Introduction
 
Feeling fed up with missing out on the latest IPOs? Well, if you applied for Hyundai's IPO, chances are you got a shiny little allocation – but not in the way you hoped!
Hyundai's initial public offering (IPO) has officially launched on the Indian stock market, representing the largest IPO in the nation's history. This significant event has captured the attention of analysts within the automotive sector and beyond. The company intends to build a insipid book, prompting the question: "Is this a promising opportunity for investors, or is the Hyundai IPO destined to be yet another failure?" This paper evaluates Hyundai's current standing, the potential of its IPO, and examines the factors contributing to the challenges faced by India's largest IPO.

The Overview of Hyundai Motor Company

Hyundai Motor Company was established in 1967 and within that period has managed to rise among one of the top car manufacturers in the globe. Nominally headquartered in South Korea, Hyundai has a presence in more than two hundred countries and offers a wide range of vehicles, including cars, SUVs, and EVs. The company has progressed very well with their strategies and development especially in innovation starting from the EV development that aims to place the company on par with companies such as Tesla and other automakers. Moreover, in India, Hyundai holds the second-largest market share, following Maruti Suzuki.

The IPO Landscape

It is clear from the global IPO trends that the IPO market is never constant and there are implications of the economy and the market itself. The automotive market has remained a very active and growing sector. However, it appears that all the significant IPOs in India have encountered unfavorable outcomes in the Indian stock market. The issues may be attributed to liquidity problems, market sentiments, or even potential flaws in the fundamentals of Hyundai's IPO.

Hyundai's Financial Situation

But first, let us look at the fundamentals of the firm before we evaluate the IPO. In the year ending December 2023, the firm registered high revenues because of increase consumption expenditure, especially in the electric vehicle market. Nonetheless, issues such as supply chain disruptions, and the increasing price of materials presented challenges.

Key Financial Metrics

1. Revenue: For the year 2023, Hyundai’s revenue stood around $110 billion, which is an increase of 10% on a year-on-year basis.
 
2. Net income earnings: The reported net income earnings stood at $5.5 billion, a usable figure considering that margins were already low for most firms in the industry.
 
3. PE ratio - Hyundai PE ratio is quite high (26) considering the average industry’s PE is 23.A high PE ratio suggests that investors are paying a premium for the stock, which implies that share maybe overpriced. If Hyundai fails to meet these expectations, it could lead to a decline in stock price, disappointing investors. This also might be a reason that the stock was listed at a discount of 1.3% against the issue price of ₹1,960.
 
4. Offer for sale - An "offer for sale" (OFS) involves existing shareholders selling their shares to the public instead of creating new ones. This can be viewed as promoters liquidating their holdings rather than a sign of financial health, as it doesn't provide new capital for the company’s initiatives. The influx of shares from an OFS may pressure stock prices downward, potentially causing a decline if demand doesn't match supply. For Hyundai, this could raise concerns about financial stability and future growth, affecting investor confidence and market sentiment.
 
5. Royalties - The royalty structure can directly influence investor sentiment. With an increase in royalties from 2.5% to 3.5% , investors have been demotivated. As higher royalty payments can lead to increased operational cost , it could lead to a lower demand for shares during the IPO. This reduced interest can adversely affect the stock price, making it harder for Hyundai to achieve a favorable valuation.
 
6. Competition and Industry Landscape - The automotive market is highly competitive, especially with new entrants in the electric vehicle (EV) sector, such as Tesla, challenging traditional manufacturers like Hyundai. Despite Hyundai's investments in EV technology, being seen as a latecomer may have impacted investor confidence and hesitance regarding their IPO.
 
7. Grey market premium - The grey market premium—the difference between the expected listing price and the trading price in this unofficial market. The grey market premium for Hyundai's IPO shares is low due to cautious investor sentiment, driven by economic uncertainty and fierce competition in the electric vehicle market. Investors view Hyundai's valuation as high relative to its growth potential, resulting in decreased demand and skepticism about its future earnings and market confidence.

Analyst's Point of View

The fact cannot be ignored that Hyundais’ IPO is the largest in this nations’ history . Several prominent brokerages are beginning to recognize the long-term value of Hyundai shares. Nomura has initiated coverage with a “buy” recommendation and set a price target of 2,472 rupees, highlighting that SUVs comprise 67% of Hyundai's sales mix in the April- June quarter. Similarly, Macquarie has initiated coverage with an “outperform” recommendation and a price target of 2,235 rupees, noting that the company's focus on SUVs allows it to command a premium in terms of price-to-earnings (P/E) ratio.