Hindustan Aeronautics IPO / HAL IPO – Should you Invest?
HAL IPO news has been buzzing for the past several months and now they have announced the IPO dates. Hindustan Aeronautics IPO / HAL IPO would open for subscription on 16th March, 2018. Hindustan Aeronautics are engaged in the design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. Govt of India is going to divest 10% of its stake through this IPO. Hindustan Aeronautics generated revenue of Rs 19,600 Crores in FY2017. It earned around 13% margins in FY17. What are the positive factors in Hindustan Aeronautics Limited IPO? What are the hidden factors in Hindustan Aeronautics Ltd IPO? Should you invest in HAL IPO when stock markets are taking correction now?
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About Hindustan Aeronautics Ltd (HAL)
They have been conferred with the "Navratna" status by the GoI in 2007 and are the largest DPSU in terms of value of production according to the MoD Annual Report 2016-2017. They were the 39th largest aerospace company in the world in terms of revenue (in USD million) in 2016 according to Flight International. They are engaged in the design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. Its operations are organised into five complexes, namely the Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex, and Design Complex, which together include 20 production divisions and 11 research and design centres located across India. They rely on indigenous research as well as enter into technology transfer and licence agreements to manufacture its products. In addition, they have entered into 13 commercial joint ventures to grow its operations.
Hindustan Aeronautics IPO Issue details
IPO opening date: 16-March-2018
IPO closure date: 20-March-2018
Face Value: Rs 10 per share
Issue price band: Rs 1,215 to Rs 1,240 per share.
Issue size: Approx. Rs 4,229 Crores on higher price band
IPO Lot size: 12 shares and 12 shares there-off
Minimum investment: Rs 14,880
Leading Managers: SBI Capital and Axis Capital
Listing: BSE / NSE
Download Hindustan Aeronautics IPO RHP Prospectus at this link.
Objects of the Hindustan Aeronautics Limited IPO issue
Below are the objects of this IPO.
The objects of the Offer are
(i) To carry out the disinvestment of 36.15 Mn Equity Shares by the Selling Shareholder constituting 10% of Company’s pre-Offer Equity Share capital of the Company. Company will not receive any proceeds from the Offer and all the proceeds will go to the Selling Shareholder.
(ii) To achieve the benefits of listing the Equity Shares on the Stock Exchanges.
Since Govt of India is the Promoter of the company, President of India is acting as Promoter through the Ministry of Defence. Promoter along with its nominees, currently holds 100% of the pre-Offer Equity Share capital of the Company.
Company Financials (reinstated-Consolidated)
1) The company generated revenue of Rs 17,362 Crores for the year ended Mar-15 and Rs 19,596 Crores for the year ended Mar-17. Revenues for 6 months ended Sep-2017 was Rs 5,665 Crores.
2) The company posted a profit of Rs 994 Crores for the year ended Mar-15 and profit of Rs 391 Crores for the year ended Mar-17. Profits for 6 months ended Sep-17 was Rs 391 Crores.
3) Its FY17 EPS is Rs 73 and 3 years average EPS is Rs 54.
Company Financials (reinstated-Standalone)
1) The company generated revenue of Rs 17,364 Crores for the year ended Mar-15 and Rs 19,599 Crores for the year ended Mar-17. Revenues for 6 months ended Sep-2017 was Rs 5,666 Crores.
2) The company posted a profit of Rs 1,000 Crores for the year ended Mar-15 and profit of Rs 2,615 Crores for the year ended Mar-17. Profits for 6 months ended Sep-17 was Rs 397 Crores.
3) Its FY17 EPS is Rs 73 and 3 years average EPS is Rs 54.
What are the key strengths of Hindustan Aeronautics Limited?
Here are the key strengths of the company.
1) Long credible history of research, design and development, manufacturing and maintenance, repair and overhaul services.
2) Established track record in offering product life cycle support extending to periods beyond four decades.
3) Strong design and development capabilities.
4) Leadership position in the Indian aeronautical industry and strong GoI support.
5) Diversified product portfolio.
6) Strong financial track record.
7) Experienced management team and operating team.
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What are the Strategies of Hindustan Aeronautics Ltd?
Here are the key strategies of the company.
1) Diversify through expansion in new growth areas.
2) Diversify further into the civil aircraft segment for both manufacturing and servicing opportunities.
3) Develop in-house capabilities to design and develop specialised products including aero-engines.
4) Leverage Existing Cost Advantage.
5) Developing Human Capital.
6) Enhancing customer satisfaction.
7) Optimising operations towards becoming a lead integrator of aircraft platforms.
Reasons to invest in Hindustan Aeronautics IPO
1) Good revenues growth from Rs 17,362 Crores in FY15 to Rs 19,596 Crores in FY17.
2) Its margins are on increasing mode. Its margins for FY15 was 5.7% Vs FY17 of 13%. High margins always rewards investors.
3) Good opportunity to invest in leading Navrathna in India.
4) IPO is available at cheap price.
5) Retail investors and employees of Hindustan Aeronautics would get Rs 25 discount on the share price.
Risk Factors / Reasons not to invest in a Hindustan Aeronautics IPO
1) Its profits dropped for the period 6 months ended Sep-2017.
2) They depend heavily on MoD contracts. A decline or reprioritisation of funding in the Indian defence budget, that of customers including the Indian Army, Indian Air Force and Indian Navy, Indian Coast Guard, Border Security Force, Central Reserve Police Force and Paramilitary forces or delays in the budget process could adversely affect its ability to grow or maintain its sales, earnings, and cash flow.
3) As a result of national securities concerns, certain information in relation to its business and operations is classified as ‘secret and confidential’ pursuant to which they have not disclosed such information in this RHP nor provided such information to the BRLMs and other intermediaries and advisors involved in the Offer.
4) The MoD contracts are not always fully funded at inception and are subject to termination. its inability to fund such contracts at the time of inception or any termination could have a material adverse effect on its financial condition and results of operations.
5) Company is not in compliance with certain provisions of the Companies Act and/or SEBI Listing Regulations in relation to terms of reference of the Audit Committee and the Nomination and Remuneration Committee.
6) Ongoing disclosure of information in relation to company after the listing of the Equity Shares on the Stock Exchanges may be limited and may not be in compliance with the SEBI Listing Regulations and other applicable laws.
7) The MoD contracts contain provisions giving the Indian Defence Services a variety of rights that are unfavitsable to us.
8) The GoI has significant influence over its actions which may restrict its ability to manage its business. Any change in GoI policy could have a material adverse effect on its financial condition and results of operations.
9) They are involved in a dispute with the Ministry of Defence of Ecuador relating to their termination of an agreement with us relating to the supply of helicopters to the Ecuadorean Air Force. its revenue and exports may be adversely affected as a result.
10) The manufacturing processes for some of its products are complex and involve some hazards.
11) They have experienced negative cash flows in past. Any negative cash flows in the future could adversely affect the results of operations and financial condition Its business could be negatively affected by cyber or other security threats or other disruptions.
12) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
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Recommendation / Investment strategy – Hindustan Aeronautics IPO
1) On the upper price band of Rs 1,240 and on consolidated restated FY17 EPS of Rs 73, P/E ratio works out to 17x. Even based on last 3 years consolidated restated EPS of Rs 54, P/E ratio works out to 23x. Means, company is asking higher price band of Rs 1,240 in the P/E ratio of 17x to 23x. There are no listed peers for comparison. If we consider 23x P/E in general, the IPO price can be considered as fully priced.
2) Company posted strong revenue growth in the last 3.5 years. Its IPO price is fully priced. It is earning good margins (except for 6 months ended Sep-17). Considering the brand of Mini Rathna and all other positive factors, investors can invest in this IPO for 2-3 years tenure. Investors may or may not get listing gains.
Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Hindustan Aeronautics IPO / HAL IPO – Should you Invest
Government itseld barred HAL from participating in a global tender. HAL has gone into several joint venture business. These joint ventures employ top executives retired from HAL. They suck the lucrative projects and good revenue making business from HAL with the help of HAL insiders in the name of outsourcing. In near future HAL will retain only non-lucrative non-profitable business while all good revenue making business will go to joint ventures.