Hindustan Aeronautics makes subdued debut; listing 5% below issue price

The stock listed at Rs 1,152, a 5% below against its issue price of Rs 1,215 on the NSE.

Hindustan Aeronautics (HAL) has made a subdued debut by listing at Rs 1,152, a 5% below against its issue price of Rs 1,215 per share on the National Stock Exchange (NSE). The country’s largest defence public sector undertaking’s was listed at Rs 1,169 on the BSE. The retail individual and eligible employees offered a discount of Rs 25 on the offer price.

At 10:02 am; the stock was trading at Rs 1,172 on the NSE and Rs 1,169 on the BSE. It hit a high of Rs 1,185 and low of Rs 1,150 in intra-day trade so far. A combined 432,846 shares changed hands on the counter on both the exchanges.

The Rs 41.13 billion initial public offer (IPO) of HAL had managed to subscribed 0.99 times mainly on account of higher bid by the state-owned insurance giant. The domestic financial institutions and insurance companies portion saw 27.8 million or 96% of the bids reserved for qualified institutional buyers (QIBs).

The offer saw only Rs 1.07 billion worth of bids from mutual funds. The portion for high net worth individuals (HNIs) was subscribed 0.03 times. The retail investor portion was subscribed 39%, despite the Centre offering a discount on the allotment price.

According to Flight International, HAL is the 39th largest aerospace company in the world in terms of revenue in 2016. The company is 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.

As of 31st December 2017, HAL had an order book was Rs 684.6 million, which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries.

Around 10% of the order book is from services and rest is the aircraft order book. The average project execution time is around 18-36 months. With reference to FY17 revenue, this order book provides cash flow certainty for the next 3-4 years, according to Choice Broking.

On valuation front, at higher price band, the company is demanding a P/E valuation of 15.8x (to its restated FY17 EPS of Rs. 78.5) as compared to peer average of 21x. With respect to its FY18E and FY19E earnings of Rs. 84 and 91.1 per share, respectively, it is demanding a P/E valuation of 14.8x and 13.6x, respectively, as compared to peer average of 21.1x and 18x. The issue seems to be attractive in terms of valuation, amid concerns relating to long gestation period of the defence projects and stringent regulations, the brokerage firm said in an IPO note.