This PSU stock is among HDFC Securities' top picks over the next four quarters

HAL shares have surged over 30% this year

2 min read . Updated: 24 Aug 2021, 01:57 PM IST Livemint

HAL is a domestic supplier of aircrafts, helicopters, engines, avionics and other accessories and has a robust orderbook

Aerospace company Hindustan Aeronautics (HAL), the largest Defence Public Sector Unit (DPSU), is among the top stock picks by domestic brokerage and research firm HDFC Securities with a time horizon of four quarters. HAL is a domestic supplier of aircrafts, helicopters, engines, avionics and other accessories.

Both military and commercial aerospace sectors have good growth potential in India and the defence budget allocation has been continuously increasing over the years, HDFC Securities said in a note.

The brokerage said that with monopoly in Indian aerospace, HAL is ready to take off to capture the multi decade opportunity. After decades of R&D, the company recently won the country’s biggest order in February-2021 which not only opened bigger pipeline but also reversed its declining order book. It estimates long term revenue and profit to grow on account of the robust order book, decades of opportunity, and control over operating costs.

"Given strong balance sheet, robust order book and execution capabilities, we feel investor can buy stock in the ₹1060-1080 band and add more on dips to ₹900-920 band for the base target of ₹1300 and bull case target of 1461 over the next four quarters," the note stated.

It expects the government's increased focus on indigenisation with the Make in India and Atma Nirbhar Bharat policies augur well for the company’s future growth. HAL has a robust order book of Rs. 80,640 crore which translates into ~3.5x FY21 revenues. The declining order book trend reversed on the back of newly awarded 83 LCA (Tejas) in Feb 2021. The company anticipates new order for 12 Sukhoi Su30 in the near term.

“HAL could be clear beneficiary of a shift from imports to domestic production. The real growth story should start in FY25, when its newly-won LCA Mk1A contract, which accounts for 45% of its current order book, begins to contribute materially," HDFC Securities added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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