Hindustan Aeronautics Limited IPO
Hindustan Aeronautics Limited (HAL) is the largest defence public sector undertakings (DPSU) in terms of value of production in FY2017. HAL 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.
Niche player in the aerospace — HAL has proven its research, design and development capabilities by indigenously developing military aircraft and helicopters (like Tejas, Ajeet, Marut, HPT-32, Kiran) as well by manufacturing under license with foreign partners (like MiG 21FL/M/BIS, MiG-27, Jaguar, Dornier-228, Su-30MkI, Hawk-k132). With government’s continued focus on ‘Make in India’, the company is likely to benefit from the opportunities in the defense aerospace. It also plans to foray in civil aerospace and ramp up its export business, which could provide positive boost in future.
Robust order book provides revenue visibility — Its order book stood robust at `68461cr (~3.8x FY17 revenue) as of December 31, 2017 which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries. Products forms over 90% of the order book which is to be executed over a period of 3–4 years. Services contract worth ` 6000+ cr is to be executed on annual basis.
Advance payment model is boosting other income — Its order execution cycle is fairly long at 3–4 years, for which it receives 85–90% of the order value as advance from its main customer — Government of India. This advance payment model has built up huge cash reserves ( ` 11700 cr at the end of H1FY18) on which HAL earns interest income in excess of `1000 cr on annual basis.
Outlook & Valuation: At the upper end of the price band, the P/E multiple works out be 15.8x (current equity base) of FY17 EPS. We expect HAL to maintain a healthy growth trajectory in the coming few years, considering its robust order book, opportunity in the defence space. It is also a good dividend play with over 30% of the yearly earnings mandated to be paid as dividend. We recommend ‘SUBSCRIBE’ on the issue for a mid-to-long term period.
Company background
Incorporated in 1963, Hindustan Aeronautics Limited (HAL) is the largest Defence Public Sector Undertakings (DPSU) in terms of value of production according to the MoD Annual Report 2016–2017. They are the 39th largest Aerospace Company in the world in terms of revenue (in USD million) in 2016 according to Flight International. As of December 31, 2017, HAL owned 2 Trademarks, 7 Patents, 11 Design Registrations and 77 Copyrights. The Indian Defence Sector (IDS) contributed 91.4%, 93.3%, 94.2% and 92.6% of 6 months ended September 30, 2017 and financial year 2017, 2016 and 2015 revenues, respectively. HAL also exports their products and services, primarily spares, to more than 13 countries.
Aakash Exploration Services IPO
Details of operation
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 (R&D Centres) located across India. It rely on indigenous research as well as enter into technology transfer and licence agreements to manufacture our products. In addition, it has entered into 13 commercial joint ventures to grow our operations.
The company also takes up maintenance and overhaul services to cover the life cycle requirement of all the old and new products. Presently, 13 types of aircraft/ helicopters and 17 types of engines are being overhauled. In addition, facilities exist for repair/ overhaul of various accessories and avionics fitted on aircraft of Russian, Western and Indigenous designs.
Current programs under progress
The current programs under progress at HAL are production of SU-30 MKI, HawkAJT, Light Combat Aircraft (LCA), DO-228 Aircraft, Dhruv-ALH and Cheetal Helicopters, Repair Overhaul of Jaguar, Kiran MkI/IA/II, Mirage, HS-748, AN-32, MiG 21, Su-30MKI, DO-228 aircraft and ALH, Cheetah / Chetak helicopters.
Issue Details
This IPO is an offer for sale of up to 3.41 cr equity shares of face value of Rs10 each by the Selling Shareholders. Issue would be worth `4113–4198 cr.
