High Dividends, 430% 5-Year Returns, Strong Order Book: Is HAL Share Price Top Defence Stock To Buy?

Hindustan Aeronautics (HAL) does not need an introduction. This company in recent times grabbed much attention because of its impressive performance on exchanges, and strong pipeline in the defence sector. Not just that, HAL is also among the top dividend-paying defence stocks, and it recently turned ex-split giving more opportunity for investors to buy. HAL was also among the top picks in Samvat 2080 by almost every brokerage such as Sharekhan, JM Financial, and Prabhudas Lilladher many others. The latest to recommend buying HAL shares would be Elara Capital.

Elara has raised its EPS estimates for HAL and has recommended buying for a target price of Rs 2,500 apiece. That would be a nearly 18% upside in HAL shares from the current price level. Last week, on November 17th, HAL shares ended at Rs 2125.15 apiece, marginally up on BSE with an m-cap of Rs 1,42,124.72 crore.

In the latest development, DRDO chief Dr Samir V Kamat told ANI that "The engines of LCA Mark 2 and the first two squadrons of the indigenous Advanced Medium Combat Aircraft would be produced within the country together by American GE and Hindustan Aeronautics Limited as all the clearances have been received from the US."

This is just one of the many strong deals that HAL has been adding to its balance sheet.

As per Elara Capital's research note, Management's inflow target stood at Rs 480bn in FY24, up 85% over FY23. On the manufacturing front, HNAL could receive orders worth Rs 120bn for an additional 12 Su-30 aircraft, 240 AL-31 FP engines for the Su-30 aircraft worth INR 260bn, followed by an order for 80 RD-33 engines worth Rs 45bn. ROH inflows are likely to be at Rs 180bn.

In its Diwali pick research note earlier, JM Financial had highlighted that the key growth drivers would be --- only sole primary supplier of India's military aircraft; Big beneficiary of Government focus on developing indigenous defence aircraft; Strong technological capabilities due to the development of more advanced platforms such as Tejas and Advanced Medium Combat Aircraft; and Strong Order Book provides good earnings visibility (At present it has Rs.818 bln with a strong pipeline over Rs.2 trillion).

Furthermore, Elara's note added, "We raise our EPS by ~4% for FY24E& 5% each for FY25E and FY26E based
on higher Other income. We reiterate Buy with a higher TP of INR 2,500 from INR 2,310 based on 25x (unchanged) September 2025E P/E. Our revised TP is driven by expectations from a new stream of exports business, surge in inflows, stable margin, and sustained double-digit earnings growth."

Also, Elara added, "We believe the rising share of indigenization along with unexplored export opportunities in the aircraft and helicopter industry warrant a rerating. We expect an earnings CAGR of 11% over FY23-26E
with a ROE of 21% over FY23-25E. Key risks to our call include lower spending in defence capital budget, less allocation toward domestic procurement, increased competition from the private sector and a significant rise in commodity prices."

Recently, HAL shares 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 stood at 550% valuing to Rs 55 per share. In the entire fiscal, the payment was Rs 1,839.13 crore to shareholders.

Meanwhile, HAL shares have also split into the ratio of 1:2. That means that HAL's existing 1 (one) Equity Share of the face value of Rs 10/- each fully paid up was sub-divided into 2 (Two) Equity Shares of Rs 5/- each fully paid-up.

Adjusting to the stock split, HAL shares are still a multi-bagger and have given remarkable returns even compared to many other guaranteed and traditional investment schemes like FDs. HAL's share price has rallied by Rs 1,729.67 or 437.36% on BSE in 5 years.

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.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.