HAL shares in focus as govt signs Rs 26,000 crore Su-30MKI fighter engine contract

Defence stock: Hindustan Aeronautics Ltd (HAL) is in focus on Tuesday morning after the Ministry of Defence (MoD) finalised a contract with the defence PSU for producing 240 AL-31FP aero engines for Su-30MKI aircrafts, with the deal valued at over Rs 26,000 crore. The agreement was signed on September 9 in New Delhi by senior officials from both MoD and HAL, including Defence Secretary Giridhar Aramane, Chief of the Air Staff Air Chief Marshal VR Chaudhari and Secretary (Defence Production) Sanjeev Kumar.

The move is seen bolstering HAL order backlog of Rs 94,000 crore to Rs 1.2 lakh crore. This will lead to strong revenue visibility of 3.8 times its trailing 12-month revenue. The HAL stock is down 1.5 per cent in the past one month but is up 65 per cent in 2024 so far.

In a significant boost to the Aatmanirbhar Bharat initiative, the engines will be produced at HAL’s Koraput Division. They will be crucial for maintaining the operational readiness of the Indian Air Force's Su-30 fleet, thus enhancing national defense capabilities,

HAL is committed to delivering 30 engines annually, with the complete supply of 240 engines slated for completion over the next eight years.

“HAL would supply 30 aero-engines per annum as per the contractual delivery schedule. The supply of all 240 engines would be completed over the period of next eight years,” a Ministry of Defence press release suggested.

In the manufacturing process, HAL will engage with India’s defense manufacturing ecosystem, including MSMEs and various public and private sector industries.

By the conclusion of the delivery program, HAL aims to increase the indigenisation content to 63 per cent, achieving an average of over 54 per cent. This enhancement will also boost the indigenous content in the repair and overhaul of the aero engines.

"HAL’s order book at the end of FY24 stood at Rs 94,000 crore providing revenue visibility of 3.2 times its TTM revenue. The order book will be further bolstered by Rs 26,000 crore order for 240 aero engines of Su-30 MKI aircraft and would stand at Rs 1.2 lakh crore, delivery of which should begin from FY26 onwards. Incrementally, the order pipeline looks extremely healthy with orders worth Rs 48,000 crore for ALH (25), LUH (12), Su-30 (12), and RD-33 engines (80) being in advanced stages of finalisation and are expected to materialise in the near term," Antique Stock Broking said recently.