HAL: Fundamental Analysis

ABOUT THE COMPANY

Hindustan Aeronautics Limited (HAL) is an Indian defense company owned by the government (approx. 75% holding). HAL was founded on 22 Dec. 1940, then formally known as Hindustan Aircraft Ltd. Which changed to Hindustan Aeronautics Ltd. On 1964. HAL has headquarters in Bangalore, India. The company is mainly engaged in the manufacturing and development of aircraft, helicopters, aircraft engines, and other aerospace structures. HAL fundamental analysis will help you to make wise investment decisions.

HAL began its aircraft production in 1942 with licensed production of Curtiss P-36 Hawk, Harlow PC-5, and Vultee A-31 Vengeance for the Indian Air Force. The company also gets its major revenue from repairing, overhauling, upgrading, servicing, and licensed manufacturing of aircraft engines and various parts. HAL is one of Asia’s largest defense and aerospace companies with a revenue of Rs. 24,620 Cr (as of 2022).

HAL also developed defense products indigenously with the help of DRDO(Defence Research and Development Organization) and ADA(Aeronautical Development Agency), including LCA Tejas, HAL Dhruv, HAL Light Utility Helicopter, etc. HAL is working on many ambitious projects including LCA Tejas MK-2, and AMCA(Advanced Multirole Combat Aircraft), in addition, company is further engaged in manufacturing rocket parts too, which includes rocket engines and booster of PSLV, GSLV and other rockets used by ISRO.

What are the Brands of the company?

Hawk, LCA, SU-30, IJT, Dornier, HTT – 40, DRUV, ALH, KIRAN-I/IA, KIRAN II, JAGUAR, MIRAGE, CHEETAH, CHETAK, LANCER, RUDRA, LCH, LUH, IMRH, UAV, RUAV, SPORTS, HS – 748, AN – 32, MIG – 21 BISCON, DO – 228

HAL FUNDAMENTAL ANALYSIS

Note: All the data used for analysis is correct as on 4^th April 2023. It can change in due course of time. The data on this report/blog will be updated every month.

What is the shareholding pattern of the company?

Constant shareholding of the promoter (i.e. president of India) is positive for the company. But, because promoter(government) holding is more than 75%, the government reserves nearly all the powers of the company, as government alone can easily pass a special resolution at the general meeting without depending on other shareholders.

What about the company’s management?

R Madhavan is the company’s current Chairman & Managing Director. In the past, there were many questions on the management regarding exports, profits of the company, and delays in projects. But currently, the company’s performance is improving rapidly over the past two years. The company’s turnover, profits, and exports are increasing constantly and company is also improving its R&D.

FINANCIALS

Here, in financials, we are going to discuss some terminologies which are very important to understand the financial position of the company. Hence, to make investment decisions too. Financials are important for HAL fundamental analysis.

Revenue

The revenue of the company is constantly increasing without getting affected by any market conditions. Revenue growth is a very positive factor to consider while investing in the company. The company’s constant revenue growth is clearly indicating the company’s future.

Net profit

A company’s net profit is also known as its net income, net earnings, or bottom line. It represents the financial standing of a company after all its expenses have been paid off from its total revenue. The net profit of the company is a very important factor.

The net profit of the company is increasing exponentially, which is very great for the investment.

EPS

Earnings per share (EPS) is calculated as a company’s profit divided by the total shares of the company, hence, the resulting number serves as an indicator of a company’s profitability.

The Company’s EPS is increasing YoY(Year on Year), which is very positive for the company.

ROE

Return on Equity (ROE) is the measure of a company’s net income divided by the value of its total equity, expressed in form of a percentage.

net income or profit is compared to the equity of the company. The number represents the total return on equity capital and shows the firm’s ability to turn equity investments into profits. To put it another way, it measures the profits made for each rupee from equity.

There is a direct relationship between ROE and companies’ performance. HAL’s ROE is increasing YoY. Increasing ROE is a very positive factor for investing.

Debt to Equity ratio

The debt-to-equity ratio shows how much debt a company has compared to its assets. It is calculated by dividing a company’s total debt by total equity. A higher D/E ratio means the company may have a harder time covering its liabilities.

In the last two years company had zero debt. Because of no debt company can divert its profit to scaling up or to distributing dividends. The company doesn’t have to spend profits on paying interest.

Other Technical Terms Analysis

Before investing in any company, we should know all about companies’ fundamentals and technical. Here are some important technical terms of the company explained.

Beta: 0.92

What Is Beta?

beta is a measure of the volatility of the share, as it compares to the broader market. The beta of a company measures how the company’s LTP of equity share changes with changes in the overall market. A beta close to 1 means companies’ share prices will be affected by the trend of the overall market.

Here, HAL’s beta value is 0.92 which is close to 1, which means shares get affected by overall market conditions and volatility. As long as the beta is below 1, it is considered as good for investment.

PE Ratio: 14.94

P/E(Price per earning ratio) is a valuation parameter that measures the company’s current share price to its per-share earning. Generally, a High P/E is overvalued and Low P/E is undervalued.

HAL’s P/E ratio (14.94) is high, which means the company is overvalued at the current price. A high P/E ratio is definitely not good for the company. But, it is also NOT necessary that if the company has a high P/E ratio, then its share will fall.

EPS (TTM)

Trailing 12 months (TTM) is a term used to describe the past 12 consecutive months of a company’s performance data. Here, TTM EPS means, the last 12 months’ EPS of the company.

Companies TTM EPS is excellent as well as increasing therefore it is very positive as you can see on the above chart.

Dividend Yield: 1.84%

The dividend yield is the financial ratio that measures the quantum of cash dividends paid out to shareholders relative to the market value per share. It is computed by dividing the dividend per share by the market price per share and multiplying the result by 100. A company with a high dividend yield pays a substantial share of its profits in the form of dividends.

As HAL is a Government company, the company pays divided to its shareholder constantly. In general, the share price of highly dividend-paying companies does not appropriate rapidly. These are PSU companies, in general. But this is not the case with HAL. The company’s share price is increasing rapidly and the company also pays dividends to its shareholders. Although the dividend yield percentage is not high.

Dividend Distribution history:

P/B ratio: 4.70

It represents the relationship between the total value of an organization’s outstanding shares and the book value of its equity. Here, the P/B ratio of HAL is high, which means the company is overvalued as we saw in the P/E ratio earlier.

MCAP: Rs. 91,000 Cr

MCAP means market capitalization of the company. HAL is a big company with a market capitalization of 91 thousand crore rupees. It means we can assume that the risk of investing in HAL is low. High Market capitalization is good for investors.

THE FINANCIAL POSITION OF THE COMPANY

In 2007 company received Navratna status from the government of India. Therefore, companies’ financial position is significantly important to the government. Let’s study the Financial position of the company.

Balance Sheet

The balance sheet of the company looks normal. The company has great fixed assets.

Cash flow statement

The company has a negative cash flow which is not good for the company.

Sales Growth: 7.59%

Profit Growth: 57.02 %

Peer comparison:

As we can clearly see the company has an advantage in all factors over its competitors. In the case of HAL, its competitors are not a  threat to the company, because HAL is not competing with peers but collaborating with peers to do well.

TECHNICAL ANALYSIS

Simple Price Chart (AS on 3 April 2023)

The company’s share price is increasing constantly. Companies chart seems to be healthy.

Long term CAGR of HAL is very impressive. HAL easily outperformed indexes(Nifty And Sensex).

Detailed study of technical charts.

Share has a strong trend line working as a demand zone. Share LTP is trading above 50 And 200 EMA (Exponential Moving Average).

SWOT ANALYSIS

SWOT analysis is very important to summarise your view as well as to HAL fundamental analysis

Strength :

1. Stable ownership
2. Efficiency in the utilization of assets
3. Stable Financials
4. Zero debt
5. High TTM EPS
6. High ROE
7. Consistent Hightes return stock
8. Increasing profit margin
9. Increasing revenue
10. Net profit improving
11. Improving BVPS(Book value per share)
12. Zero promoter hedge
13. Increasing shareholding of FII/FPI

Weakness:

1. High P/E ratio
2. High P/B ratio
3. Declining net cash flow
4. MF Decreasing shareholding

Opportunity:

1. Undervalued Growth Stock
2. High Momentum Scores (Technical Scores greater than 50)
3. Stocks near 52 Week High with Significant Volumes
4. Government support to the defense sector (Aatmnirbhar Bharat)

Threat :

1. Government can disinvest in shares

Conclusion of HAL Fundamental Analysis

There is a high chance that the company will grow exponentially in the future. Because of, The company has great strength and opportunities to grow. High support of the government. The defense sector is booming in India. Very ambitious projects of the company. My Investment Rating is 8/9.