Stock in Action – HAL 03 September 2024

Stock in Action – HAL

Why Hindustan Aeronautics is in News? 

Hindustan Aeronautics Limited (HAL) has garnered significant attention following Cabinet Committee on Security's approval of substantial ₹26,000 crore order for 240 aero-engines to be used in Indian Air Force's Su-30 MKI aircraft. This strategic move is expected to boost HAL's order book from ₹94,000 crore to ₹1.2 lakh crore, providing strong revenue visibility & reinforcing company's position as critical player in India's defense sector. Despite challenges in delivering Tejas Mk1A aircraft due to supply chain issues, HAL's robust order pipeline & multi-year earnings growth potential make it stock to watch. Hindustan Aeronautics stock price has been resilient, even in volatile market conditions.

HAL’s Recent Major Orders & Their Impact

HAL's recent ₹26,000 crore order for 240 AL-31FP aero-engines is game-changer for company. These engines, to be manufactured at HAL’s Koraput division, will support Su-30 MKI aircraft, one of most powerful fighter jets in Indian Air Force (IAF). This order is part of broader government initiative to bolster indigenous defense production under "Buy (Indian)" category, with over 54% of engine content being indigenized. Delivery of these engines is scheduled to begin in FY26 & will continue over eight years, solidifying HAL’s order backlog at impressive ₹1.2 lakh crore. Hindustan Aeronautics share price reflects company's robust order book & growth prospects.

This substantial order adds to HAL’s already robust pipeline, which includes potential contracts worth ₹48,000 crore for various defense projects such as Advanced Light Helicopters (ALH), Light Utility Helicopters (LUH), additional Su-30 aircraft, & RD-33 engines. Furthermore, HAL has promising long-term pipeline with potential projects like Tejas Mk II, Advanced Medium Combat Aircraft (AMCA), Twin Engine Deck-Based Fighter (TEDBF), Indian Multi-Role Helicopter (IMRH), Light Combat Helicopter (LCH), & additional ALH units, estimated to provide business worth ₹4.5 lakh crore over next decade. Hindustan Aeronautics stock is favored by investors looking for exposure to defense manufacturing. Supply Chain Challenges & Their Financial Impact

While HAL’s order book looks promising, company faces significant supply chain challenges, particularly concerning delivery of Tejas Mk1A aircraft. Delays in engine deliveries from General Electric have pushed back timeline for Tejas deliveries, affecting HAL's near-term financial outlook. Company had initially planned to deliver 16 LCA Mk1A jets in FY25, but now expects only eight deliveries, impacting its revenue guidance. HAL share is attracting investors due to its strategic importance in defense sector.

These delays have led to volatility in HAL’s financial performance, with concerns that FY25 revenue growth could drop to mid-high single digits, below company's 15% guidance. However, despite these near-term challenges, HAL’s long-term growth prospects remain strong, supported by its multi-year double-digit earnings growth potential & robust return on equity (ROE) profile of over 20%.

Stock Performance & Valuation

HAL's stock has been stellar performer, delivering over 137% returns in past year & 580% over last three years. Year-to-date, stock is up more than 67%, although it has corrected by 17% from its recent peak of ₹5,674. Analysts, including those at Antique Stock Broking, continue to view HAL as attractively valued despite correction, maintaining "Buy" rating with higher target price. Their valuation is based on price-to-earnings (PE) multiple of 45x estimated earnings for first half of FY27.

Future Outlook

HAL stock has shown steady growth, reflecting company's strong fundamentals. Looking ahead, HAL's long-term growth trajectory appears robust, with significant opportunities in both domestic & international markets. Successful execution of its current order book, coupled with potential for new orders from projects like Tejas Mk II & AMCA, positions HAL well for sustained growth. Moreover, company's ongoing efforts to indigenize key components & reduce reliance on foreign suppliers will enhance its competitive advantage & support "Make in India" initiative. HAL share price has been on upward trend, driven by consistent order inflows.

Conclusion 

HAL stock price is closely monitored by market analysts due to its potential for long-term gains. While HAL faces near-term challenges related to supply chain issues, its strong order book, strategic importance in India's defense sector, & attractive valuation make it compelling investment opportunity for those with long-term horizon. HAL's recent correction provides potential entry point for investors looking to capitalize on HAL’s growth story in years to come. Hindustan Aeronautics share offers promising investment opportunity in India's aerospace sector.