Stock in Action: HAL

HAL Share Movement of the Day 

Highlights

1. Hindustan Aeronautics Limited (HAL) is a key player in India's aerospace sector, renowned for its Light Combat Helicopters.
2. Defence Ministry procurement plays a crucial role in supporting HAL's initiatives and boosting indigenous defense production.
3. HAL share price reflects investor confidence in its capabilities and growth prospects within the defense sector.
4. Multibagger stocks like HAL are sought after for their potential to deliver substantial returns over time.
5. Defence sector stocks are increasingly attractive due to government policies promoting Make in India and Atmanirbhar Bharat.
6. Make in India initiative aims to enhance domestic manufacturing capabilities, including advanced defense technologies.
7. Atmanirbhar Bharat encourages self-reliance in defense, reducing dependency on imports for the Indian Air Force and Indian Army.
8. Indian Air Force relies on HAL for cutting-edge aircraft and helicopter solutions tailored to national defense needs.
9. Indian Army benefits from HAL's expertise in developing combat-ready helicopters and aircraft for varied terrains.
10. HAL's Light Combat Helicopters exemplify India's capabilities in aerospace technology and indigenous defense production.

Why HAL Share is in Buzz?

HAL shares are in focus due to a significant ₹45,000 crore tender for 156 Light Combat Helicopters from the Ministry of Defence, including 90 units for the Indian Army and 66 for the Indian Air Force. The stock has rallied 84% in 2024 and 167% in the past year, supported by strong financial performance and strategic alliances, making it a key investment idea for the forthcoming budget.

Should I Invest in Hindustan Aeronautics Stock? & Why? 

Investing in Hindustan Aeronautics Ltd (HAL) could be a prudent decision for several reasons:

1. Strong Financial Performance 

HAL has reported impressive financial growth, with profits compounding at an annual growth rate of 27% over the last five years. The company has a robust order book of around ₹94,000 crore, reflecting a 15% year-on-year increase.

2. Strategic Alliances

HAL has established key partnerships with global giants like General Electric, Safran Helicopter Engines, and Airbus, enhancing its technological capabilities and market reach.

3. Significant Defence Contracts

The recent ₹45,000 crore tender for 156 Light Combat Helicopters underscores HAL's strategic importance in India's defence sector. This order alone is expected to bolster the company's long-term positioning and financial stability.

4. Market Momentum

HAL's stock has shown strong momentum, rising 93% in 2024 and 180% over the past year. The stock is trading higher than its key moving averages, indicating continued bullish sentiment.

5. Government Support

The Indian government's focus on self-reliance in defence manufacturing, under the Make in India and Atmanirbhar Bharat initiatives, provides a favorable environment for HAL. The Defence Ministry's target of achieving a ₹1.75 lakh crore turnover in aerospace and defence manufacturing by 2025 further supports this.

6. Dividend Yield and Debt-Free Status

HAL is a net debt-free company with a cash per share of about ₹395 and offers a dividend yield of 0.59%. This indicates a strong financial position and potential for consistent shareholder returns.

7. Sectoral Outperformance
Defence stocks, including HAL, have been in focus due to increasing defence exports and government spending on defence projects, providing a positive outlook for the sector.

HAL Conference call Notes - May 2024

Financial Performance

1. Revenue from operations almost stood at 30,381 crores as compared to 26,928 crores in the previous year, marking an increase of 13%.
2. Manpower cost has been rationalized from around 23% of revenue in 2018-19 to almost 17% in the last financial year.
3. Overhead expenditure has been significantly reduced from around 8% to 4.66% of revenue over the last 3 to 4 years.
4. Inventory holding has been optimized from 360 days to 159 days.
5. Debtors turnover has improved from 227 days to 55 days.

Hindustan Aeronautics Future Growth and Expansion

1. Focusing on capacity building and capability building to meet customer commitments and future projects.
2. Proactive procurement, strengthening CAPEX, and increasing R&D investments.
3. Expecting a robust CAPEX plan for the next 5 years, estimated to be between 14,000 to 15,000 crores annually.
4. Investing in greenfield projects and capacity augmentation of various programs.
5. Establishing new facilities like a new helicopter factory in Tumakuru and a third line of LCA in Nashik.

Order Book and Outlook

1. Order book as of the current date stands at 94,000 crores, with expectations to increase to 1,20,000 crores by the end of the fiscal year.
2. Anticipated contracts for LCA Mark 1A, Light Combat Helicopters, Advanced Light Helicopter, Dornier aircrafts, and Utility Helicopter Marine.
3. Expecting orders totaling around 1,60,000 to 1,70,000 crores in the next 18 months to 3 years.
4. Planning to keep manufacturing lines occupied till 2032.

Export Opportunities

1. Actively pursuing export opportunities for platforms like ALH and LCH.
2. Engaged in discussions with countries like Philippines, Argentina, Nigeria, and Egypt for potential orders.
3. Expecting at least one breakthrough order in the current financial year.

Technology Transfer and Indigenous Development

1. Signed MoU with GE for the transfer of technology for GE 414 engine, aiming for 80% indigenization.
2. Working on integrating indigenous systems like Uttam radar onto LCA Mark 1A to increase indigenous content.
3. Projected indigenous content to be above 65% for LCA Mark 1A.

Margin Guidance

1. EBITDA margin guidance of 26%-27% for the current financial year.
2. No major provision reversals expected to impact EBITDA margin significantly.

Manufacturing Growth and Execution

1. Expecting manufacturing growth of around 15% to 18% annually.
2. Repair and overhaul growth expected to be around 9% to 10%.
3. Proactive actions taken to ensure timely delivery of orders, including placing kit orders in advance.

Export Orders and MRO Business

1. Orderly intake guidance of 470,00 crores for FY25 does not include MRO orders.
2. Entered into a working arrangement with Airbus for MRO business, expecting developments in the coming years.

Quarterly Calls and Investor Relations

1. Management open to having quarterly analyst calls to keep investors updated and maintain transparency.
2. Expressing confidence in the consistent growth profile of the company and commitment to stakeholder satisfaction.

Conclusion

Considering HAL's robust financial health, significant defence contracts, strategic alliances, and favorable government policies, the stock presents a compelling investment opportunity. However, potential investors should also consider market volatility and conduct thorough research to align with their investment goals and risk tolerance.