New Delhi: Hyundai Motor India is the second largest car company in the country. Its IPO (Initial Public Offer) is opening on Tuesday. The company plans to raise Rs 27,870 crore through this IPO. Investing money blindly in this issue can prove costly. The company has mentioned some specific risks in its Red Herring Prospectus (RHP). It is important for investors to know this information. This IPO is being launched through Offer for Sale (OFS). In this, the Korean parent company of Hyundai Motor India will sell its 14.2 crore shares. The company will not get any money from this sale. All the money will go to the parent company. The price band for the IPO has been fixed at Rs 1,865 to Rs 1,960.
Investing money blindly in this IPO can prove costly. There seems to be more risk and less profit in this. Even before the opening of the IPO, a decline in Hyundai shares is being seen in the unlisted market.
The gray market premium (GMP) of the company has declined. Currently, Hyundai shares are trading at a GMP of around Rs 30 in the unlisted market. Thus, considering the upper price band of Rs 1,960, investors will get only 1% profit on listing. This is much less than two weeks ago. Then the shares were trading at GMP of Rs 570. However, it is important to note that GMP is only an estimate. This can also change rapidly.
1) Other companies in the same business
Two more companies of Hyundai Motor Company (HMC) – Kia Corporation and Kia India Private Limited – also operate in a similar manner as Hyundai Motor India. This may cause loss to the company.
2) Dependent on Hyundai Motor India parent company
Hyundai Motor India is dependent on its parent company Hyundai Motor Company (HMC) for its operations. Along with parts like engine and transmission, research and development also happens in the parent company. If there are any problems in the relationship between HMC and Hyundai Motor Group companies, Hyundai Motor India’s business, reputation, financial condition and results could be adversely affected.
3) Impact on profits due to increase in royalty fees
Hyundai Motor India pays 3.5% of its total revenue as royalty to its parent company HMC. If this royalty fee increases, as per SEBI rules, it can be up to a maximum of 5%, then the company’s profits will be affected. Earnings per share will also be affected by this.
4) Dependence on only a few suppliers can become a problem
Hyundai Motor India is dependent on a few suppliers for its parts and materials. If any one of them stops the supply, the company’s operations may come to a halt. Non-availability of material on time will also affect production and delivery schedules.
5) Danger of inflation
Increase in the prices of spare parts and raw materials is a major threat to the company. This will have a direct impact on their business and profits.
6) There is tough competition in the market also
There is already tough competition in the Indian car market. Big companies like Maruti Suzuki, Hyundai, Tata and Mahindra are involved in this. Now new companies like Kia and MG have also strengthened their hold. Apart from this, Nissan, Toyota, Skoda and Honda are also not behind. In such a situation, Hyundai will have to work hard to maintain its lead.
7) Market sentiment and auto sector activities
The company will have to pay attention to the market mood and activities of the auto sector along with its specific problems. Due to lack of demand, car companies are accumulating more stock. In the last one month, Nifty has fallen by about 1% due to selling by foreign investors, geopolitical tensions and money flowing into China. However, the auto sector has performed well during this period and Nifty Auto has registered a gain of 3.4%.
Overall, there are different opinions regarding the future of the auto sector. Some experts are worried about the current recession. While others hope that Hyundai Motor India’s IPO will give a boost to the auto industry again.
According to a report by Nuvama, the domestic passenger vehicle market has declined by 1% in the second quarter of FY 2025. At the same time, LKP Research believes that the recession in the sector will prove beneficial for Hyundai. The reason is that the company is increasing its capacity by 30% in the next 2 to 3 years. The brokerage house says that with the new models (4 in the mid-term, including the new Creta EV), Hyundai will give tough competition to its rivals.
(Disclaimer: The recommendations given in this analysis are those of individual analysts or broking companies, and not of NBT. We advise investors to consult certified experts before taking any investment decision as stock market conditions change rapidly. Can.)