1:2 Split: Rs 220-To-3,720, Defence PSU HAL Rises 1561% Post Covid, 440% Dividend Paid; 3 Brokerages Say BUY

Defence giant, Hindustan Aeronautics is a multi-bagger stock under the Navratna PSU basket. HAL has seen tremendous gains, especially after the Coronavirus pandemic, adjusting to 1 stock split and rewarding hefty dividends along the way. HAL is riding on the back of a strong order book, which makes its long-term outlook promising. Currently, three brokerages have recommended BUY on HAL.

HAL Share Price:

Ahead of the onset of the election, HAL's share price stood at Rs 3721.30 apiece, with a market cap of Rs 2,48,871.24 crore. On April 16, HAL stock also touched a new 52-week high of Rs 3,737 apiece.

In a month, HAL shares have gained by 19%, while YTD gains are around 32%. In six months, HAL stock rose by 90%, and in a year, the upside was massive by nearly 163%.

But in a post-Covid era, HAL shares have skyrocketed by a whopping 1,561% on BSE. Since 2020 to date, HAL's lowest stock price level was at Rs 224 on March 24, 2020, a day before the nationwide lockdown came into effect on March 25 of the same. The massive four-digit growth in HAL shares is in the post-pandemic timeframe.

HAL Dividend:

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 1:5.

In FY23 alone, HAL paid up to 550% dividend amounting to Rs 55 per share.

HAL 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.

HAL Earnings:

The next big key trigger for HAL shares will be its Q4 earnings for FY24 which is most likely to be announced in late April and May 2024.

Earlier, in April, HAL announced that it recorded the highest-ever revenue from operations of over Rs. 29,810 crores (provisional and unaudited) for FY24, registering a double-digit growth of around 11% as against 9% in the previous financial year. The corresponding figure for the previous year was Rs. 26,928 crores. HAL received fresh manufacturing contracts of over Rs 19,000 crores and ROH contracts of over Rs 16,000 crores during FY 2023-24.

HAL's standalone net profit came in at Rs 1,253.51 crore in Q3FY24, registering a growth of 8.62% from a net profit of Rs 1,153.99 crore in the same quarter a year ago. In Q2FY24, the company reported a net profit of Rs 1,235.30 crore. Meanwhile, standalone revenue also jumped to Rs 6,060.91 crore in Q3FY24, registering growth against revenue of Rs 5,665.86 crore in Q3FY23 and Rs 5,635.81 crore.

HAL Share Price Target:

3 brokerages have recommended either holding or buying HAL shares.

Jefferies maintained BUY on the company for a target price of Rs 3,900 per share. Its outlook is positive.

While Amit Anwani, Research Analyst at Prabhudas Lilladher cited that the defense Ministry issued a Rs650bn tender to HAL for buying 97 additional LCA Mark 1A fighter jets, per sources.

Anwani added, "The issue of the tender improves visibility on HAL's order inflow and long-term execution."

Prabhudas analyst also believes HAL is a long-term play on the growing strength & modernization of India's air defence given 1) it is the primary supplier of India's military aircraft, 2) long-term sustainable demand opportunity owing to government's push on indigenous procurement in defence, 3) leap in HAL's technological capabilities due to development of advanced platforms (Tejas, AMCA, etc.), 4) robust order book with further 5-year pipeline of Rs2trn+, and 5) improvement in profitability via scale & operating leverage.

"The stock is trading at a P/E of 39.9x/35.2x on FY25/26E earnings. We have a 'Hold' rating on the stock," Anwani added.

Meanwhile, Elara Capital cited that the Ministry of Defence (MoD) has issued a tender to HAL to procure 97 more indigenous LCA Tejas Mk1A aircraft, the largest order for homegrown military hardware in India. The tender size is estimated to be worth INR 650bn.

On the valuation, Elara's note said, "We keep our FY25E unchanged but raise our EPS by 6.5% in FY26E on higher other income due to likely inflow of large Tejas order in FY25. We reiterate Accumulate with a higher TP of INR 4,100 from INR 2,975 based on 35x (from 28x) March 2026E P/E as we roll forward. Our revised TP is driven by expectations from a new stream of the exports business, surge in inflows, stable margin, and sustained double-digit earnings growth."

Elara further 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 FY23-26E with a ROE of 24% during FY24-26E. Key risks to our call include lower spend in the defence capital budget, less domestic procurement allocation, increased competition from the private sector, and a significant increase in commodity prices."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.