The domestic brokerage has initiated coverage on HAL with a ‘Buy’ rating on strong order book and growth outlook. Its target price of Rs 2,200 signals an upside of over 23 per cent from the previous close.
ICICIDirect expects HAL to deliver revenue and EBITDA CAGR of 6.8 per cent and 11.8 per cent, respectively in FY22-24E. Also, an increase in profitability with strong asset turnover is expected to result in healthy return ratios over FY23-24E, it said.
The company has a strong pipeline of Rs 1.24 lakh crore worth of orders in manufacturing for the next three to four years led by LUH, LCH and engines for Su-30 & MiG-29. HAL’s FY22 closing order book was at Rs 82,513 crore. The company received orders worth Rs 76,306 crore in the last two financial years, of which over 50 per cent i.e. Rs 40,263 crore orders were from the manufacturing segment.
Revenues from manufacturing are expected to come down in FY23-24E as the major order of LCA Tejas MK1A will also start production by FY25E and will be executed over the next six years starting from FY25E, the brokerage said. The other pending orders of LCA trainers, ALH, LCH and LUH will be completed over the next two to three years, it noted.
The brokerage house believes the company’s focus on indigenous design and development of defence platforms or components would drive faster execution of projects in the years to come. Moreover, a healthy balance sheet, improvement in the working capital cycle and strong return ratios make HAL an attractive investment.
HAL reported a 91 per cent growth in net profit to Rs 3,101.96 crore in the March 2021 quarter. The company had posted a net profit of Rs 1,621.29 crore in Q4FY20. Revenue from operations rose nearly 6 per cent to Rs 11,561 crore in the last quarter as compared with Rs 10,866.5 crore in the March quarter of FY20.
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