Target: ₹2618
CMP: ₹1,603.85
Hindustan Aeronautics’ (HAL) FY22 reported print was above expected both of top line as well as profitability with revenue growth of 8 per cent y-o-y (higher than the provisional revenues disclosed earlier) and PBT increasing 22 per cent y-o-y.
Even adjusted for higher other income due to tax refund of earlier years PBT increased by 16 per cent y-o-y, despite about 150 per cent increase in provisions. Higher provisions helped to normalise what otherwise would have been 27 per cent+ EBITDA margins for FY22.
Ideally these would clearly lead to increase in expected margins for FY23/24, for sake of prudence we await management call before increasing our margin assumptions. Working capital has improved significantly for HAL allowing over ₹8,500 crore of FCF in FY22; receivable days dropped to 69 (227 days in FY19).
We maintain Buy with a DCF target price of ₹2,618/share. HAL remains on the strategic DPSU and (in our view) can potentially garner about 50 per cent of Indian defence order inflow (i.e ₹2.5-lakh crore) over next 5 years. The stock remains inexpensive.