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    Hind.Aeronautics

    HALGood
    Capital Goods·29 Aug 2022
    Management Summary

    HAL posted robust Q1 FY23 results reflecting operational normalcy post-COVID. The company highlighted a strong order pipeline of Rs 45,000 crores in platform orders expected to materialize in FY23, which could take the order book beyond Rs 1 lakh crores. Management was bullish on indigenization with 30 out of 34 platforms delivered being indigenously designed. Export initiatives gained traction with enquiries from Malaysia, Philippines, Argentina, Egypt and other countries.

    Highlights

    8
    • Order book strengthened to ~Rs 84,800 crores with fresh orders of Rs 6,000+ crores

    • Surplus cash balance of ~Rs 14,000 crores from customer advance payments

    • First series production LUH Mark 1 took to skies in July 2022; Tumakuru helicopter factory near complete

    • LCA Mark 1A first flight commenced; deliveries scheduled from February 2024

    • MoU signed with Safran for 50-50 JV for helicopter engine development with IPR in India

    • Order pipeline of ~Rs 45,000 crores for platforms expected to materialize in FY23 (70 HTT-40, 25 ALH, 12 LUH, 12 Su-30, 240 AL-31FP engines)

    • Export target of Rs 2,500 crores annually by 2025 (10% of revenue)

    • Market capitalization reached ~Rs 74,000 crores

    What Changed1

    vs Q2 FY23

    Guidance items10 → 6 (-4)

    Key financials

    Single quarter

    05 metrics
    1. 01Order Book₹84,800 Cr
    2. 02Cash Balance₹14,000 Cr
    3. 03Market Capitalization₹74,000 Cr
    4. 04ROH Revenue Target FY23₹13,000 Cr
    5. 05R&D as % of Revenue7%

    Guidance & targets

    6
    CategoryTargetPriority
    Order Book
    Order Book Target
    Beyond Rs 1 lakh crores
    High
    Exports
    Export Revenue Target
    Rs 2,500 crores annually
    Medium
    Margins
    EBITDA Margin
    24-25%
    High
    Provisions
    Provisions as % of Revenue
    6-7%
    High
    Order Pipeline
    3-5 Year Order Pipeline
    Rs 60,000 crores
    Medium
    Deliveries
    Dornier Civil Price
    Rs 60 crores per unit
    High

    Risks & concerns

    6
    RiskSeverity

    Russian supply chain disruption due to Ukraine conflict

    Management claims supplies continuing and sufficient inventory available, but payments through Sberbank had initial hiccupsBoth downplayed

    medium

    LCA Mark II program uncertainty amid reports of IAF preferring foreign jets

    Management insists project is on track with IAF participating in critical design reviewAnalyst downplayed

    medium

    Provisions running high at 10% vs normal 6-7%

    Rs 160 crore Sukhoi accident, Rs 270 crore loaned items, Rs 190 crore warranty increase - expected to normalizeAnalyst acknowledged

    low

    Export orders yet to materialize despite aggressive targets

    Rs 2,500 crore export target by 2025 but no breakthrough order yetManagement acknowledged

    medium

    Indigenous engine development 6-7 years away

    25 kN engine still in integration phase, GE-404 manufacturing not established at HALManagement acknowledged

    low

    Areas of Evasion(1)

    • Specific margin impact of manufacturing vs ROH mix

    Q&A highlights

    5

    “IAF has participated in the critical design review...the project is still on”

    Clarifies that LCA Mark II program continues despite media reports of IAF preferring foreign aircraft

    asked by Aditya (Securities Investment Management)

    1 min read5 chapters

    Detailed Narrative

    01

    Order Pipeline and Book Trajectory

    HAL's order pipeline of Rs 45,000 crores includes 70 HTT-40, 25 ALH (Army), 6 Dornier, 12 LUH, 12 additional Sukhoi-30, and 240 AL-31FP engines. If materialized, this would push the order book beyond Rs 1 lakh crores. Further pipeline of Rs 60,000 crores over 3-5 years includes 145 LCH, 175 LUH, 60 UHM, and balance HTT-40.

    02

    Indigenization and Atmanirbhar Push

    30 out of 34 new platforms delivered were indigenously designed. Third Positive Indigenization List approved with 780 items, of which 360 are from HAL platforms. R&D reserve increased from 10% to 15% of operating PAT. R&D investment at 6-7% of revenue with Rs 5,000 crores of projects sanctioned.

    03

    Export Strategy and International Business

    HAL targeting 10% of revenue from exports by 2025 (~Rs 2,500 crores). Active enquiries from Malaysia (LCA tender for 18 Tejas in advanced stage), Philippines, Argentina, Egypt. Opening offices in Malaysia and planning offices in Egypt, Middle East, North America. Pursuing EASA/FAA certifications for global appeal.

    04

    ROH Business Robustness

    ROH revenue target of Rs 13,000 crores for FY23 (platforms + engines Rs 6,900 crores, accessories/avionics Rs 7,000 crores). Major platforms: 20 Sukhoi, 13 Jaguar, 9 Mirage, 21 Kiran, 9 Hawk, 41 ALH, ~40 Cheetah/Chetak overhauls planned.

    05

    Greenfield Expansion and Capacity

    Tumakuru helicopter factory nearly complete, ready for operations shortly. First series production LUH took to skies in July 2022. HEMRO JV with Safran for helicopter engine MRO at Goa expected operational by end 2023. Cryogenic engine facility for ISRO programs being established.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.