Hindustan Aeronautics Limited (‘HAL’), the PSU in the Defence sector, has been a great performer on the stock exchange. The stock is up 400% in the last 5 years. The 1 year return is 65%.
The stock is in demand with investors because of the Government’s thrust to make Defence an indigenous theme under the ‘Atmanirbhar Bharat Abhiyaan).
The Company is not only receiving big orders from the Government but even foreign Governments are giving it orders as they are trusting it to provide quality that is comparable with those provided by American and European companies.
Vikas Khemani of Carnelian Asset Management, a PMS Fund, suggested that HAL is walking on the same footsteps as Lockheed Martin, the US Defence giant, due to support from the Governmental authorities.
“If you look at the US, a lot of the companies, such as Lockheed Martin, have become big with the support of government initiatives such as the G2G (government-to-government) agreements. For the first time, we are beginning to see such things happening in India“, Khemani said.
Khemani disclosed that he is presently invested in the HAL stock.
“We bought it when it had a dividend yield of 5-6 percent. So, you have a fast-growing sector, with the dividend yield and which the government is pushing. What else can you expect (for the stock than appreciation) in a sector which is witnessing superior growth?” he said.
Madhu Kela of MK Ventures is also bullish about HAL and the other stocks in the Defence sector.
He explained that the entire Defense sector is witnessing superior growth due to the Govt’s push & has a lot of steam left. HAL is the leader of the pack & has a lot of room for appreciation. It will continue to do well for next 10 years.
“HAL has broken the myth that you can’t make money in public-sector companies,” Kela said.
Khemani explained that one of the reasons for HAL’s success is the Govt-tp-govt agreements which are creating enormous confidence in the buyers because of guarantees from the Indian government on performance parameters etc.
Khemani addressed the question paramount in the minds of all investors that after a rise of 400% in 5 years and 65% in one year, the stock may be expensive from a valuation perspective. He opined that the stock is not at all expensive given its growth prospects.
“The government’s vision is to export defence-related equipment and HAL is a leader in that space. The stock is also not very expensive and will continue to do well for 10 years,” he stated
Another expert named Kush Bohra also expressed confidence that HAL is still a good buy. “The entire sector still has a lot of steam and HAL, as the leader in the pack, has a lot of room for appreciation,” he expressed.
Other experts have also recommended a buy of Hindustan Aeronautics. Prabhudas Liladhar has issued an initiating coverage report stating the following:
“Flying high to make India combat-ready
We initiate coverage on Hindustan Aeronautics (HAL) with a ‘BUY rating at a target price of R2,266 (weighted average of prices using DCF & PE multiple). HAL is a play on the growing strength & modernization of India’s air defence given 1) its position as the primary supplier of India’s military aircraft, 2) long-term sustainable demand opportunity, owing to the government’s push on procurement of indigenous defence aircraft, 3) leap in HAL’s technological capabilities due to development of more advanced platforms (Tejas, AMCA, etc.), 4) robust order book of Rs818bn with further 5-year pipeline of ~Rs2trn, and 5) improvement in profitability through scale and operating leverage. We estimate Revenue/Adj. PAT CAGR of 11.0%/14.2% over FY23-26E. The stock is currently trading at a P/E of 20.8x/18.3x on FY25/26E earnings. Initiate ‘BUY.“
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