Shares of Navratna company HAL rallies 121% YTD, analysts see new 1-year high

The research analysts of the broking firm ICICI Securities said “We attended Hindustan Aeronautics’ (HAL) Q2FY23 earnings call. Key highlights: 1) RoH and spares proportion to stay elevated till FY24E; 2) EBITDA margin is likely to stay at 26-27% owing to higher RoH revenue and cost efficiencies; 3) orderbook accretion by Rs500bn is possible through new orders of both aircraft and helicopters; 4) RoH and development projects are likely to contribute another Rs150bn and Rs16-17bn, respectively; and 5) cash balance to stay elevated at Rs140-150bn through to FY23-end. Going ahead, we believe HAL is on a solid footing with robust RoH and spares revenue (likely to grow at 12-15% YoY) to boost margins in near term and execution of manufacturing orderbook to keep earnings momentum intact in medium term.”

They further added that “We see HAL in a sweet spot, riding on its solid orderbook (highest among defence companies under our coverage). In our view, strong order pipeline along with development projects in progress are likely to maintain earnings momentum in medium to long run. We maintain BUY rating on the stock with target price of Rs3,170/share based on DCF methodology. Delay in execution is a key risk to our thesis.”

The research analysts of the broking firm ICICI Direct Research said in a note that “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. We continue to remain positive and retain our BUY rating on the stock. We value HAL at ₹3300 i.e. 20x PE on FY25E EPS.”

They further added in their research report that 1. Healthy order-book position ( ₹83800 crore; ~3.2x TTM revenues) led by large scale orders in manufacturing aircraft/helicopters (LCA, LCH, ALH), 2. Continuous order inflows in MRO (maintenance, repair & overhaul) with strong order pipeline of in manufacturing for next three to four years (led by LUH, LCH, ALH, Dornier, HTT-40 and engines for Su-30 & MiG-29) and 3. LCA Tejas MK1A, largest order in manufacturing, deliveries to IAF expected from FY24E end. Moreover, execution of other key orders and sustained growth in MRO will drive revenue growth in double digits from FY25E, are the key triggers for future price performance of the stock.

The shares of HAL closed on Friday at ₹2,729.80 apiece after making a fresh 52-week-high of ₹2,774.95, up by 0.070% from the previous close of ₹2,727.90. On a YTD basis, the stock has delivered a multibagger return of 121.27%. The stock will reach a new 1-year high if the target price set by the brokerage companies is reached.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.