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A Detail Equity Research Report Hindustan Aeronautics Limited With The Tagline Defining Indian Aerospace

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A Detail Equity Research Report - Hindustan Aeronautics Limited with the tagline Defining Indian Aerospace

A Detail Equity Research Report - Hindustan Aeronautics Limited with t... A Detail Equity Research Report - Hindustan Aeronautics Limited with the tagline Defining Indian Aerospace Read more

KFO Follow 27 Jun, 2022

HAL

Current Price: ₹4679.8

Date: Oct 25, 2023, (Price: ₹ 1809.75) Call: Target Price:

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Summary

A Detail Equity Research Report - Hindustan Aeronautics Limited with the tagline Defining Indian Aerospace

HINDUSTAN AERONAUTICS LIMITED

Recommendation: Buy

CMP: Rs. 1912/- TARGET: Rs. 3123/-

SENSEX: 65397/- NIFTY: 19542/-

KEY STOCK STATISTICS:

Market Capitalization (crs): 1,27,53/-

Book Value: Rs.364 /-

Face Value: Rs.5 /-

52 week High/Low: 3123/1150

P/E Ratio: 21.20

P/BV: 5.20

Dividend Yield: 0.72/-

Source: www.sharescart.com

Company Background:

âž¢ Hindustan Aeronautics is engaged in thebusiness of Manufacture of Aircraft andHelicopters and Repair, Maintenance ofAircraft and Helicopters.

âž¢ HAL plays a strategic role in India’s defenseprogram being the only Indian companyhaving specialization in aircraft manufacturing and providing itsMaintenance and related services.

âž¢ HAL has signed an MoU with Safran to setup a joint venture intended fordevelopment, production, sales and support of helicopter enginesMoU with the IAI, Israel AerospaceIndustries on 4 March 2022 to convert the civil passenger aircraft to multi-mission tanker aircraft.

SHAREHOLDING PATTERN(%):

Source: Company, KFO Research

Returns(%):

	3 Months	6 Months	12 Months
SENSEX	-1.04	-10.42	2.8
HAL	20.6	43.47	105.27

Source: Company, KFO Research

INDUSTRY OUTLOOK:

After COVID-19, the Aerospace & Defence (A&D)industry is recovering in both Civil and Defence Sectors. The Defence Sector is expected to continueto grow in 2023-24, as due to global geopolitical conflicts many countries have significantly increased

Defence budgets to strengthen their military capabilities. In Civil Sector, the global passenger traffic has improved significantly in 2022 which is expected to reach 2019 levels by end of 2023 or early 2024. This has become a driving factor for large size manufacturing orders and aftersales activities in theindustry.

Indian Defence Sector which was so far contributingas strategic sector is gradually developing as an economic sector which is capable to contribute to the economic growth of the country. Under the Atmanirbhar Bharat initiative, Government is facilitating the development of the Indian industry to reduce the defence import as well as dependence on the foreign OEMs. Various initiatives of the GoI in recent days have given thrust on the indigenization and indigenous procurement of defence equipment.

Over next 5 -10 years such reforms will equally help Defence PSUs and private industry to put a firm step towards achieving a self-sustaining Defence industryin the country. As continuous efforts towards achieving self-reliance “Atmanirbharta” in the Aerospace & Defence industry in India, HAL will remain involved in supporting Startup Companies, SMEs/ MSMEs, Tier – II and III vendors. HAL will alsokeep handholding the vendors and suppliers in R&D, capability development and extended employmentgeneration.

Source: Company, KFO Research

OUTLOOK:

In the year 2023-24, revenues of Aerospace & Defence companies are expected to remain largely stable orgrow, as military programs continue to be critical tonationalsecurity for many countries, especiallyconsidering rises in geopolitical tensions globally. Global defense spending is expected to grow as major world powers are likely to continue to strengthen their militaries in response to geopolitical tensions. India has plans to develop civil aviation in the countr through regional connectivity for its tier-2 cities.

Government has launched UDAN Scheme for thepurpose. HAL is contributing to the UDAN initiative through its Hindustan-228 aircraft which is the first made in India civil aircraft used for commercial flight.

Source: Company, KFO Research

Growth Drivers:

âœ“ Multiple policy reforms in the country to promoteDefence manufacturing.

âœ“ Focus of Government to reduce Defence import bill.

âœ“ Gradually developing civil MRO opportunities in India.

âœ“ Development of new potential market in India such asfor regional jets, UAVs etc.

âœ“ Atmanirbhar Bharat Abhiyan of Govt. of India.

âœ“ Growth potentials through alliance and partnership forglobal markets.

âœ“ Launching Design and Development programs withinitial company funding for Indian Defence Services.

Diversify into civil market for both manufacturing andMRO opportunities.

âœ“ Enhance Indigenisation to ensure higher indigenouscontent in our products.

âœ“ Expand our operations globally through collaborations with global partners.

âœ“ Opening Export Offices in the target geographies to explore global market and export opportunities.

BUSINESS ANALYSIS AND HIGHLIGHTS:

PROS:

• Company is almost debt free.

• Company has delivered good profitgrowth of 23.9% CAGR over last 5 years

• Company has a good return on equity (ROE) track record: 3 Years ROE 26.7%

• Company has been maintaining ahealthy dividend payout of 29.6%

• Company's working capitalrequirements have reduced from 98.4.

CONS:

• The company has delivered a poor sales growth of 7.77% over past five years.

• Tax rate seems low

• Promoter holding has decreased over last 3 years: -18.3%.

VALUATIONS:

âœ“ On the basis of EPS Multiple Method, we arerecommending ‘Buy’ for the stock. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with 12-month price target of Rs 3123/- share an upside of 63.34 % from current levels.

PEER COMPARISON :

#	Company	CMP	M Cap	52W High	52W Low	PE	PB	ROCE Last Yr	ROE Last Yr	PAT TTM	Div Yield
1	Hindustan Aeronautics Ltd.	1911.8	127853	3123.1	1150.5	21.2	5.4	30.6	27.2	6028	2
2	Bharat Dynamics Ltd.	1002.6	18376	1278	786.8	51.9	5.8	15.7	11.4	354	0.9
3	Data Patterns (India) Ltd.	2035.5	11357	2484	995	79.3	9.8	19.7	14.2	135	0.3
4	Astra Microwave Products Ltd.	481	4579	513	213.3	74.9	6.5	17.1	11.4	57	0.7
5	Paras Defence And Space Technologies Ltd.	739.4	2883	848	445.6	82.4	7.8	14.5	10.2	35	0
6	Rossell India Ltd.	489.4	1837	549.8	221	75.1	6.4	10.1	10.4	24	0.2
7	Krishna Defence and Allied Industries Ltd.	303.5	347	325	90.8	0	12.3	12.4	12.6	0	0

BALANCE SHEET (RS. IN CRS):

#(Fig in Cr.)	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Shareholder's Funds	16804	11032	12559	9511	12082	13249	15424	19313	23572
Minority's Interest	0	0	0	0	4	4	4	4	4
Borrowings	107	0	0	100	100	0	0	0	0
Other Non-Current Liabilities	11899	12849	13401	11981	10075	8427	10871	13487	11675
Total Current Liabilities	35528	32650	25585	26097	28193	31127	25413	25023	30827
Total Liabilities	64339	56532	51545	47689	50454	52807	51712	57826	66078
Fixed Assets	7366	6549	7350	7566	7459	7357	7166	6766	6834
Other Non-Current Assets	2014	4257	4020	3108	3347	4056	4168	6068	7359
Total Current Assets	54959	45726	40176	37015	39648	41394	40378	44985	51877
Total Assets	64339	56532	51545	47689	50454	52807	51712	57826	66078

CASH FLOW STATEMENT (RS. IN CRS):

#(Fig in Cr.)	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Opening Cash & Cash Equivalents	11238	1729	334	2804	107	27	279	7146	3070
Cash Flow from Operating Activities	-8882	3148	-405	-748	-7700	1527	15117	10173	8830
Cash Flow from Investing Activities	710	1347	3012	597	5294	-1339	-1180	-12785	-5728
Cash Flow from Financing Activities	-1274	-5880	-164	-2540	2326	64	-7070	-1464	-1731
Net Cash Inflow / Outflow	-9446	-1385	2443	-2691	-80	252	6867	-4076	1370
Closing Cash & Cash Equivalent	1792	344	2777	113	27	279	7146	3070	4441

PROFIT AND LOSS ACCOUNT (RS. IN CRS):

#(Fig in Cr.)	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
Net Sales	15939	16759	17950	18520	20008	21445	22882	24620	26927
Other Income	1649	1944	1042	762	376	297	357	985	1670
Total Income	17588	18703	18991	19282	20384	21742	23240	25605	28598
Total Expenditure	13555	14621	14687	15071	15457	16531	17538	19204	20242
Operating Profit	4033	4082	4304	4211	4927	5211	5701	6401	8356
Interest	21	6	16	35	178	360	267	65	64
Depreciation	822	863	713	947	1025	999	1158	1111	1785
Exceptional Income / Expenses	2	0	0	0	0	119	2	0	0
Profit Before Tax	3191	3213	3592	3243	3725	3979	4283	5225	6510
Provision for Tax	792	1209	967	1252	1396	1096	1038	145	682
Profit After Tax	2399	2004	2625	1990	2328	2883	3246	5080	5828
Adjustments	0	0	0	0	0	0	0	0	0
Profit After Adjustments	2399	2004	2625	1990	2329	2883	3246	5080	5828
Adjusted Earnings Per Share	24.9	27.7	36.3	29.8	34.8	43.1	48.5	76	87.1