Hyundai Set to Launch India's Largest IPO, set to Garner ₹20,500 Crore
Vote of confidence not only in the broader Indian markets and economy but also in its regulatory systems, including SEBI, the Income Tax administration, and retail investor participation.
Hyundai's Ambitious IPO Plans
South Korean auto major Hyundai’s planned IPO highlights a significant trend of multinationals increasingly listing their local operations in India to tap into the country’s market potential. This move aims not only to capitalise on the booming auto market but also to address valuation disparities faced by Korean companies. With a projected valuation of up to $25 billion (approximately Rs 205,000 crore), Hyundai’s listing is poised to be a game-changer, setting a precedent for future IPOs. Successfully navigating this listing will boost Hyundai’s corporate value and pave the way for other global companies to explore similar opportunities in India.
Listing Amid Rising Demand
Hyundai is planning to list its Indian business unit, marking one of the largest public offerings in India's history. This strategic move comes as the country witnesses a surge in car ownership and a booming stock market, positioning India as the fastest-growing large economy globally. The South Korean automaker aims to sell up to 142 million shares, which accounts for 17.5% of its stake in Hyundai Motor India, potentially raising about $2.5 billion (approximately Rs 20,500 crore). This IPO could surpass the previous record set by the $2.45 billion (approximately Rs 20,090 crore) IPO of the state-owned Life Insurance Corporation of India in 2022.
Capitalising on the Auto Boom
The decision to list is driven by the soaring demand for vehicles ranging from hatchbacks to SUVs in India, which has become the third-largest car market in the world. The auto sector contributes approximately 7% to India's GDP, with record sales of 4.2 million units in the last financial year. Hyundai, the second-largest carmaker in India, has sold nearly 12 million passenger vehicles domestically and through exports since 1998. The IPO, anticipated to be scheduled around the Diwali festival in late October, aims to capitalise on this robust demand and favourable market conditions.
Long Waiting Periods for Hyundai Cars— Chip Shortage to Blame
The long waiting periods for new cars in India, particularly for Hyundai, persist due to several factors High demand far exceeds the production capacity of manufacturers like Hyundai, Maruti Suzuki, and Mahindra. The global semiconductor chip shortage has disrupted production timelines, as modern cars rely heavily on these chips for electronic components. Additionally, supply chain disruptions caused by the COVID-19 pandemic have impacted the transport of vehicles and sourcing of raw materials, slowing production.
The waiting period also varies by variant, with the most popular "value-for-money" variants experiencing the longest delays. For instance, top-spec variants of the Hyundai Creta have a waiting period of 4-5 months, compared to 2-3 months for lower variants. Other models like the Mahindra XUV700, Maruti Suzuki Brezza, and Tata Nexon also face similar delays. Overall, a combination of high demand, production constraints, and supply chain issues have led to these extended waiting periods.
Market Conditions and Prospective Listings
a.) Strengthening Market Sentiments
The Indian stock market has been exceptionally strong, with liquidity levels soaring and benchmark indices hitting all-time highs daily. The positive market sentiment is further fuelled by a series of successful listings. In the current year alone, 112 companies have gone public in India, a significant increase compared to 179 companies throughout 2023, according to data from Tracxn.
b.) Anticipated Listings and Market Impact
Experts like Kranti Bathini from WealthMills Securities view Hyundai’s prospective listing as monumental for the Indian market, given Hyundai’s substantial scale and influence. The current IPO boom is expected to continue, with many companies accelerating their listing schedules to leverage the bullish market. Prominent upcoming listings include Ola Electric, Swiggy, and various subsidiaries of multinational corporations. According to Neha Singh, co-founder of Tracxn, India is on the cusp of an extraordinary surge in IPOs.
Indian Markets on a Bull Run
a.) Financial Implications and Regulatory Confidence
As noted before, the South Korean automaker aims to sell up to 142 million shares, which accounts for 17.5% of its stake in Hyundai Motor India, potentially raising about $2.5 billion (approximately Rs 20,500 crore). While this is technically an IPO, it functions more as a disinvestment since none of the funds raised will remain with the Indian entity. Instead, the proceeds from the sale of shares currently held by the South Korean parent company will likely be repatriated abroad. In the short run, this may exert some pressure on the Indian rupee, potentially strengthening the value of the US dollar. However, given the Reserve Bank of India's healthy foreign reserve position, this transaction should be manageable.
b.) Income Tax Issues
Furthermore, with taxation issues in similar IPOs, such as Cairn Energy, having been resolved, it is anticipated that capital gains tax will accrue in India from the sale of shares in the Indian company held by the South Korean parent. Overall, this IPO signals a strong vote of confidence not only in the broader Indian markets and economy but also in its regulatory systems, including SEBI, the Income Tax administration, and retail investor confidence.
c.) Buoyant Indian Economy and Markets
With the political uncertainty now behind, the Indian markets are experiencing a remarkable bull run. The Modi 3.0 government is firmly in place, steering the economy towards significant growth, currently clocked at an impressive 8%. This growth is bolstered by a burgeoning and aspirational middle class, driving demand across various sectors. However, the economy is grappling with persistent high inflation and interest rates, which pose challenges.
Summing Up
Despite these hurdles, the seasoned pedigree of merchant bankers is expected to successfully navigate these conditions and sell Initial Public Offerings (IPOs), although the high valuations and undiscovered pricing might delay substantial gains for successful allottees.
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