Hindustan Aeronautics Limited IPO Review and Current GMP

Hindustan Aeronautic is engaged in manufacturing, development, design, repair and servicing of products like helicopters, aero-engines, aero space structures, aircraft and many more. Hindustan Aeronautic India has the unique products portfolio and the operations have names like Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex, and Design Complex and they have over 11 production division with 11 R&D centers in India.

Their major domestic customers are Indian Air Force, Indian Army, Indian Navy, Indian Coast Guard, Indian Space Research Organisation, Defence Research & Development Organisation, Ordnance Factory Board, ,Border Security Force, Oil & Natural Gas Cooperation of India, Govt. of Karnataka, Govt. of Jharkhand, Govt. of Maharashtra, Geological Survey of India, Bharat Heavy Electricals Ltd. They export their products in France, USA, Mauritius, Israel, Ecuador, Namibia, Nepal, Russia, UK, Oman, Malaysia, Thailand, Germany and Vietnam. The company received “Excellent” rating from Government of India from 2002 to 2016.

Hindustan Aeronautics is ‘Navratna’ company since June 2007 and the largest DPSU in India. It is the 39th largest aerospace company in the world in terms of revenue. The company was also awarded Raksha Mantri’s Award for excellence in performance under institutional category in FY 2008, FY 2010, FY 2011, FY 2013 and FY 2016.

386_Para_hawk-i

IPO Dates & Price Band:

  • IPO Open: 16-March-2018
  • IPO Close: 20-March-2018
  • IPO Size: Approx Rs. 4482 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.1214 to 1240 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 34,107,525 Shares
  • Discount:  Rs.25 for Retail & Employee

Market Lot:

  • Shares: Apply for 12 Shares (Minimum Lot Size)
  • Amount: Rs.14,580 (For Retail & Employee)
  • Amount: Rs.14,880 (For QIB & HNI)

IPO Allotment & Listing:

  • Basis of Allotment: 26-March-2018
  • Refunds: 27-March-2018
  • Credit to demat accounts: 27-March-2018
  • Listing: 28-March-2018

The promoters:

The President of India

Acting through the Department of Defence Production Ministry of Defence.

 Lead Managers:

SBI Capital Markets Ltd
Axis Capital Ltd

Registrar to the IPO:

Karvy Computershare Pvt Ltd.

387_Para_alh civil 3

111

Outlook of the Indian Aerospace and Defence Sector

India has the third largest military in the world and is the sixth largest spender in Defence. India is also one of the largest importers of conventional defence equipment and spends approximately 30% of its total defence budget on capital acquisitions. 60% of Indian’s defence – related requirements are currently met through imports.

In addition, the ‘ Make in India ’initiative by the Government is focusing its efforts on increasing indigenous defence manufacturing with the aim of becoming self – reliant.

The opening up of the defence sector for private sector participation is helping foreign OEMs to enter into strategic partnerships with Indian companies and leverage opportunities in the domestic market as well as global markets.

India’s focus on indigenous manufacturing in the defence sector has yielded certain benefits as the MoD over the last two years unveiled several products manufactured in India including the LCA Tejas, the composites sonar dome, a portable elemedicine system for the armed forces, penetration – cum – blast and thermobaric ammunition specifically designed for the Arjun tanks, the Varunastra heavyweight torpedo manufactured with 95% locally sourced parts and medium-range surface-to-air missiles. The Defence Acquisition Council under the MoD cleared defence sector transactions with a value of more than 820 billion under the buy and Make (Indian) and Buy Indian categories. These transactions include the procurement of Light Combat Aircraft, T-90 tanks, mini UAVs and light combat helicopters.

121Our Strengths

India has the third largest military in the world and is the 6th largest spender in the defence sector.

60% of total defence requirements of India as on today is met from imports. Hindustan Aeronautics is poised to gain under the ‘Buy and Make (Indian)’ procurement category. The company has all the necessary capabilities and technology (including licensed technology) to capture maximum relevant defence budget spend going ahead.

Long credible history of research, design and development, manufacturing and maintenance, repair and overhaul (“MRO”) services.

Setting up a goal: First step to Financial Planning ( Video )

Established track record in offering product lifecycle support extending to periods beyond four decades.

Indian armed forces plan to procure more than 1000 rotary wing aircrafts and will revamp their fleet in next 10-20 years.

Strong design and development capabilities.

Leadership position in the Indian aeronautical industry and strong GoI support.

Diversified product portfolio.

Strong financial track record.

Experienced management team and operating team.

141

Our Strategies

Expand its operations through partnerships or collaboration.

Diversify through expansion in new growth areas.

Diversify further into the civil aircraft segment for both manufacturing and servicing opportunities.

Develop in-house capabilities to design and develop specialized products including aero – engines.

Leverage Existing Cost Advantage.

Developing Human Capital.

Enhancing customer satisfaction.

Optimising operations towards becoming a lead integrator of aircraft platforms.

151

Negative

There are outstanding legal and tax proceedings involving its Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business, financial condition, results of operations and cash flows.

Hindustan Aeronautics 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 (the “Indian Defence Services”), 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.

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 we have not disclosed such information in this RHP nor provided such information to the BRLMs and other intermediaries and advisors involved in the Offer.

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.

Its 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.

Ongoing disclosure of information in relation to its 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.

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.

EMI VS SIP ( Be controlled or take control )

Its current order book may not necessarily translate into future income in its entirety. Some of its current orders or requests for a proposal which we have received may be modified, cancelled, delayed, put on hold or not fully paid for by its customers, which could adversely affect its results of operations.

Hindustan Aeronautics is 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.

Hindustan Aeronautics also operate in evolving markets, which makes it difficult to evaluate its business and future prospects.

Its earnings and margins may vary based on the mix of its contracts and programs, its performance, and its ability to control costs.

Its business could be materially adversely affected if any default of its causes an aircraft or helicopter accident.

ALH Dhruv Helicopters supplied to the Ecuadorean Air Force were involved in accidents, and The Ecuadorean Ministry of Defence has designated the company as a defaulting contractor and has barred it from bidding for future contracts. This can affect the future exports and company’s ability to bid outside India.

The aircraft such as MiG-21 variants, MiG-27 and the Su-30 MKI, as well as engines and other accessories, and repair and overhaul services for these aircraft that are manufactured in India are done through transfer of technology from Russian OEMs as well as pursuant to inter-governmental agreements with Russia. The United States, the United Nations Security Council and other jurisdictions and organizations have implemented comprehensive economic sanctions targeting Russia in recent years. This can have an adverse impact relating to the supply and support from Russian OEMs for the aircraft that Hindustan Aeronautic manufacture under transfer of technology with such OEMs.

Valuation

On the performance front, Hindustan Aeronautic 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 the first half of the current fiscal, it has earned a 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%. Hindustan Aeronautic’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. The 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. Hindustan Aeronautic’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.

Grey Market premium

Current GMP is Rs. 4/- and Kostak is Rs. NIL

 

Only LIC policyholders money can save this IPO.

 

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

 

Leave a Reply