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Healthy order-book, fresh order wins and Government’s renewed thrust on the defence sector propelled the stock of defence PSU Hindustan Aeronautics (HAL) to an all-time high of ₹2,428.8 during early trade on Tuesday. The stock, which opened at ₹2,389.9, closed at ₹2,392.30 (up ₹15.8 or 0.66 per cent from Monday’s close of ₹2,376.5). On Tuesday, HAL outperformed the sector by 1.5 per cent.
The stock has been rising for the past eight days and has risen 8.04 per cent in this period. In the past one year, the stock has outperformed the Sensex by about 74 per cent. For investors in the IPO in 2018 at ₹1,240, the stock almost doubled within four years of listing.
Though the recent trigger for the stock was the ₹860-crore order win along with L&T, it came under the investors’ radar when the Centre last year gave a $6-billion order to HAL for export of light combat aircraft Tejas. In fact, the company said it plans to open an office in Malaysia to tap new business opportunities. In October 2021, HAL had submitted a proposal to Malaysia’s Ministry of Defence to supply 18 Tejas LCA.
According to Vishal Wagh, Research Head, Bonanza Portfolio, the company is in focus due to changes in the macro picture all over the world post the Russian invasion of Ukraine. India understood the necessity of domestic defence equipment and banned defence imports significantly, and “many countries have now started upgrading their defence equipment — Tejas is in demand from multiple countries,” he pointed out.
Steady order inflows
The order-book as of June stood at ₹84,800 crore, up 3 per cent quarter on quarter. Order inflows for the April-June quarter was ₹6,270 crore, 39 per cent year-on-year growth.
Key orders in the pipeline for the next one-two years include 70 HTT-40, 25 advanced light helicopters (ALH) for the Indian Army, six Dornier aircraft, 12 light utility helicopters (LUH), 12 Sukhoi-30 MKI and 240 AL-31 engines for Sukhoi-30 MKI aircraft.
According to analysts, the total estimated cost of these orders is ₹45,000 crore. In the longer term (three-five years), key orders in the pipeline are 145 LCH, 175 LUH, 60 Marine ALH, 36 HTT-40, 18 RD-33 engines for MiG-29 and medium weight fighter (Tejas MK2).
“Execution of existing healthy order backlog with strong pipeline and continuous inflows of maintenance, repair & overhaul (MRO) contracts will drive earnings of HAL for the coming period,” said a recent report on the defence sector from ICICI Direct. HAL’s MRO order pipeline is about ₹1.2-lakh crore in the next three-four years.
According to Elara Securities, “We slightly cut our EPS by 3 per cent in FY23E on lower order inflows at ₹60,000 crore vs our expectations of ₹70,000 crore in FY23 and keep our EPS unchanged in FY24.” It has reiterated its Accumulate rating with a TP of ₹2,650 based on 18x FY24E P/E, in line with global defence companies’ valuation.
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