HAL shares drop as government announces OFS at discount to market price — should investors worry?

HAL share price: Shares in Hindustan Aeronautics Limited (HAL) – a public sector defense company – were under pressure on Thursday, after the government announced its decision to trim its stake in the company at a price lower than the previous closing price. HAL shares plunged as much as seven per cent to Rs 2,475 apiece on BSE during the session.

HAL shares had already been undergoing correction from record levels scaled last week.

The government will sell up to 3.5 per cent in HAL at a floor price of Rs 2,450 a share through an offer for sale (OFS), which, if fully subscribed, would fetch it about Rs 2,800 crore.

The two-day OFS opened for institutional investors on Thursday. Retail investors will be able to participate the next day. The OFS comprises a base issue size of 1.75 per cent or 58.51 lakh shares, with an option to retain over-subscription of an equal amount.

HAL shares may decline further

Many analysts believe HAL shares are expected to show a good move following the announcement. The stock is trading near the OFS floor price, one analyst said.

In conversation with Zee Business Managing Editor Anil Singhvi, Choice Broking Executive Director Sumeet Bagadia pointed out that the HAL stock has been under pressure for the past 5-7 sessions, and may by an additional Rs 100-150. Bagadia sees strong support for the stock emerging around Rs 2,350- 2,400 levels.

What Morgan Stanley suggests

According to Morgan Stanley, the Hindustan Aeronautics OFS would increase the free float of stock, which is a positive. The brokerage maintained an ‘overweight’ rating for HAL with a target of Rs 3,216 per share, implying an upside of over 21 per cent from Wednesday’s closing price.

At the OFS floor price, the stock is valued at price-to-earnings multiples of 17.4 times and 15.4 times for the years ending March 2024 and March 2025 respectively, according to Morgan Stanley.

What investors may do

Vikas Sethi of Sethi Finmart suggests investors to participate in the OFS. HAL is a fundamentally strong company with multiple defense orders from the government, he pointed out.

The government currently holds a 75.15 per cent stake in HAL, which is a CPSE under the defence ministry. The proceeds from HAL OFS would go to the government's disinvestment kitty for the current fiscal year.

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