Buy This Navratna PSU Stock As Healthy Execution Drives Robust Performance

ICICI Direct in its recent report dated August 15, 2022 has given a 'Buy' call on the stock of Hindustan Aeronautics (HAL) for a period of 1 year. The company is the largest defence PSU in India that is engaged in design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures.

Here below are the insights into the company and the target price set by the brokerage for HAL scrip:

Buy Hindustan Aeronautics for a target price of Rs. 2680 in 1 year

The brokerage in a 1-year period, sees the stock of HAL to hit a target price of Rs. 2860. This given the current market price of Rs. 2270, implies an upside potential of 26%.

Q1Fy23 performance: HAL reported excellent Q1FY23 results.

Revenue for the quarter increased 124.2% YoY to Rs. 3,622.5 crore

EBITDA margin increased 781 bps to 22.8% led by operating leverage benefits on higher revenue growth

EBITDA increased sharply by 240.8% YoY to Rs. 826.3 crore

PAT increased 218.5% YoY to Rs. 620.1 crore.

Between Fy18-22, the company delivered revenue, EBITDA and PAT CAGR of 7.4%, 12% and 26.5% respectively. In FY22, repair & overhaul contributed
around 64% to total revenues while manufacturing contributed around 30%.

Financial outlook for HAL as estimated by ICICI Direct

We expect HAL to deliver revenue and EBITDA CAGR
of 7.7% and 14.1%, respectively, in FY22-24E. PAT is likely to grow at around 10% CAGR (FY21-24E). Increase in profitability with strong asset turnover will result in healthy return ratios over FY23-24E.
We continue to remain positive and retain our BUY rating on the stock", notes the brokerage.

Target Price and Valuation

"We value HAL at | 2,860 i.e. 20x PE on FY24E EPS", adds the brokerage.

Key factors that will drive HAL's future price performance:

Healthy order-book position (Rs. 82200 crore; around 3.3x FY22 revenues) led by large scale orders in manufacturing of aircraft/helicopters (LCA, LCH, ALH).

Continuous order inflows in maintenance, repair & overhaul (MRO) with strong order pipeline of around Rs. 1.25 lakh crore in manufacturing for the next
three to four years (led by LUH, LCH and engines for Su-30 & MiG-29)

LCA Tejas MK1A, largest order in manufacturing, deliveries to IAF expected from FY25E. Moreover, execution of other key orders and sustained growth
in MRO will drive revenue growth in double digits from FY25.

Disclaimer

The above stock recommendation is taken from the ICICI Direct brokerage report. Readers should not construe the report as an investment advice into the scrip and should instead carry out their own due diligence before betting on any market linked security.