Despite all the initial enthusiasm around Hyundai Motor India’s initial public offering, the IPO ended up being one of the lowest-subscribed by retail investors for issues of above Rs 10,000 crore.
A seemingly last-minute increase in the price band and a string of “red flags” being highlighted ahead of the launch were the key reasons that propelled individual investors to stay away from the mega IPO, experts said.
On Thursday, Hyundai India closed India’s largest IPO. The company received bids for 2.37 times the number of shares on offer.
However, this was solely driven by qualified institutional buyers (QIBs). Retail investors and non-institutional investors only subscribed to 50% and 60% of shares allocated for them, respectively.
Before the IPO was finalised, reports said the company will likely seek Rs 25,000 crore. However, the final figures revealed the company’s plans to raise Rs 27,870 crore at the upper end of the price band of Rs 1,865-1,960 per share.
“Looking at the history and the track record of such large issues, they should have left something on the table for investors… Even if they had left that 12% on the table, they still might have got good support,” said Ambareesh Baliga, an independent market analyst.
For instance, Coal India gave a 5% discount to retail investors during its IPO in 2010. LIC also gave a 5% discount to retail investors and over 6% discount to its policy holders for its IPO in 2022.
While at the beginning of the month, Hyundai India’s shares were trading at a premium of Rs 380 per share in the grey market, they fell to zero on the last day of the IPO. The overall weak market conditions also led to the weak response as key indices have fallen nearly 4% this month.
“A combination of market conditions and aggressive pricing in the face of an apparent slowdown in sales resulted in the retail and the HMI subscription being below par,” said Deepak Jasani, head of retail research at HDFC Securities.
“While there is no doubt the grey market premium played a big part, there were enough discussions across various channels, both digital media and print, which brought up a number of red flags as far as the issue was concerned,” Baliga said.
Some of the issues highlighted by experts include Kia business not being part of the India unit, falling market share of Hyundai India, etc. The stock’s value in the grey market fell further on Friday. It was trading at a discount of Rs 30.
“It does not mean that the stock will list at a discount. The market conditions could improve by the time of listing, and secondly, there may not be too many sellers if the IPO opens lower or around the issue price,” Jasani said.