Hindustan Aeronautics IPO review (Subscribe for Long Term)

Review By Dilip Davda on Mar 13, 2018

Hindustan Aeronautics Ltd. (HAL) is one of the "Navratna" and the largest DPSU in terms of value of production as per MoD report. It is the 39th largest aerospace company in the world. It is engaged in design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. It has 20 production divisions and 11 research and design centres ("R&D Centres") located across India. It relies on indigenous research as well as enters into technology transfer and licence agreements to manufacture products. In addition, HAL has entered into 13 commercial joint ventures to grow operations. The company has a sustained track record of profitability and paid dividends every year for over four decades. As of December 31, 2017, HAL's order book was Rs. 68461 crore which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from joint ventures and subsidiaries.

Under divestment program and for listing gains, HAL is coming out with a maiden IPO of 34107525 equity shares of Rs. 10 each via book building route with a price band of Rs. 1215 – Rs. 1240 per share to mobilize Rs. 4144.06 cr. to Rs. 4229.33 cr. based on lower and upper price bands. Issue opens for subscription on 16.03.2018 and will close on 20.03.18. It has reserved 668775 equity shares for eligible employees thus the net offer size is 33438750 equity shares. HAL is offering a discount of Rs. 25 per share to retail investors and eligible employees. The overall issue consists 10.20% of the post issue paid up equity capital of the company. Minimum application is to be made for 12 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. BRLMs to this issue are SBI Capital Markets Ltd. and Axis Capital Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. The average cost of acquisition of shares by the promoters (GoI) is Rs. 152 per share. Its entire equity is issued at par. In February 2014 it issued bonus shares in the ratio of 3 for 1. It also bought back few shares in the price range of Rs. 339.88 and Rs. 355.55 per share in March 2016 and November 2017. Post Issue Company's paid up equity capital remains same at Rs. 334.39 cr. 

Hindustan Aeronautics Ltd
On performance front, HAL has (on a consolidated basis) posted turnover/net profits of Rs. 17362.00 cr. / Rs. 994.10 cr. (FY15), Rs. 18754.80 cr. / Rs. 2004.30 cr. (FY16) and Rs. 19596.90 cr. / RS. 2624.70 cr. (FY17). For first half of the current fiscal, it has earned net profit of Rs. 391 cr. on a turnover of Rs. 5665.90 cr. For last three fiscals, it has posted an average EPS of Rs. 54 and an average RoNW of 17.67%. HAL's last three fiscal's EPS stands at Rs. 73 (FY17), Rs. 42 (FY16) and Rs. 21 (FY15). PAT margins for these fiscals were 14%, 12% and 6% respectively. It has posted CAGR of 9% for revenues, 62% CAGR in PAT for last three fiscals. Issue is priced at a P/BV of 3.46 on the basis of its NAV of Rs. 358 as on 30.09.17. It has no listed peers to compare with. HAL's sale to Indian Defense Services accounts for nearly 92% (on an average) of its revenues. According to management, first half results cannot be annualized to compare as it always does better in the second half due to billings only on delivery of products. However, if we annualize latest earnings and attribute it on its paid up equity then asking price is at a P/E of 53, but if we consider FY 17earnings then P/E comes to 17.

On BRLM's front, two merchant bankers associated with this issue have handled 44 public issues in the past 3 years, out of which 14 issues closed below the issue price on listing date.


Conclusion / Investment Strategy

This is the first opportunity of an investment in a defense sector PSU having niche play in aeronautics with a good track record. Investors may consider investment for long term.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Mar 13, 2018

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Hindustan Aeronautics IPO FAQs

  1. 1. Why Hindustan Aeronautics IPO?

    The initial public offer (IPO) of Hindustan Aeronautics Limited offers an early investment opportunity in Hindustan Aeronautics Limited. A stock market investor can buy Hindustan Aeronautics IPO shares by applying in IPO before Hindustan Aeronautics Limited shares get listed at the stock exchanges. An investor could invest in Hindustan Aeronautics IPO for short term listing gain or a long term.

  2. 2. How is Hindustan Aeronautics IPO?

    Read the Hindustan Aeronautics IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Hindustan Aeronautics IPO what should investors do?

    Hindustan Aeronautics IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Hindustan Aeronautics IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Hindustan Aeronautics IPO good?

    Our recommendation for Hindustan Aeronautics IPO is to subscribe for long term.

  5. 5. Is Hindustan Aeronautics IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Hindustan Aeronautics IPO.

  6. 6. When will Hindustan Aeronautics IPO allotment status?

    The Hindustan Aeronautics IPO allotment status will be available on or around Mar 26, 2018. The allotted shares will be credited in demat account by Mar 27, 2018. Visit Hindustan Aeronautics IPO allotment status to check.

  7. 7. When will Hindustan Aeronautics IPO list?

    The Hindustan Aeronautics IPO will list on Wednesday, March 28, 2018, at BSE, NSE.
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