This Navratra PSU Defence Stock Gave 93.54% in One Year, Sharekhan Sees Significant Growth

Sharekhan sees a significant potential growth of 18 to 20% from the stock price of Hindustan Aeronautics Limited, a public sector unit conferred with Navaratna status. Hindustan Aeronautics is an is an Indian state-owned aerospace and defence company, headquartered in Bangalore India. The brokerage feels that there is scope of a price rally despite the weak mixed quarter 3 numbers.
Here are the details.

Weak performance of Hindustan Aeronautics Limited during Q3

As per the brokerage report, Q3 performance was weak due to subdued order execution and higher other expenses and provisions. Net profit beat estimates owing to one-time interest income and income tax refund.

The company reported a decline in revenue by 3.9% Rs to 5,666 crore, below the brokerage estimates. " Revenues declined by 3.9% y-o-y to Rs 5,666 crore (vs our estimate of Rs 5,713 crore). Operating profit was down by 31% y-o-y to Rs. 990 crore (vs our estimate of Rs 1,496crore) due to increase in other expenses and provisions despite sharp decline in raw material costs. As a result, OPM plunged to 17.5% vs 24.4% in Q3FY22 (vs our estimate of 26.2%). There was a one- time interest income of Rs 176.9 crore on income tax refund which led to strong jump in other income to Rs 497crore (2.6x y-o-y). Moreover, reversal of tax provisions of Rs. 250 crore led to decline in tax rate. Hence, despite poor operating performance, net profit was higher by 23.8% y-o-y to Rs 1,155 crore (versus our estimate of Rs 1,034 crore).

Order book stands strong

In the brokerage report, order book details were given. Along with the order backlog, Hindustan Aeronautics Limited's order book is at Rs. 84,000 crore and an implied order intake in 9MFY2023 is likely to be ~Rs 16,000 crore. The company had earlier provided strong order intake guidance of Rs. 50,000 crore for the next 6-12 months.

Valuation

Analysts of Sharekhan has explained the reason for being positive. "The company has delivered robust set of numbers, particularly on the operating front. We are bullish on HAL's growth trajectory as it is one of the key beneficiaries of structural reforms in the defence sector. The company has a healthy order book with revenue visibility of more than three years and a strong likelihood of margin improvement in the long term. The company is debt-free and has strong cash and equivalents and healthy return ratios. The stock is currently trading at ~15x September FY2024E EPS, lower than its listed peers in the defence pack. We maintain a positive view of the stock and expect an upside of 18-20%."

Stock performance of Hindustan Aeronautics Limited

The share price of Hindustan Aeronautics Limited has rallied by 93.54% in one year to Rs 2639.50 per share. If you had invested in the stock of this Navratna company three years ago, you would have earned a whopping return of 254.34% till now. Even in 6 months the stock has surged by 15.22% and it is up 111.39% from 52 weeks low.

Disclaimer:

The stocks have been picked from the brokerage report of Sharekhan. Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.