Hero Motors has recently made headlines by retracting its draft red herring prospectus (DRHP) for the planned ₹900 crore Hero Motors IPO. According to investment bankers, this decision was prompted by technical issues identified by the Securities and Exchange Board of India (SEBI), which requested the company to make necessary revisions. Consequently, Hero Motors opted to withdraw the current DRHP and is now preparing to refile it. One banker emphasized that “the withdrawal of the DRHP is not related to the weak secondary market,” assuring stakeholders that the company expects to submit the revised DRHP for the Hero Motors IPO within a month.
This move has raised questions among investors and market analysts about the future trajectory of Hero Motors IPO plans. As an established auto component manufacturer, the company had aimed to leverage the public offering to boost its capital and expand its operations.
Understanding the Hero Motors IPO Proposal
Initially filed in August 2024, the draft documents for the Hero Motors IPO included a fresh issue of shares worth ₹500 crore and an offer for sale (OFS) of ₹400 crore. The OFS was comprised of significant share allocations from its promoters, including OP Munjal Holdings, Bhagyoday Investments, and Hero Cycles. Specifically, OP Munjal Holdings had planned to sell shares valued at ₹250 crore, while Bhagyoday Investments and Hero Cycles each intended to offload shares worth ₹75 crore.
The funds raised from this fresh issue were primarily earmarked to help Hero Motors repay outstanding debts, finance capital expenditures for expanding its Noida facility, and support general corporate purposes. Notably, approximately ₹200 crore from the net proceeds was designated for repaying certain borrowings, while ₹124 crore was intended to fund capital expenditures for increasing capacity at its Gautam Buddha Nagar facility in Uttar Pradesh. The remaining funds were expected to support the company’s working capital needs and other corporate expenditures.
Furthermore, Hero Motors had considered a pre-IPO placement of ₹100 crore, which would have been deducted from the fresh issue if executed. This strategy was indicative of the company’s proactive approach to securing additional funding before going public.
Despite the sudden withdrawal of its IPO, Hero Motors has demonstrated strong financial performance in recent years. The company specializes in providing powertrain solutions to automotive original equipment manufacturers (OEMs) across major markets, including the United States, Europe, and India. Over the past few years, Hero Motors has witnessed consistent growth in both revenue and profit margins, underscoring its position in the competitive automotive components industry.
From FY22 to FY24, Hero Motors’ revenue grew from ₹914 crore to ₹1,064 crore, marking a significant increase. Meanwhile, its gross profit surged from ₹281 crore to ₹419 crore during the same period. This growth trajectory reflects a compound annual growth rate (CAGR) of 22%, showcasing the company’s ability to navigate market challenges and capitalize on emerging opportunities. Notably, this financial success has also improved the company’s gross margin, which rose from 30.78% in FY22 to 39.40% in FY24.
The withdrawal of the Hero Motors IPO may be viewed as a strategic maneuver, considering the broader market conditions and current investor sentiment. With global uncertainties and fluctuations in stock markets, companies often reassess their IPO plans to determine the optimal timing for public offerings. This approach helps mitigate potential risks and enhances the likelihood of a successful launch when market conditions are more favorable. It is also conceivable that Hero Motors is evaluating alternative funding options, potentially aiming to revisit its IPO plans once the market stabilizes.
Future Prospects for Hero Motors IPO
The lead managers for the now-withdrawn Hero Motors IPO were ICICI Securities, DAM Capital Advisors, and JM Financial. Their involvement reflects the significance of the planned offering, as these financial institutions have a track record of managing successful IPOs.
As Hero Motors prepares to refile its DRHP and address the necessary revisions requested by SEBI, stakeholders will be closely monitoring the company’s moves. The automotive industry is facing rapid technological advancements and shifting consumer preferences, which could play a role in the timing and structure of Hero Motors’ eventual IPO.
In conclusion, while the withdrawal of the Hero Motors IPO raises immediate concerns among investors, the company’s strong financial performance and strategic considerations indicate that it remains well-positioned for future growth. As Hero Motors navigates this transitional phase, it is essential for the company to maintain transparency and communicate effectively with stakeholders to build trust and confidence in its long-term vision. With the right adjustments and a favorable market environment, Hero Motors may very well re-enter the IPO space and achieve its capital-raising objectives.
You might also be interested in – Sensex, Nifty plunge in volatile trading; Tata Motors declines by 8%
