State-owned defence major Hindustan Aeronautics Limited (HAL) has set sights on expanding exports and is shedding legacy issues that hampered growth in the past. The Navratna PSU’s CMD, CB Ananthakrishnan, shared with businessline the company’s growth plans, investments in R&D, and efforts to meet timeline of delivery of aircraft to the Indian armed forces. Excerpts:
Can you tell us about HAL’s focus on R&D?
HAL has been focussing on R&D activities since the first indigenously designed and developed aircraft Marut in 1960s. To strengthen and fund R&D activities, 10 per cent of operating profit after tax was earmarked till 2021-22. This has been increased to 15 per cent from 2022-23. In addition to it, we have also earmarked five per cent of our profit for new start-ups and indigenisation programmes. So, all together, 20 per cent of operating PAT is available for developing the products indigenously.
How much would that be in numbers?
In 2022-23, appropriation of profit was around ₹650 crore towards R&D and indigenisation fund. Apart from that, there are programmes funded separately through Board approval for major projects such as HTT 40 trainers, where there was no upfront funding from customers. Recent addition is the IMRH (Indian Multi Role Helicopter) programme for which we went ahead with Board approval for design and developments, pending government sanction.
At what stage is the IMRH programme?
Preliminary design has been completed and we are getting into the conceptual design part of it and are trying to structure our programme. We have broken it into three categories. First is airframe and avionics, the second, transmission and rotor systems, and the third engines. As far as the airframe and avionics are concerned, we are trying to involve the private industry for design and development; right from the initial stages since the time period for this programme is six to seven years. The capability exists within the country as far as avionics is concerned. For transmission and rotors, though we have capabilities, we are engaging foreign OEMs, and will jointly develop them here so that the IPR rests within the country. For engines, we have formed a JV with SAFRAN for joint development in the country. We are progressing quite well. For the first time, we are going for this kind of approach; we are involving MSMEs and start-ups for design and development of such large projects
Other futuristic aerospace programmes HAL is working on?
HAL believes the technology will be the key differentiator in next generation warfare, and is investing significantly into developing critical technologies in the domain of unmanned systems, aero-engines, and avionics, At the same time, we are also investing in futuristic concepts such as CATS (Combat Air Teaming System), which is the coming together of manned and unmanned combat aircraft, leading to air superiority. We are converting indigenous platforms into unmanned aircraft. For example, our trainer aircraft Kiran is being converted into UAV. HAL has also committed itself to HAPS (High Altitude Pseudo Satellite System), where we are trying to engage a private start-up in Bengaluru to see if it could be jointly developed.
How does HAL want to contribute to government’s target to raise defence exports to $5 billion in FY2024-25 from the existing $1.5 billion?
In fact, our target is that 10 per cent of revenue ultimately should be generated from the exports. Two to three years ago, we were focussing on just Indian defence customers. Today, HAL is well equipped to offer a range of products for the export market because all of them are indigenously designed and developed, right from the trainers to fighters, and then the range of helicopters. We are in a better position to offer it to the export market, which was not the case earlier. It was more of licence production, which we were not able to export. With the thrust given by the Central government towards defence export, we are well positioned to see that these products find a place in the global market. There are leads coming through and delegations from various countries have visited the HAL facilities and also flown the HAL aircraft and helicopters, and are quite impressed with the way products have behaved. The pilots are quite happy with the capabilities of HAL products.
Share more specific details of interests shown by countries in HAL products?
We have got the leads from Malaysia. We have got the leads from Argentina. We have got the leads from Egypt and many other countries interested in our products. I am sure that with the way things are happening, many of these leads could get converted into business opportunities, especially from Argentina and Philippines. So, this could be a breakthrough order, which should come through. After the initial opening in export market, we will have to see that the platforms are finding applications/interest elsewhere in various countries
Can you take us through Letter of Intent signed with Argentina recently for Advanced Light Helicopters?
Argentina Defense Minister was here and, in fact, he saw display of Tejas and various helicopters and trainers. He was quite happy with the performance of the aircraft. As of now, some interest is being shown by Argentina towards our helicopters, especially the Advanced Light Helicopters (ALH). We are looking at somewhere around 16 to 20 numbers and once it is through then probably, we can also expect some additional bigger numbers. As far as the fighter Tejas aircraft is concerned, they have asked for the moment submission of budgetary quotation.
We have submitted the quote and expect positive interest to be shown by Argentina, because they are also looking for acquiring fighter aircraft. Pilots from the Argentina air force visited our facilities and were quite impressed with the aircraft. We have also offered certain funding mechanism to Argentina. Finally, defence procurements are driven by larger issues around geopolitics, rather than product suitability or economics alone
Has price negotiations for GE F414 engines to power Tejas Mk2 started after the MoU was signed during the PM’s June visit to US? How many engines is HAL is looking to co-develop here with GE ToT?
The price negotiations with GE are yet to commence. It was as you know that sometime in 2012 the agreement was inked between ADA (Aeronautical Development Agency, which is a DRDO lab) and GE for the development program, and subsequently for production engagement with the HAL. The scope of ToT in many of these critical areas when engine production modalities were agreed to in 2012 was around 58 per cent. However, with the scope of ToT going up to 80 per cent, these technologies will now come to India for the first time. The fighter jet engine technology deal with the GE is a game-changer that will take India ahead in the coming decades.
It will become the basis of future indigenous engines that will power military aircraft. Now that the ToT has gone up, we need to renegotiate. This is because once the MoU has been signed, GE also needs to take their internal clearances such as Manufacturing Licence Agreement (MLA) nod, and after that we will be sending our engine delivery schedule, requesting them to submit an offer, and based on the submitted offer negotiations will happen. Around 99 engines is what we could be looking at.
There are concerns over delays in sourcing of Tejas, which has also been highlighted by the Parliamentary standing committee on defence in one of its earlier reports. Your comments.
There were some issues of delays because of so many reasons beyond the control of HAL. But today you can see that for the last five to six years we are trying to deliver product on time and maintaining the delivery schedule. In fact, the LCH aircraft was delivered ahead of schedule. We don’t wait for the contract to be signed to begin the programme. We are initiating production activities once we have got visibility, and with Board approval, we will start procurement of raw material. So, there has been considerable shift in the approach of HAL as far as delivery of aircraft is concerned
What precise steps HAL have taken to address concerns after last year’s three Dhruv accidents?
Let me put on record that Dhruv is a safe and proven aircraft. ALH Dhruv has been a crucial asset to the Indian Defence Services. With over 300 Dhurv helicopter produced, the aircraft accumulating over 3,90,000 flying hours, the safety record of the aircraft is commendable. If we examine the accidents rates of helicopters in different parts of world, the Dhruv accident rate per 100,000 flying hours is far less than world average. Yes, there were some untoward incidents in recent times, the reports of such investigation are supposed to be confidential and as I understand are yet to be completed.
There have been some expert committees constituted and have also studied the design improvements. We are now trying to replace aluminium control rods with steel control rods. We have taken some immediate measure and long-term measures. Apart from that, any programme of this nature should have continuous improvement in design capabilities. We also trying to engage an international consultant for improvement because this helicopter is going to stay for next 20 years to 30 years
What was the order inflow during April to June, 2023, for HAL?
We have got an order between ₹3,000 crore to ₹3,500 crore in this financial year. Of the opening order book position of ₹83,000 crore, in the first quarter, we have liquidated ₹3,000 crore. We have ended the first quarter with an outstanding order book position of ₹82,000 crore. Further, ₹3,000-crore accretion has happened in the first quarter. The major contracts have been on repair and overhaul.
Is there any scope of improvement in the Return on Equity in the next couple of years?
During 2022-23, there was a one-time Income Tax refund of around ₹1,685 crore, which helped us to report increased RoE of around 27 per cent. However, during the current year, no such refund is expected; ROE would be in line with long term average of 20-22 per cent.
What is your guidance for EBIDTA and Profit After Tax growth for current fiscal?
We have been maintaining that we will be having around 8 per cent revenue growth till FY24 which we have been indicating two years ago, and continue to maintain at 8 per cent for in this financial year. From FY25 onwards, the growth rate will be in double-digit, which we will be achieving in revenue once we start delivering LCA Mk1A aircraft. As far as EBIDTA is concerned, we are somewhere around 27 per cent to 28 per cent, and we will continue to be around 27 per cent, which is considered to be one of the best in the industry
HAL shares are doing well on stocks. Is there any plans to give special dividend or bonus to shareholders?
We are consistently paying good dividend year on year. In fact for the last financial year, HAL paid 550 per cent of the face value of share as dividend. Today we are a zero debt company and with many upcoming R&D programs and capacity expansions we need to fund the projects. We are investing back profits into R&D and trying to increase wealth for our shareholders.