Mumbai, Maharashtra, India – 2024/10/21: Hyundai logo visible on Hyundai car showroom in Mumbai. Hyundai’s initial public offering (IPO) will be listed on the stock exchange on October 22, 2024.
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This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.
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automaker stocks modernThe company’s Indian unit began trading this week amid much anticipation, but shares fell about 7% following the listing.
The stock has since regained ground, but remains 5% below its initial public offering price.
The South Korean auto giant, the world’s third-largest passenger car maker by sales, set up a plant in India in 1996 soon after the country implemented socialist economic liberalization reforms. Fast forward 28 years and the company appears to have had its biggest payday yet, raising $3.3 billion from the stock market by selling 17.5% of its shares.
modern Indian Automobile has emerged as India’s second-largest automaker, proving its understanding of the market by tailoring its globally popular and technologically advanced cars not only to the tastes of Indian consumers but also to Indian roads.
It’s a profitable business, and Hyundai management believes the trend will continue.
Despite such success, the stock market appeared to be cold on Hyundai this week.
Stock prices fell across the board nifty 50 The index fell about 5% from the previous month. However, investors pointed out that several factors surrounding the listing may also have contributed to the current economic downturn.
First, the money raised from the stock listing is being given back to Hyundai Motor’s Korean parent company. However, in a typical IPO, the money raised is used to invest in growth or pay down debt. Investors balked at the idea that the Indian subsidiary would not necessarily benefit from the cash raised in the stock market, and the Korean parent company has not made clear how it plans to use the proceeds from the stock sale.
Second, Hyundai doesn’t seem to be in urgent need of raising capital; it’s just opportunistically taking advantage of what some in India call a “bubble” market.
“It’s not that the company needs capital, so it’s really the parent company trying to take advantage of the valuation,” said Gaurav Narain, chief adviser at the firm. India Capital Growth Fundlisted on the London Stock Exchange. ICG funds mainly invest in small and medium-sized Indian stocks and have not participated in IPOs.
Kunjal Gala, Global Head of Emerging Markets and Chief Portfolio Manager, $3.3 billion United Hermès Global Emerging Markets Equity FundIt is speculated that the decision to list the Indian subsidiary may be due to the need to “provide a better valuation for its Korean parent company.”
Gala’s fund holds stakes in other carmakers, e.g. Maruti SuzukiIndia’s largest automaker and China’s largest automaker BYD. “So, this is a way to design a better valuation from a financial perspective, right?”
With the listing, the Indian subsidiary is now worth almost half that of its Korean parent.
Hyundai also appears to be compensating for future revenue losses from its stock sales by increasing the royalties it charges its Indian unit. As of June, royalties were negotiated between the Indian entity and the Korean parent company on a model-by-model basis. However, the Indian subsidiary will now have to pay a fixed fee 3.5% of total revenue keep going.
Equity analysts at financial services firm Emkay have a “sell” rating on the stock, citing lower earnings potential due to higher royalties and “higher royalties and lower financial revenue may limit (per stock earnings) growth.
If that wasn’t enough, some investors and analysts say Hyundai is pricing the stock with minimal upside for a massive IPO, which is a big turn-off for most retail investors. “Retail investors want big discounts,” Narain added.
Others, however, believe investors taking a wait-and-see approach to one of India’s major automakers are missing out on long-term gains.
“We believe (Hyundai Motor India) is a good representative of the rising premiumization trend in the Indian auto industry,” Nomura analyst Kapil Singh said in a note to clients on October 22.
“What’s more, customers are increasingly aspirational and willing to pay more for attractive designs and high-tech features.” Singh expects the stock to rise from Thursday’s closing price of 2,472 Indian rupees ($29.40) About 32%.
Analysts at Macquarie also believe Hyundai is best suited to capture the changing face of India’s middle class and wealthy.
The investment bank also said that Hyundai India, leveraging its parent company’s expertise and success in developing state-of-the-art hybrid and electric vehicles for the Korean and Western markets, will be best-positioned to offer Indian consumers better quality products than its competitors. Product India is ripe for electric vehicle transformation.
“We believe its strong parent (company) is well-positioned to navigate India’s changing powertrain mix better than its domestic peers,” said Macquarie analysts Ashish Jain and Pratik, who initially commented on the issue. The stock has an “outperform” rating and a price target of $2,235.
need to know
Indian Prime Minister Narendra Modi meets with Chinese President Xi Jinping. Both leaders have their own The first official bilateral meeting in five years was held on the sidelines of the BRICS summit in Russia, where they agreed to strengthen cooperation and resolve conflicts between the two countries. “Mutual trust, mutual respect, mutual sensitivity should be the basis of our relations,” Modi told Xi. Their conversation came after India and China agreed on Monday to resolve their border dispute.
India and China have reached an agreement to end the military standoff on their border. Indian and Chinese troops have clashed in the western Himalayas since 2020. Jaishankar said on Monday.
Indian retail distributors demand an antitrust investigation into Express Commerce. The All India Consumer Goods Distributors Federation, which represents about 40,000 FMCG companies, has asked India’s antitrust agency to investigate Zomato’s Blinkit, Swiggy and Zepto for alleged predatory pricing. These companies provide fast commerce services that deliver purchased goods to consumers within 10 minutes.
Nvidia doubles down on India market. Nvidia on Thursday announced a partnership with an Indian company and the launch of a Hindi language model. CEO Jen-Hsun Huang was speaking at the company’s Artificial Intelligence Summit in Mumbai, where guests included Bollywood superstar Akshay Kumar and India’s richest man, Reliance Industries Chairman Mukesh Amba Mukesh Ambani.
What happened to the market?
Indian stock markets appear to be in trouble. this nifty 50 It has fallen nearly 2% in the past week and more than 6% in the past month. The index has gained 12% this year.
India’s 10-year government bond benchmark yield rose slightly to 6.82% over the past week.
Puneet Gupta, director of global liquidity at S&P, said on CNBC television this week that investors should not be too hasty in judging Hyundai Motor India’s share price on its first day of trading. Institutional investors have shown “strong interest” in the company, which “reflects Hyundai’s mid- to long-term potential.”
Meanwhile, Vinit Sambre, head of equities at DSP Asset Management, said it makes sense for foreign investors to profit from the recent rally in Indian markets and use these returns to invest in markets that show short-term opportunities. Sambre, however, said “India is more of a long-term structural market” and is attractive to “investors who want to generate returns” and “see growth as a fundamental”.
What happens next week?
Shares of Deepak Builders & Engineers India and Waaree Energies started trading on October 28.
October 24: India’s October HSBC Manufacturing PMI preview, the United States’ October S&P Global Composite PMI preview
October 28: Deepak Builders & Engineers India IPO, Afternoon Energies IPO
October 29: U.S. JOLT vacancies, Saudi Arabia Future Investment Initiative Summit opens
October 30: US GDP, UK budget
October 31: India’s infrastructure output, US September personal consumer price index, China’s National Bureau of Statistics manufacturing and non-manufacturing PMI in October
November 1: China Caixin Manufacturing PMI
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