HAL hits 52-week high on imminent deal with General Electric to co-produce jet engines

Shares of Hindustan Aeronautics Ltd, the country’s largest defence PSU, surged as much as 3.05% to hit a 52-week high of ₹3,524.95 apiece on the BSE after the company reportedly entered a deal with US-based General Electric (GE) to co-produce jet engines in India.

On Wednesday, the scrip opened marginally higher at ₹3,469.95 as against the closing price of the previous session at ₹3,417.10. At 3:02 pm, the stock was trading 1.57% higher at ₹3,472.85. At present, the share price of HAL is trading 107.4% higher than the 52-week low of ₹1,698.85, which the company touched on June 20 last year. During the session, the market capitalisation of the state-owned defence manufacturer stood at ₹1,16,065.90 crore with 1,02,731 shares exchanging hands on the BSE as against the two-week average of 0.55 lakh shares. In the past month, three months and one year, the counter has given 17.85%, 28.01% and 82.77%, respectively, in returns.

The Joe Biden administration has reportedly given the green signal to General Electric and HAL to co-produce jet engines in India, ahead of Prime Minister Narendra Modi’s visit to the US. In 2012, the two companies reportedly entered into an agreement to manufacture jet engines. However, the deal couldn’t take off as the transfer of technology for the manufacturing of jet engines remained a point of contention between the US and India. The Biden administration has reportedly given a go-ahead to Go Electric for transferring the technology, which is required for the manufacturing of jet engines to India. The deal is touted to benefit 600 MSMEs (Micro, Small and Medium Enterprises) in India.   

During the March quarter, the company reported a 8.8% YoY decline in its net profit to ₹2,831.18 crore from ₹3,105.17 crore in the same period last year. The company’s revenue from operations surged 8% YoY to ₹12,495 crore as against ₹11,558 crore in the same period last year. The company’s EBITDA (earnings before interest, tax, depreciation and amortisation) surged by 29% in the January to March period of FY24 as against ₹2,495 crore in the same period last year.

Analysts at ICICI Securities said that amongst all defence stocks, HAL has the most formidable order funnel with robust order inflow expected in FY24 (manufacturing orders worth ₹480 billion and RoH/spares orders worth ₹170 billion-₹180 billion), and potential orders for which AoN has been issued at ₹360 billion and for which AoN has not been issued at ₹650 billion.

"Going ahead, while we believe HAL is on a strong footing given its robust order book and potential order pipeline, its near-term adherence to the delivery schedule of HTT-40 and LCAMk1A remain the key monitorable. Maintain ADD with an unchanged target price of ₹3,385 on DCF methodology. Delay in execution of manufacturing orders remains a key risk to our thesis," ICICI Securities said.

Analysts at ICICI Direct maintained a ‘BUY’ rating with a revised target price of ₹3,610. The brokerage firm said that a healthy order-book position (~₹82,000 crore; 3x FY23 revenues) led by large-scale orders in manufacturing aircraft/helicopters (LCA, LCH, ALH) is one of the key triggers for revising the target price. The brokerage firm said that HAL has continuous order inflows in maintenance, repair & overhaul (MRO) with a strong order pipeline in manufacturing for the next three to four years (led by LUH, LCH, ALH, Dornier, HTT-40 and engines for Su-30 & MiG-29.

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