After completing the Rs 4,300 crore buy back of shares, Hindustan Aeronautics Ltd (HAL) plans to hit the market with an initial public offering by 2016-end along with 10% government stake sale.

Buyback of shares has strengthened the balance sheet of state-owned HAL and the company is now in the preparing the draft red herring prospectus (DRHP) for the IPO.

"The DRHP is likely to be filed with Sebi by September and the IPO will be launched in the October-December quarter," a senior government official told PTI.

The Cabinet in 2012 approved selling of 10% stake or 1.20 crore equity shares through an IPO of Navratna defence equipment maker HAL. The company provides maintenance and overhaul services to aircraft.

Government had asked HAL, which was sitting on a cash balance of Rs 17,671 crore, to buy back 25% of its share capital and free reserves last month. This led to a cash outgo of Rs 4,300 crore.

"The buy back was a precursor to the IPO. It helped to right size the capital of HAL given its high net worth, low leverage ratio, large cash balances not being optimally utilised for business purpose," the official said.

The company has capex plans for Rs 800 crore and has a net worth of Rs 17.12 lakh crore. Its profit after tax stood at Rs 2,388 crore.

The government in 2013 appointed four merchant bankers- SBI Cap, Goldman Sachs, Barclays and Axis Capital -for managing the stake sale of HAL.

The government holds 100% stake in HAL.

HAL would be in addition to over a dozen PSUs which the disinvestment department already has in its pipeline.

The Budget 2016-17 has set a disinvestment target of Rs Rs 56,500 crore for current fiscal. Of this, Rs 36,000 crore is estimated to come from minority stake sale in PSUs, and the remaining Rs 20,500 crore is projected to come from strategic sale in both profit and loss-making companies.