HAL extends decline after govt's 15% stake sale; stock tanks 26% in 4 days

The stock had strong run-up prior to the government stake sale. It touched an all-time high of Rs 1,424 on August 14, 2020.
Shares of Hindustan Aeronautics (HAL) were under pressure for the fourth straight day, down 6 per cent to Rs 871 on the BSE in the intra-day trade on Tuesday after the government sold nearly 15 per cent stake in the aerospace and defence company through a public offering of shares (OFS).

The stock of the state-owned company has fallen 26 per cent in the past four trading days from the level of Rs 1,178 on August 26. It is trading below its floor price of Rs 1,001 per share fixed for OFS.

On Thursday, August 27, the government sold a total 49.56 million equity shares, constituting a 14.82 per cent paid-up share capital of HAL through OFS. It sold 40.1 million shares at a price of Rs 1,001 per share, while the remaining 9.43 million shares at a price of Rs 950.95 per share.

“The President of India, acting through and represented by the Department of Defence Production, Ministry of Defence, Government of India has raised an aggregate amount of Rs 4,930 crore,” HAL said in a regulatory filing. Post OFS, the government stake in HAL reduced to 75.15 per cent from 89.97 per cent, it said.

The stock had strong run-up prior to the government stake sale. It touched an all-time high of Rs 1,424 on August 14, 2020. Despite a 26 per cent decline, it has outperformed the market by surging 60 per cent in the past three months. In comparison, the S&P BSE Sensex was up 17 per cent during the same period.

HAL is a dominant supplier of aircraft, helicopters, engines, avionics and accessories as well as the main provider of maintenance, repair and overhaul services to the Indian defence forces. The government’s increased focus on indigenisation with the "Make in India" policy and the establishment of defence corridors and mandatory offset policy for defence procurement by Government of India (GoI), augur well for the company’s future growth, according to analysts. 

“The company has a strong order pipeline as reflected by the unexecuted order book of Rs 52,965 crore as on March 31, 2020. The company faces limited competition from the private sector due to the high capital intensity and long gestation periods for developing manufacturing capabilities in the sector,” ICRA said in a recent rating rationale.

HAL’s financial profile is supported by its diversified revenue mix covering the sale of products, spares and services for multiple aircraft programmes, as well as the healthy profitability arising from the cost-plus nature of the majority of contracts. Due to its large scale and consistently improving operating profitability, the debt coverage metrics remain strong, notwithstanding the high level of short term borrowings, the rating agency said.

At 01:02 pm, the stock of HAL recover from its early morning losses and was up 3 per cent at Rs 900 on the BSE. In comparison, the S&P BSE Sensex was up 1.4 per cent at 39,144 points. A combined 2.4 million equity shares have changed hands on the counter on the NSE and BSE. 

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