HAL disinvestment: Offer for sale subscribed two-fold after slow start

The nearly Rs 2,900-crore share sale in Hindustan Aeronautics (HAL) by the government saw two times more demand than the shares on offer. Against the 11.7 million shares put on the block, the offer for sale (OFS) garnered bids for 23.8 million shares from institutional investors. Most of the bids came around Rs 2,470 per share higher than the base price of Rs 2,450 set by the government.

In the secondary market trading, shares of HAL dropped almost 5 per cent to finish Rs 2,497.

The government announced on Wednesday it will divest up to 3.5 per cent stake in the defence firm. The base offer size was set at 5.85 million shares and there was an option to retain oversubscription of another 5.85 million shares. The base price for the OFS is Rs 2,450 per share—a 6.6 per cent discount to HAL’s Wednesday’s closing price.

Another 1.17 million shares reserved for retail investors will be auctioned on Friday. In case of demand shortfall from the retail investors, the unsubscribed portion will be allotted to institutional investors.

At the end of December 2022, the government held a 75.15 per cent stake in HAL. Following the OFS, the government’s shareholding will drop to 71.65 per cent.

Analysts said the disinvestment in HAL will help the stock enter the MSCI India index during its quarterly rebalancing in May.

“The stake sale should increase HAL’s float to around 25 per cent and the stock should be added to the MSCI India Index at the May rebalancing,” said Brian Freitas of Periscope Analytics, who publishes on Smartkarma.

“If added to the MSCI India Index, passive trackers are estimated to buy 6.687 million shares ($213 million; 4.6 days of average daily volume) of HAL,” he said.

Abhilash Pagaria, of Nuvama Alternative & Quantitative Research, said HAL was a contender to get added to the MSCI India index even without the share sale. But now, the stock could get added with a higher weightage, leading to more passive flows.

“As per the current free float, the expected inflow was $155 million and with a revised free float, the probable inflow could be $195 million,” said Pagaria.

Freitas also said HAL trades cheaper than its peers on most valuation parameters. The stock currently commands a 12-month forward price-to-earnings (P/E) multiple of 18 times. Other state-owned peers Bharat Electronics and Bharat Dynamics trade at 20 times and 24 times, respectively.