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HAL – Steady quarter; Near term execution challenge but long-term outlook remains strong
- HAL’s operational performance in Q1FY25 was largely steady with ~11% YoY revenue growth and EBITDA margin of ~23% (flattish YoY). However, PAT was up substantially by ~77% YoY led by Rs 445 crore of one-off income related to tax refund
- Going ahead, we may see some impact on this year’s revenue growth as the deliveries of Tejas LCA Mk1A aircrafts (which constitute ~35% of total order backlog) are behind schedule due to delays in supply of engines from GE. As per the media reports, HAL has a back-up plan of installing used engines in the initial deliveries till the time GE starts supplying engines by October.
- Execution in MRO segment and other manufacturing contracts are possibly better and driving the growth for HAL at present. MRO segment contributes ~22% to the total order book but contributing ~65% to revenues as the execution remains better in this segment
- Total order backlog stood strong at ~Rs 94000 crore (3x TTM revenue) as of Mar-24, provides healthy visibility. However, execution pick-up for LCA MK1A would be the key trigger for revenue growth going ahead
- We believe that HAL’s structural story remains intact considering the robust orders pipeline and gradual improvement in defence indigenous ecosystem
- As per the management, Rs 1.6-1.7 lakh crore worth of contracts are expected to be placed with HAL in the coming 1.5-3 years (including 97 additional LCA Mk1A, 12 additional Sukhoi jets, 156 light helicopters, Sukhoi jet engines for upgradation, 60 utility helicopters etc.). Additionally, there are number of large-scale platforms in development phase (like AMCA, deck-based fighters for Navy, multi role helicopters, unmanned aerial platforms like Tapas & Rustom etc) which will be given to HAL in the next 3-5 years.
- We have a Buy rating on HAL with a target price of Rs 5700
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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