Defence Ministry's Sukhoi deal boosts Hindustan Aeronautics shares by 2%

Hindustan Aeronautics share rose after it announced a contract for procurement of 12 Sukhoi Su-30 MKI aircraft along with associated equipment has been signed between the MoD and the Company

Hindustan Aeronautics share price: Aerospace company Hindustan Aeronautics’ (HAL’s) shares rose as much as 2.33 per cent to hit an intraday high of Rs 4,770 per share on Friday. Although the stock closed the day marginally higher by 0.13 per cent at Rs 4,667.25 on the BSE, analysts see more upside in the aircraft and defence equipment maker's share price.

 

The rise in HAL’s share price came after the public sector company announced it had signed a contract worth nearly Rs 13,500 crore with the Ministry of Defence (MoD) for the procurement of 12 Sukhoi Su-30 MKI aircraft along with associated equipment.

 

“We wish to inform you that a contract for procurement of 12 Su-30 MKI aircraft along with associated equipment has been signed between the Ministry of Defence and Company at an approximate cost of Rs 13,500 crore inclusive of taxes and duties,” said the Bengaluru-based company in an exchange filing.

 

The aircraft will be manufactured at the Nasik division of HAL. The supply of these aircraft would boost the operational capability of the Indian Air Force (IAF) and strengthen the defence preparedness of the country, it said. The company also said that the aircraft would have an indigenous content of 62.6 per cent, enhanced due to the indigenisation of many components to be manufactured by the Indian defence industry.

 

According to reports, analysts at UBS, following the order, have set a target price of Rs 5,700 per share, which reflects an upside of over 22 per cent from Friday's close of Rs 4,667.25 per share. 

 

With this contract, HAL’s order backlog is estimated to be at about Rs 1 trillion (4.1x trailing 12 months revenue), which provides healthy revenue growth visibility, analysts at ICICI Securities said in a note. 

The company’s order pipeline also remains robust as about Rs 1 trillion worth of contracts are expected to be placed with HAL in the coming 2 years (like 97 additional LCA MK1A fighters, 156 light combat helicopters, and 60 naval utility helicopters). HAL is also executing upgrades of existing Su-30MKIs for IAF with the contract of AL-31FP engines already placed recently.

 

Apart from HAL, ICICI Securities analysts believe that companies like Bharat Electronics (BEL), Astra Microwave, and Data Patterns will also be key beneficiaries in this Su-30 MKI contract, considering the supply of key electronics systems (like radars and other electronic warfare systems). Bharat Dynamics (BDL) will also be involved in supplying Astra air-to-air missiles and Nirbhay missiles, which will be equipped on these aircraft. Mishra Dhatu Nigam (Midhani) will be a key supplier of critical materials and alloys for AL-1 aircraft engines, analysts added.

 

Established in 1940, HAL is India's largest aerospace and defence company and one of the oldest and largest globally. Its operations involve the manufacturing of aircraft, helicopters, and their components, with notable products including the Dhruv advanced light helicopter, the Tejas light combat aircraft, and the Hindustan Ambassador car. 

 

The company is also involved in designing and developing new products and upgrades, as well as repairing and overhauling aircraft and helicopters. Additionally, HAL manufactures crucial satellite structures. With facilities located in various Indian cities, including Kanpur, Nasik, Koraput, Korwa, Lucknow, Kasaragod, and Hyderabad, HAL operates under the purview of the Indian Ministry of Defence.

 

The market capitalisation of HAL stood at Rs 312,134 crore at Friday's close, according to the BSE. The company falls under the BSE100 category. The 52-week range of the share is Rs 2,584-5,675.