HAL share price soars 40% so far in 2022; analysts see up to 51% more rally in defence PSU stock

Hindustan Aeronautics (HAL) share price has soared 40 per cent so far this year, outperforming benchmark Nifty 50 which has tanked around 10 per cent. Analysts at ICICI Securities are bullish on the defence PSU stock and see up to 51 per cent further rally going forward. According to the brokerage, HAL’s exports may see strong growth going forward. At the same time, the company will also benefit from the ‘Make in India’ initiative in the defence sector. The stock was trading marginally higher on Thursday at Rs 1,729 on BSE. Note that for the financial year 2021–22, the company announced a 400% equity dividend or Rs 40 per share, for the fiscal year ended March 2022. ICICI Securities has a ‘buy’ call on the stock with a target price of Rs 2,618 apiece.

Investment Rationale

$5.5 billion+ export opportunity from Malaysia, Egypt and Nigeria airforce tenders

Analysts at ICICI Securities see the possibility of ~US$5bn+ export order for Hindustan Aeronautics across defence aircraft contracts for Egyptian, Malaysian and Nigerian air force. Finalisation of the order can lead to further rerating in the stock, in their view. “Pickup in domestic ordering has allowed economies of scale, allowing for better price offering globally. Significant scale up of RoH and MRO revenues and experience with Russian platforms allow HAL a potential customer set in the Indian ocean region, MENA and Latin America,” they said.

HAL also offering training to Nigerian army aviation commanders (phase I and phase II in Chetak helicopters) raises hope of it being one of the key contenders for Nigeria’s search of 12 twin engine attack helicopters. This can potentially be US$400mn+ order for HAL LCH, the brokerage report added. “We have always looked at HAL as ‘the’ Defence Prime which can expand the Indian defence ecosystem along with its own platform sales. We estimate ~US$50mn – US$1bn of Indian origin products getting bunched up with US$5bn+ export order for HAL from these three countries,” analysts said.

Make in India boost for HAL

The Ministry of Defence (MOD) recently approved imposing restrictions on the import of 108 military weapons and systems such as next-generation corvettes, airborne early warning systems, tank engines and radars. All the 108 items will now be procured from indigenous sources as per provisions given in Defence Acquisition Procedure (DAP) 2020. According to analysts, defence companies get the bulk of their order and revenue from one customer, the government. The decision that the Indian military will rely exclusively on indigenous vendors for defence equipment will help HAL to get stability in the order book and predictability in cash flow.

ICICI Securities maintains a ‘buy’ rating on the stock with a target price of Rs 2,618. “The biggest certainty to our valuation is the orderbook which is expected to cross Rs 1,000bn by FY22/23E – there are hardly any defence primes in the world that manufacture combat aircraft and have an equivalent book to bill,” it said. The key risk, according to the brokerage, is lack of diversification. HAL may have to think about business diversification sooner or later, it added.

(The stock recommendations in this story are by the respective research analyst. does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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