The much awaited Hindustan Aeronautics IPO opens today for subscription and thanks to the discount of INR25 per share, retail investors have more reason to look forward to the public offer. Excluding the discount, the IPO is priced in the range of INR1,215 – 1,240 per share. Several research analysts and brokerage houses have released their notes about the prospects of the IPO. Here is a quick overview of Hindustan Aeronautics IPO recommendations by major brokerage houses.
Reliance Securities finds the company is a monopoly play in the defence space. “In the absence any direct peer in India and with its unique business model along with Navratna status, HAL is on firm footing to exploit the upcoming opportunities in defence space in India led by Make in India initiative and higher defence expenditures. At upper price band, stock is available at 15.8x FY17 EPS and 9.6x of FY17 EBITDA, which appears to be reasonable considering its strong order book, healthy financials and return ratios. Further, considering the absence of any peer, we do not expect it to trade at a wider discount. Given its current order book, HAL can potentially grow in low teen range in next 2-3 years. Hence, we recommend SUBSCRIBE to the Issue,” said the brokerage house in its IPO report.
Angel Broking finds merit in a solid business model and healthy dividends and has advised investors to subscribe to the offer. “At the upper end of the price band, the P/E multiple works 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,” noted its research report.
Read Also: Hindustan Aeronautics IPO Discussion
A discounted valuation makes the IPO investment worthy, finds Choice Broking which has a subscribe rating on the offer. “On valuation front, at higher price band, the company is demanding a P/E valuation of 15.8x (to its restated FY17 EPS of Rs. 78.5) as compared to peer average of 21x. With respect to its FY18E and FY19E earnings of Rs. 84 and 91.1 per share, respectively, it is demanding a P/E valuation of 14.8x and 13.6x, respectively, as compared to peer average of 21.1x and 18x. The issue seems to be attractive in terms of valuation, amid concerns relating to long gestation period of the defence projects and stringent regulations. Thus considering the above observations, investors can “SUBSCRIBE” for the issue with mid-long term investment perspective,” said the brokerage house in its IPO note.
ICICIdirect also included itself in the list of positive Hindustan Aeronautics IPO recommendations. “We recommend SUBSCRIBE on the offering based on a robust order book of | 68,461 crore, strong order inflow visibility based on RFP for | 64,500 crore, best-in-class execution capabilities and a leverage free balance sheet. The stock is being offered at reasonable valuations (15.8x FY17 EPS) at the upper band of | 1240/share,” said its research note.
While Hindustan Aeronautics IPO recommendations are positive so far, poor listing of PSU IPOs last year and a weak grey market performance are casting a shadow on the offer.