World’s hottest market could be magnet for foreign issuers

livemint.com:

Subscribe to enjoy similar stories. Hyundai Motor’s record initial public offering in India didn’t get off to a good start, but it could still steer the country’s market into new territory. Shares of Hyundai Motor India, the Indian unit of the Korean carmaker, slipped 4% in the first day of trading Tuesday, after raising $3.3 billion in the country’s largest ever IPO.

That might seem odd when newly listed stocks in the country often fly high right out of the gate, with some issues more than doubling on the first day. But individual investors, who are a major driving force behind some of the country’s frenetic trading, weren’t too enthusiastic about the IPO—the retail portion of the deal wasn’t fully subscribed. Hyundai India’s massive size is probably the reason as that makes it much harder to flip a stock for quick gains: In the past, big Indian IPOs typically haven’t done as well in early trading as smaller ones.

Support from institutional investors helped Hyundai to complete the record offering. The Korean automaker decided to sell nearly 18% of the unit in the IPO, and it is easy to see why. India’s red-hot stock market means the Indian unit trades at a substantial premium to its Korean parent—at around 25 times historical earnings, compared with about 5 times for its parent.

India made up around 6% of Hyundai’s revenue for the June quarter, but Hyundai’s remaining stake in the Indian unit is already equal to around a third of its own market value. Part of the explanation is that investors were willing to pay higher multiples for Hyundai’s Indian business for its fast growth. Hyundai India’s revenue grew 49% in the past two fiscal years while improving margins helped net profit double during the period.