Shares of Hindustan Aeronautics Ltd (HAL) dropped more than 5% to Rs. 2,475 apiece on the Bombay Stock Exchange (BSE) after the Indian government launched an offer for sale (OFS) to sell 3.5% stake in HAL at a floor price of Rs. 2,450 per share.
Base Offer Size and Oversubscription Option
According to the regulatory filing, the OFS comprises a base issue size of 1.75% or 58.51 lakh shares, with an option to retain oversubscription of an equal quantum. “In the event the oversubscription option is exercised, the equity shares forming part of the base offer size and the oversubscription option will represent 3.50 per cent (1,17,03,563) equity shares of the company,” HAL said.
The government plans to sell a 1.75% stake on March 23-24, and has the option to sell 1.75% more stake if needed. The two-day Offer For Sale (OFS) will open for institutional investors on Thursday and for retail buyers on Friday. The government owns a 75.15% stake in HAL, which is a Central Public Sector Enterprise (CPSE) under the Defence Ministry.
Revenue Estimates and Profits
The government has so far mopped up Rs. 31,106.6 crore from disinvestment and share buyback in CPSEs. The government had last month pegged a lower revised estimate of disinvestment revenue for the current fiscal year at Rs. 50,000 crore, against the budget target of Rs. 65,000 crore.
For the quarter ended December 2022, state-owned Hindustan Aeronautics Limited reported a net profit of Rs. 1,155 crore, up 24% year-on-year as against Rs. 933 crore. Although, its revenue from Operations fell to Rs. 5,665 crore as compared to Rs. 5,894 crore in the corresponding quarter of last year.
Analysts believe that the HAL OFS could have a muted response from retail investors. A 5% discount to the market price may not attract investors, who are already hesitant in investing in government offerings that come at a premium to the market price.
Expert Take on HAL OFS
According to market experts, the HAL OFS is expected to attract demand from long-term investors who are bullish on the defence sector. The Indian defence sector is expected to grow at a compound annual growth rate of 6.5% over the next five years. The government's push to make India self-reliant in defence manufacturing through its “Atmanirbhar Bharat” (self-reliant India) initiative is expected to drive growth in the sector.
The OFS route is seen as the most attractive mode of divestment for the government in the current market scenario. The government has been using the OFS route to sell stakes in several public sector enterprises, including Coal India, Indian Oil, and Bharat Electronics.