HAL surges 4% on a cloudy day; Antique upgrades stock to buy after Rs 26,000 crore engine deal

HAL stock has gained nearly 66 percent so far this year. In the past 12 months, the stock has zoomed nearly 140 percent, more than doubling investors' money

Shares of Hindustan Aeronautics Ltd (HAL) rose over 3 percent on September 3 as the Cabinet Committee on Security approved the procurement of 240 aero-engines (AL-31FP) for the Su-30MKI aircraft of the Indian Air Force from the company. The deal falls under the Buy (Indian) category and is valued at over Rs 26,000 crore.

The delivery of these aero-engines will begin after one year and be completed over eight years. The engines will feature over 54 percent Indigenous content, increased through the indigenisation of key components. They will be manufactured at HAL's Koraput division.

The Su-30 MKI is one of the most powerful and strategically significant aircraft in the IAF's fleet. According to the Defence Ministry, the supply of these aero-engines by HAL would meet the fleet sustenance requirement of IAF to continue their unhindered operations and strengthen the defence preparedness of the country.

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This order is expected to significantly bolster HAL's already strong order backlog, which stood at Rs 94,000 crore at the end of FY24, bringing it to Rs 1.2 lakh crore, noted Antique Broking as it issued a 'Buy' call on the stock with a target price of Rs 6,145 per share.

With this expanded backlog, HAL now has strong revenue visibility at 3.8 times its TTM revenue. While the company has faced challenges in executing the large Tejas MK I A orders, Antique believes that HAL is attractively valued, with the potential for multi-year double-digit earnings growth.

HAL stock also boasts a robust return ratio profile of over 20 percent, making it an appealing investment despite potential near-term financial volatility.

Meanwhile, DK Sunil, who spearheaded several key aerospace programmes and is known for his design expertise, took over as the next chief of the HAL recently as the aircraft maker gears up to execute some critical projects for the armed forces. Sunil replaced CB Ananthakrishnan who retired on August 31.

One of the top priorities for him will be accelerating the LCA Mk-1A program, as concerns grow over the PSU's ability to meet delivery timelines for the 83 LCA Mk-1As on order.

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The IAF has reportedly expressed dissatisfaction with the current pace, highlighting the potential risks to combat effectiveness if new fighter planes are delayed, and has urged HAL to ensure timely execution of the Rs 48,000-crore contract.

In the previous session, HAL shares closed marginally higher at Rs 4,685.75 on the National Stock Exchange (NSE). The stock has gained nearly 66 percent so far this year. In the past 12 months, the stock has zoomed nearly 140 percent, more than doubling investors' money. In comparison, benchmark Nifty rallied 30 percent during this period.

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