On Thursday, Hindustan Aeronautics Ltd (HAL) shares tanked nearly 6% after the declaration that the government plans to sell up to 3.5% stake in the defence company under an offer for sale (OFS).

The stake sale would cost Rs 2,867 crore, and the government has decided on a floor price of Rs 2,450 per share, which is at a 6.6% discount from the previous close.

At 9:17 am on the BSE, HAL shares traded 5.5% lower at Rs 2,480.

This development would upsurge the stock’s free float, considering Morgan Stanley’s ‘overweight’ rating on the defence PSU’s stock with a target price of Rs 3,216 per share.

Even as the size is less than market prospects of around 5%, it eliminates a stock’s overhang, Morgan Stanley highlights. The brokerage firm remains overweight on Hindustan Aeronautics Limited’s stock, saying it would use any weakness to add to positions.

At OFS floor Price, the stock values at a price to earnings (P/E) ratio of 17.4 and 15.4 times the EPS estimate for FY24 and FY25.

HAL, India’s largest defence PSU is engaged in the design, manufacture, development, overhaul, repair, upgrade, and servicing of a wide range of products, including aircraft, aero-engines, avionics, helicopters, accessories, and aerospace structures.

The business holds a healthy order book position of Rs 84,000 crore, estimated as 3.2 times the Trailing 12 Month proceeds, driven by huge aircraft and helicopter manufacturing orders.