Hyundai Motor India IPO is due to open on October 15 and the counter is currently fetching a premium of a mere 2.3% in the grey market at Rs 45. In the past 18 sessions, the premium on this Hyundai Motor IPO has nosedived from a high of Rs 570 to the current under Rs 50 levels. What’s worrying investors at the moment?
Hyundai Motor IPO- 5 key risks
Here is a look at some of the key risks affecting the counter-
1. No Fresh Issue: The IPO is entirely an offer for sale of Rs 27,870, which means the raised proceeds will be going into the bank accounts of promoters and other selling shareholders. This further means that the proceeds will not be used for the company’s future progress or for setting up new units.
2. Dividend Payout to Hyundai Motor Company: Hyundai Motor India paid out Rs 15,435.84 crore to the parent company in Seoul, South Korea. Earlier in FY23, the company rolled out a dividend payment of almost Rs 1,500 crore to HMC. This is a worry for investors because the company in FY24 reported a net profit of Rs 6,060.04 crore and a revenue of Rs 69,829.05 crore. So, the dividend payout was 22% of the total revenue in FY24.
3. Money going out through royalty to parent firm in South Korea: Hyundai Motor India pays 3.5% of sales revenue to HMC. “Under the Royalty Agreement, to use HMC’s trademarks in connection with such manufacturing and selling activities, we are required to pay an amount to HMC equal to 3.5% of our sales revenue (which is to be determined as set forth in the Royalty Agreement), arising from the sale of passenger vehicles or parts,” it told the markets’ watchdog through RHP. This could adversely affect the company’s profit if the parent firm raises the royalty percentage.
4. Competition from within group: The Group’s two companies – Hyundai Motor India and Kia India are in a similar line of business as well as have similar products competing with each other. For example Kia’s Seltos Vs Hyundai’s Creta, Sonet against Venue, etc. There’s an internal conflict within the company. “Two of our Group Companies, Kia Corporation and Kia India are in a similar line of business as us which may involve conflict of interests, which could adversely impact our business,” said Hyundai Motor in its RHP filed with SEBI.
5. Demand worries in auto industry: In Q2 FY25, the total passenger vehicle sales declined by almost 20% on year compared to a year ago in the same quarter, according to the data presented by the automobile industry SIAM. “Passenger Vehicles and Commercial Vehicles posted some degrowth in Q2 of FY25 compared to FY24. Heavy rainfall in key states and almost the entire ‘Shradh’ period falling in the month of September, did impact the sales numbers of some of the segments,” said Shailesh Chandra, President of SIAM.
Hyundai Motor IPO: Most brokerage advise ‘Subscribe’
However, most of the brokerage houses have given a “Subscribe” rating to the stock with a long-term view. Here are some views-
Anand Rathi Research: “HMIL is dedicated to investing in R&D and introducing new passenger vehicles to enhance their market position and increase the appeal of their vehicles to customers. They aim to remain a key player in the Indian automobile market, offering options that cater to buyers across the entire range, from affordable to premium segments. HMIL follows a premiumization strategy, concentrating on selling higher-end trims with a higher average selling price (ASP) for their respective passenger vehicles. HMIL aims to align their EV strategy with market demands in India by carefully timing the launch of suitable EV models across various price segments,” said Anand Rathi Research in an IPO note.
Bajaj Broking: “If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 26.73, and based on FY24 earnings, the P/E stands at 26.28,” said Bajaj Broking. The issue relatively appears fully priced, but the company is poised for bright prospects post-completion of its ongoing expansions.