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Please refer to important disclosures at the end of this report
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Hindustan Aeronautics Ltd. is one of the largest defence PSUs 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. The company has a strong order backlog of
Rs. 52,000 cr. as of July 2020 which is expected to go substantially over the next
few years as the company is likely to get many new orders in the coming years
including orders for 83 LCA.
Long and credible history of development, manufacturing and maintenance,
repair and overhaul ("MRO") services: HAL is one of the premier defence PSU in
India along with BRL and has over the years showcased research, design and
development capabilities with the successful development of military aircraft and
helicopters such as the Ajeet, Marut, HPT-32, Kiran and Advanced Light
Helicopter. Other than the indigenous aircraft and helicopters HAL has also
manufactured aircrafts under license including the MiG 21FL/M/BIS, MiG-27,
Dornier 228, Su-30 MkI, Hawk Mk 132 aircraft etc. HAL has also upgraded
several aircrafts including the MiG-21 BIS, MiG-27 Upgrade and Jaguar in order
to enhance their combat capabilities and performance.
Strong order backlog and Government thrust on make in India to benefit
company: Currently the company has an order backlog of ~`52,000cr which is
expected increase substantially over the next few years as the company is likely to
get many new orders including orders for 83 LCA Mark 1A worth `39,000cr which
is expected to go for cabinet approval very soon. The company also has various
other projects in the pipeline including Light Utility Helicopter (LUH) and the
company is likely to fetch some orders for the same in FY2021. These projects will
ensure order flow for the company over the next couple of years. Post the LCA
Mark 1A and the LUH, company is expected to get orders for LCA Mark II
followed by the Advanced Medium Combat Aircraft (AMCA). Moreover the
company will keep getting orders for upgrades of existing aircrafts which will
ensure a constant flow of orders for the company.
Outlook & Valuation: At The floor price, it is offered at 11.5xFY2020 EPS of `
86.7, which is reasonable considering the growth prospects. Considering the
strong pipelines of orders and given the Government’s thrust on make in Indian
especially for defence sector, we are positive on the future outlook of the company
and rate it as SUBSCRIBE.
Key Financials
Y/E March (` cr)
FY18
FY19
FY20
Net Sales
18,520
19,894
21,522
% chg
-
7.4
8.2
Net Profit
1,990
2,265
2,898
% chg
-
13.8
27.9
EBITDA (%)
18.6
22.3
22.9
EPS (Rs)
59.5
67.7
86.7
P/E (x)
16.8
14.8
11.5
P/BV (x)
3.5
3.1
2.5
RoE (%)
20.9
20.9
21.9
RoCE (%)
24.0
22.7
20.7
EV/EBITDA
8.1
8.5
7.9
EV/Sales
1.5
1.9
1.8
Source: Company, Valuation Done on floor price
SUBSCRIBE
Issue Open: August 28, 2020
Issue Close: August 28, 2020
Non-Retail
80% of is s ue
Retail
20% of is s ue
Promoters 79.97%
Others 20.03%
Overs ubscription option: 1.67cr
s hares
Face V alue:
`10
Pres ent Eq. Paid up Capital:
`334.39
cr
Offer for Sale: 3.35cr Shares
P os t Is s ue S hareholding P attern
Post Eq. Paid up Capital:
`334.39
cr
Is s ue siz e (amount):
`3347
cr
Floor Price:
`1001
Alloc ation
Hindustan Aeronautics Ltd.
OFS Note | Defence
Aug 27, 2020
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Hindustan Aeronautics| OFS Note
Aug 27, 2020
2
Issue Details
The President of India, acting through and represented by the Department of
Defence Production, Ministry of Defence, Government of India is promoters of
Hindustan Aeronautics Ltd is selling up to 3.35cr shares (excluding
Oversubscription option of 1.67crores shares) of the company constituting 10%
total equity through offer for sale on August 27 and August 27, 2020.
The OFS shares will be floated at floor price of `1,001 per share, which is at 1%
discount to the closing price of August 27, 2020. This will fetch `3,347.2cr to the
promoter. Promoter also proposed an option of Oversubscription to sell another
1.67cr shares (in the event the oversubscription option is exercised).In total,
promoter plans to sell 5.17 crore equity shares of Hindustan Aeronautics Ltd.
Investors under the retail category will only be allowed to bid for shares valuing not
more than `2 lakh. Retail Investors will be allocated Offer Shares at a discount of
5% to the Cut-Off Price in accordance with the OFS Guidelines.
Employee Category Such number of equity shares as would be equivalent to up to
5% of the Equity Shares sold pursuant to the Offer (over and above the Offer
Shares) may be offered to eligible and willing employees of the Company at a
discount of up to 5% to the Cut-off Price in the Retail Category of the Offer
subsequent to completion of the Offer.
Exhibit 1: Pre and Post-OFS shareholding pattern
No of shares
(Pre-issue)
%
(Post-issue)
%
Promoter
30,08,55,180
89.97
26,74,09,684
79.97
Other
3,35,32,320
10.03
6,69,77,816
20.03
Total
33,43,87,500
100
33,43,87,500
100
Source: Company, Angel Research
Offer Size
Total number of equity shares being offered in the offer Up to 33,438,750 equity
shares of the Company of face value of `10 each, representing 10% of the total
paid up equity share capital of the Company i.e Base Offer Size.
Maximum number of shares the seller may choose to sell over and above the offer
shares Up to 16,719,375 equity shares of the Company of face value of `10 each,
representing 5% of the total paid up equity share capital of the Company
Oversubscription Option. In event, the Oversubscription Option is exercised, the
equity shares forming part of the Base Offer Size and the Oversubscription Option
will represent 15% (50,158,125) equity shares of the Company.
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Hindustan Aeronautics| OFS Note
Aug 27, 2020
3
Income Statement
Y/E March (` cr)
FY18
FY19
FY20
Total operating income
18,519.7
19,893.9
21,521.9
% chg
-
7.4
8.2
Total Expenditure
15,071.1
15,453.9
16,593.5
Cost of materials, stores & spare parts
7,712.8
7,301.8
8,751.7
Stock Adjustments
-728.6
-1,167.5
-711.4
Employee Benefit Expense
4,310.7
4,311.0
4,778.0
Other Expenses
3,776.2
5,008.7
3,775.3
EBITDA
3,448.7
4,440.0
4,928.3
% chg
-
28.7
11.0
(% of Net Sales)
18.6
22.3
22.9
Depreciation& Amortisation
947.1
1,029.3
998.5
EBIT
2,501.6
3,410.7
3,929.8
% chg
-
36.3
15.2
(% of Net Sales)
13.5
17.1
18.3
Interest & other Charges
34.6
177.6
348.5
Other Income
775.7
376.9
419.8
(% of Sales)
4.2
1.9
2.0
Recurring PBT
3,242.7
3,610.0
4,001.2
% chg
-
11.3
10.8
(% of Net Sales)
17.5
18.1
18.6
Tax
1,252.4
1,345.2
1,103.6
PAT (reported)
1,990.3
2,264.8
2,897.7
% chg
-
13.8
27.9
(% of Net Sales)
10.7
11.4
13.5
Basic & Fully Diluted EPS (Rs)
59.5
67.7
86.7
% chg
-
13.8
27.9
Source: Company, Angel Research
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Hindustan Aeronautics| OFS Note
Aug 27, 2020
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Balance Sheet
Y/E March (` cr)
FY18
FY19
FY20
SOURCES OF FUNDS
Equity Share Capital
334.4
334.4
334.4
Other equity
9,176.9
10,521.3
12,908.8
Shareholders Funds
9,511.3
10,855.7
13,243.2
Total Loans
904.5
4,198.5
5,775.2
Other liabilities
11,003.7
10,337.0
9,006.0
Total Liabilities
21,419.5
25,391.2
28,024.4
APPLICATION OF FUNDS
Net Block
7,566.2
7,540.0
7,356.6
Capital Work-in-Progress
1,461.7
1,580.3
2,042.7
Current Assets
38,424.6
41,204.9
42,406.6
Inventories
20,130.7
20,526.5
26,919.3
Sundry Debtors
6,751.5
13,937.9
11,583.4
Cash &Bank Balance
6,545.5
140.5
316.6
Other Assets
4,996.8
6,600.0
3,587.4
Current liabilities
26,065.8
25,119.0
24,662.6
Net Current Assets
12,358.8
16,086.0
17,744.0
Other Non Current Asset
32.5
189.4
880.2
Total Assets
21419.3
25395.7
28023.5
Source: Company, Angel Research
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Hindustan Aeronautics| OFS Note
Aug 27, 2020
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Cash Flow Statement
Y/E March (` cr)
FY18
FY19
FY20
Profit before tax
3,242.7
3,610.0
3,969.0
Depreciation
968.6
1,278.4
1,030.3
Change in Working Capital
(1,826.4)
(8,161.1)
(373.4)
Interest Expense
28.6
169.6
282.2
Direct Tax Paid
(1,509.9)
(1,100.0)
(1,819.9)
Others
1,117.9
1,469.4
1,453.5
Cash Flow from Operations
(747.6)
(7,459.4)
1,621.1
(Inc.)/ Dec. in Fixed Assets
(1,252.6)
(1,370.2)
(1,379.2)
Net sale of Investment
(64.4)
96.5
49.9
Others
1,914.0
6,321.8
1.4
Cash Flow from Investing
597.0
5,048.1
(1,328.9)
Interest paid
(28.6)
(169.6)
(348.3)
Borrowings
-
3,294.0
1,659.0
Dividend paid on equity shares
(1,294.9)
(798.2)
(1,340.4)
Payment of financial Liabilities
(3.1)
-
-
Others
(1,213.8)
-
-
Cash Flow from Financing
(2,540.4)
2,326.2
(39.8)
Inc./(Dec.) in Cash
(2,691.0)
(85.2)
252.5
Opening Cash balances
2,803.7
112.9
26.9
Closing Cash balances
112.7
27.7
279.3
Source: Company, Angel Research
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Hindustan Aeronautics| OFS Note
Aug 27, 2020
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