Hyundai Motors IPO GMP Crashes. What Does The Grey Market Premium Crash Mean For Investors Ahead Of Historic Listing?

Hyundai Motors IPO

It is the most eagerly awaited market event seen recently, not to mention by India. The Grey Market Premium of the IPO has been very much going downwards, and the fall has created shivers in many financial circles. In this article, we would like to deal with what exactly a GMP crash means, why it’s happening, and how that impacts the future of Hyundai Motors in the Indian market. We will look at the history of Hyundai in India, the dynamics involved behind the IPO, and what it does for investors looking to enter this major listing.

Understanding Hyundai Motors in India

Hyundai Motor India Ltd (HMIL) is an arm of the South Korean giant Hyundai Motor Company. Since it started operations in 1996, the company has made phenomenal strides and is second only to Maruti when it comes to the manufacture of cars. In a market as competitive and saturated as the automotive sector, Hyundai has been the name on everyone’s lips for decades-from popular models that have made names for themselves, namely Creta, Venue, and Verna, to one of the most profitable success stories in recent times.

In terms of numbers, Hyundai Motor India saw significant financial growth in fiscal 2023. The company’s net profit increased 62.3% to ₹4,709.25 crore on the back of strong domestic sales and a strong export market. This is a big jump from the last fiscal year, but it did highlight that Hyundai Motor India was financially quite strong- mainly in comparison to other automobile companies in the country. With a gross addition of ₹60,307.58 crore, revenue from operations was up with new model launches and dealership network expansion.

The company has stayed focused on innovation along with a result-oriented focus on supplying quality products to consumers. Focus on research and development for the most aggressive marketing techniques that allow the company to outperform the competition in this highly competitive market in India.

Historic Offering Of The Hyundai Motors IPO

Now, what was otherwise another IPO was the Hyundai Motors IPO. It happened to be the biggest IPO Indian history has ever seen and even one more than that in comparison to the LIC IPO of last year. Taking all said and done with, its total offering size puts it at ₹27,870 crore or a little less than $3.3 billion. Hence, the desire for such an offering from all quarters in the financial world must have been great.

The reasons this Hyundai Motors IPO is considered monumental stem from Hyundai’s great market positioning here in India. Hyundai is the country’s second-largest passenger vehicle manufacturer, hence their prospects for growth are bright. The company uses the funds raised in this IPO for several things, like initiating a research and development approach for new product lines, strengthening the brand presence that is already there, and creating more liquidity in the market by making shares available to the public.

There was much interest by QIBs in the IPO, who registered for nearly seven times their allocated portion. On the other hand, retail participation remained way behind; retail investors subscribed to only around 50% of their reserved shares. This lack of enthusiasm from the retail segment is a critical factor behind the volatility of Hyundai’s GMP.

What is Grey Market Premium?

The Grey Market Premium (GMP) is an over-the-counter market wherein shares of companies that are soon to be listed are traded unofficially. GMP technically represents the premium amount for which investors are willing to pay more above the IPO price based on perceived demand and sentiment. Suppose a stock’s GMP is ₹100; it simply means that buyers in the grey market are ready to pay ₹100 more than the issue price for that particular stock at the IPO.

Although GMP is not an officially recognized market indicator and is not monitored by market authorities, it is used by traders as well as investors to predict the possible listing performance of a stock on its listing day. High GMPs signify strong demand for a stock and normally lead to listing at a premium, and a declining GMP indicates weakening demand for the stock and a possibly flat or negative launch.

Decline in GMP of Hyundai Motors. What happened?

Hyundai Motors IPO was opened for subscription on October 15, 2024, much to the fanfare that it garnered. The opening day GMP for the IPO was +63, which was quite representative of the overall positive sentiment dominating the grey market. However, by the end of the subscription, the GMP came down considerably and was at -32 on the last day of the subscription on October 17.

The GMP crash was rather surprising when it came at a time when the IPO had opened with huge enthusiasm on October 18; the GMP saw a minor recovery to +5. October 21, 2024, the GMP remained at ₹245, which is only 2.3% higher than the IPO issue price of ₹1,960. This means that the listing price of Hyundai Motors might close at ₹2,005, an end or a very bad debut.

Factors Behind the GMP Crash

A couple of factors had resulted in Hyundai’s GMP to decline sharply.

One of the main reasons for the GMP crash is that retail investors should be more enthusiastic about it. On the contrary, institutional buyers were impressed by the interest in the IPO, while retail investors were much more sceptical. The retail segment of the IPO could fetch only 50% of subscriptions, which means that small investors need to be made aware of the prevailing market conditions or that they do not believe in Hyundai’s future growth prospects.

Indian IPO success often depends heavily on the attitude of a retail investor. These investors may be cautious based on a broader perspective that the market volatility, prospects of the automobile industry, and Hyundai’s valuation are abysmal.

Risk Aversion: Value Concern Overvaluation

One reason, which also put an end to the GMP’s dominance, is the concern over Hyundai’s valuation. Analysts note that the price-to-earnings (P/E) ratio on the projected earnings for FY25 stands at about 26 times. This is high, especially when compared to its parent in South Korea and Indian competitors like Maruti Suzuki.

They are of the opinion that Hyundai is highly overvalued, especially in the present market conditions. This stock boasts a sound market and financially strong entity with high valuation that has shaken the minds of many whether this stock will deliver returns immediately after listing.

Market Volatility

Wider market scenario also contributes to the crumbling GMP at Hyundai. Indian stocks suffered a bout of volatility over the last couple of weeks as global economic uncertainty, inflationary pressures, and transient fluctuations in consumers’ demand patterns brewed the storm.

This volatility often makes investors keep their finger off the buy button, especially in industries like automobiles, which depend on the confidence of consumers directly. Such downturns in consumer spending greatly affect automobile and other cyclical industries. Taking into consideration all this, most people are very careful about committing themselves to Hyundai’s IPO at such a time.

A Few Instant Gratifications

Hyundai’s IPO is structured as an offer for sale, in which the proceeds of the issue will go to the selling shareholders and not back into the operating balances of the company. The business needs to receive new capital inflow, which raises an ambiguity about the business’s ability to sustain future growth through new initiatives or expansion.

Investors tend to prefer fresh issue IPOs since it means the newly released firm would have more than enough money to invest further in growth, research, and development. Since Hyundai does not possess this characteristic, the hype for this offering has further been minimised, thereby contributing to the decrease in GMP.

Competition and Market Dynamics

Indian automobiles are getting competitive enough, especially with the rapidly increasing demand for EVs. While Hyundai offers a strong portfolio of ICE vehicles, it remains less exposed to the rapidly growing EV market than Tata Motors and Mahindra.

Analysts have also shown concerns that Hyundai has been unable to fix itself strongly on the rapidly growing EV market- consequently limiting its future growth potential. Investors are opting for those firms that have strong representation in the EV line, particularly since there has been a global shift to the use of more sustainable green technologies. The other downward pressure on GMP is the relatively limited exposure Hyundai has to this sector.

Effect on Investor

As said above, many analysts often express their opinion advocating for cautious dealings with Hyundai’s stocks post listing based on the weak retail participation and the nervous investor about the high valuations. Even though its brand presence is excellent and market share satisfactory, the valuation at current times may leave little room for quick gains.

Its short-term investors will be at risk because of selling pressure if it lists at or near the IPO price. Longer-term investors can find value in holding this stock for the future by believing in the growth story of Hyundai.

The investors must keep tabs with the wider trends in the market, particularly the car. Consumers’ preferences to big autos and electric autos, and such companies which can position themselves better in such a market, would outperform in the longer run. Hyundai is a company which needs further innovation and offers new products in those lines.

While short-term issues continue to constrain growth, Hyundai is the undisputed leader in the Indian automobile market. It has acquired strong brand presence, is patronised by loyal customers, and has a healthy balance sheet-the characteristics making it a great long term investment for those willing to ride out the volatility in the near term. Investors would need to be aware that dynamics in the space keep on changing, and with Hyundai as the threat in the EV space now, it needs big strides to still play in the game.

The Hyundai Motors IPO is going to be the largest Indian capital market event this year, both in terms of scale and the huge share the company holds in the automobile sector. And these two aspects raise serious questions regarding investor sentiment and whether the company is overpriced as the GMP drops ahead of listing.

Some factors that have led to the crash are weak retail participation, high valuations, market volatility, and concerns over Hyundai’s limited exposure to the electric vehicle segment. Hyundai is still a strong player in the automotive market, but caution in the IPO is warranted-mostly in the short term.

Hyundai has already established a brand name and, therefore, can offer stronger financial performance and potential long-term growth for long-term investors who would be able to take the near-term knocks from conditions in the market and competitive pressures.