HAL share price: Sukhoi engine approval leads to huge jump in order book

HAL share price: Tuesday morning’s focus is on shares of Hindustan Aeronautics Ltd (HAL), as the Cabinet Committee on Security approved the purchase of the Rs 26,000 crore order for 240 aero engines to be used in Sukhoi SU-30 MKI aircrafts. This order is expected to reduce the Rs 94,000 crore order backlog of HAL to Rs 1.2 lakh crore. According to Antique Stock Broking’s most recent report, this would result in great revenue visibility of 3.8 times its trailing 12-month revenue.

From a medium- to long-term standpoint, HAL’s robust order pipeline will support the firm in developing good revenue visibility. Given the multi-year double-digit earnings growth potential and the strong return ratio profile of 20%, we believe that the stock is attractively valued and maintain our BUY rating with a target price of Rs 6,145, which values the company at a PE of 45 times 1HFY27E earnings, even though the near-term financials may appear a little volatile due to supply chain challenges it has been facing to execute the large Tejas MK I A orders,” Antique said.

Recent supply chain problems at GE Aerospace caused delays in the delivery of LCA Tejas Mk1A aircraft, which alarmed analysts. The management of HAL anticipates that FY25 revenue would increase by 13% YoY due to an increase in manufacturing sales as Tejas Mk 1A is delivered starting in the September quarter. Due to issues with the biggest contract in the backlog and the supply chain, they did not experience an increase in revenue for FY25.

When it came to SU-30 MKI aircraft, the aero engine deliveries would begin a year later and take eight years to finish. A higher degree of indigenization of several essential aero engine components will support the engines’ 54% indigenous content. The HAL division’s Koraput would produce these engines.”With an order book of Rs 94,000 crore at the end of FY24, HAL had revenue visibility that was 3.2 times greater than its TTM revenue.

The order book will be further strengthened by a Rs 26,000 crore deal, valued at Rs 1.2 lakh crore, for 240 aero engines for Su-30 MKI aircraft. Delivery of these engines is anticipated to start in FY26. Orders worth Rs 48,000 crore for ALH (25), LUH (12), Su-30 (12), and RD-33 engines (80) are in the advanced stages of finalization and are anticipated to materialize in the near future, according to Antique. Incrementally, the order pipeline looks very solid.

On the RoH front, an order valued at Rs 18,000 crore is anticipated to materialize after that. With projects like Tejas MK II, AMCA, TEDBF, IMRH, LCH, and ALH, even the long-term order pipeline is still strong and could provide HAL a potential business opportunity of Rs 4.5 lakh crore over the next ten years.

Antique said that HAL’s pledge to deliver 19 Tejas MK I A aircraft in FY25 is anticipated to see moderation, and that the difficulties with the GE 404 engine supply front may continue for a significant portion of the year.

“According to industry experts, eight Tejas MK I A aircrafts, some of which may have CAT B engines, might be delivered in FY25. GE is anticipated to begin delivering two engines per month starting in December 2024 (the initial projection was for September 2024). This might have an effect on FY25 revenue booking to a mid-high single digit, compared to the 15% predicted for the year,” the statement said.