HAL's Rs 2.3 Trillion Order Surge Ignites 'Buy' Signal: Nuvama Confident in Future Growth Despite Margin Dip!

Author

Aditi Singh | Whalesbook News Team

Detailed Coverage:

Nuvama Institutional Equity has reiterated its 'Buy' rating for Hindustan Aeronautics Limited (HAL), expressing optimism about the company's long-term prospects even after a recent decline in its operating profit margin (OPM). The OPM fell by 23.5%, attributed mainly to a drop in gross margins and a twofold increase in penalties for delayed deliveries.

Despite this short-term pressure, HAL's order book has surged to approximately Rs 2.3 trillion, which is about seven times its projected FY25 sales. This strong backlog, fueled by major deals like the Rs 62,400 crore contract for 97 Light Combat Aircraft (LCA) Tejas Mk1A fighter jets (deliveries starting FY28) and an engine supply contract with General Electric, ensures significant revenue visibility for several years.

Nuvama forecasts HAL's revenue to grow at a compound annual growth rate (CAGR) of 17% through FY28, supported by this robust pipeline. However, earnings growth is expected to moderate at around 8% CAGR, with return on equity projected to ease from 26% to 20% over the same period. HAL also faces the challenge of a Rs 4 trillion opportunity pipeline, which hinges on faster execution and better supply chain management.

Impact This news is highly significant for HAL investors as it reaffirms confidence from a key analyst firm amidst operational fluctuations. The massive order book provides a strong foundation for future growth, potentially driving stock performance. The report also highlights critical execution challenges that could influence profitability. Rating: 8/10

Heading: Terms Explained CPSE: Central Public Sector Enterprise. A company owned and managed by the Indian government. OPM: Operating Profit Margin. A profitability ratio that shows how much profit a company makes from its core business operations for every unit of sale. CAGR: Compound Annual Growth Rate. The average annual growth rate of an investment over a specified period longer than one year. ROE: Return on Equity. A measure of a company's profitability in relation to its shareholders' equity.