Hindustan Aeronautics Ltd (HAL) share price opened over 5% higher on Tuesday after the union cabinet committee approved procurement of 240 aero-engines for Su-30 MKI aircraft worth Rs 26,000 crore from the company.
The delivery of these aero-engines will begin after one year and be completed over eight years. The engines will feature over 54 per cent Indigenous content, increased through the indigenisation of key components. They will be manufactured at HAL’s Koraput division.
HAL shares jumped as much as 5.09 per cent to Rs 4,925.00 apiece at the open on the BSE.
This will lead to strong revenue visibility of 3.8 times its trailing 12-month revenue, Antique Stock Broking said in its latest note.
“HAL’s strong order pipeline from the medium to long term perspective will help the company build strong revenue visibility. Although near term financials may seem a bit volatile on account of supply chain challenges it has been facing to execute the large Tejas MK I A orders, given the multi-year double-digit earnings growth potential and robust return ratio profile of 20 per cent, we believe that the stock is attractively valued and, thus, retain BUY rating with a target price of Rs 6,145 valuing the company at a PE of 45 times 1HFY27E earnings,” Antique said.
Analysts were recently concerned over delays in the delivery of LCA Tejas Mk1A aircraft due to supply chain issues at GE Aerospace. The HAL management expects FY25 revenue to grow at 13 per cent YoY on a rise in manufacturing sales, as it sees delivery of Tejas Mk 1A from September quarter onwards. They did not see upward revision in FY25 revenue due to concerns revolving around the supply chain for the largest contract in the backlog.
“HAL’s order book at the end of FY24 stood at Rs 94,000 crore providing revenue visibility of 3.2 times its TTM revenue. The order book will be further bolstered by Rs 26,000 crore order for 240 aero engines of Su-30 MKI aircraft and would stand at Rs 1.2 lakh crore, delivery of which should begin from FY26 onwards. Incrementally, the order pipeline looks extremely healthy with orders worth Rs 48,000 crore for ALH (25), LUH (12), Su-30 (12), and RD-33 engines (80) being in advanced stages of finalisation and are expected to materialise in the near term,” Antique said.
Subsequently, an order worth Rs 18,000 crore is expected to materialise on the RoH front. Even the long-term order pipeline continues to remain robust with projects like Tejas MK II, AMCA, TEDBF, IMRH, LCH, and ALH is expected to provide HAL with a business opportunity of Rs 4.5 lakh crore over the next decade.
Antique said the challenges on the GE 404 engine supply front may persist for a large part of FY25 and HAL’s commitment to deliver 19 Tejas MK I A aircrafts in FY25 is expected to face moderation.
“Industry expert suggests that FY25 might see the delivery of eight Tejas MK I A aircrafts with a few of them being delivered with CAT B engines and the expectation is that GE might start delivery of two engines every month from Dec 2024 (the earlier expectation was for Sep 2024). This could impact FY25 revenue booking to mid-high single digit as against its guidance of 15 per cent for FY25,” it said.
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