Overcoming OTC deals cast a shadow over Hyundai Motor's subsidiary's Indian IPO prospects

The Zhitong Finance App notes that India's unregulated grey market indicates that the excitement surrounding Hyundai Motor India's $3.3 billion IPO is cooling down, and this listing is expected to become the largest IPO in India's history.

The Indian IPO grey market refers to private share transactions between investors outside of the formal IPO process. The grey market's transaction price may be higher or lower than the IPO issuance price, which reflects the market's initial views and expectations about the company. In India, the IPO grey market may involve large investors or institutional investors who may acquire shares through private transactions prior to the company's IPO.

According to investors participating in the market, Hyundai's subsidiary's share price on Monday in the Indian grey market was only 60 rupees at a premium of 1,960 rupees ($23.30) per share, which is the high end of the company's IPO price range. Traders said that about two weeks ago, the premium was as high as 1000 rupees.

The automaker's stock discovery solidified India's reputation as one of the busiest equity financing markets this year. However, individual investors' demand for its shares is changing, which also reflects the company's challenges in a competitive market, which is full of incentives and price cuts as demand surges and cools down due to the pandemic.

“The initial excitement is over,” said Gaurav Thakker (Gaurav Thakker), an IPO stock trader in Mumbai. “We faced a war-like situation in the Middle East just before the IPO started. Meanwhile, automobile sales in India have been sluggish, which has affected expectations for Hyundai's listing earnings.”

In unregulated grey market trading, investors sign informal contracts to trade shares at a predetermined price before the shares actually go public. The changing sentiment surrounding Hyundai Motor India is reminiscent of India's life insurance company's IPO in 2022. At the time, the company's IPO size was 2.7 billion US dollars, making it India's largest IPO. Shares of this state-owned insurance company were traded at discounted prices on the grey market before listing. Despite strong reactions from investors, they fell sharply during the first day of trading.

Hyundai Motor's stock will be listed and traded in Mumbai on October 22. The Indian subsidiary has not issued any new shares. However, its Korean parent company Hyundai Motor plans to sell up to 142.2 million shares, or 17.5% of the shares. At the high end of the price range, the company's valuation would reach around $19 billion. The company is already India's second-largest car manufacturer in terms of sales volume.

All of the proceeds from this IPO will be owned by the parent company, but the parent company has yet to determine how it will use these funds. Earlier this year, Hyundai announced plans to spend up to $3 billion to buy back its Seoul-listed shares.

However, most brokerage firms recommended Hyundai Motor India shares. Aditya Birla Money analyst Mihir Manek (Mihir Manek) wrote in a report that the company will benefit from the support and commitment of its parent company's expansion in India.

However, Manek pointed out that in the higher price range, its “high” valuation was 26 times its earnings per share for the 2024 fiscal year. This “leaves little room for investors,” he said.