HAL Disinvestment: Offer For Sale Makes Slow Start; 3.5% Covered At Noon

The government’s nearly Rs 2,900-crore share sale in Hindustan Aeronautics (HAL) is off to a subdued start. As of 12.10 pm Thursday, the offer for sale (OFS) had garnered less than half a million bids—3.5 per cent of up to 11.7 million shares on offer. Shares of HAL dropped almost 5 per cent to Rs 2,500.

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

Most of the bids so far have come closer to the floor price, stock exchange data showed. It is not uncommon for an OFS to see the bulk of the bids ahead of its close at 3:30pm.

While HAL shares tanked, analysts said in the long run the disinvestment will help the stock enter the MSCI index.

“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 analyst provider 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.

At the end of December 2022, the government held a 75.15 per cent stake in HAL.

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.