Hindustan Aeronautics sets Rs 1,215-1,240 price band for IPO

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Mumbai: Hindustan Aeronautics, India’s largest state-run defence company, will hit the capital market with its initial public offer (IPO) on Friday with a price band of Rs 1,215-1,240 a share.

The issue, which is part of the government’s 2017-18 divestment plan, will close on March 20. It could help the government mop up around Rs 4,200 crore.

Sector experts said that the company is slated to be among the key beneficiaries of the government’s new defence procurement policy, but runs a risk of delays in orders. Investors looking for long-term horizon may subscribe to this IPO, they said, since major gains on listing are unlikely.

“We have a strong order book of over Rs 68,000 crore (as on December 31, 2017). We already have orders for 40 LCAs (light combat aircraft) and orders for 83 more will happen shortly. Hopefully, order book will increase further,” said VM Chamola, director (human resources).

HAL designs and manufactures a range of products including aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures, primarily for the Indian armed forces. The Indian Air Force is finalising an order for 83 Tejas LCA at an estimated cost of Rs 41,000 crore, which could significantly boost the company’s order book.

“This is a unique company and cannot be compared to any other Indian company. We did a peer comparison with a set of international companies.

The IPO is priced at 10 times the EBIDTA, which is close to the valuation of its international peers,” said Narayanan Sadanandan, executive VP, capital markets group at SBI Capital Markets.

When asked whether the price factors in a discount that is typically seen in public sector companies relative to their private sector counterparts, he said that the company enjoys a “scarcity premium”, being the only company with this profile, which makes up for any such discounts.

SBI Capital Markets, along with Axis Capital, is the book running lead managers to the offer.

HAL reported revenue of Rs 18,554.9 crore for 2016-17, and profits of Rs 2,624.7 crore.

After a gap of almost three decades, two defence public sector companies — Hindustan Aeronautics and Bharat Dynamics — are hitting the capital market. The latter’s issue closes on March 15, ahead of the HAL IPO which opens the next day.

Source: Economic Times