DISTRIBUTION - hemsecurities.com · of Technology ("IITs") and Indian Institute of Science ("IISc")...
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BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY|MERCHANT BANKING
HINDUSTAN AERONAUTICS LTD
IPO Report
Issue Date 16th Mar-20th Mar 2018
Price Band 1215-1240/Share*
Bid Lot 12 & in multiplethereof
Face Value Rs 10/Share
Listing BSE, NSE
Offer For Sale 34,107,525 Eq Shares
Fresh Issue ----
Pre Issue Eq Shares 33.44 Cr Eq Shares
Post Issue Eq Shares 33.44 Cr Eq shares
BRLM SBI Capital Markets Ltd,
Axis Capital Ltd
Registrar Karvy Computershare-
Private Ltd
*: Discount of Rs 25/Share has been offered to retail
& employees.
Research Analyst : Astha Jain
IPO Details
Co have been conferred with the "Navratna" status by the GoI in June 2007
and is the largest DPSU in terms of value of production according to the MoD
Annual Report 2016-2017. Co was the 39th largest aerospace company in
the world in terms of revenue (in USD million) in 2016 according to Flight
International. Co 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.
Strong financial track record: Co have a strong financial track record. Its
revenue from operations grew from Rs 156,480 million in the Financial Year
2015 to Rs 185,549 million in the Financial Year 2017, representing a CAGR
of 8.9%. As of September 30, 2017 co had cash and cash equivalents of Rs
116,992 million. Co do not have any long-term debt in its book. As of
December 31, 2017, co’s order book was Rs 684,610 million, which generally
includes products and services to be manufactured and delivered and
excludes anticipated revenues from incomplete portions of existing
contracts undertaken by its joint ventures.
Strong design and development capabilities: As of December 31, 2017, co
owned two trademarks, seven patents, 11 design registrations and 77
copyrights. Co’s Board has mandated that 10.0% of its operating net profit
from the current year can be used for Company-funded research, design and
development expenditure. In addition, co have been collaborating with
reputable academic and industrial institutions such as the Indian Institutes
of Technology ("IITs") and Indian Institute of Science ("IISc") and have also
established research chairs at IITs at Kanpur, Roorkee, Chennai, Mumbai and
Kharagpur and at IISc Bengaluru which focuses on research in aeronautical
engineering.
Valuation: The co is bringing the issue at p/e multiple of 15.4-15.8 on FY17
eps at price band of Rs 1215-1240/share. Co with its long credible history of
research, design and development, manufacturing and maintenance has
established track record in offering product life cycle support extending to
periods beyond four decades. Also, co enjoys leadership Position in the
Indian Aeronautical industry coupled with robust order book. Hence,
looking after all this we recommend “ Long term subscribe ” on issue.
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LONG TERM SUBSCRIBE
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Company Overview
Co was the 39th largest aerospace company in the world in terms of revenue (in USD million) in 2016
according to Flight International. Co 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.
Co’s 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. Co rely on
indigenous research as well as enter into technology transfer and licence agreements to manufacture
its products. In addition, co have entered into 13 commercial joint ventures to grow its operations. In
addition to sales to the Indian Defence Services, which accounted for 91.4%, 93.3%, 94.2% and 92.6%
of co’s total sales in the six-month period ended September 30, 2017 and in Financial Years 2017,
2016 and 2015, respectively, co sell its products and provide services to state governments, para-
military forces and corporates. In addition, during the Financial Year 2017, co exported its products
and services, primarily spares, to more than 13 countries. During the six month period ended
September 30, 2017 and during the Financial Years 2017 and 2016, exports of products and services
accounted for 3.0%, 2.6% and 2.7%, of its revenue from operations (net of excise duty) respectively.
Company was conferred with the "Navratna" status by the GoI in June 2007 which provides it with
strategic and operational autonomy and enhanced powers to make prompt investment decisions,
subject to an overall investment ceiling set by the GoI. Co sign a memorandum of understanding with
the MoD on a yearly basis, which outlines various targeted performance parameters for a given year.
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Investment Rationale
Leadership position in the Indian aeronautical industry and strong GoI support
Co is the largest DPSU in terms of value of production in the Indian defence sector according to
the MoD Annual Report 2016-2017. Co have a leadership position in the Indian aeronautical
industry as a result of its long-standing relationships, particularly with the Indian Defence Services
and the DRDO as well as with various academic institutions and regulatory agencies. The GoI is
the promoter of Company, and it also derive a substantial portion of its revenue from the Indian
Defence Services.
Diversified product portfolio
Co have developed a range of product offerings in order to address the varied requirements of its
customers. Its products portfolio includes fighter aircraft, trainer aircraft, transport aircraft,
military helicopter and civil helicopters and their engines, avionics and accessories (such as
special test equipment and ground handling equipment and ground support equipment), which
are both indigenously designed or manufactured under licence. Co have also indigenously
designed and developed a mini UAV of the eight kilogram class to meet the emerging requirements
of its customers, and intend to subsequently enter into the market of larger UAVs with the
RustomII medium-altitude, long-endurance UAV which co is jointly developing with the
Aeronautical Development Establishment. In order to augment and diversify its portfolio of
products and services, co have begun the development of other new products including the Indian
Multi Role Helicopter ("IMRH") and commenced new business initiatives including its entry into
the civil transport aircraft segment with the civil variant of the Dornier Do-228 aircraft.
Furthermore, co began manufacturing industrial marine gas turbines in order to further diversify
the range of its product offerings.
Risk factors
Co 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 co’s ability to grow or
maintain its sales, earnings, and cash flow.
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HINDUSTAN AERONAUTICS LTD
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Objects of Offer
The objects of the Offer are: (i) to carry out the disinvestment of 34,107,525 Equity Shares by the
Selling Shareholder constituting 10% of Company’s Pre-Offer paid up Equity Share capital of
Company; and (ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges.
Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling
Shareholder.
Financial Statements
Rs Cr
Particulars FY15 FY16 FY17 H1FY18 Total Income 15648.00 17158.60 18554.90 5277.00 Operating Exp 14797.10 14690.60 15298.80 4798.90 EBIDTA 850.90 2468.00 3256.10 478.10 EBIDTA Margin (%) 5.44 14.38 17.55 9.06 Other Income 1714 1596.20 1042.00 388.90 Depreciation 883.20 862.80 712.90 257.50 EBIT 1681.70 3201.40 3585.20 609.50 Interest 8.30 0.00 10.20 1.20 PBT 1673.40 3201.40 3575.00 608.30 E/O Item -0.70 11.90 16.70 1.30 PBT After E/O Item 1672.70 3213.30 3591.70 609.60 Tax 678.60 1209.00 967.00 218.60 PAT 994.10 2004.30 2624.70 391.00 Other Comp Inc -65.10 6.80 6.10 -6.50 Adjusted PAT 929.00 2011.10 2630.80 384.50 NPM(%) 5.94 11.72 14.18 7.29 Eq Capital 482.00 361.50 361.50 361.50 Res & Surplus 14361.90 10670.90 12197.60 12582.10 Net Worth 14843.90 11032.40 12559.10 12943.60 Eq Shares ( In No) 48.20 36.15 36.15 36.15 EPS 19.27 55.63 72.77 10.64 ROE (%) 6.26 18.23 20.95 2.97 ROCE (%) 11.27 29.02 26.46 4370 Book Value 307.96 305.18 347.42 358.05
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