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BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY|MERCHANT BANKING

HINDUSTAN AERONAUTICS LTD

IPO Report

Issue Date 16th Mar-20th Mar 2018

Price Band 1215-1240/Share*

Bid Lot 12 & in multiplethereof

Face Value Rs 10/Share

Listing BSE, NSE

Offer For Sale 34,107,525 Eq Shares

Fresh Issue ----

Pre Issue Eq Shares 33.44 Cr Eq Shares

Post Issue Eq Shares 33.44 Cr Eq shares

BRLM SBI Capital Markets Ltd,

Axis Capital Ltd

Registrar Karvy Computershare-

Private Ltd

*: Discount of Rs 25/Share has been offered to retail

& employees.

Research Analyst : Astha Jain

IPO Details

Co have 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. Co was the 39th largest aerospace company in

the world in terms of revenue (in USD million) in 2016 according to Flight

International. Co 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.

Strong financial track record: Co have a strong financial track record. Its

revenue from operations grew from Rs 156,480 million in the Financial Year

2015 to Rs 185,549 million in the Financial Year 2017, representing a CAGR

of 8.9%. As of September 30, 2017 co had cash and cash equivalents of Rs

116,992 million. Co do not have any long-term debt in its book. As of

December 31, 2017, co’s order book was Rs 684,610 million, which generally

includes products and services to be manufactured and delivered and

excludes anticipated revenues from incomplete portions of existing

contracts undertaken by its joint ventures.

Strong design and development capabilities: As of December 31, 2017, co

owned two trademarks, seven patents, 11 design registrations and 77

copyrights. Co’s Board has mandated that 10.0% of its operating net profit

from the current year can be used for Company-funded research, design and

development expenditure. In addition, co have been collaborating with

reputable academic and industrial institutions such as the Indian Institutes

of Technology ("IITs") and Indian Institute of Science ("IISc") and have also

established research chairs at IITs at Kanpur, Roorkee, Chennai, Mumbai and

Kharagpur and at IISc Bengaluru which focuses on research in aeronautical

engineering.

Valuation: The co is bringing the issue at p/e multiple of 15.4-15.8 on FY17

eps at price band of Rs 1215-1240/share. Co with its long credible history of

research, design and development, manufacturing and maintenance has

established track record in offering product life cycle support extending to

periods beyond four decades. Also, co enjoys leadership Position in the

Indian Aeronautical industry coupled with robust order book. Hence,

looking after all this we recommend “ Long term subscribe ” on issue.

www.hemsecurities.com

LONG TERM SUBSCRIBE

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Company Overview

Co was the 39th largest aerospace company in the world in terms of revenue (in USD million) in 2016

according to Flight International. Co 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.

Co’s 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. Co rely on

indigenous research as well as enter into technology transfer and licence agreements to manufacture

its products. In addition, co have entered into 13 commercial joint ventures to grow its operations. In

addition to sales to the Indian Defence Services, which accounted for 91.4%, 93.3%, 94.2% and 92.6%

of co’s total sales in the six-month period ended September 30, 2017 and in Financial Years 2017,

2016 and 2015, respectively, co sell its products and provide services to state governments, para-

military forces and corporates. In addition, during the Financial Year 2017, co exported its products

and services, primarily spares, to more than 13 countries. During the six month period ended

September 30, 2017 and during the Financial Years 2017 and 2016, exports of products and services

accounted for 3.0%, 2.6% and 2.7%, of its revenue from operations (net of excise duty) respectively.

Company was conferred with the "Navratna" status by the GoI in June 2007 which provides it with

strategic and operational autonomy and enhanced powers to make prompt investment decisions,

subject to an overall investment ceiling set by the GoI. Co sign a memorandum of understanding with

the MoD on a yearly basis, which outlines various targeted performance parameters for a given year.

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Investment Rationale

Leadership position in the Indian aeronautical industry and strong GoI support

Co is the largest DPSU in terms of value of production in the Indian defence sector according to

the MoD Annual Report 2016-2017. Co have a leadership position in the Indian aeronautical

industry as a result of its long-standing relationships, particularly with the Indian Defence Services

and the DRDO as well as with various academic institutions and regulatory agencies. The GoI is

the promoter of Company, and it also derive a substantial portion of its revenue from the Indian

Defence Services.

Diversified product portfolio

Co have developed a range of product offerings in order to address the varied requirements of its

customers. Its products portfolio includes fighter aircraft, trainer aircraft, transport aircraft,

military helicopter and civil helicopters and their engines, avionics and accessories (such as

special test equipment and ground handling equipment and ground support equipment), which

are both indigenously designed or manufactured under licence. Co have also indigenously

designed and developed a mini UAV of the eight kilogram class to meet the emerging requirements

of its customers, and intend to subsequently enter into the market of larger UAVs with the

RustomII medium-altitude, long-endurance UAV which co is jointly developing with the

Aeronautical Development Establishment. In order to augment and diversify its portfolio of

products and services, co have begun the development of other new products including the Indian

Multi Role Helicopter ("IMRH") and commenced new business initiatives including its entry into

the civil transport aircraft segment with the civil variant of the Dornier Do-228 aircraft.

Furthermore, co began manufacturing industrial marine gas turbines in order to further diversify

the range of its product offerings.

Risk factors

Co depend heavily on MoD contracts. A decline or reprioritisation of funding in the Indian defence

budget, that of customers including the Indian Army, Indian Air Force and Indian Navy (the "Indian

Defence Services"), Indian Coast Guard, Border Security Force, Central Reserve Police Force and

Paramilitary forces or delays in the budget process could adversely affect co’s ability to grow or

maintain its sales, earnings, and cash flow.

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Objects of Offer

The objects of the Offer are: (i) to carry out the disinvestment of 34,107,525 Equity Shares by the

Selling Shareholder constituting 10% of Company’s Pre-Offer paid up Equity Share capital of

Company; and (ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges.

Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling

Shareholder.

Financial Statements

Rs Cr

Particulars FY15 FY16 FY17 H1FY18 Total Income 15648.00 17158.60 18554.90 5277.00 Operating Exp 14797.10 14690.60 15298.80 4798.90 EBIDTA 850.90 2468.00 3256.10 478.10 EBIDTA Margin (%) 5.44 14.38 17.55 9.06 Other Income 1714 1596.20 1042.00 388.90 Depreciation 883.20 862.80 712.90 257.50 EBIT 1681.70 3201.40 3585.20 609.50 Interest 8.30 0.00 10.20 1.20 PBT 1673.40 3201.40 3575.00 608.30 E/O Item -0.70 11.90 16.70 1.30 PBT After E/O Item 1672.70 3213.30 3591.70 609.60 Tax 678.60 1209.00 967.00 218.60 PAT 994.10 2004.30 2624.70 391.00 Other Comp Inc -65.10 6.80 6.10 -6.50 Adjusted PAT 929.00 2011.10 2630.80 384.50 NPM(%) 5.94 11.72 14.18 7.29 Eq Capital 482.00 361.50 361.50 361.50 Res & Surplus 14361.90 10670.90 12197.60 12582.10 Net Worth 14843.90 11032.40 12559.10 12943.60 Eq Shares ( In No) 48.20 36.15 36.15 36.15 EPS 19.27 55.63 72.77 10.64 ROE (%) 6.26 18.23 20.95 2.97 ROCE (%) 11.27 29.02 26.46 4370 Book Value 307.96 305.18 347.42 358.05

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GROUP COMPANIES

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MEMBER-NCDEX, MCX

HEM FINANCIAL SERVICES LIMITED

NBFC REGISTERED WITH RBI

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