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    Hind.Aeronautics

    HALGood
    Capital Goods·15 Nov 2022
    Management Summary

    HAL delivered strong H1 FY23 results with 22% revenue growth driven by ROH activity compensating for depleting manufacturing contracts. ROH contributed ~75% of H1 revenue, boosting margins to 33%. Management reiterated that manufacturing proportion would improve from H2 FY23 onward with LCA Mark 1A deliveries starting FY24. The Rs 50,000 crore order pipeline (excluding ROH) provides strong visibility for future growth.

    Highlights

    8

    • H1 FY23 revenue grew 22% YoY; ROH segment drove growth while manufacturing remained flat

    • EBITDA margin improved to 33% in H1 vs 25% historical average due to higher ROH mix and interest income

    • Order book maintained at ~Rs 84,000 crores with Rs 10,000 crore fresh accretion in H1

    • PSLV contract of Rs 860 crores won in consortium with L&T from NSIL - first foray into space

    • HTT-40 contract for 70 numbers concluded at ~Rs 6,500-7,000 crores at Def Expo

    • Rs 50,000 crore order pipeline expected to materialize in 6-12 months (excl ROH)

    • Cash balance at Rs 16,000 crores; interest income doubled to Rs 160-170 crores

    • Full year EBITDA margin guidance maintained at 26-27%; revenue growth guidance 7-8%

    What Changed1

    vs Q4 FY23

    Guidance items9 → 10 (+1)

    Key financials

    Single quarter

    06 metrics
    1. 01H1 Revenue Growth22%+22%YoY
    2. 02H1 EBITDA Margin33%
    3. 03Order Book₹84,000 Cr
    4. 04Cash Balance₹16,000 Cr
    5. 05H1 ROH Revenue₹4,800 Cr+29.0%YoY

    Guidance & targets

    10
    CategoryTargetPriority
    Revenue
    Full Year Revenue Growth
    7-8%
    		High
    Margins
    Full Year EBITDA Margin
    26-27%
    		High
    Revenue Mix
    Manufacturing vs ROH Ratio
    40:60
    		High
    Order Book
    Order Pipeline (Manufacturing)
    Rs 50,000 crores
    		High
    ROH
    ROH Revenue Growth
    10-12%
    		High
    Profitability
    PAT Growth
    4-5%
    		Medium
    Deliveries
    Platform Deliveries FY23
    24-25 numbers
    		High
    Deliveries
    HTT-40 Delivery Start
    October 2025
    		High
    Capacity
    Helicopter Production Capacity
    60 helicopters per annum
    		High
    Engines
    AL-31FP Delivery Schedule
    30 per annum peak, 8-year liquidation
    		High

    Risks & concerns

    8
    RiskSeverity

    Manufacturing revenue stagnation - flat YoY in H1

    Manufacturing contracts depleting; gap being filled by ROH. New manufacturing revenue dependent on LCA Mark 1A starting FY24 — Both acknowledged

    medium

    Elevated margins unsustainable as manufacturing picks up

    H1 margin of 33% will normalize to 26-27% for full year as manufacturing revenue (lower margin) increases in H2 — Management acknowledged

    low

    Export order breakthrough remains elusive

    Malaysian deal facing political uncertainty; no firm export orders despite active discussions — Both acknowledged

    medium

    Dependency on Russian supply chain for Su-30/MiG programs

    Payment issues through Sberbank being worked out; supplies continuing but uncertainty persists — Analyst downplayed

    medium

    Double-digit revenue growth delayed to FY25

    FY23-24 guided at single-digit 7-8% growth; double-digit from FY25 once LCA Mark 1A ramps up — Management acknowledged

    low

    Areas of Evasion(3)

    • Manufacturing vs ROH margin breakup
    • Specific export deal timelines
    • Detailed product-wise revenue

    Q&A highlights

    5

    “10% to 12% in ROH growth...the Rs 50,000 order pipeline is exclusive of the repair and overhaul activity, which we expect on an average around Rs 15,000 crore minimum accretion year-on-year”

    ROH growth guidance upgraded from 5-6% to 10-12%; pipeline excludes ROH orders

    asked by Kiran Sebastian (Franklin Templeton)

    1 min read5 chapters

    Detailed Narrative

    01

    Revenue Mix Shift Toward ROH

    H1 FY23 saw ROH contributing ~75% of revenue (Rs 4,800 crores, up 29% YoY) while manufacturing remained flat at Rs 1,600 crores. This shift to higher-margin ROH business temporarily boosted EBITDA to 33%. Management expects 40:60 manufacturing-to-ROH ratio for FY23-24, improving to 50:50 from FY25 as LCA Mark 1A deliveries commence.

    02

    Order Book and Pipeline Strength

    Order book steady at Rs 84,000 crores with Rs 10,000 crore H1 accretion including PSLV (Rs 860 crores) and HTT-40 (Rs 6,500 crores). Manufacturing pipeline of Rs 50,000 crores excludes annual ROH accretion of Rs 15,000+ crores. Further Rs 70,000 crores of LCH (140), LUH (170), and NUH (60) orders expected in 2-5 years.

    03

    LCA Mark 1A Production Ramp-Up

    Delivery schedule: 3 aircraft in FY24, then 16 per annum peak. Second production line established in Bangalore; capacity being scaled to 20-24 with 4 private sector partners for structures. Third line planned for Nashik using freed-up Sukhoi facilities. Capacity will never be a constraint.

    04

    Engine Programs Creating New Revenue Streams

    AL-31FP 240 engines: contract expected by March 2023, 12-13 deliveries in first year, peak 30/year, 8-year execution. RD-33 80 engines: 20/year, 4-5 year timeline. Both orders together worth ~Rs 30,000 crores. Only 6 AL-31FP engines left in current contract (~Rs 300-400 crores).

    05

    Cash Position and Dividend Policy

    Cash balance at Rs 16,000 crores expected to end FY23 at Rs 14,000-15,000 crores. Interest income doubled in H1 due to higher rates and surplus cash. Interim dividend of Rs 20/share declared (200% of face value). Company rewarding shareholders while maintaining healthy working capital from customer advances.

    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.