Hyundai Motor India shares dropped 7.2% in their market debut on Tuesday following a tepid response from retail investors to the country's largest initial public offering (IPO) on concerns the price was set too high and an auto industry slowdown.
The stock was listed at 1,934 rupees on the National Stock Exchange, below its offer price of 1,960 rupees, and fell as much as 7.6% before closing at 1,819.60 rupees. That valued the company at 1.48 trillion rupees ($17.6 billion).
Hyundai, India's No. 2 carmaker with a 15% market share, was targeting a valuation of $19 billion via the offering.
The record $3.3-billion IPO was oversubscribed more than twofold last week, led largely by institutional investors. However, concerns the price of the shares was set too high compared to future earnings deterred retail investors who worried they would not be able to make gains on the listing.
Including Hyundai, seven of India's 10 biggest IPOs have seen share price falls on their first days of trading, according to Dealogic. Losses have ranged from 5% to 27%, the data showed.
Analysts said the Hyundai's weak market debut reflects the high share valuation, near-term weakness in car sales and an increase in the royalty rate paid by the company to its Korean parent.
"Hyundai's issue has been stiffly priced and that seems to be weighing down on its listing as well," said Arun Kejriwal, founder of Kejriwal Research.
"Besides, the volumes seen so far are driven only by institutional investors, and is rather poor for an IPO of Hyundai's size."
Tuesday's listing in Mumbai is Hyundai Motor's first debut outside its home market of South Korea. The IPO was the world's second-largest this year.
"Price, of course, will always be determined by the investors," Hyundai India's COO Tarun Garg told reporters in Mumbai when asked about the company's weak stock market debut.
He also dismissed concerns over the increase in royalty rate to 3.5% from 2.5%, terming it "in line with the market benchmark."
While Hyundai's market valuation is much smaller than that of Indian market leader Maruti Suzuki's $45 billion, analysts have expressed concerns over the narrower gap in their price-to-earnings (P/E) ratios.
The issue had valued Hyundai at 26 times its earnings for the fiscal year 2024 which ended in March, not far off the multiple of 29 for Maruti.
Industry slowdown
Hyundai India's listing comes as shares of Indian rivals have also slipped in recent weeks as car sales slow after two years of record highs, with customers delaying purchases on worries about stubborn inflation.
Hyundai's domestic sales in India in the April to September period are down 2.6% from the same time a year earlier, while overall car sales are up just 0.5%, according to the latest industry data.
Garg, however, said the recent slowdown was "nothing to worry too much" over, attributing it to seasonality, and he expects the industry to rebound.
Maruti's shares were down 2.3% on the day, while Tata Motors was down 3%, with the Nifty Auto index down 2.3%.
Hyundai Motor plans to use the proceeds from the sale of a 17.5% stake in the Indian unit to invest in research and launch new products as it fends off competition from Tata Motors and Mahindra & Mahindra.
"We shall leverage our deep understanding of consumer preferences to successfully expand our passenger vehicle portfolio," Garg said at the listing ceremony.
Long-term bet
Some major brokerages, however, see long-term value in the stock.
Nomura started coverage of Hyundai with a "buy" rating and a price target of 2,472 rupees. The brokerage said it liked the high level of SUVs in Hyundai's product range, which accounted for 67% of sales in the April-to-June quarter.
Macquarie analysts began coverage with an "outperform" rating and price target of 2,235 rupees, saying Hyundai's focus on SUVs commanded a P/E premium.