Hindustan Aeronautics Limited — Q4 FY24 earnings call

Call held 17 May 2024

Management summary

HAL delivered an exceptional FY24 with 13% revenue growth, achieving double-digit growth a year ahead of guidance. The Rs 1,500 crore LCA IOC Change Order 3 boosted Q4 margins significantly. Order book crossed Rs 94,000 crores with Rs 1,60,000-1,70,000 crore pipeline providing visibility till 2032. Management articulated clear capacity building with Rs 14,000-15,000 crore CAPEX plan and third LCA line at Nashik.

Highlights

  • Revenue surged to Rs 30,381 crores (+13% YoY) vs Rs 26,928 crores; achieved double-digit growth a year early

  • Q4 boosted by Rs 1,500 crores one-time revenue from LCA IOC Change Order 3 price revision

  • Order book at Rs 94,000 crores (+Rs 12,000 crores YoY); Rs 19,000 crores new manufacturing orders concluded

  • EBITDA margin guidance 29-33% (26-27% ex-interest income); operating profit at 18-20%

  • ROH at 68% of revenue (~Rs 20,000 crores); manufacturing proportion to improve to 40:60

  • 5-year CAPEX plan of Rs 14,000-15,000 crores (Rs 3,000 crores/year avg)

  • Rs 47,000 crores orders expected in next 6-12 months including AL-31FP, LUH, Su-30

  • Order pipeline of Rs 1,60,000-1,70,000 crores expected in 18 months to 3 years (97 LCA Mark 1A, 156 LCH, 43 ALH, 60 UHM)

Concerns

  • LCA Mark 1A supply chain challenges for 16 deliveries in FY25

Key financials

  1. Revenue ₹30,381 Cr +13%YoY
  2. Order Book ₹94,000 Cr +14.6%YoY
  3. ROH Revenue Share 68%
  4. Manpower Cost as % Revenue 17%
  5. Inventory Days 159 days
  6. Debtor Days 55 days

What they filed

Q1 FY27: revenue up 14.4%, net profit up 14.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue5,976 6,957 13,700 4,819 6,629 +11%7,699 +11%13,942 +2%5,515 +14%
EBITDA1,640 1,683 5,295 1,282 1,558 −5%1,871 +11%5,059 −4%1,527 +19%
Net profit1,510 1,440 3,977 1,384 1,669 +11%1,867 +30%4,196 +6%1,590 +15%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

  • Sustained Double-Digit Growth Revenue · FY25-FY32 · High confidence Double-digit consistent growth till 2032

    From 13% achieved in FY24 today

    we will be able to show a consistent double-digit growth...we will have our workload full for 2032

    — C.B. Ananthakrishnan

Margins

  • EBITDA Margin (with interest) Margins · Sustainable · High confidence 32-33%
    on the most optimistic note it could be somewhere around 32% to 33%. And at the minimum level it should be not less than 29%

    — C.B. Ananthakrishnan

  • EBITDA Margin (ex-interest) Margins · Sustainable · High confidence 26-27%
    without interest income it should be somewhere around 26%-27% and with interest income it should be around 33%

    — C.B. Ananthakrishnan

Order Book

  • Expected Order Book Mar-25 Order Book · March 2025 · High confidence Rs 1,20,000 crores

    From Rs 94,000 crores today

    we expect the outstanding order book position to be somewhere around 1,20,000 crores

    — C.B. Ananthakrishnan

Order Pipeline

  • Total Anticipated Orders Order Pipeline · 18 months to 3 years · High confidence Rs 1,60,000-1,70,000 crores
    The aggregate value of all these orders is expected to be somewhere around 1,60,000 to 1,70,000 crores

    — C.B. Ananthakrishnan

Capex

  • 5-Year CAPEX Plan Capex · 5 years · High confidence Rs 14,000-15,000 crores
    the CAPEX plan for the next 5 years is estimated to be somewhere between 14,000 to 15,000 crores which translates into an average CAPEX of almost 3,000 crores on annual basis

    — C.B. Ananthakrishnan

Deliveries

  • LCA Mark 1A FY25 Deliveries Deliveries · FY25 · High confidence 16 aircraft
    In the current year as per the contract, we are supposed to deliver 16 numbers and this is what we plan

    — C.B. Ananthakrishnan

Capacity

  • LCA Production Capacity Capacity · By Oct 2024 (Nashik line) · High confidence 24 aircraft/year

    Previously 16 → 24 aircraft/year

    We wanted to augment the capacity to 24 numbers...the third line is likely to become operational from October of the current financial year

    — C.B. Ananthakrishnan

ROH

  • ROH Revenue Growth ROH · Annual · High confidence 8-9%

    Previously 5-6% → 8-9%

    ROH, we expect the growth to be consistent...somewhere between 8% to 9%

    — C.B. Ananthakrishnan

Revenue Mix

  • Manufacturing vs ROH Ratio Revenue Mix · 3 years · Medium confidence 40:60

    From 32:68 today

    Mix will be probably in the ratio of 60 to 40. 60 will be the ROH activity, 40 should be the manufacturing activity

    — C.B. Ananthakrishnan

Exports

  • Export Revenue Exports · FY25 · Medium confidence Breakthrough order in FY25

    From Rs 311 crores (1% of revenue) today

    we will be able to get through some order in the current financial year

    — C.B. Ananthakrishnan

Risks & concerns

  • LCA Mark 1A supply chain challenges for 16 deliveries in FY25

    high

    Management acknowledges supply-side challenges for certain major LRUs due to geopolitical situation but claims confidence in timely delivery

    Both acknowledged

  • One-time revenue items inflating reported growth and margins

    medium

    Rs 1,500 crore Change Order 3 and Rs 900 crore prior year D&A adjustments create high base; underlying growth lower

    Analyst acknowledged

  • Export revenue negligible at Rs 311 crores (1%)

    medium

    Despite years of efforts, export revenue minimal. Discussions with Philippines, Argentina, Nigeria, Egypt ongoing. Breakthrough order still pending

    Both acknowledged

  • GE F414 commercial terms undecided

    medium

    TOT scope of 80% agreed but commercial terms (payment structure, royalties) not yet discussed. Will take 6 months for clarity

    Analyst acknowledged

  • Order pipeline realization dependent on government approvals

    low

    Rs 1.6-1.7 lakh crore pipeline requires multiple government approvals over 18 months to 3 years

    Management acknowledged

Areas of evasion (2)

  • GE F414 commercial terms
  • Technical specifications (aircraft weight)

Q&A highlights

4 direct
Q4 Gross Margin Spike Direct
the IOC contract Change Order 3...has been finalized in the last quarter...almost 1,500 crores of additional revenue

One-time Rs 1,500 crore boost from LCA IOC price revision inflated Q4 and full-year margins

Asked by Jonas Bhutta (Birla MF)

LCA Mark 1A 97 Additional Order Direct
the 16 is not sufficient. We want to augment the capacity to 24...complete the entire 97+83 latest by 2032-33

Total 180 LCA Mark 1A aircraft planned; 97 additional order expected by March 2025

Asked by Abhishek Poddar (HDFC MF)

Manufacturing Growth Outlook Direct
manufacturing growth definitely it has to be around 15% to 18% growth...overall 13% growth both manufacturing and repair put together

Manufacturing will grow faster than ROH, driving overall double-digit revenue growth

Asked by Girish (MS)

Su-30 Upgrade Program Direct
HAL will be the lead agency to integrate the Sukhoi upgrade program...AON has already been approved

Major upcoming order; HAL leading integration with indigenous systems

Asked by Deepesh Agarwal (UTI AMC)

GE F414 Engine Deal Partial
transfer of technology to the extent of 80% of the GE 414 engine...20% will be sourced directly from GE

80% TOT for GE-414 engine; critical for LCA Mark 2 program; commercial terms still being discussed

Asked by Umesh Raut (Nomura)

1 min read 5 chapters

Detailed narrative

Double-Digit Growth Achieved Ahead of Schedule

Revenue of Rs 30,381 crores represents 13% growth, achieving the double-digit target a year early (guided for FY25). However, Rs 1,500 crores from LCA IOC Change Order 3 inflates this; adjusted growth closer to 7-8%. Proactive procurement enabled quick deliveries - 2 Dorniers to Guyana within 10 days, 6 ALH to Army before March-end, 15 RD-33 engines within month of contract.

Massive Order Pipeline Provides Decade-Long Visibility

Order book at Rs 94,000 crores with Rs 47,000 crores expected in 6-12 months (AL-31FP, LUH, Su-30). Beyond that, Rs 1.6-1.7 lakh crore pipeline includes 97 LCA Mark 1A (AoN approved), 156 LCH Prachand, 43 ALH, 60 UHM, Dornier upgrades. Orders to keep lines busy till 2032.

Capacity and CAPEX Investments

5-year CAPEX plan of Rs 14,000-15,000 crores covering: third LCA line at Nashik (operational Oct 2024), Tumkuru helicopter factory, engine facilities, forging presses (20,000-ton isothermal, 50,000-ton hydraulic), carbon fiber facility (Rs 600 crores). LCA capacity being augmented from 16 to 24/year.

Cost Optimization Driving Margin Improvement

Manpower cost rationalized from 23% (FY19) to 17% (FY24), targeting 16% in FY25. Overhead reduced from 8% to 4.66%. Inventory days optimized from 360 to 159. Debtor days from 227 to 55. Operating profit at 18-20% with EBITDA 29-33% (including 6% interest income).

New Platforms Adding to Product Profile

Each year from FY25 adds new platforms: FY25 - LCA Mark 1A and LUH scale-up; FY26 - HTT-40 and Civil ALH deliveries; FY27 - UHM for Navy, LCA Mark 2 prototypes, IMRH prototype manufacturing. Engine programs: AL-31FP, RD-33, GE-414 TOT, Safran JV for IMRH.

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