Hindustan Aeronautics : In recent years, the defence stocks of India have evolved into a great investment field due to the government’s focus on increased spending and the “Make in India” initiative. Defence exports have increased tenfold to ₹160 billion in FY23 in the last 6 years.
In the past three years, the government has imparted an ambitious agenda to achieve self-reliance, especially after the Ukraine and Russia war. As a result, India’s sector as a whole has undergone unprecedented changes. Not only have the order books seen an increase due to these changes, but they have also resulted in remarkable gains in their share prices.
In the past year, a defense-related stock has more than doubled, with a return of a whopping 135 percent. It is none other than the government-owned Hindustan Aeronautics Ltd (HAL). In this article, we are going to look into what makes Hindustan Aeronautics so attractive and what their future prospects look like.
Table of Contents
The Indian Defence Scenario
When it comes to the Indian A&D industry, it is mostly dominated by the defense sector. The major players in the Indian A&D industry are defense public sector undertakings (DPSUs). Therefore, defense projects, policies, and funding from GoI play a crucial role in the development of the A&D industry in India.
In the Union Budget 2023-24, ₹5,93,537.64 crore has been allocated for defence. This includes expenditure on salaries of armed forces and civilians, pensions, modernization of armed forces, production establishments, maintenance, and research and development organizations. This is 13% higher than ₹ 5,25,166.15 crore.
Moreover, there were a lot of provisions allocated by the government. Under the “Aircraft and Aero-engine” category, the Indian Army has received an allocation of ₹ 5,500 crores, the Indian Navy has received an allocation of ₹ 7,000 crores, and the Indian Air Force has received an allocation of ₹ 15,721.65 crore, summing to a total allocation of ₹ 28,221.65 crores in addition to revenue budget provisions for maintenance, repair & overhaul.
Even in the interim budget in 2024, Budget allocation for the Ministry of Defense was ₹621,540 crores, being the highest among all ministries. There was also 5.78 % increase in capital outlay allocation and 4.68% increase in revenue expenditure allocation.
Company Overview
Bangalore based Indian state owned aerospace and defense company, Hindustan Aeronautics Limited (HAL), was founded on December 23, 1940. It is one of the world’s largest and oldest aerospace and defense manufacturers. They began their aircraft production for the Indian Air Force in 1942. It possesses a licence to produce Harlow PC-5, Curtiss P-36 Hawk, and Vultee A-31 Vengeance.
Currently, Hindustan Aeronautics production divisions are housed alongside ten R&D and twenty production centres. These divisions and research and development centres are dispersed throughout ten locations in seven different states.
The Dornier Do228, ALH Dhruv, Light Combat Helicopter (LCH), Light Utility Helicopter (LUH), and LCA Tejas are among the 22 new aircraft and helicopters that the company has produced this year. At its various divisions, it has also produced 51 new engines and accessories. In addition, the company overhauled 216 aircraft/helicopters and 535 engines during the year.
Order Book Position
The company has won contracts to produce and supply six Dornier 228 aircraft on March 10, 2023, and seventy HTT-40 basic trainer aircraft on March 6, 2023. These contracts were awarded during the year. As of March 31, 2023, the company’s order book value is ₹81,784 crore.
Values in crore
| Particulars | Balance as of 01.04.2022 | Fresh Orders (During 22-23) | Order Liquidated (During 22-23) | Outstanding Sanction / supplies |
| Manufacturing Contracts | 61,564cr | 60,470cr | ||
| Repair & Overhaul | 8,141cr | 8,537cr | ||
| Spares | 11,162cr | 25990cr | 26360cr | 11,192cr |
| Design & Development Projects | 1,100cr | 1,345cr | ||
| Exports | 187cr | 241cr | ||
| Total | 82,154cr | 25,990cr | 26,360cr | 81,784cr |
Hindustan Aeronautics -CAPEX
FY 2022–2023 (PY ₹1,621.74 Lakhs) saw Hindustan Aeronautics incur ₹2,081.73 Lakhs in Capital Expenditure (CAPEX) for maintaining the cutting-edge infrastructure and technologies to meet Aerospace Standard, as well as developing systems/platforms to meet defense Forces requirements and become Atmanir bhar Bharat. The investments are mainly focused on the Green Field Helicopter project at Tumakuru, the enhancement of LCA facilities, the ROH of SU-30, the ROH of AL-31 FP Engine, etc., aside from the regular replacement and streamlining of the current facilities.
Hindustan Aeronautics – Financials
Values in Rs. crores
| FY2020 | FY2021 | FY2022 | FY2023 | |
| Revenue | 21,445 | 22,882 | 24,620 | 26,928 |
| Net Profit | 2,842 | 3,239 | 5,086 | 5,811 |
Hindustan Aeronautics reported revenue of ₹26,928 crore in FY2023, an increase of 9.4 percent from FY2022. Considering the four-year horizon, net profit has grown by a three-year CAGR of 7.9 percent from FY2020 to FY2023.
The net profit was ₹5,811 crore in FY2023, an increase of 14.3 percent from FY2022. Considering the four year horizon, net profit has grown by a three year CAGR of 26.92 percent.
The company has a healthy balance sheet as it has no debt, as indicated by the debt to equity ratio of 0. In FY2023, it had almost ₹20,000 crore cash equivalent in its books.
Holding pattern of the company
| Dec 2022 | March 2023 | June 2023 | Sep 2023 | Dec 2023 | |
| Promoters | 75.15 % | 71.65% | 71.64% | 71.64% | 71.64% |
| FIIs | 7.14% | 9.07% | 11.90% | 12.63% | 12.93% |
| Public | 4.98% | 5.34% | 5.81% | 6.02% | 6.28% |
Not only that, the Foreign Institutional Investors (FII) have been consistently increasing their theory shareholding for the past few quarters.
Hindustan Aeronautics – Outlook
There are two possible opportunities available for the company in the future.
1. The thrust from the government towards domestic products for developing a self reliant industry will bring greater opportunities and new orders for the company.
2. The stability of the military sector during times of crisis will entice commercial players to diversify into the military sector as a risk aversion strategy. This will provide opportunities for HAL to diversify into the commercial sector by forming strategic alliances with such companies.
Moreover, the Atmanirbhar Bharat initiative by the government is pushing the Indian industry to go independent by reducing imports. The GoI has recently pushed for the indigenization and domestic procurement of defence equipment through several initiatives. In the upcoming five to ten years, these reforms will assist both the private sector and defence PSUs in making significant progress toward the nation’s goal of having a self-sufficient defence industry.
Herein lies the great potential for Hindustan Aeronautics to develop. In the near future, HAL’s primary source of income will remain the Indian defence market, thanks to projects like LCA Mk1A, LCH, LUH, and HTT-40. To make systems more competitive, adaptable, efficient, and economical, the company has launched a number of initiatives. For the production of HTT-40 and LCA Mk1A, new production lines are being installed.
So, do you think the Hindustan Aeronautics will fly high in the coming years as well? Let us know in the comments below.
Written by Nalin Suriya
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