HAL shares rise 2% after ₹13,500 crore defence contract win

Shares of aerospace & defence public sector unit (PSU) Hindustan Aeronautics Ltd (HAL) surged 2% in the early morning trade today after the company received ₹13,500 crore worth of defence contracts from the Ministry of Defence.

Shares of the company opened a gap up and hit the day's high at ₹4,770 on the BSE. At the current share price of ₹4,688, the scrip is trading 18% down compared to the 52-week high of ₹5,675 hit on July 9, 2024. The company's market has also climbed to ₹3.13 lakh crore today, with a significant 88.86% return in the past year. The shares have gained around 65% in the calendar year alone. In the past month alone, the stock has risen 15.12%.

In a major boost to the 'Aatmanirbhar Bharat’ initiative of the government, a contract for the procurement of 12 Su-30MKI aircraft along with associated equipment was signed between the Ministry of Defence and HAL at a cost of ₹13,500 crore on Thurday.

These aircraft will have an Indigenous content of 62.6%, a boost to the indigenisation initiatives of the defence industry. These aircraft will be manufactured at the Nasik division of HAL. The supply of these aircraft will enhance the operational capability of the Indian Air Force and strengthen defence preparedness of the country.

In September this year, HAL had received a contract for the procurement of 240 aero-engines for Su-30 MKI aircraft of the Indian Air Force (IAF) under buy Indian category at a cost of over ₹26,000 crore.

The delivery of these aero-engines would start after one year and complete over a period of eight years. The engines will have indigenous content of over 54%. These would be manufactured at the Koraput division of HAL.

Notably, the Su-30 MKI is one of the most powerful and strategically significant fleets of IAF. The supply of these aero-engines by HAL would meet the fleet sustenance requirement of IAF to continue their operations and strengthen defence preparedness.

HAL's Q2 FY25 profit stood at ₹1,510 crore, up 22% over ₹1,237 crore in the year-ago period, while its revenue gained 6% to ₹5,976 crore compared to ₹5,636 crore in the same quarter in the previous financial year. HAL’s Q2 FY25 EBITDA came at ₹1,640 crore rose 7% YoY, while the EBITDA margin was at 27.4%. The revenue rose a mere 6% YoY due to a lower proportion of manufacturing income; provisions as a % of revenue stood at 4% compared to 7% a year back.

After receiving an order worth ₹26,000 crore for the supply of 240 aero-engines, its order book had surged to ₹1 lakh crore. Brokerage ICICI Securities, in its November 15 note, had recommended an "Add" call to the stock, saying going ahead, execution at HAL is likely to be impacted in the near term due to a delay in the supply of F-404 engines by GE Aerospace. "Hence, we prune FY25/26E EBITDA by 16%/4%. Raise the discount rate in the DCF model by 100bps to 11% to account for execution uncertainty. Our revised TP works out to INR 4,660."