Hindustan Aeronautics: the past few months saw the defense sector stocks highly ruling the market. The recent import embargo declared by the officials on 101 defense equipment sparked up investors’ interest. It made State-run aerospace and defense company Hindustan Aeronautics the second-best gainer previous week as it soared 36.6 percent among the BSE-500 stocks. Last week the stock scaled 52- week high.
According to the revised results, flat revenue growth for Q4, Hindustan Aeronautics Limited (HAL) revenue growth may hit the sky in the coming year. Still, as the run-up being too rapid, the price meter may be trending towards low.
Also, its manufacturing activity could get grasp this year as HAL delivered 10 of the Su-30 MKI aircraft in FY20 and is left with deliveries of just two this year. It is banking on overhauling and increasing repair revenues this year to counterbalance lower aircraft revenues. HAL is also delivering trainer aircraft, among others.
Government’s Precise Action on Margins Shows the Effect on Hindustan Aeronautics
With all of that, Hindustan Aeronautics’ bar depends on how many orders the company deals with this year (1). There are many expected orders around, as the management itself expects a request for a light combat plane in the 3-quarter and 15 light combat helicopters for the following year. This year profitably can get squeezed as the order execution will be lower. The order book of about 52,965 crores INR has been showing a declining trend in the past few years.
A gradual improvement in revenues may boost the earnings in FY22, but that will not justify the recent run-up in its stock price.
HAL’s operating margins skid slightly to 24% in Q4, compared to 25.6% for the previous year. The government has cut the profit percentages for the supply of defense equipment by defense public sector undertakings to 7.5% from 10% earlier, and this can later ruffle margins. The government is also alongside planning an offer for the sale of shares in Hindustan Aeronautics, which can result in increasing the supply of its shares in the coming months.