India’s largest state-owned defence firm Hindustan Aeronautics Ltd is looking to raise Rs 4,200 crore through an initial public offering that opens on 15 March.
The three-day IPO is an offer for sale for 3.4 crore shares through which the government will sell 10 percent stake. The price band has been fixed at Rs 1,215-1,240 a piece.
Surge in Revenue and Expansion
The Navratna company manufactures aircraft, helicopters and aeroengines, and also develops and repairs them. It is the world’s 39th largest firm in the aerospace industry. While it has generated a majority of its revenue from the sale of products, the share of service revenue has been increasing in the last few years.
HAL’s biggest client currently is the Indian Army. It also supplies products overseas to such as Afghanistan, Namibia, Seychelles, Ecuador, Mauritius, Maldives and Nepal.
The Bengaluru-headquartered company has five units located across India which have 20 production divisions and 11 research and development centres. R&D has been one of the major expenses of the company over years.
The company’s order book stood at Rs 68,461 crore, as of 31 Dec, 2017 which will be executed over the next three years. Besides, the defence ministry has requested a proposal from the defence firm for the procurement of 83 aircraft and 15 helicopters with an estimated cost of Rs 64,500 crore.
Key Highlights
- The net worth is close to Rs 12,944 crore as of 30 Sept, 2017, translating to a book value of Rs 387 per share. It had more than Rs 11,600 crore in cash as on that date.
Revenue has been growing at a compounded annual growth rate of 7 percent, while net profit grew at 63 percent over financial years 2015 to 2017. Revenue and net profit stood at Rs 5,173 crore and Rs 391 crore, respectively for the first half year ended September 2017.
- Earnings before interest, tax and depreciation and amortisation grew at a CAGR of 26 percent, while ebitda margins expanded by more than 1,200 basis points in the last three years to 18.1 percent. One basis point is one-hundredth of a percentage point.
- Ebitda and operating margin stood at Rs 478 crore and 9.2 percent, respectively, for the first half of the year ended September 2017.
- Company’s business is cyclical in nature as revenue recognition depends on a certification process which generally takes place in the second half of a financial year when conditions for flight testing are favourable.
- HAL is debt-free and has been paying dividend consistently for the last four decades.
- Company’s return ratios have been improving over the years.
Valuation
While government-owned Bharat Dynamics Ltd. and Bharat Electronics Ltd. are not direct peers, they supply different products to the same client – the Indian Army.
Brokerage Take
Recommend Subscribe on the offering based on a robust order book, strong order inflow visibility, best-in-class execution capabilities and a leverage free balance sheet. The stock is being offered at reasonable valuations.ICICI Direct
Hindustan Aeronautics has no listed peers in the manufacturing of weapon platforms in India and is unlikely that company will face any competition in near future as it is strategically difficult and time consuming to replace weapons platforms in defence. We therefore recommend Subscribe.Anand Rathi
While the opportunity is massive in the domestic Aeronautical defence space, order inflow/execution could be bumpy, given the nature of the defence industry. We recommend investors to Subscribe with a long-term view.Prabhudas Lilladher
Given the growth prospects, investors can subscribe to the issue from a long-term perspective. It must be noted that, owing to the current market volatility listing gains may be capped.Centrum Wealth
(This story was first published on Bloomberg Quint)
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