Strong order book, upgrades help HAL fly past the Rs 2 trillion mcap mark

Hindustan Aeronautics Ltd (HAL) on Friday joined the elite group of companies having market capitalisation (market cap) of Rs 2 trillion with the stock of the state-owned defence firm more than doubling in the past 10 months.

The shares of HAL hit a new high of Rs 3,038.60, surging 5 per cent on the BSE in intraday trade on Friday on a robust business outlook. The stock closed at Rs 2,999.05 apiece, up 3.21 per cent. HAL's market cap hit Rs 2.03 trillion in the intraday trade on Friday.

Currently, it is the seventh public sector undertaking (PSU) company having a market cap of over Rs 2 trillion. In the past 10 months, the stock has zoomed 123 per cent.

It has skyrocketed 1,257 per cent from its March 2020 lows to the level of Rs 224 (adjusted to 1:1 stock split).

HAL is engaged in the design, development, manufacture, repair, overhaul, upgrades, and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. Brokerage firm UBS has initiated coverage on the stock with a ‘buy’ rating and a 12-month target price of Rs 3,600 per share.
 

“After three years of flattish growth, HAL is set to triple its order book from Rs 0.8 trillion in FY23 to Rs 2.4 trillion in FY26. HAL is on course to re-rate by a similar magnitude to BHEL in the past decade, if it gets its execution right,” the brokerage said in its report.

HAL has a $ 10 billion order book, and we think it could benefit from $60 billion of more defence aircraft orders from now till FY28E, of which $16 billion have already been approved and $40 billion-plus with higher local content, should be awarded in the next 5-7 years, it added.

Analysts at Prabhudas Lilladher believe HAL is an assertion on the growing strength and modernisation of India's air defence, given its position as the primary supplier of India's military aircraft and long-term sustainable demand opportunity, owing to the government's push on the procurement of indigenous defence aircraft. 

The leap in HAL's technological capabilities is due to the development of more advanced platforms (like Tejas and AMCA), an order book of over Rs 80,000 crore with a further 5-year pipeline of Rs 2 trillion and an improvement in the profitability through scale and operating leverage.
 

“In the near future, the Indian defence market will continue to be a prime revenue source for HAL due to projects like LCA Mk1A, LCH, LUH and HTT-40,” the company said in its FY23 Annual Report.

“The company has taken various initiatives to make systems more agile, effective, cost-efficient and competitive. Enhancement of HAL capability is being planned to cater to the above projects. New production lines are being installed for HTT-40 and LCA Mk1A production,” it added.