Prabhudas Lilladher initiates coverage on Hindustan Aeronautics: Soaring Towards a Combat-Ready India
Prabhudas Lilladher Pvt Ltd
Mumbai: Prabhudas Lilladher has today initiated coverage on Hindustan Aeronautics (HNAL IN) with a 'BUY' rating and a target price set at INR 2,266, derived from a weighted average of prices using the Discounted Cash Flow (DCF) and Price-to-Earnings (PE) multiple methods.
In his analysis, Amit Anwani highlights that HAL (Hindustan Aeronautics Limited) stands as a strategic investment opportunity, driven by India's advancing air defense capabilities, substantiated by the following factors:
Leading Supplier for India's Military Aircraft: HAL enjoys a preeminent position as the primary supplier of military aircraft to India.
Sustainable Demand: The Indian government's commitment to procuring indigenous defense aircraft ensures a long-term, sustainable demand for HAL's products.
Technological Advancements: HAL's continuous development of advanced platforms, including Tejas and AMCA, demonstrates its commitment to technological innovation.
Robust Order Book: With an impressive order book of INR 818 billion and a five-year pipeline of approximately INR 2 trillion, HAL is well-positioned for future growth.
Enhanced Profitability: HAL's scale and operating leverage will lead to improved profitability.
Investment Arguments
Steady Demand for Indigenous Military Aircraft: India's current fighter jet squadrons of 31 fall short of the required 42 for potential two-front conflict. Aging aircraft phase-outs, including Mig-21, Mig-29, Jaguar, and Mirage, create a substantial demand for indigenous replacements. HAL's monopoly-like status and the government's focus on domestic defense aircraft make it poised for long-term success.
Accelerated Manufacturing Revenue from FY25: HAL's robust order book, with manufacturing contracts accounting for INR 605 billion, will drive revenue growth. Projects, including the Tejas Mk 1A, will begin full-scale production from FY25 onwards, enhancing margins and profitability.
Technological Advancements: HAL is committed to modernizing India's air defense and has increased its R&D expenditure to ensure state-of-the-art platforms. Partnerships, such as the MoU with GE Aerospace for GE-414 aeroengines, bolster HAL's technological capabilities.
International Expansion: HAL's efforts to promote international business, including partnerships with Argentina's military and engagements in South-East Asia, position the company for additional growth opportunities.