Shares of Hindustan Aeronautics Ltd (HAL) are in the spotlight on September 3, as the Cabinet Committee on Security approved a significant procurement deal. The Indian Air Force will acquire 240 AL-31FP aero-engines for its Su-30MKI aircraft, with the deal valued at over Rs 26,000 crore. This procurement falls under the “Buy (Indian)” category and underscores India’s push for indigenization in defense manufacturing.
HAL will manufacture these engines at its Koraput division, with deliveries set to begin after one year and completed over an eight-year period. Notably, these engines will feature over 54 percent indigenous content, a boost achieved through the indigenization of key components. The Su-30MKI is among the most powerful and strategically vital aircraft in the IAF’s fleet. According to the Defence Ministry, this supply from HAL is crucial for sustaining the IAF’s fleet, ensuring uninterrupted operations, and strengthening India’s defense preparedness.
The order is set to significantly enhance HAL’s already strong order backlog, which stood at Rs 94,000 crore at the end of FY24. With this new deal, the backlog is expected to rise to Rs 1.2 lakh crore, offering solid revenue visibility at 3.8 times its trailing twelve-month (TTM) revenue. Despite challenges in executing large orders like the Tejas MK I A, Antique Broking has issued a ‘Buy’ call on HAL stock, setting a target price of Rs 6,145 per share. They believe HAL is attractively valued and poised for multi-year double-digit earnings growth.
HAL’s stock also boasts a robust return ratio profile of over 20 percent, making it an attractive investment option despite potential near-term financial volatility. The stock has gained nearly 66 percent this year, and over the past 12 months, it has zoomed nearly 140 percent, significantly outpacing the benchmark Nifty, which rallied 30 percent in the same period.
In a leadership update, DK Sunil recently took over as the chief of HAL, succeeding CB Ananthakrishnan, who retired on August 31. Known for his expertise in aerospace design, Sunil will prioritize accelerating the LCA Mk-1A program, a critical project for the armed forces. The IAF has raised concerns over HAL’s ability to meet delivery timelines for the 83 LCA Mk-1As on order, emphasizing the potential risks to combat effectiveness if delays persist. HAL is under pressure to ensure timely execution of the Rs 48,000-crore contract.
In the previous session, HAL shares closed slightly higher at Rs 4,685.75 on the National Stock Exchange (NSE).
