IPO Note | Aerospace
March 15, 2018
Hindustan Aeronautics Limited
SUBSCRIBE
sue Open: March 16, 2018
Is
Issue Close: March 20, 2018
Hindustan Aeronautics Limited (HAL) is the largest defence public sector
undertakings (DPSU) in terms of value of production in FY2017. HAL is
Post Eq. Paid up Capital: `334.4cr
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.
Issue size (amount): `4,113-4,198 cr
Niche player in the aerospace - HAL has proven its research, design and
Price Band: *`1215-1240
development capabilities by indigenously developing military aircraft and
Lot Size: 12 shares and in multiple
helicopters (like Tejas, Ajeet, Marut, HPT-32, Kiran) as well by manufacturing
thereafter
under license with foreign partners (like MiG 21FL/M/BIS, MiG-27, Jaguar,
Post-issue implied mkt. cap: `40,628
Dornier-228, Su-30MkI, Hawk-k132). With government’s continued focus on
- 41,464 cr
‘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
Promoters holding Pre-Issue: 100%
export business, which could provide positive boost in future.
Promoters holding Post-Issue: 90%
Robust order book provides revenue visibility - Its order book stood robust at
* discount of ` 25 for retail customers
`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.
Book Building
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
QIBs
50% of issue
annual basis.
Non-Institutional
15% of issue
Advance payment model is boosting other income- Its order execution cycle is
Retail
35% of issue
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
Post-Issue Shareholding Patter
which HAL earns interest income in excess of `1000 cr on annual basis.
Promoters
90%
Outlook & Valuation: At the upper end of the price band, the P/E multiple works
Others
10%
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.
Key Financial
Y/E March (Rs cr)
FY2015
FY2016
FY2017
H1FY2018
Net Sales
15,939
16,758
17,952
5,173
% chg
5.1
7.1
-
Net Profit
994.0
2,004.0
2,624.8
391.0
% chg
101.6
31.0
-
OPM (%)
6.1
14.8
18.2
9.2
EPS (Rs)
29.7
59.9
78.5
11.7
P/E (x)
41.7
20.7
15.8
-
P/BV (x)
1.1
1.6
1.4
RoE (%)
5.9
18.2
20.9
-
Nidhi Agrawal
RoCE (%)
0.9
14.6
18.9
-
+022 39357600, Extn: 6872
EV/Sales (x)
1.5
1.6
1.7
-
[email protected]
EV/EBITDA (x)
24.0
11.0
9.3
-
Source: RHP, Angel Research; Note: * at upper end of the price band, equity base post recent buy back
Please refer to important disclosures at the end of this report
1
Hindustan Aeronautics Limited | IPO Note
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.
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, Hawk-
AJT, 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.
Exhibit 1: Pre and post-IPO shareholding pattern
No of shares (Pre-issue)
% No of shares (Post-issue)
%
Promoter
33,43,87,500
100%
30,02,79,975
89.8%
Public
3,41,07,525
10.2%
Total
33,43,87,500
100%
33,43,87,500
100.0%
Source: RHP, Angel Research
Objects of the offer
This IPO intends to achieve the benefits of listing the equity shares on the stock
exchanges via sale of equity shares by the selling shareholders.
March 15, 2018
2
Hindustan Aeronautics Limited | IPO Note
Key Management Personnel
Brief profiles of our Directors
Mr. T. Suvarna Raju was appointed as Chairman of the company with effect from
March 5, 2015. Subsequently, he was re-designated as Chairman & Managing
Director (CMD) with effect from April 1, 2015. He joined HAL as a management
trainee in 1980 and thereafter worked in various capacities. He holds a bachelor’s
degree in mechanical engineering from Andhra University, master’s degree in
business administration from Bangalore University and masters’ of philosophy in
defence and strategic studies from the University of Madras.
Mr. V. M. Chamola is Director (Human Resources) with effect from July 27, 2011.
He holds a bachelor of science degree and a masters degree in economics from
Garhwal University, Bachelor of Laws from Avadhesh Pratap Singh University,
Rewa, and a masters degree in business administration from the Indira Gandhi
National Open University.
Mr. C.V. Ramana Rao is the Director (Finance) with effect from February 1, 2016
and also the Chief Financial Officer. He joined HAL as Assistant Systems Audit
Officer in 1985. He holds bachelor of arts degree from Bangalore University. He is
a qualified Chartered Accountant. Prior to joining our Company, he was
associated with M/s K.P. Rao & Co., Bangalore. He has more than 35 years of
work experience in the field of finance.
Mr. Damal Kannan Venkatesh is the Director (Engineering and Research and
Development) of the Company with effect from November 27, 2015. He joined
Company as a Management Trainee in 1980. Besides holding a bachelor of
engineering degree in mechanical engineering from the South Gujarat University,
he also holds a post-graduate diploma in management from the Indira Gandhi
National Open University. He has over 37 years of work experience in the
aerospace industry.
Key risks
Volatility in earnings
Despite long execution period of
3-4 years for aircrafts, the company
recognizes revenues only on delivery of aircrafts. This could lead to high
volatility in revenues and earnings in the event of delays in deliveries.
Dependence on government
The company derives major chunk of revenue from government. Hence any
delay in budget approval, change in procurement and payment policy of
government could negatively affect its revenue offtake and profitability.
Changing technology
Aerospace industry is heavily R&D driven and since the product execution cycle
is long, any major technological changes in the aerospace could disrupt its
business prospects.
March 15, 2018
3
Hindustan Aeronautics Limited | IPO Note
Consolidated Profit & Loss Statement
Y/E March (Rs cr)
FY2015
FY2016
FY2017
H1FY2018
Total operating income
15,939
16,758
17,952
5,173
% chg
5
7
Total Expenditure
14,967
14,285
14,689
4,694
Raw Material
8,917
9,120
9,744
2,120
Personnel
3,403
3,274
3,570
1,798
SGA Expenses
197
234
252
-
Others Expenses
2,448
1,657
1,123
777
EBITDA
972
2,474
3,263
478
% chg
154
32
(% of Net Sales)
6
15
18
9
Depreciation& Amortisation
822
863
713
258
EBIT
150
1,611
2,550
221
% chg
976
58
-
(% of Net Sales)
1
10
14
4
Interest & other Charges
15
6
16
1
Other Income
1,651
1,608
1,059
389
(% of PBT)
92
50
29
64
Share in profit of Associates
-
-
-
1
Recurring PBT
1,786
3,213
3,592
610
% chg
80
12
Tax
792
1,209
967
219
(% of PBT)
44
38
27
36
PAT (reported)
994
2,004
2,625
391
Extraordinary Items
-
-
-
-
ADJ. PAT
994
2,004
2,625
391
% chg
102
31
(% of Net Sales)
6
12
15
8
Basic EPS (Rs)*
29.7
59.9
78.5
11.7
% chg
102
31
Source: RHP* post buy back
March 15, 2018
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Hindustan Aeronautics Limited | IPO Note
Consolidated Balance Sheet
Y/E March (` cr)
FY2015
FY2016
FY2017
H1FY2018
SOURCES OF FUNDS
Equity Share Capital
482
362
362
361.5
Reserves& Surplus
16,322
10,671
12,198
12582
Shareholders’ Funds
16,804
11,032
12,559
12,944
Equity Share Warrants
-
-
-
Total Loans
165
-
950
Other Liabilities
10,286
12,034
12,441
13,318
Deferred Tax Liability
-
-
-
Total Liabilities
27,255
23,067
25,950
26,262
APPLICATION OF FUNDS
Gross Block
11,665
11,770
12,635
16076
Less: Acc. Depreciation
4,299
4,845
5,381
7733
Net Block
7,366
6,925
7,253
8,342
Capital Work-in-Progress
235
1,025
1,487
535.8
Investments
570
916
994
1018.8
Others
1938.3
Current Assets
54,943
45,726
40,170
42,008
Inventories
25,188
23,982
21,321
22,184
Sundry Debtors
6,292
4,837
4,210
4,255
Cash
17,768
13,303
11,153
11,699
Loans & Advances
5,695
3,604
3,485
107
Other Assets
-
-
-
3,763
Current liabilities
35,471
32,650
24,642
26621
Net Current Assets
19,472
13,075
15,528
15,387
Deferred Tax Asset
(1,614)
(815)
(960)
(960)
Mis. Exp. not written off
1,226
1,940
1,647
-
Total Assets
27,255
23,067
25,950
26,262
Source: RHP
March 15, 2018
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Hindustan Aeronautics Limited | IPO Note
Consolidated Cash Flow Statement
Y/E March (` cr)
FY2015
FY2016
FY2017
H1FY18
Profit before tax
3191
3223
3601
600
Depreciation
821
863
713
258
Interest / Dividend (Net)
(1614)
0
10
1
Direct taxes paid
(902)
(861)
(1037)
(384)
Change in Working Capital+others
(10379)
(77)
(3692)
1441
Cash Flow from Operations
(8883)
3148
(405)
1915
(Inc.)/ Dec. in Fixed Assets
(885)
(312)
(312)
(395)
(Inc.)/ Dec. in Investments
1595
1659
3327
(141)
Cash Flow from Investing
710
1347
3014
(536)
Interest / Dividend (Net)
(15)
(5266)
940
(951)
Others
(1259)
(614)
(1104)
0
Cash Flow from Financing
(1274)
(5880)
(164)
(951)
Inc./(Dec.) in Cash
(9447)
(1385)
2446
428
Opening Cash balances
11238
1729
344
2790
Closing Cash balances
1791
344
2790
3219
Source: RHP
March 15, 2018
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Hindustan Aeronautics Limited | IPO Note
Key Ratios
Y/E March
FY2015
FY2016
FY2017
Valuation Ratio (x)*
P/E (on FDEPS)
41.7
20.7
15.8
P/CEPS
9.9
6.3
5.4
P/BV
1.1
1.6
1.4
EV/Sales
1.5
1.6
1.7
EV/EBITDA
24.0
11.0
9.3
EV / Total Assets
0.9
1.2
1.2
Per Share Data (`)
EPS (Basic)
29.7
59.9
78.5
EPS (fully diluted)
29.7
59.9
78.5
Cash EPS
54.3
85.7
99.8
Returns (%)
ROCE
0.9
14.6
18.9
Angel ROIC (Pre-tax)
(10.9)
(50.5)
187.2
ROE
5.9
18.2
20.9
Turnover ratios (x)
Asset Turnover (Gross Block)
1.4
1.4
1.4
Inventory / Sales (days)
577
522
434
Receivables (days)
144
105
86
Current liabilities (days)
1,868
1,572
972
Working capital cycle (ex-cash) (days)
(1,147)
(944)
(453)
Source: RHP, Angel Research * post buy back
March 15, 2018
7
Hindustan Aeronautics Limited | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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