Shares of Hero Motors sharply rallied 20% to hit the upper circuit after making a weak market debut, listing at a discount of 2% over the IPO price on Wednesday, with analysts advising patience before taking fresh positions.

Hero Motors shares listed at Rs 82 apiece on NSE on Wednesday, marking a more than 2% discount over the IPO price of Rs 84 apiece. After the muted market debut, the stock surged 20% to remain locked in the upper circuit at Rs 98.40 apiece.

Also read | Hero Motors shares list at 2% discount on IPO price

This comes after Hero Motors' Rs 1,000 crore IPO saw strong investor interest during its three days of public bidding, being subscribed nearly 7 times its offer size. The non-institutional investor (NII) portion was subscribed 9.86 times, while that of retail investors was booked over 8 times. The portion kept for qualified institutional buyers (QIBs) meanwhile was booked 1.5 times.

The initial public offering of the company comprised a fresh issue of 7.14 crore shares worth Rs 600 crore and an offer for sale (OFS) of 4.76 crore shares worth Rs 400 crore by existing shareholders. The IPO was priced in the range of Rs 79 to Rs 84 per share, with a minimum lot size of 178 shares.

While Hero Motors benefits from a strong position in powertrain solutions and the growth potential of EVs, its valuation at around 69 to 74x P/E remains significantly higher than the peer average of 50.2x, said Shivani Nyati, Head of Wealth at Swastika Investmart.

Although RoNW has improved to 8.53% and EBITDA margin to around 10.2%, both remain below key peers, while high customer concentration adds another risk, she noted. Given the strong business prospects but limited valuation cushion, our post-listing view is Neutral. Investors can wait for better valuation or price consolidation before considering fresh positions, while existing investors may consider holding with a stop-loss around Rs 75 to Rs 77, the analyst said.

Also read | Prashant Jain’s 3P India among anchors as Hero Motors raises Rs 300 crore ahead of IPO

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.