The government-owned military plane maker Hindustan Aeronautics (HAL) is finally set to hit the market in January with an initial public offering (IPO).
Official sources said the government has decided to list the Bengaluru-headquartered PSU after an understanding was reached with regulator Securities and Exchange Board of India regarding certain relaxations in the disclosure requirements, as are available to defence companies worldwide.
Though the details of HAL’s valuation by the government are not publicly disclosed, the sources said that around R2,000 crore could be mobilised from the proposed sale of 10% stake to the public. The disinvestment decision comes five years after it was first mooted.
HAL has several production units and R&D centres in the country including in Bengaluru, Nashik, Kanpur, Lucknow, Hyderabad and Koraput, and many joint venture manufacturing units with American, Russian, Israeli and Canadian counterparts.
The ministry of defence has been hesitant to share some of the financial and other details of the company due to security reasons. “These issues are now resolved,” an official privy to the discussions said. HAL will shortly file a draft red herring prospectus with Sebi for the share offering.
The officials are hopeful that Sebi would take into consideration strategic constraints while vetting the HAL proposal.
The company’ annual turnover in FY16 was R16,524 crore ($2.5 billion), which is minuscule compared to global defence giants. Lockheed Martin clocked sales of $46.1 billion in 2015 and Boeing’s revenue from its military aircraft business was $30.4 billion in 2015.
However, given the huge potential in defence aircraft manufacturing business due to the demand from Indian armed forces, the potential is enormous for HAL.
The government’s focus on “Make in India” is expected to give HAL growth impetus. In FY16, HAL’s productions included 60 new aircraft and helicopters; besides, it undertook the overhaul of 229 aircraft and helicopters.
It also built 94 new engines, overhauled 446 engines and supplied 143 aerospace structures. HAL reported a profit before tax of R3,210 crore for FY16. It had 31,144 employees as on March 31, 2015.
The HAL IPO is part of the Modi government’s R36,000-crore revenue estimate from minority stake sales in PSUs in FY17. Another R20,500 crore will be raised from strategic stake sales in PSUs.
So far in the current fiscal, it has raised R3,583 crore by selling minority stakes in NHPC, Hindustan Copper, IOC and NTPC. Five PSUs including Nalco, NMDC and Coal India are currently buying back a portion of their shares, which could fetch the government about R17,000 crore in the current fiscal.
HAL stake sale is likely to be the first disinvestment process through the IPO route after a gap of nearly four years. The last PSU IPO was in March 2012 when the government sold a 10% stake in National Buildings Construction Corporation to raise R125 crore. Choppy markets and lengthy processes often resulted in shelving of listing of many PSUs.
As a precursor to the listing, the Centre had raised R4,284 crore by selling a portion of its stake in HAL to the company itself in March 2016. The move was aimed at improving key financial ratios such as price-to-earnings, to make it more attractive to investors.