HAL OFS oversubscribed on Day 1, stock tumbles

The government will sell up to 3.5% stake in HAL at a floor price of Rs 2,450 apiece over two days.

Hindustan Aeronautics , markets
Shares of the company ended 4.9% lower at Rs 2,497 on the BSE. (IE)

The non-retail portion of the Rs 2,800-crore offer for sale (OFS) of Hindustan Aeronautics was subscribed 451% on Thursday after getting bids for 23.75 million shares from institutional investors, exchange data as on 3.30 pm showed. Overall, the issue was subscribed more than 2.2 times.

The government will sell up to 3.5% stake in HAL at a floor price of Rs 2,450 apiece over two days. The offer will open for retail buyers on Friday. The OFS comprises a base issue size of 1.75%, or 5.85 million shares, with an option to retain an over-subscription of an equal amount.

Shares of the company ended 4.9% lower at Rs 2,497 on the BSE.

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Currently, the public shareholding of the company is marginally lower than 25%, the minimum requirement. The OFS will take this comfortably above this threshold.

Life Insurance Corporation of India is the single-largest public shareholder (4.07%), while mutual funds (7.4%) and foreign portfolio investors (7.14%) are the largest groups of investors in the stock.

HAL is now a potential inclusion to the MSCI India Index at the May Quarterly Comprehensive Index Rebalance, according to analysts.

“At a full market cap of $10.6 billion, the stock easily meets the threshold. At a foreign inclusion factor of 20%, the stock also meets the threshold for free float market cap, though the margin is not very high. This placement should safely increase the FIF to 25% and should be enough to ensure inclusion to the index in May,” said analyst Brian Freitas of Periscope Analytics, who publishes on Smartkarma.

According to Freitas, passive trackers will need to buy 6.687 million shares at a FIF of 25% at the close of trading on May 31. This could result in inflows of $213 million.

The scrip has surged 78% in the past year and is now close to its highs. There has been a retracement recently as the markets have been trading weak.

“The company has benefitted from fresh orders and government initiatives such as Atmanirbhar Bharat Abhiyaan, resulting in high revenue visibility,” said Deepak Jasani, head – retail, HDFC Securities.

“HAL has outperformed Bharat Electronics and traded in line with Bharat Dynamics. There has been a recent divergence in performance, possibly due to expectations of the placement. Even at the last close, HAL trades cheaper than its peers on most valuation parameters,” said Freitas.

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Back in 2020, the government had sold 15% stake in HAL at Rs 1,001 per share to raise about Rs 5,000 crore via OFS.

The government has so far mopped up Rs 31,106 crore from disinvestment and share buyback in CPSEs. This is still a Rs 19,000-crore shortfall from the revised revenue estimates of Rs 50,000 crore from disinvestment proceeds for the current fiscal.

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First published on: 24-03-2023 at 01:00 IST