ICICI Sec sees an upside of 14% in 3 months of holding for this Navratna company

They have said in a note that “Defence PSU stocks have been one of the key outperformers of CY22 and are seen constantly outperforming the broader markets. Many stocks from the defence space have earlier generated a breakout above their multi-year consolidation phase and are seen extending their up move, indicating a strength and a structural turnaround. Within the defence space, we remain constructive on Hindustan Aeronautics as it has generated a breakout above last two month’s range ( ₹2638-2241) with strong volume of more than three times its 50 day’s average volume (10 lakh shares per day) signalling continuance of the uptrend and offering a fresh entry opportunity.”

Owing to the buying opportunity for Hindustan Aeronautics (HAL), the research analysts of ICICI Securities said “Key observations is that 50 days EMA has acted as strong support in the entire up move of CY22 and provided an incremental buying opportunity. In the current scenario also, buying demand has emerged after a base above the 50 days EMA (currently placed at ₹2416 levels). We expect the stock to extend the up move and head towards ₹2990 in coming months as it is measuring implication of the last two month’s range breakout ( ₹2638-2241).”

Owing to the growth expansion of HAL, they further added that “HAL has a healthy order-book position as of September 2022 ( ₹83800 crore; ~3.2x TTM revenues) led by large scale orders in manufacturing segment (light combat aircraft Tejas MK1, light combat helicopters, advanced light helicopters) and engines. Manufacturing contracts contributing ~70% of total order backlog while ~27% contributed by repair & overhaul (RoH ) activities. Development contracts contribution is ~2% of total order book. Key orders in the pipeline for the next one to one and a half years include 25 advanced light helicopters (ALH) for Army, nine ALH for Indian Coast Guard, six Dornier aircraft, 12 light utility helicopters (LUH) and 12 Su-30, 240 AL-31 engines (for Sukhoi-30 MKI aircraft) and 80 RD-33 engines (for Mig-29 aircraft).”

“In the longer term (three to five years), key orders in the pipeline are 140 light combat helicopters (LCH), 170 LUH, 60 marine ALH, 36 HTT-40, medium weight fighter (MWF) Tejas MK2. HAL is undergoing development programmes like LCA Tejas MK1A, Tejas MK2, TEDBF (twin engine deck based fighter), advanced medium combat aircraft (AMCA), Indian multi role helicopter (IMRH), combat air teaming system (CATS). The development of these platforms will ensure orders inflow in the longer term for HAL. Moreover, addition of new aircraft & helicopters and unmanned aerial vehicles (UAVs) in armed forces provide visibility on continuous order inflows in maintenance, repair & overhaul (MRO). For LCA Tejas MK1A, the largest order in manufacturing, deliveries to IAF are expected from FY24E end. Moreover, execution of other key orders and sustained growth in MRO will drive revenue growth in double digits from FY25E. We expect HAL to deliver revenue and EBITDA CAGR of 10.3% and 14.7%, respectively, over FY22-25E. PAT is likely to grow at 14.2% CAGR (FY21-25E). Increase in profitability with strong asset turnover is expected to result in healthy return ratios over FY23-25E,” they further added.

The Company’s Board of Directors has announced a first interim dividend of Rs. 20 per share of Rs. 10 (200%) for the Fiscal Year 2022–2023. Monday, November 21, 2022, shall serve as the record date for the payment of the first interim dividend. On a consolidated basis, the company declared net sales of ₹5144.89 crore in Q2FY23 compared to ₹5552.14 crore Cr in Q2FY22, representing a YoY fall of 7.33%. In Q2FY23, the company declared a net profit of ₹1221.22 Cr compared to ₹846.74 crore Cr in Q2FY22, representing a YoY growth of 44.22%. The EPS climbed to ₹36.52 per share in Q2FY23, compared to ₹25.32 posted in Q2FY22.

On a standalone basis, the company declared net sales of ₹5144.89 crore in Q2FY23 compared to ₹5552.15 crore Cr posted in Q2FY22, representing a YoY fall of 7.33%. The company posted a net profit of ₹1209.22 crore Cr in Q2FY23 compared to ₹848.22 crore Cr in Q2FY22, representing a YoY growth of 42.55%. The EPS climbed to ₹36.16 per share in Q2FY23 compared to ₹25.37 recorded in Q2FY22.

The shares of Hindustan Aeronautics Ltd closed on Friday at ₹2,617.95 apiece level, down by 2.40% from the previous close of ₹2,682.35. On a YTD basis, the stock has delivered a multibagger return of 112.20% so far in 2022.