ICICI Direct Recommends Buy This Mid Cap PSU Stock For 24% Gains, Dividend Declared

Leading brokerage firm ICICI Direct in its recent report has given a "Buy" tag to Hindustan Aeronautics Ltd. (HAL) with Rs 3,300 per share target price. If investors buy the stock of the company at the current market price, given the target price, the stock would likely give up to 24% returns on investments in 12 months. HAL is a mid-cap Navaratna CPSE company with a market cap of Rs 89,654.30 crore.

HAL, the largest defence PSU in India, is engaged in design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. The company has delivered revenue, EBITDA and PAT CAGR of 7.4%, 12% and 26.5%, respectively, in FY18-22. In FY22, repair & overhaul contributed ~64% to total revenues while manufacturing contributed~30%.

Stock Outlook, & Returns

Wednesday, November 16, 2022, the HAL stock gained 6.28% on the NSE, touching a fresh 52 week high at Rs 2,709.40 per share. The current market price of the stock is Rs 2,681.15 per share. The 52-week low was Rs 1,181.20 on December 20, 2021.

The stock gained 7.14% in the past week, and 14.73% in 1 month, respectively. In 3 months, the shares jumped 16.71% and in 1 year the shares jumped, giving massive 87.57% returns on investments. In three years, HAL gave multibagger returns of 233.35%. Since its listing on March 28, 2018, it has delivered multibagger returns of 136.67%.
 

Interim Dividend

The Board of Directors of the HAL in its meeting held on 11 November 2022 declared the first interim dividend of Rs. 20 per equity share of Rs. 10 each fully paid up (200%) for the Fiscal Year 2022-2023.
Since 2019, the company has declared 8 dividends which include 6 interim dividends and 2 final dividends.

Q2FY23 Result

Margins improved YoY led by higher share of repair & maintenance. Revenue declined 7.3% YoY to Rs 5144.8 crore on account of higher base. Execution has been more uniform in H1FY23 as compared to H1FY22 (which was impacted due to lockdown). EBITDA margin improved by 919 bps YoY to 31.5% on lower others cost; which led to 30.8% YoY growth in EBITDA to Rs 1621.6 crore. PAT increased 44.2% YoY to Rs 1221.2 crore.

Buy for Rs 3300 target price

"We expect HAL to deliver revenue and EBITDA CAGR of 10.3% and 14.7%, respectively, over FY22-25E. PAT is likely to grow at 14.2% CAGR (FY21-25E). Increase in profitability with strong asset turnover is expected to result in healthy return ratios over FY23-25E. We continue to remain positive and retain our BUY rating on the stock. We value HAL at Rs 3300 i.e. 20x PE on FY25E EPS," the brokerage has said.

Key triggers for future price performance

• Healthy order-book position (Rs 83800 crore; ~3.2x TTM revenues) led by large scale orders in manufacturing aircraft/helicopters (LCA, LCH, ALH).
• Continuous order inflows in MRO (maintenance, repair & overhaul) with strong order pipeline of in manufacturing for next three to four years (led by LUH, LCH, ALH, Dornier, HTT-40 and engines for Su-30 & MiG-29).
• LCA Tejas MK1A, largest order in manufacturing, deliveries to IAF expected from FY24E end. Moreover, execution of other key orders and sustained growth in MRO will drive revenue growth in double digits from FY25E.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.