Defence equipment manufacturer Hindustan Aeronautics shares gained five per cent in early trade on June 18, after the state-run firm received a ‘Request For Proposal’ from the Ministry of Defence. The scrip surged nearly 6 per cent to its all-time high of Rs 5,484.20 on BSE in Tuesday’s trade.
HAL has notified that a RFP has been issued to the company by the Ministry of Defence (MoD) for procurement of 156 LCH Prachand or Light Combat Helicopters (90 for the Indian Army and 66 for the Indian Air Force).
As on March 31, 2024, HAL’s order book stood in excess of Rs 94,000 crore with additional major orders expected during FY 2024-25, the company had said on April 1.
HAL, with a robust order book and accelerated delivery plan, is expected to sustain and improve the growth trajectory and support the Indian Defence services in their endeavor towards Defence preparedness of the country, the company had said.
Meanwhile, the stock is quoting higher for the ninth straight trading day, having rallied 26 per cent during the same period. It has rebounded 40 per cent from a low of Rs 3,918.50 touched on June 5 in the intraday trade.
Thus far in the calendar year 2024, the market price of HAL has nearly doubled, zooming 96 per cent. In comparison, the BSE Sensex has gained 6.7 per cent during the period.
Estimated value of 156 LCH is Rs 45,000-50,000 crore. The contract will be placed with HAL after the negotiation process. The company has already delivered the initial 15 LCH contract received in FY22. The company’s order backlog (Rs 94000 crore at 3.1x FY24 revenue) and order pipeline remains robust. Including this contract, management has been guiding for order inflows worth Rs 1.6-1.7 trillion in the next 2-3 years where the government has already provided approvals, ICICI Securities said in a note.
HAL is engaged in carrying out design, development, manufacture, repair, and overhaul of aircraft, helicopter, engines and related systems like avionics, instruments and accessories primarily serving Indian defence programme. It also manufactures structural parts of various satellite launch vehicles of the Indian Space Research Organization (Isro).
The Government of India held majority stake of 71.64 per cent in the company, while 1.89 per cent was held by the Life Insurance Corporation of India as on March 31, 2024.
The government’s initiatives for promoting domestic manufacturing and HAL’s established relationship with its customers is expected to continue to benefit HAL in the long run, though there might be some increase in the competition from the private sector.
CARE Ratings believes that HAL will continue to benefit from its strategic importance to the Indian defence forces resulting in maintaining its leadership position in the Indian Aerospace and Defence industry supported by long track record of operations and high entry barriers along with maintaining its highly comfortable financial risk profile.
On June 14, HAL bagged a ‘buy’ call from Jefferies and a target price of Rs 5,725 apiece, indicating a 12 percent upside potential due to its focus on indigenisation and exports.
“We expect HAL to continue double-digit growth for 3-5 years as the sentiment around defence indigenisation and exports remain upbeat. HAL is in a sweet spot as the business has high technology entry barriers,” the brokerage firm said in a recent note.
Jefferies also pointed out that current valuations do not fully reflect HAL’s high entry barriers and near-monopoly status.
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