HAL shares gain on tie-up with Airbus for civil aircraft maintenance facility; Q2 results today

Shares of Hindustan Aeronautics Limited (HAL) gained 2 percent on November 10 after the company inked a contract with Airbus for the establishment of Maintenance, Repair, and Overhaul (MRO) facilities dedicated to the A-320 aircraft.

Under the agreement, Airbus, the largest European aircraft manufacturer, will provide the A320 family tool package and offer specialised consulting services to HAL to set up an MRO. It will also offer HAL access to AirbusWorld, a digital platform that offers support, technical data and training solutions.

This collaboration will increase self-reliance in the aircraft maintenance, repair, and overhaul (MRO) industry in India, HAL said. The facility in Nashik, Maharashtra will be established and be ready for aircraft induction by November 2024 after getting the requisite DGCA approval.

HAL’s Nasik division has capabilities in civil MRO, which include the three DGCA-approved hangars and skilled manpower from their defence activities. In the future, this facility is expected to be available for the entire Asian region after obtaining EASA approval in partnership with Airbus.

Also Read | HAL, Airbus to establish MRO facility for A-320 family of aircraft in Nashik

HAL is slated to announce its Q2 FY24 result later on November 10. Ahead of the earnings announcement at 9:32 am, HAL shares were trading 2 percent higher at Rs 2,072.00 on the National Stock Exchange.

So far in 2023, HAL stock has soared 63 percent, outperforming benchmark Nifty 50.

Brokerage call on HAL

HAL is among JM Financial’s top defence stock picks as it believes that the company is likely to be a key beneficiary of changing structural trends in the Indian defence sector. In its note, the brokerage said, “We believe structural earnings drivers in place as an increasing capital outlay in defence with indigenisation has been the focus area of government considering the requirement of armed forces of faster procurement of modern equipment.”

For HAL, the key growth drivers would be — Only sole primary supplier of India’s military aircraft; Big beneficiary of Government focus on developing indigenous defence aircraft; Strong technological capabilities due to the development of more advanced platforms such as Tejas and Advanced Medium Combat Aircraft; and Strong Order Book provides good earnings visibility (At present it has Rs 81,800 crore with a strong pipeline over Rs 2 lakh crore).

Also, HAL’s recent earnings are steady due to strong sales and better operational performance.

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“We believe HAL is well placed to tap growth with its focus on strengthening its R&D and its recent pact with GE Aerospace and France-based Safran Aircraft Engines augers well. It is also stepping up international business with its indigenous range of light combat aircraft Tejas, advanced light helicopters, light utility helicopters, and light combat helicopters,” said JM Financial.

Stiff competition, any delay in the execution of orders, and a slower pace of fresh order intake are among the key risks. Any delay in passing over costs due to high input costs would add pressure on margins, it added. The brokerage has a buy rating on the stock with a target price of Rs 2,230

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