Understanding HAL's Current State: Order Book, Q3 Results, & Future Indicators

Exploring the state of HAL, India's premier defense company, and uncovering the key issues behind its recent decline.

  • Here are 22 clean bullet points summarizing the video:
  • The defense sector saw significant growth between 2021 and 2024, with stocks like HAL (Hindustan Aeronautics Limited) becoming investor darlings.
  • However, market dynamics have evolved, and one pressing question is whether the defense theme has played out or if it's still worth considering in 2025.
  • HAL is a public sector enterprise that manufactures aircraft, helicopters, and other aerospace products.
  • The company designs, develops, manufactures, repairs, overhauls, and upgrades these products.
  • Research and development are crucial for HAL, which relies on indigenous research and technology transfer related license agreements.
  • Despite common perception, the majority of HAL's revenue (around 47%) comes from repair and overhaul work, not from selling aircraft and helicopters.
  • The order book is not a significant issue, as the company expects to finalize orders worth ₹1.2 lakh crore in the next 5-6 months, resulting in an order book of around ₹2.5 lakh crore.
  • Q3 results are also not bad, with sales YoY growth at 15%, EBITDA growth at 17%, and PAT growth at 14%.
  • The biggest pain point for HAL is delivery-related issues with the Tejas Mk1A Jets.
  • The Indian Air Force has criticized HAL for delays in delivering these jets, citing a lack of urgency and mission mode execution.
  • The main problem lies with engine supply from General Electric (GE), which HAL relies on to deliver the aircraft.
  • HAL CMD has assured that they will receive 12 engines from GE this year, allowing them to deliver the Mk1A Jets by 2031-32.
  • Revenue recognition and top-line growth are hampered by delays in delivery.
  • Budgetary allocation is not a significant issue, as the defense sector received a record ₹6.81 lakh crore allocation (an increase of 9.53%) in the Union budget for 2025-26.
  • The market and stocks work on sentiments, and the absence of defense-specific mentions in the budget speech led to negative sentiment among investors.
  • The true pain point lies with the deliveries of Tejas Mk1A Jets, which are crucial for HAL's revenue recognition and top-line growth.
  • Execution is more important than budgetary allocation, as HAL needs to ensure sustainable demand from the Air Force.
  • The order book, Q3 results, and budgetary allocation are not significant issues; the main challenge is delivering Tejas Mk1A Jets on time.

Source: CA Rachana Phadke Ranade via YouTube

❓ What do you think? What are the key factors driving HAL's recent performance and decline, and how do they impact the company's future prospects? Feel free to share your thoughts in the comments!