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08 Jun

Expect helicopter orders worth Rs 600 bn – Hindustan Aeronautics

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,342 (-0.5%). BHRATIARTL (-3.9%), ITC (-2.2%), and RELIANCE (-1.8%) led the losers while TATASTEEL (+1.7%), SBIN (-1.6%), and TITAN (-1.4%) led the gainers. Among the sectoral indices, REALTY (+2%), MEDIA (+1.4%), and PSU BANK (+0.7%) led the gainers, while OIL &GAS (-1.1%), FMCG (-1.0%), and CONSUMER DURABLES (-0.6%) were the only losers.

Excerpts of an interview with Mr. R Madhavan, Chairman and Managing Director at Hindustan Aeronautics (HAL) with BQ Prime on 8th June 2022: 

  • HAL anticipates revenue to increase by 6-7% in FY23. Revenue is expected to increase by double digits in FY24 and will continue to grow in FY25.
  • The company’s order book stands at Rs 820 bn, of which Rs 200 bn is for a repair and spare parts order and Rs 615 bn is for production for Light Combat Helicopters (LCH) to be delivered in 2024.
  • HAL is expecting orders worth Rs 600 bn for helicopters and basic trainers. These orders, coupled with other engine orders, will increase the company’s book-to-bill ratio from three to five times.
  • Due to the longer cycle time for the ministry’s order placing, the company must begin production or the helicopter manufacturing facilities would be underutilized. The company hopes to have a capacity of more than 90 to 100 helicopters every year. The order book is also required to be in that range so that the capacities that they have established are adequately utilized.
  • Management thinks that India should take advantage of the current geopolitical environment since countries are not favoring China and Russia for their respective source and support systems and platforms. Management sees this as an opportunity as India is capable of supporting Russia’s systems. Furthermore, Indian equipment is easier and less expensive to maintain than western competitors.
  • HAL is hoping to increase export orders as the Indian Ocean Commission area and West Asia gains traction.
  • The Tumkur facility will be inaugurated in July 2022, with an initial capacity of 30 helicopters, in addition to the present capacity of 30 helicopters. In phase 2, this capacity would be increased to 60-70 helicopters.
  • There is excess capacity for fixed-wing aircraft, with the Hindustan Turbo Trainer (HTT-40) trainer aircraft, as well as the Light Combat Aircraft (LCA) Mark-1A and LCA Mark-2, scheduled for production.
  • There hasn’t been much movement from large corporates in India’s defense industry, but the MSME sector has forayed into defense manufacturing, particularly in the avionics and accessories segment.
  • The Company anticipates some push from larger corporates, which is currently lacking, towards indigenous development of platforms and equipment.

Asset Multiplier Comments

  • Due to outstanding helicopter orders, HAL’s order book is likely to reach Rs 1,000 bn in CY22E/ FY23E, and the book-to-bill ratio is expected to rise from 3x to 5x.
  • We anticipate HAL will be able to meet its double-digit revenue growth projections starting in FY25E, as key projects like the LCA Tejas Mark-1A and LCH helicopter orders are scheduled to be completed in 2024.
  • As military threats have grown across the world, the demand for defense equipment has increased. HAL’s addressable market is likely to grow as the firm seeks to diversify its activities by increasing its foreign exposure.

Consensus Estimates: (Source: tikr website)

  • The closing price of Hindustan Aeronautics Ltd was ₹ 1,842/- as of 08-June-2022.  It traded at 15x/ 14x the consensus earnings estimate of ₹ 124.1 / 134.5/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,025/- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 134.5/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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06 Apr

Revenue growth expected to pick up in FY24-25E  – Hindustan Aeronautics

Update on the Indian Equity Market:

On Wednesday, NIFTY settled 150 points lower at 17,807 (-0.8%). HDFCBANK (-3.6%), HDFC (-3.3%), and HDFCLIFE (-2.4%) were the top losers. COALINDIA (+3.1%), NTPC (2.6%), and TATASTEEL (+1.9%) were the gainers. Among the sectors, IT (-1.6%), FINANCIAL SERVICES(-1.6%), and PRIVATE BANK (-1.3%) led the losers. PSU BANK (+2.0%), METAL (+1.4%), and OIL&GAS (+1.0%) led the gainers.

Excerpts of an interview with Mr. R Madhavan, Chairman, and Managing Director, Hindustan Aeronautics (HAL) with CNBC-TV18 on 5th April 2022:

  • The company recorded peak revenues of Rs 240,000 mn in FY22.
  • The projects currently undertaken will fructify only in FY24E and FY25E. Hence the company expects moderate growth of 6-7% for FY23E mostly through the repairs and overhauling (ROH) route. Beyond that the company expects revenue growth to be 9%, and 12% for FY24E and FY25E respectively because of new projects coming in place.
  • All the projects which include Light Combat Aircraft (LCA) Tejas, helicopters (Light Utility Helicopters (LUH) and Light Combat Helicopters (LCH)), and the Hindustan Turbo Trainer-40 (HTT-40) are indigenous. The IP (Integrity pact) for helicopters lies with the company (HAL) while the IP for LCAs lies with the DRDO.
  • The company received two new orders from the Ministry of Defense for a consideration of Rs 38,870 mn.
  •  The company is looking at various options for fundraising, as it wants to move away from the current product profile that they have. It is looking at Boeing, Civil MRO (maintenance), and Passenger to Freight conversion business. The company is also looking at partnerships for the design and development of engines for helicopters.
  • Safran Aircraft’s partnership is for the engines. The company expects to secure a financial partnership with a private player for their 10-12 tonne helicopters for the design, development, and manufacture of helicopters.
  • HAL expects the order book by the end of FY22 to be more than Rs 1,000 bn. Helicopter orders expected by the company are for 200 LUH, 140 LCH, and an order for 70 HTT-40 turbo trainers for approximately Rs. 70,000 to 80,000 mn.

Asset Multiplier Comments

  • HAL’s marquee projects, such as the LCA Tejas and LCA and LUH helicopters, are slated to play a key part in India’s transition to Atma Nirbhar Bharat for defense. The company also intends to make significant strides in the International market with LCA Tejas and their other products.
  • We believe that their order book of Rs 792,290 mn as of 3QFY22 and the expected order book visibility as stated by the company reiterates the revenue expansion story. Moreover, HAL’s focus on indigenization of components, systems, and accessories is expected to result in cost savings supporting the margins and profit.

Consensus Estimate: (Source: investing and tickr websites)

  • The closing price of HAL was ₹ 1,550/- as of 6-April-2022. It traded at 14x/ 12x the consensus earnings estimate of ₹ 109/ 126/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,824/- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 126/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users hshould rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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