High Dividend Paying Defence Stock: HAL Recommended As Buy For TP Of Rs Rs 2,266 After Q2 Results

Hindustan Aeronautics (HAL) is among the top dividend-paying defence stocks. This dividend stock has announced its Q2 results where the performance was mixed, however, margins beat estimates. After the Q2 report, brokerage Prabhudas Lilladher recommended buying HAL shares for a target price of Rs 2,266. This would imply over 10% potential upside in HAL shares ahead.

During Q2FY24, HAL reported a marginal upside of 1.3% in consolidated net profit to Rs 1,236.70 crore, as against Rs 1,221.23 crore in Q2FY23. However, compared to PAT of Rs 812.88 crore in Q1FY24, the growth was massive by 51.9% in the quarter under review.

Consolidated revenue also climbed to Rs 5,635.70 crore in Q2FY24, as against Rs 5,144.79 crore in Q2FY23 and Rs 3,915.35 crore in Q1FY24.

Post Q2 results, Amit Anwani - Research Analyst, Prabhudas Lilladher said, "Consolidated revenue rose 9.5% YoY to Rs56.4bn (consensus estimate of Rs57.5bn), while gross margin declined by 565bps YoY to 58.3%," adding, "EBITDA fell 5.8% YoY to Rs15.3bn (consensus estimate of Rs14.9bn), with EBITDA margin contracting by 441bps YoY to 27.1% (consensus estimate of 25.9%), driven by the gross margin contraction and a 40.4% YoY fall in expenses relating to capital & other accounts to Rs2.9bn (down 437bps YoY as a % of sales), which is subtracted from operating expenses. This was partially offset by lower direct Input to WIP/expenses capitalised, which came in at Rs695mn vs Rs3.5bn in Q2FY23 (down 562bps YoY as a % of sales)."

On the bottom line, Anwani added, "PAT rose slightly by 1.3% YoY to Rs12.4bn (consensus estimate of Rs13.1bn), aided by higher other income (up 81.3% YoY to Rs4.7bn), despite a 38.8% YoY increase in depreciation & amortization expenses to Rs3.5bn."

On the valuation, the analyst said, "At the CMP, the stock is trading at 26.0x/22.6x/20.0x FY24/FY25/FY26E. We have a Buy rating on the stock with a TP of Rs2,266."

In the trading week that ended on November 10th, HAL shares have rallied by at least 7.1% on BSE. On Friday, the stock price ended at Rs 2,058.30 apiece, up by 1.4% on the exchange with a market cap of Rs 1,37,653.96 crore.

In another development, HAL has also a joint venture company with Safran Helicopter Engines SAS by the name 'Safhal Helicopter Engines Private Limited' which has been incorporated to carry out the business of design, development, certification, production, sale & support of
helicopter engines with one of the first opportunities identified as an engine for Indian Multi-Role Helicopter (IMRH) & Deck Based Multi-Role Helicopter (DBMRH) projects.

Also, last week, HAL and Airbus inked a contract for
establishing MRO facilities for the A-320 family of aircraft. This collaboration with the largest European aircraft manufacturing company will strengthen the Make-in-India mission by achieving self-reliance in Aircraft Maintenance. Repair and Overhaul (MRO) industry in India. HAL intends to establish an integrated MRD service in India and seeks to provide commercial airlines with a one-stop MRO solution.

Under the deal, Airbus will supply the A320 family tool package and offer specialised consulting services to HAL to establish an MRD facility for the A-320 family of aircraft. The partnership between HAL and Airbus will support the growing demand for MRD services in the country and expand the commercial fleet. especially the A320 family of aircraft.

Founded in 1940, HAL is one of the largest and oldest aerospace and defence manufacturers in the world.

Earlier this year, HAL turned ex-dividend for a final dividend payout of Rs 15 per share for the financial year 2022-23, amounting to Rs 501.58 crore. For the said fiscal, HAL has paid a first and second interim dividend of Rs 20 per share each, aggregating to Rs 1,337.55 crore. Overall, in FY23, HAL's dividend payout will be to the tune of Rs 1,839.13 crore to shareholders.

Apart from this, HAL shares have also turned ex-split in September this year for the shares sub-division in the ratio of 1:2. This meant that the existing 1 (one) Equity Share of the face value of Rs 10/- each fully paid up has been sub-dividend into 2 (Two) Equity Shares of Rs 5/- each fully paid-up.