Ahead of its mega IPO, why is Hyundai Motor India's GMP tanking?
Oct 14, 2024, 18:23 IST
Tomorrow, Hyundai Motor India, the subsidiary of global automobile behemoth Hyundai Motors, is set to launch the biggest IPO India has ever seen, worth Rs 27,856 crore.
However, over the last week, the Indian markets have been giving the country's biggest automobile seller a heavy cold shoulder. The result? Hyundai's GMP (grey market premium) has been rappelling down at breakneck speed.
As of 4:30 pm today, Hyundai Motors India's GMP was a mere Rs 45, having dipped massively from Rs 570, where it was at, as of September 27,2024. Consequently, its estimated listing day gains also toppled to a minuscule 2.3%, data from IPO website Chittorgarh reflected.
Yes, grey market premiums, which are commonplace in India are unofficial and unregulated. But what does it mean for retail investors like yourself? Should it impact your decision to participate in Hyundai Motor India's IPO, which most experts are recommending to subscribe from a long-term perspective? We decode this for you.
So, say company A fixes an IPO price of Rs 100/share, and its GMP in the markets is presently at Rs 20. This means that the share will probably list at about Rs 120 on the bourses.
Generally, a higher GMP is seen as a positive sign, indicating that there is increased demand and optimism for the company's shares in the market. This also means that investors are potentially expecting hefty listing day gains.
But a lower, or negative GMP reflects diminished demand for the company's share in the markets. It also shows that investors, too, are not very gung-ho on achieving good listing day gains.
Hyundai's GMP, and its estimated listing price has been falling since October 10, 2024. From an expected listing price of Rs 2,092 and a GMP of Rs 132, the company's GMP in has come down to Rs 45, with an expected listing price of Rs 2,005. Talk about dips!
Source: Chittorgarh
Why the dip?
Multiple reasons. First off, this IPO, seen as the mother of all IPOs in Indian history, is entirely an OFS (offer for sale). This means that there is no fresh issue here, and all the funds raised will be directed towards the company's South Korea-based promoters, who are offloading their stakes in this IPO. Even Hyundai's Indian entity will not receive any proceeds from this issue.
As such, investors are on tenterhooks, given that an IPO of such magnitude can suck away significant liquidity from Indian markets.
Secondly, things don't really look bright for automobile sales in the country at the moment, even as we step into the festive season. Recent data from SIAM (Society of Indian Automobile Manufacturers) shows that sales of passenger vehicles (PV) are in a freefall.
The domestic PV sales dipped by 1.4% YoY in September, down to 3,56,752 units. SIAM president has also noted that sales of passenger vehicles are set to remain below the 5% mark in FY24-25, indicating a damp season.
Moreover, many believe that this IPO is on the expensive side, per its PE. Price to Earnings, or PE helps in judging whether any stock is overvalued or undervalued, as compared to its peers, and if its current price is commensurate its expected earnings growth.
What is also noteworthy is that Hyundai India's current PE (price to earning) valuation, per its FY25 earnings is at 26x, which is higher than its listed peer Maruti Suzuki, which stands at 22x (per its FY25 earnings). In fact, Hyundai's PE is also higher than the industry's average PE of 24.41x.
However, the company still presents an attractive investment opportunity in the long-run, says Gaurav Garg, research analyst at Lemonn Markets Desk, "Hyundai has showcased remarkable operational efficiency, sourcing about 90% of its parts locally. This has significantly contributed to its robust financial performance, highlighted by a revenue CAGR of 19.4% over FY21-24, and an impressive return on capital employed (RoCE) exceeding 50% in FY24. With strong financials and a diverse product lineup, Hyundai will make for good long-term investment, even if initial listing gains may be modest".
"Due to the large size of the IPO—Rs. 27,870.16 crore, the largest to date—there is a high chance of allotment to most applicants, so post-issue demand for the shares is not expected to surge. Furthermore, the promoter is offering a 17.5% stake in the issue, and an additional 7.5% stake sale is anticipated within three years to meet regulatory requirements, which will create selling pressure. Considering these factors, investors may choose to avoid this IPO", he signs off.
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However, over the last week, the Indian markets have been giving the country's biggest automobile seller a heavy cold shoulder. The result? Hyundai's GMP (grey market premium) has been rappelling down at breakneck speed.
As of 4:30 pm today, Hyundai Motors India's GMP was a mere Rs 45, having dipped massively from Rs 570, where it was at, as of September 27,2024. Consequently, its estimated listing day gains also toppled to a minuscule 2.3%, data from IPO website Chittorgarh reflected.
Yes, grey market premiums, which are commonplace in India are unofficial and unregulated. But what does it mean for retail investors like yourself? Should it impact your decision to participate in Hyundai Motor India's IPO, which most experts are recommending to subscribe from a long-term perspective? We decode this for you.
What do you mean by GMP?
Think of GMP as an unofficial gauge of the investors perception of how valuable and sought-after a stock is, ahead of its listing on the bourses. Simply put, GMP is the premium, or the additional price at which the shares of IPO-bound company are trading at in the grey markets, before they are officially listed on the stock exchange.Advertisement
Generally, a higher GMP is seen as a positive sign, indicating that there is increased demand and optimism for the company's shares in the market. This also means that investors are potentially expecting hefty listing day gains.
But a lower, or negative GMP reflects diminished demand for the company's share in the markets. It also shows that investors, too, are not very gung-ho on achieving good listing day gains.
Hyundai's GMP, and its estimated listing price has been falling since October 10, 2024. From an expected listing price of Rs 2,092 and a GMP of Rs 132, the company's GMP in has come down to Rs 45, with an expected listing price of Rs 2,005. Talk about dips!
| GMP Date | GMP (In Rs) | IPO Price (Upper end of price band) (In Rs) | Estimated Listing Price (In Rs) | Estimated Listing Gains (In %) |
| 14 October, 2024 | 45 | 1,960 | 2,005 | 2.3 |
| 13 October, 2024 | 65 | 1,960 | 2,025 | 3.32 |
| 11 October, 2024 | 75 | 1,960 | 2,035 | 3.83 |
| 10 October, 2024 | 132 | 1,960 | 2,092 | 6.73 |
| 9 October, 2024 | 175 | 1,960 | 2,135 | 8.93 |
| 8 October, 2024 | 147 | 1,960 | 2,107 | 7.5 |
Why the dip?
Multiple reasons. First off, this IPO, seen as the mother of all IPOs in Indian history, is entirely an OFS (offer for sale). This means that there is no fresh issue here, and all the funds raised will be directed towards the company's South Korea-based promoters, who are offloading their stakes in this IPO. Even Hyundai's Indian entity will not receive any proceeds from this issue. Advertisement
As such, investors are on tenterhooks, given that an IPO of such magnitude can suck away significant liquidity from Indian markets.
Secondly, things don't really look bright for automobile sales in the country at the moment, even as we step into the festive season. Recent data from SIAM (Society of Indian Automobile Manufacturers) shows that sales of passenger vehicles (PV) are in a freefall.
The domestic PV sales dipped by 1.4% YoY in September, down to 3,56,752 units. SIAM president has also noted that sales of passenger vehicles are set to remain below the 5% mark in FY24-25, indicating a damp season.
Moreover, many believe that this IPO is on the expensive side, per its PE. Price to Earnings, or PE helps in judging whether any stock is overvalued or undervalued, as compared to its peers, and if its current price is commensurate its expected earnings growth.
What is also noteworthy is that Hyundai India's current PE (price to earning) valuation, per its FY25 earnings is at 26x, which is higher than its listed peer Maruti Suzuki, which stands at 22x (per its FY25 earnings). In fact, Hyundai's PE is also higher than the industry's average PE of 24.41x.
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However, the company still presents an attractive investment opportunity in the long-run, says Gaurav Garg, research analyst at Lemonn Markets Desk, "Hyundai has showcased remarkable operational efficiency, sourcing about 90% of its parts locally. This has significantly contributed to its robust financial performance, highlighted by a revenue CAGR of 19.4% over FY21-24, and an impressive return on capital employed (RoCE) exceeding 50% in FY24. With strong financials and a diverse product lineup, Hyundai will make for good long-term investment, even if initial listing gains may be modest".
Should I invest?
If you are expecting heavy listing day gains, its possible you'd be disappointed, since the market is largely preparing for muted listing day gains. In the long run, it certainly is a good bet, but Amar Nandu, Research Analyst, SAMCO Securities believes that this IPO can be altogether avoided as well."Due to the large size of the IPO—Rs. 27,870.16 crore, the largest to date—there is a high chance of allotment to most applicants, so post-issue demand for the shares is not expected to surge. Furthermore, the promoter is offering a 17.5% stake in the issue, and an additional 7.5% stake sale is anticipated within three years to meet regulatory requirements, which will create selling pressure. Considering these factors, investors may choose to avoid this IPO", he signs off.