1:2 Split, 440% Dividend: Defence PSU Stock HAL Is Rising Star; Elara Capital Gives BUY Rating For Rs 5,590/

Defence PSU company, Hindustan Aeronautics Ltd (HAL) is gaining traction on execution and pipeline. HAL reported beat revenue, while as per Elara Capital, the repair & overhaul (ROH) revenue may have grown faster than manufacturing in Q4. The brokerage is optimistic about HAL shares on expectations of a new stream of the exports business for HAL, surge in inflows, rising margin and sustained earnings growth. The brokerage has set a target price of Rs 5,590, hinting at over 20% upside ahead.

In its research note, Elara said that HAL's management expects revenue to grow 13% in FY25, led by 15-18% growth in manufacturing revenue (aided by LCA Tejas Mk-1A deliveries -- 16 targeted) while ROH could grow by 8-9% consistently. Furthermore, it aims to raise EBITDA margin to 26-27% in FY25 (vs our estimates at 25.5% in FY25).

Further, HAL's inflow guidance stands at INR 670bn in FY25, of which platform inflows could be INR 470bn and ROH INR 200bn. This the brokerage believes is a conservative guidance as HNAL could receive orders for 97 LCA Tejas Mk1A worth INR 630bn in FY25E (MoD issued tender in April 2024).

Moreover, it also eyes inflows worth INR 1.6tn over FY25-27, including 156 light combat helicopter (LCH), ALH 43, Dornier aircraft and its upgrade, and AL-31 FP engines for the Su-30 aircraft.

Accordingly, on the valuation, Elara's note said, "We raise our EPS by 9% for FY25E, and 6% for FY26E on steady ROH margin and commencement of LCA Tejas Mk1A deliveries. We revise to Buy from Accumulate, with a higher TP of INR 5,590 from INR 4,100 based on 45x (from 35x) March 2025E P/E as we roll forward. Our revised TP is driven by expectations from a new stream of the exports business, the surge in inflows of INR 1.6tn, rising margin, and sustained double-digit earnings growth."

Furthermore, Elara's note said, "We believe the rising share of indigenization along with unexplored export opportunities in the aircraft & helicopter industry warrant a rerating. We expect an earnings CAGR of 17% during FY24-26E with a ROE of 24% during FY25-26E. Key risks to our call include lower spending in the defence
capital budget, less domestic procurement allocation, increased competition from the private sector, and delay in execution."

HAL Share Price:

In the special live trading session on Saturday, HAL's stock accelerated to hit a new 52-week high of Rs 4,752.00 apiece on BSE. The stock ended at Rs 4729.30 apiece, up by 4.4% with a market cap of Rs 3,16,283.76 crore.

HAL Earnings:

On the consolidated basis, HAL reported revenue from operations of Rs 14,768.75 crore in Q4FY24, rising from Rs 12,494.67 crore in Q4FY23, and more than doubling from Rs 6,061.28 crore in Q3FY24. Meanwhile, PAT stood at Rs 4,308.68 crore, robust growth from a profit of Rs 2,831.19 crore in Q4FY23, and Rs 1,261.51 crore in Q3FY24.

HAL Corporate Actions:

Dividend: Earlier, in February this year, HAL turned ex-dividend for its first interim dividend of Rs 22 per share having a face value of Rs 5 each for FY24. Its dividend payout was 440% in percentage terms. This was also its first dividend payout since HAL shares turned ex-split in the ratio of 1:2.

Stock Split: HAL shares turned ex-split on September 28, 2023, for the ratio of 1:2. That meant HAL's share price face value was reduced to Rs 5 per share compared to earlier Rs 10 per share.

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