The government-owned aerospace and defence company is expected to report a steady performance in the December 2024 quarter, with a PAT growth of 10.4% year-on-year, according to the consensus estimates of analysts compiled by Reuters-Refinitiv. Its strong execution capabilities and better mix (toward the high-margin repair and overhaul segment) are expected to support performance during the quarter.Hindustan Aeronautics (HAL) manufactures aircraft, helicopters, engines, avionics, and accessories for India’s defence sector. In October last year, the government upgraded the company’s status to Maharatna PSU. The company is likely to face volatility in its operational performance in 2024-25 due to execution challenges amid supply chain issues in procuring F-404 engines from GE. Such issues have delayed a large order for Tejas MK-1 A aircraft. However, the analysts are confident about the company’s long-term growth prospects due to its robust order book, and healthy return ratio profile.
HAL is a beneficiary of the government’s focus on the indigenisation of defence equipment and impetus on upgrading its military capabilities. A sharp pic in order inflows is expected in the fourth quarter of the current financial year, which will improve the visibility of defence companies, says a recent Antique Stock Broking report. Another report from Sharekhan says that the government would gradually ban several imported components through positive indigenisation lists. This will compel Indian armed forces to source from domestic manufacturers, and will benefit HAL.
The company had a robust order book of Rs.94,000 crore at the end of 2023-24 and after the recent order finalisation of 12 Su-30MKI aircraft from the Ministry of Defence, the order book will swell to Rs.1.35 lakh crore. The order pipeline is robust with orders for ALH and LUH (light helicopters) and RD-33 engines (for lightweight fighter jets) being in advanced stages of finalisation. Over the next decade, the business opportunities for HAL from aircraft and helicopter orders will be worth Rs.4.5 lakh crore.
The management’s strategies continue to focus on sustaining the growth momentum. Diversification into the civil market for both manufacturing and MRO opportunities, enhancing indigenisation to reduce supply chain dependency, acquisition of core technologies through collaborations with global OEMs and focus on increasing operational efficiencies by adapting the latest technologies are some of the strategic initiatives undertaken by the company. The stock has significantly outperformed the market benchmark in the last one year with 51.7% returns compared to BSE Sensex with 11.2% returns.Selection methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ during the past three months. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.
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