HAL Stock Rises as Government Clears Huge Aero-Engine Purchase

On Tuesday, shares of Hindustan Aeronautics Ltd (HAL) opened more than 5% higher, reflecting a notable increase in the company’s stock price. This increase came after the Union Cabinet Committee made a significant decision to allow the purchase of 240 engines for the Su-30 MKI fighter jets used by the Indian Air Force (IAF). The agreement, which is valued at Rs 26,000 crore, is a significant victory for HAL and should improve the company’s prospects for long-term growth.

Highlights of the Agreement: Deliveries of the aero-engines, which will power the IAF’s Su-30 MKI fleet, are scheduled to begin in a year and be finished in eight. The fact that more than 54% of the engine components will be produced domestically is one of the deal’s most important features; it shows HAL’s dedication to lowering India’s reliance on foreign suppliers. HAL plans to produce the engines at its Koraput plant in Odisha, with the assistance of foreign suppliers for a few essential parts. Utilising a technology transfer agreement with Russia, the business makes sure the engines satisfy international standards.

The agreement is regarded as essential for strengthening India’s defence capabilities as well as for HAL. The IAF’s Su-30 fleet is a vital component, and this purchase guarantees the aircraft’s efficient and continuous operation. As of right now, HAL has given the IAF 113 of these engines, and it’s predicted that the Su-30 would need about 900 engines in all over its lifetime.

HAL’s Robust Order Pipeline: HAL ended FY24 with a sizable order book worth Rs 94,000 crore. That will be greatly increased by this new engine purchase, bringing the company’s entire order book to almost Rs 1.2 lakh crore. Long-term revenue visibility is provided by this amount, which is equivalent to 3.2 times HAL’s trailing twelve months (TTM) revenue. With orders worth Rs 48,000 crore pending, HAL’s future appears bright. Contracts for Su-30 aircraft, RD-33 engines, Advanced Light Helicopters (ALH), and Light Utility Helicopters (LUH) are among these orders. HAL’s robust pipeline, according to analysts, will guarantee consistent growth over the ensuing years.

Sukhoi-30 Fleet Modernisation and New Purchases: Apart from acquiring the engines, HAL plans to undertake a substantial modernisation of the IAF’s complete Su-30 fleet. With a projected Rs 65,000 crore refurbishment, the fighter jets would be outfitted with state-of-the-art technology. The Uttam active electronically scanned array (AESA) radar, cutting-edge electronic warfare technologies, better avionics, and stronger weapon control systems will all be included in the updated aircraft. These enhancements will boost India’s defence readiness and increase the Su-30 fleet’s combat capability. HAL’s order book will soon grow as a result of efforts to replace the twelve Su-30s that were lost in accidents.

Development of Domestic Defence Manufacturing: The agreement is a significant step towards India’s goal of being self-sufficient in the defence industry. For HAL and the Indian defence industry, the fact that more than 54% of the engine components would be made domestically marks a significant accomplishment. It demonstrates the business’s capacity to localise vital technology and lessen its dependency on outside vendors.

Even while essential parts like castings, forgings, and spares will still be purchased from foreign vendors, the indigenisation of basic components is a noteworthy accomplishment. This project helps to strengthen India’s defence manufacturing capabilities and backs the government’s ‘Make in India’ campaign.

HAL’s challenges and Prospects for the Future: Although this encouraging development, HAL has recently encountered certain difficulties, particularly with relation to the Tejas Light Combat Aircraft (LCA Mk-1A) delivery delays. GE Aerospace, the company that supplies essential parts for the aircraft, experienced supply chain problems that resulted in the delays. Although HAL management is aware of these delays, they nevertheless project a 13% growth in revenue in FY25, with higher manufacturing sales providing a major boost. HAL is optimistic that the Tejas Mk-1A would start to be delivered in the September quarter of FY25, although analysts are still wary of any additional delays.

With the purchase of 240 Su-30 MKI engines, HAL has achieved a major milestone for both the Indian military industry and the corporation. HAL is well-positioned for long-term growth, with multiple collaborations in the works and a robust order pipeline. Despite short-term difficulties brought on by disruptions in the supply chain, the company’s robust order book and dedication to indigenisation provide good revenue visibility. HAL’s endeavours to modernise India’s Su-30 aircraft and manufacture next-generation engines highlight the vital role it plays in fortifying the nation’s defence capabilities.

The image added is for representation purposes only