Hindustan Aeronautics Limited IPO - Should you subscribe?
After Bharat Dynamics Ltd, yet another GoI's Defense PSU all set to hit the primary market. Like BDL, Hindustan Aeronautics Ltd IPO is also a part of the GoI's 2017-18 disinvestment plan.
Incorporated in August 1963 and
promoted by the President of India acting through the Department of Defense
Production, Ministry of Defense, GoI, HAL is engaged in the business of design,
development, manufacture, repair, overhaul, upgrade and servicing of a wide
range of products including, aircraft, helicopters, aero-engines, avionics,
accessories and aerospace structures. The company has been conferred with the
"Navratna" status by the GoI in June 2007.
HAL's operations are organized into five complexes:
Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex, and
Design Complex, which together include 20 production divisions and 11 research
and design centres (“R&D Centres”) located across India. It relies on
indigenous research as well as enter into technology transfer and license
agreements to manufacture its products. In addition, it has entered into
13 commercial joint ventures to grow its operations.
Issue Details:
Investor wise category : 35% of shares are reserved for Retail Investors
Objects of the offer: As we can see from the
above table that the issue is 100% Offer for Sale. The Company will not receive
any proceeds from the Offer and all proceeds shall go to the Selling
Shareholder. Primarily the objects of the Offer is to carry out the
disinvestment of 36,150,000 Equity Shares by the Selling Shareholder (10% of
the Company’s pre-Offer paid up Equity Share capital of the Company).
Moreover, the issue will help the company to achieve the benefits of listing
the Equity Shares on the Stock Exchanges.
Pricing of the share: The company has set
the price between Rs. 1215 - Rs. 1240 per share. The EPS (Basic and Diluted) as
on March 31,2017 was Rs. 73. At lower and upper price band, PE ranges between
16.64 - 16.98. The selling shareholder has asked the price which is 3.50 - 3.57
time of its book value (NAV Rs. 347 as on March 31, 2017). There are no listed peers in
India. Hence, industry comparison is not possible. However, from both
perspective (PE and Book Value), the asked price seems very reasonable. The
company holds leadership position in the Indian aeronautical
industry and it has strong GoI support. Further, due to
GoI's initiative to push 'Make In India', the company will witness a robust
growth in the future.
Revenue and Profitability: The company has a strong financial track record. Its revenue from
operations grew from 15,648 Crore in the Financial Year 2015 to 18,554.9 Crore
in the Financial Year 2017, representing a CAGR of 8.9%. And RoNW as on March
31,2017 was 21%.
HAL is a cash rich company. It doesn't have
any long term indebtedness. As of March 31, 2017, the company had cash and cash
equivalents of 11,153.3 Crore, compared to 13,303. 4 Crore and 17,671.4 Crore
as of March 31, 2016 and 2015, respectively.
Order status: The company has sufficient orders on hand. As of July 31, 2017, its order book was 63,333 Crore, which
generally includes products and services to be manufactured and delivered and
excludes anticipated revenues from incomplete portions of existing contracts
undertaken by its joint ventures.
Dividend: The company has a sustained track record of profitability and has
paid dividends to its stakeholders every year for over four decades. In Fiscal
2017, the company declared 221% dividend. However, the same liberal approach
can not be guaranteed post public issue. All central public sector enterprises are required to pay a minimum annual dividend of 30% of profit after tax or 5% of the net-worth, whichever is higher, subject to the maximum dividend permitted under the extant legal provisions and the conditions mentioned in the aforesaid memorandum.
In addition to sales to the
Indian Defense Services, which accounted for 93.3%, 94.2% and 92.6% of its
total sales from sales to the Indian Defense Services in the Financial Years
2017, 2016 and 2015, respectively, the company sell its products and provide
services to state governments, para-military forces and corporates. In
addition, during the Financial Year 2017, it exported its products and
services, primarily spares, to more than 13 countries. During the Financial
Years 2017 and 2016, exports of products and services accounted for 2.6% and 2.7%,
of its revenue from operations (net of excise duty) respectively.
Conclusion:
Overall, fundamentals of the company are very strong. The debt free high dividend paying company with full order plate, giving the shares at quite reasonable price, it's an opportunity to grab. However, it has limitation as well. The company highly depends on a single customer. The company works under political influence. Any change in either government or government policy may change the fate of the company. Yet, I believe that the company's positives are outshining.
Thank you for reading....Jai Hind
CA Prashant Seta
(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before applying)
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