller issues.
“This IPO was basically saved by the institutions,” said Ambar Taneja, chief investment officer of the Cirque India Equity Fund at Geomatrix (HK) Ltd. “It’s a healthy sign that the retail investor is also discerning and knows what the valuations are.”
Some analysts had previously flagged concerns about the priciness of the $3.3 billion IPO, which valued India’s second-largest carmaker by sales at about $19 billion. Joanna Chen, an analyst at Bloomberg Intelligence, noted that its valuation was about five times its Korean parent’s, though in line with those of Indian peers such as Maruti Suzuki India Ltd.
Big Indian IPOs
Hyundai’s tepid debut stands out given that new listings in India have seen shares rise by an average of 39% in their first day this year, according to data compiled by Bloomberg.
That said, its performance also lent more credence to one longer-term trend: large Indian IPOs seldom do well on their first day. State-run Life Insurance Corp. of India saw its shares drop almost 8% in May 2022 after what was then a record IPO in local currency terms. Similarly, One 97 Communications Ltd., the operator of digital-payments provider Paytm, witnessed a stock slump of more than 25% on its debut in November 2021.
Hyundai has established a strong franchise in India but a lack of major launches over the next 12-18 months and higher royalty payments to the parent are among factors that will restrict the company’s earnings growth, analysts at Emkay Global Financial Services Ltd. wrote in a note.
They initiated coverage with a reduce rating and set a price target of 1,750 rupees for the stock.
‘Long-Term Value’
Some analysts are focusing more on the company’s long-term prospects.
Nomura Holdings Inc. initiated coverage with a buy rating just ahead of the listing, citing expectations for “healthy” volume growth and vehicle price increases. It set a price target of 2,472 rupees, implying potential upside of about 26% over the IPO price.
India’s emergence as the world’s fastest-growing major economy as well as its expanding middle class present an opportunity for automakers. The nation’s car market is on track to reach 20 million units by 2047, Suzuki Motor Corp. Executive Vice President Kenichi Ayukawa said in an interview in July. A total of 4.2 million passenger vehicles were sold in India in the fiscal year ended in March, according to the Society of Indian Automobile Manufacturers.
“Hyundai Motor India’s IPO offers potential long-term value, but it is not suited for investors seeking quick gains,” Devi Subhakesan, an analyst at Investory Pte, wrote in a note on Smartkarma ahead of the debut. “Valuation risks are expected” amid shifting consumer preferences and rising competition in India’s auto industry.
With Hyundai’s proceeds, Indian IPOs have raised more than $12 billion so far this year, eclipsing volumes for the past two years but still below the record $17.8 billion raised in 2021, according to data compiled by Bloomberg. Other pending debuts include food-delivery company Swiggy Ltd. and the renewable-energy arm of state-run power producer NTPC Ltd.
Hyundai’s listing came amid a busy week for the Asia Pacific region.
Around 20 companies from Asia Pacific are listing shares in deals that may raise more than $8 billion, the biggest weekly volume since April 2022, according to data compiled by Bloomberg.
Shares of Japan’s Tokyo Metro Co. are scheduled to start trading on Wednesday after a $2.3 billion offering. Bottled-water maker China Resources Beverage Holdings Co. is set to debut in Hong Kong after raising $649 million.
--With assistance from Chiranjivi Chakraborty.
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