In this research report, we will look at HAL Share Price Target 2022. We will look into company business, its declared results and its future growth prospect.

What HAL Ltd Products are ? We will then see what company is doing next to grow in future which will also impact on HAL Share Price Target 2022.

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Company Overview:

Hindustan Aeronautics Ltd. (HAL) was incorporated as Aeronautics India Ltd on August 16, 1963.

Subsequently, Hindustan Aircraft Ltd, a company incorporated in 1940, was merged with the company and the name of the company was changed to Hindustan Aeronautics Ltd (HAL) with effect from October 1, 1964.

HAL is the largest DPSU in terms of value of production and was given Navratna status by the Government o India (GOI) in June 2007.

Currently, HAL has 20 production and 10 R&D centers co-located with the production divisions, at nine geographic locations across the country. These divisions are organized into five complexes, viz. Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex and Design Complex.

Apart from this, a new facility at Tumkur (Karnataka) has been set up and is expected to be operational soon.

Products & Services:

HAL’s products portfolio includes fighter aircraft, trainer aircraft, transport aircraft, military helicopter and civil helicopters.

They also work on their engines, avionics and accessories (such as special test equipment and ground handling equipment and ground support equipment), which are both indigenously designed or manufactured under license.

Share Holding Pattern.

Subsidiaries & Revenue 2022:

As on 31st Mar 2022, the company has a total of 2 subsidiaries and 9 Joint Ventures.

HAL Share Price Target 2022
Revenue Breakup.

Key Rationale:

Long Track Record:

Over the years, HAL has showcased its research, design and development capabilities with the successful development of military aircraft and helicopters such as the Ajeet, Marut, HPT-32, Kiran and Advanced Light Helicopter.

The company also manufactures aircrafts under license such as the MiG-21, MiG-27, Avro, Jaguar, Dornier 228, Su-30 MKI and Hawk Mk 132 and helicopters such as the Cheetah and Chetak.

HAL also provides MRO (Maintenance, Repair and Overhaul) services for these indigenous and license manufactured aircraft and helicopters, as well as for aircraft and helicopters procured directly by the Indian defense services.

The company faces limited competition from the private sector due to the high capital intensity and long gestation periods for developing manufacturing capabilities in the sector.

While competition from the private sector is likely to intensify in the long-term, HAL’s long-standing relationship with the Indian defense forces and the DRDO, established manufacturing facilities, and experienced manpower base will continue to be strong mitigating factor.

Export Division:

Currently, HAL’s exports revenue is just 0.6% of total revenues but the company expects it to increase over the coming years .

It has a wide range of products/aircraft across categories like transport, trainers, fighters in aircraft/helicopters.

It continues to look for export opportunity for some of its products including LCA Tejas MK1A, Trainers or utility aircraft & helicopters along with MRO activities.

The management believes HAL has the competitive strength in exports considering the lower cost given economies of scale and expertise in providing MRO support.

Order Book:

HAL’s FY22 closing order book was at Rs.82,513 crs. The company received orders worth Rs.76,306 crs in the last two years (FY21 & FY22), of which over 50% i.e. Rs.40,263 crs of orders were from manufacturing segment (led by order received in FY21 for 83 Tejas LCA MK1A and 15 light combat helicopters in FY22).

Repair & overhaul segment order inflows were at Rs.27,996 crs in the last two years while Rs.2,774 crs worth of orders received from development segment during the period.

Financial Performance:

HAL revenues grew at 7.4% CAGR over FY18-22; mainly led by ~20% CAGR in maintenance, repair & overhaul (MRO segment) and PAT grew at 14% CAGR over the same period.

HAL earns much better PBT margins, which were at 20-21%. This is led by better operational efficiencies like strategically located R&D and manufacturing facilities, lower employee costs and economies of scale.

The Balance sheet is strong with a zero debt position and a cash & equivalents of around Rs.15600 crs (more than 25% of the M.Cap).

HAL Share Price Target 2022
Ratios 2022.

Industry Analysis

The Indian Defense sector, the second largest armed force is at the cusp of revolution. The Government has identified the Defense and Aerospace sector as a focus area for the ‘AatmaNirbhar Bharat’ or Self-Reliant India initiative, with a formidable push on the establishment of indigenous manufacturing infrastructure supported by a requisite research and development ecosystem.

The vision of the government is to achieve a turnover of $25 bn including export of $5 bn in Aerospace and Defense goods and services by 2025.

India is positioned as the 3rd largest military spender in the world, with its defense budget accounting for 2.15% of the country’s total GDP.

Over the next 5-7 years, the Government of India plans to spend $130 Bn for fleet modernization across all armed services. As per Union Budget 2022-23, $70.6 billion was allocated to the Ministry of Defense.

In line with the self-reliant India initiative, the share of domestic capital procurement, which was earmarked at 64% in 2021-22 has been enhanced to 68% of the Capital Acquisition Budget of the Defense Services for FY 2022-23

Growth Drivers:

In the FY23E Budget, the government earmarked Rs.1.52 lakh crore of capital outlay in defense, which has grown at 11% CAGR over FY20-23BE.

The R&D budget for DRDO was at Rs.11982 crore for FY23E, which has also grown at 11% CAGR over FY20-23BE.

The Government of India opened the defense industry for private sector participation to provide impetus to indigenous manufacturing.

Peer Analysis:

Competitors: Bharat Electronics Ltd., Bharat Dynamics Ltd., etc.

Direct comparisons between the three companies – HAL, BDL and BEL is inevitable, even though they each address completely distinct opportunities in the defense ecosystem.

But, in terms of Indian listed space these three marks a special place in defense systems and HAL is easily the strong contender in terms of fundamentals. The attractive valuation with strong numbers gives HAL an easy win among the others.

HAL Share Price Target 2022

Outlook:

Hindustan Aeronautics will benefit significantly from the government’s indigenization push in the defense sector.

Considering the country’s need for spending more on defense modernization and faster procurement of defense equipment’s through indigenization, increase in capital outlay in defense is
necessary, which is also visible through government actions.

HAL caters to a large spectrum of aerospace business, which includes design, development, manufacturing and maintenance, repair & overhaul (MRO) of different types of aircraft/helicopters and engines. Healthy order-book position at Rs.82,153 crs (~3.3x FY22 revenues), of which manufacturing segment order backlog is at Rs.61,564 crs (75% of total OB) led by large scale orders of LCA, LCH and ALH).

Strong pipeline of Rs.1.24 lakh crs worth of orders in manufacturing for the next three to four years led by LUH, LCH and engines for Su-30 & MiG-29.

LCA Tejas MK1A deliveries to IAF will start from FY25E; execution of large order backlog of manufacturing and sustained growth in MRO will drive revenue growth in double digits.

HAL Share Price Target 2022:

We believe the company’s focus on indigenous design & development of defense platforms/components would drive faster execution of projects in the years to come.

At CMP, the stock trades at 12x of FY24E EPS. We recommend a BUY rating in the stock with the target price (TP) of Rs.2085, 15x FY24E EPS.

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