IPO Note: Hindustan Aeronautics Ltd - SUBSCRIBE - Kotak

- HAL has 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. HAL was the 39th largest aerospace company in the world in terms of revenue (in USD million) in 2016 according to Flight International. It 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. 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. The company relies on indigenous research as well as enters into technology transfer and licence agreements to manufacture its products. In addition, HAL has entered into 13 commercial joint ventures to grow operations. HAL has a sustained track record of profitability and have paid dividends to stakeholders every year for over four decades. As of December 31, 2017, HAL's order book was Rs 684.6 bn, which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries.

- Valuations: At the higher end of the issue price of Rs 1240 per share, the stock is being offered at 15.8x FY17 earnings. On an EV/EBITDA basis, the stock is trading at 9.3x FY17 EBITDA. The stock is trading at a discount to listed peer like BEL (PE of 22x FY17 earnings and EV/EBITDA of 13.7x). However, BEL scores over HAL in terms of higher revenue visibility provided by its order book. However, in view of the reasonable valuations, prime position in the industry, robust order book, we advise investors to SUBSCRIBE to the issue.

Source : Equity Bulls

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