Markets
Hindustan Aeronautics stock takes wing on strong order inflow, GE engine delivery
Summary
- The company received its first F404 engine from GE last week after a delay of a year-and-a-half.
- A ₹63,000-crore order for 156 Prachand light combat helicopters in late March marked the defence ministry's biggest procurement from HAL so far.
Hindustan Aeronautics Ltd (HAL) stock has been in focus over the past few days even though the company clocked muted FY25 revenue of ₹30,400 crore, flat year-on-year, according to its provisional results.
The stock got a boost when the company received its first F404 engine from GE after a delay of a year-and-a-half and won an order worth ₹63,000 crore for 156 Prachand light combat helicopters (LCH) towards the end of March. The order took its FY25 inflow to ₹1.2 trillion, more than double the company's initial guidance of ₹47,000 crore and the FY24 figure of ₹50,000 crore.
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The F404 engine is to be used for Tejas Mk-1A aircraft. HAL received a ₹48,000-crore order for 83 of these in FY21 but it was held up because of the engine delay. GE aims to deliver 11 more engines in 2025 and 20 engines in 2026, said a UBS Global Research report. HAL has the infrastructure to supply 16 Tejas Mk-1A a year, which implies incremental revenue potential of ₹9,200 crore.
The order for 156 Prachand helicopters on 28 March marked the defence ministry's biggest procurement from the company so far. The LCH is expected to have a 65% indigenous content and will help strengthen the domestic ecosystem for defence manufacturing.
The order won't immediately increase HAL's revenue since deliveries will start in the third year and the project will take another five years to execute.
Order book soars
Other large orders received during the year include the supply of 12 additional Su-30 MKI aircraft, upgrade of 40 Do-228 aircraft, and the supply of 240 Su-30 MKI aircraft engines.
The company’s order book now stands at ₹1.8 trillion, up 92% year-on-year and about six times FY25 sales. Management expects it to hit ₹2.5 trillion in FY26, thanks to significant investments planned for the Indian Air Force’s fleet modernisation and augmentation.
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In a 26 March report, JP Morgan India said it expected HAL to receive orders worth ₹60,000 crore a year over FY25-FY27. “We believe that there is strong revenue and growth visibility ahead with an approximate book to bill of ~3x," said the report.
In anticipation of the planned government orders, the company has been investing in building separate facilities for each high-value order, which will help with faster conversion from book to bill. The company is also setting up a third line for Tejas manufacturing, which will increase its production capacity from 16 to 24 a year.
Key risks
On the flip side, HAL faces the risk of stiffer pricing and reduced margins from the government orders, which are given to it on nomination basis. Geopolitical changes that force the government to import aircraft instead of relying solely on HAL could also affect its order inflows. The company’s margin profile may also be affected with the declining share of the high-margin repair and overhaul (ROH) business, after the delivery of the high-value orders begins.
The ROH business accounted for 68-70% of revenue over the past few years but is expected to decline to 60% in the next two to three years. In FY25, ROH order inflow increased 9% year-on-year to ₹17,500 crore, forming about 15% of the total inflow.
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HAL stock trades at 33 times its estimated FY26 earnings, as per Bloomberg consensus. Timely delivery of GE engines holds the key for the stock's future trajectory.
