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HAL Secures ₹26,000 Crore Deal for 240 Aero-Engines for IAF

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Synopsis:

HAL signed a ₹26,000 crore deal to supply 240 AL-31FP aero-engines for IAF precisely, for the Su-30MKI fleet, enhancing IAF's operational capabilities. The order will bolster HAL's backlog to ₹1.2 lakh crore.

In a significant boost to India's defence capabilities, Hindustan Aeronautics Ltd (HAL) has secured a ₹26,000 crore deal to supply 240 aero-engines for the IAF’s (Indian Air Force) Su-30 MKI fleet. The deal, approved by the Cabinet Committee on Security, falls under the Buy (Indian) category, highlighting the government's focus on enhancing indigenous production.

Indigenisation and manufacturing

The engines, to be manufactured at HAL's Koraput division, will feature over 54% indigenous content. This indigenisation will be achieved through the localisation of key components, ensuring that a substantial portion of the engines is produced within India. The first batch of deliveries is expected to begin in a year, with the entire order slated for completion over the next eight years.

Impact on HAL’s order backlog

This deal is set to significantly bolster HAL’s order backlog, pushing it from ₹94,000 crore at the end of FY24 to approximately ₹1.2 lakh crore. The increased backlog provides HAL with strong revenue visibility, securing 3.8 times its trailing twelve-month (TTM) revenue. Antique Broking has issued a 'Buy' call on HAL stock, setting a target price of ₹6,145 per share, reflecting the company’s potential for multi-year double-digit earnings growth.

Strategic importance for the IAF

The Su-30 MKI is a key component of the IAF’s fleet, and the procurement of these engines is crucial for maintaining the operational readiness of these aircraft. The Defence Ministry has emphasised that the supply of these aero-engines will sustain the fleet’s capabilities, ensuring uninterrupted operations and strengthening the nation’s defence preparedness.

HAL’s stock performance

Shares of HAL rose by over 3% following the announcement of the deal, reflecting investor confidence in the company's future prospects. HAL’s stock has shown a strong performance, gaining nearly 66% this year and approximately 140% over the past 12 months, more than doubling investors' returns. This surge has outpaced the benchmark Nifty, which has rallied by 30% during the same period.

Leadership transition at HAL

In the midst of these developments, DK Sunil has taken over as the new chief of HAL, succeeding CB Ananthakrishnan. Sunil’s tenure will focus on executing critical projects for the armed forces, including accelerating the LCA Mk-1A program, where timely delivery remains a concern for the IAF.

This latest order not only reinforces HAL's position as a pivotal player in India's aerospace sector but also underscores the strategic importance of the Su-30 MKI fleet in safeguarding national security.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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