Hindustan Aeronautics Limited (HAL), India’s premier aerospace and defense company, has received a major boost with the approval of a Rs 26,000 crore order for 240 aero-engines for the Su-30 MKI fighter aircraft. This strategic order, awarded by the Union Cabinet Committee, will strengthen HAL’s position as a leading player in the Indian defense sector and propel its growth trajectory. The impact of this order extends beyond just financial benefits and is poised to enhance India’s self-reliance in defense capabilities.

A Major Boost for HAL’s Revenue and Future Prospects

The 240 aero-engines for the Su-30 MKI aircraft will significantly enhance HAL’s revenue visibility. This order translates into revenue of approximately 3.8 times its trailing 12-month revenue, indicating a substantial boost to its financials.

Long-Term Growth Drivers:

The order provides a strong foundation for long-term growth. The delivery schedule, starting after one year and continuing over eight years, ensures a steady stream of revenue. The inclusion of over 54 per cent indigenous content, facilitated by the indigenisation of key components, strengthens the company’s focus on self-reliance in defense production.

Addressing Supply Chain Challenges:

While the order bolsters HAL’s future prospects, the company faces ongoing challenges in its supply chain. The recent delay in the delivery of LCA Tejas Mk1A aircraft due to supply chain issues at GE Aerospace has caused concern. However, HAL expects a gradual improvement in the situation with increased deliveries of Tejas Mk 1A starting from September 2024 onwards.

Robust Order Pipeline

The Rs 26,000 crore order for Su-30 MKI aero-engines further reinforces HAL’s robust order book.

Order Book:

As of the end of FY24, HAL boasted an order book of Rs 94,000 crore, providing revenue visibility of 3.2 times its TTM revenue. This already impressive order book will now be bolstered by the recent Su-30 MKI engine order, bringing the total to Rs 1.2 lakh crore. Deliveries for these engines are expected to commence from FY26 onwards.

Future Potential:

Adding to its already strong order pipeline, HAL has several projects in advanced stages of finalization. Orders worth Rs 48,000 crore for ALH (25), LUH (12), Su-30 (12), and RD-33 engines (80) are expected to materialize in the near term. Further down the road, an order worth Rs 18,000 crore is anticipated on the RoH front. These future orders solidify HAL’s strong market position.

Long-Term Growth Potential

HAL’s future growth prospects are highly encouraging.

Multi-Year Growth:

Analysts predict multi-year double-digit earnings growth potential for HAL, further boosted by the company’s robust return ratio profile of 20 per cent. The order for the Su-30 MKI aero-engines will contribute significantly to this growth, positioning HAL as an attractive investment opportunity.

Ambitious Projects:

HAL’s commitment to advanced technology and its ambitious projects hold the key to its future success. Projects such as Tejas MK II, AMCA, TEDBF, IMRH, LCH, and ALH are projected to provide a business opportunity worth Rs 4.5 lakh crore over the next decade.

The Challenges Ahead

While the outlook for HAL appears promising, challenges remain.

GE 404 Engine Supply Issues:

Supply chain issues surrounding the GE 404 engine continue to pose challenges, impacting HAL’s ability to deliver Tejas Mk I A aircraft as per schedule. Industry experts anticipate a moderate delivery rate for Tejas Mk I A in FY25, with potential delays in reaching the planned production numbers.

Potential Impact on Revenue Booking:

The challenges faced on the GE 404 engine supply front may impact revenue booking in FY25. Initial projections anticipated a 15 per cent YoY revenue growth for FY25, driven by increased production of Tejas Mk I A. However, given the supply chain disruptions, FY25 revenue is likely to be impacted.

Take Away Points

• The Rs 26,000 crore order for 240 aero-engines for Su-30 MKI aircraft is a major boost for HAL, providing strong revenue visibility and bolstering its long-term growth prospects.
• The order further reinforces HAL’s robust order book, which already stood at Rs 94,000 crore at the end of FY24.
• HAL is expected to achieve multi-year double-digit earnings growth driven by the Su-30 MKI aero-engine order, its robust return ratio profile, and its ambitious projects.
• While HAL faces challenges related to GE 404 engine supply, these issues are expected to be gradually resolved, leading to a recovery in Tejas Mk I A production.
• HAL is poised for strong growth and will play a pivotal role in enhancing India’s self-reliance in the defense sector.