Star PSU: HAL's productivity gains, overhaul business driving growth

Productivity gains and the overhaul business are driving growth. HAL is also tapping into opportunities in civil aviation

When the Covid-19 pandemic struck in 2020, Hindustan Aeronautics (HAL), like most other organisations, took a few hard knocks. Production paused for a month owing to the nationwide lockdown. Supply-chain snags were another concern.

India’s largest defence state-run enterprise nevertheless clocked Rs 22,882 crore in revenue from operations in 2020-21 (FY21), a growth of 6.6 per cent over the preceding year. A year later, while revenue from operations, at Rs 24,620 crore (up 7.6 per cent year on year), was HAL’s best performance to date, consolidated net profit for FY22 was Rs 5,087 crore, up 56.5 per cent from Rs 3,239 crore the preceding year.

Top-line growth was achieved through improved execution, a stable order book and sustained contribution from the repair and overhaul business. More outsourcing, long-term business agreements with original equipment manufacturers, and expenditure curbs also helped.

HAL’s original mandate, apart from manufacturing MiG-21 aircraft under licence from Russia, was design, development, and overhaul of aircraft and helicopters. The company listed on the BSE and NSE in March 2018 and, after a second share sale in 2020, the government now owns a 75.15 per cent stake in HAL.

Over the years HAL has manufactured more than 4,250 aircraft, 5,400 engines and overhauled more than 11,900 aircraft and 35,500 engines for the armed forces.

A long-standing customer grouse against HAL was its inability to meet delivery targets. Projects were often delayed and productivity was low. However, over the last few years, stress has been on ensuring timely deliveries. Three Advanced Light Helicopters for the army were delivered ahead of schedule in 2019.

More recently, HAL has also adopted an unconventional approach to cut lead times. The first Light Combat Helicopter (LCH) was handed over to the Indian Air Force by Prime Minister Narendra Modi in November 2021. HAL did not wait for a formal purchase contract to start work. It began production of 15 LCHs with internal funding. Similarly, the two Dornier 228 aircraft leased to Alliance Air in 2022 were manufactured with internal funding.

Projects that were stuck, such as the basic trainer HTT-40 and the Intermediate Jet Trainer (IJT), were put back on track. While a Rs 6,800-crore contract was signed earlier in March for 70 HTT-40 basic trainer aircraft, the IJT is undergoing further trials after successful spin and stall tests last January.

Another focus area is new projects, including design and development of helicopter engines. The government’s thrust on indigenisation to support the local defence industry and reduce the import bill has boosted HAL, which is collaborating with the armed forces in design and development of products. One example is the Indian Multi-Role Helicopter (IMRH), which will replace Mi-17 helicopters.

In February, Modi inaugurated HAL’s new helicopter manufacturing facility in Tumakuru (Karnataka). Initially, the plant will produce LCHs, followed by other helicopters such as the IMRH. In February, HAL also signed a pact with Safran for developing engines for the IMRH.

To align with the government’s Make in India programme and support the domestic private sector, HAL has created an indigenisation fund from FY23, with 3 per cent operating profit after tax for use by its divisions for indigenisation. It has identified 405 imported items at its various platforms, for phased indigenisation.

As of December 2022, HAL had an order book of over Rs 84,000 crore. Manufacturing contracts account for 70 per cent of orders, and repair and overhaul for around 24 per cent.

“The major manufacturing order in our order book is for 83 light combat aircraft Tejas Mk 1A, which is scheduled for delivery from 2023-24 to 2028-29. Similarly, the 70 HTT-40 trainers are also required to be delivered from 2024-25 to 2029-30. Further, HAL has orders of around Rs 50,000 crore which are in advanced stages of conclusion and are likely to be signed within the next six to nine months,” HAL’s Chairman and Managing Director C B Ananthakrishnan said.

Further, there are orders aggregating Rs 67,000 crore which are expected to materialise in the next one to three years, which will support growth up to 2031-32, he said. HAL is also exploring opportunities to reduce its dependence on the defence sector, including opportunities in civil maintenance repair, conversion of passenger aircraft to freighters, simulators, and higher exports.

“HAL’s healthy order book is poised to increase further with the stream of orders in the pipeline, buoyed by export initiatives. This gives confidence that we will deliver better growth and propel HAL towards achieving double-digit growth from 2024-25,” Ananthakrishnan added.