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Hindustan Aeronautics IPO: Why Rs 4,230-crore issue received tepid response from investors

LIC's Rs 3,000 crore bid on the last day saved the day for the defence firm's 10.20 per cent stake sale for offer-for-sale route. The IPO was subscribed nearly 50% on the third day till LIC pumped in funds at the end of the offer.

Aseem Thapliyal        Last Updated: March 21, 2018  | 18:01 IST
Hindustan Aeronautics IPO: Why Rs 4,230-cr issue received tepid response from investors

The Rs 4,230-crore initial public offer of state-owned Hindustan Aeronautics Ltd (HAL) managed to sail through on the final day yesterday, thanks to state insurer LIC coming to its rescue. According to reports, LIC's Rs 3,000 crore bid on the last day saved the day for the defence firm's 10.20 per cent stake sale. The IPO was subscribed nearly 50% on the third day till LIC pumped in funds at the end of the offer.

Analysts said high price of the issue amid volatile market conditions was a concern after the Narendra Modi government presented its last full-fledged Budget before the 2019 polls on February 1. The firm fixed a price band of Rs 1,215-1,240 per share for the IPO.

Vinod Nair, head of research at Geojit said, "The poor response of HAL IPO was due to under-subscription by high networth individuals and retail investors, who are under the burden of bad performance of secondary market in the last two months. Moreover, liquidity of the market had reduced and we had high competition in the primary market with more than Rs 10,000 crore of IPOs in the adjacent time. Liquidity cornered into more attractive stocks and sectors avoiding government-owned company since PSUs were disowned post the Union Budget and undergoing financial crunch."

The IPO was subscribed 0.99 times or 99 percent on third day with demand mainly coming from qualified institutional buyers segment.

The category reserved for qualified institutional buyers (QIBs) was subscribed 1.7 times and retail investors 0.4 times. The retail investors were given a discount of Rs 25 per share.

The firm received bids for 3.31 crore shares against the total issue size of 3. 41 crore shares, data showed on the third day of the offer.

Interestingly, foreign institutional investors did not bid for the IPO.

Deepak Jasani, head, retail research at HDFC Securities said, "Though the HAL IPO was not priced aggressively in terms of P/E, investors seemed to have apprehensions about the visibility and sustainability of growth in top and bottomline given the dependence on defence ministry and on updating technology continously. Further the PSU space has lately seen some amount of derating due to issues on corporate governance and of protecting minority shareholder interests."

The Navratna company clocked a profit of Rs 3,580 crore in fiscal 2017 on a revenue of over Rs 18,600 crore. HAL has an order book of over Rs 68,000 crore, which covers the next three years. The issue was managed by SBI Caps and Axis Capital.

The IPO was subscribed 24 per cent on the first day of bidding.  On the second day, the initial public offer was subscribed 45 per cent.

Bengaluru-based HAL is primarily involved in the operations of the aerospace industry. These include manufacturing and assembly of aircraft, navigation and related communication equipment and airports operation.

HAL designs, develops, manufactures, sells, repairs, and overhauls aircraft and related systems in India.

It offers helicopters and power plants; aerospace structures, tanks, and cryogenic engines; and materials, including castings, general forgings, precision forgings, powder metallurgy products, rubber products, composites, and rolled rings. The company also exports its products. It serves space, defence, and civil markets.

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