Hindustan Aeronautics (HAL)- India's Largest Defense Company

Stock Opportunities Not-so-Hidden Gems
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HAL stock split 1:2 and dividend record date

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Looking at the above numbers. Since 2017 Sales has increased by over 50 percent i.e around 9000Cr while the Material Cost has remained the same, just around 200Cr addition to Manufacturing cost and around 700Cr addition to Employee cost.

What should one make out of this? Doesn’t these numbers say that HAL is more of an integrator/assembler than a manufacturer?
If that’s true, it’s a good business wrt return ratios but then the only moat that remains with HAL is that it is able to procure orders from the government.

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US Congress clears the historic HAL- GE Jet Engine Deal - Technology transfer unconditional

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Defence ministry released its Fifth indigenization list of 98 items, to be procured by the armed forces under Atma Nirbhar Bharat.

Latest Order book position of all Defence stocks discussed

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HAL enters into a contract Supply of RD-33 Aero Engines for MiG-29 aircraft, for Rs approx 5,200 crores

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HAL published its FY24 Results today - a good set of numbers in line with expectations .

Revenue during the year jumped 13% to Rs 30,381 crore. The same stood at Rs 26,927 crore a year ago. It’s consolidated net profit increased 31% to Rs 7,621 crore crore as compared to Rs 5,828 crore of FY23.

Importantly, margins during the March quarter improved to 35 % as against 25.9 % a year ago.

Execution continues to remain a key parameter.

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Phenomenal Investor Call Yesterday! Putting a few important pointers as I noted during the call

  • Highest Revenues at 30238 Crores-13%
  • Strong Pipeline.
  • Manpower cost reduced to 23% from 2019 to 17% of revenue further reduction to 15% by next year. (My opinion is this means margins may be sustainable in this band)
  • Overhead cost reduction from 8% to 3.5%.
  • Reduction in inventory from 359 days in 2018 to 159 days now. Will not be reduced further.

Initiatives for growth

  • Capability and Capacity building.

  • New factory for LCA Tejas operational from October 24

  • Capex of 3000 crores per year for 5 years- total 15000 crores

  • IMRH and GE TOT deal require capex

  • 50,000 ton hydraulic press launched

  • Self relaince and indigenious technologies needed to reduce need for foreign sources, Reduce licence production

  • 4000 crores R&D for IMRH. 2000 Crores for Naval LCH

  • Tremendous oppurtunities for exports

  • 15% PAT for R&D to enhance capabilities.

  • End to End Solution provider for Aeronautical solutions

  • Order Book is 94,000 crores. 12000 crores addition even after sales of 30000 crores. Engines-ALH, Navy Dornier upgrade.

  • Order book 47000 crores should materializes this year. 1.20 Lakh crores by next year even after sales.

  • Important is various lines of ALH, LCA MK-II and LCH etc total AON of 1.6 Lakh crores is done. Orders will flow in 18-24 months. This is over and above the 47000 crores order for FY-25

  • This will keep manufacturing lines occupied till 2032.

  • FY25 -deliver of LCA MK-1a and LUH

  • FY26 -HTT40, Civil Trainer

  • FY-27: Marine Helicopter, LCA MK_II, Medium role aircrafts.

  • Safran IMRH and GE TOT new engines in next few years.

Disclosure: Own in Family Accounts since last year.

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