Hindustan Aeronautics Limited Q4 FY24 Earnings Conference Call Insights

Key highlights from Hindustan Aeronautics Limited (HAL) Q4 FY24 Earnings Concall

• Revenue Growth
  • Revenues surged to new heights in FY 2023-24 at INR 30,381 crores, a 13% increase from the previous year.
  • Achieved double-digit growth target a year in advance, initially guided for FY 2024-25 onwards.
  • Strong order book and pipeline provide confidence in sustaining growth momentum.
• Cost Optimization
  • Focused on cost optimization to offer affordable platforms and services, and improve profitability margins.
  • Manpower cost reduced from 23% of revenue in 2018-19 to 17% in 2023-24, target of 15% for current year.
  • Overhead expenditure rationalized from 8% of revenue in 2018-19 to 4.66%, a 3% reduction over 3-4 years.
  • Inventory holding optimized from 359 days in 2017-18 to 159 days currently.
  • Debtors turnover improved from 227 days in 2018-19 to 55 days, an optimal level.
• R&D Investments
  • Sanctioned INR 4,000 crores for IMRH program and INR 2,000 crores for Utility Helicopter Marine.
  • R&D expenditure averages 7-8% of revenue, among the best in the industry.
  • Earmarking 15% of PAT towards creating an R&D corpus annually.
  • Focus on global certifications to enhance export reach.
• Order Book
  • Current order book stands at INR 94,000 crores, even after executing orders worth INR 30,000 crores.
  • Increase due to new orders worth INR 19,000 crores, including RD-33 engines, ALH for Army and Coast Guard, and export orders.
  • Expected to reach INR 120,000 crores by March 2025, after anticipated orders worth INR 47,000 crores materialize within a year.
  • Anticipated orders worth INR 160,000-170,000 crores in the pipeline, including LCA Mark1, LCH, ALH, Dornier, and Utility Helicopter Marine.
• New Product Deliveries
  • In FY 2024-25, scaling up LCA Mark-1A deliveries and commencing LUH deliveries.
  • In FY 2025-26, commencing deliveries of HTT-40, Civil ALH, and LCH (new orders).
  • Consistent increase in aircraft manufacturing numbers over the next 3-4 years.
  • Executing various engine programs like AL31-FP, RD-33, LM2500, Shakti, and commencing GE414 and Safran engine development.
• Gross Margin Improvement
  • Change Order 3 for LCA IOC contract finalized, resulting in additional revenue of INR 1,500 crores in Q4.
  • Reduction in depreciation and amortization by INR 400 crores compared to previous year.
  • Absence of impairment loss on Sukhoi program, which occurred in the previous year.
• Platform-Wise Deliveries
  • Delivered around 5 LCA and 6 ALH aircraft.
  • Delivered 15 RD-33 engines.
  • Exported 2 Dornier aircraft.
  • Major portion of revenue (INR 20,000 crores, 68%) came from repair and overhaul business.
• NUH Program Update
  • INR 2,000 crores sanctioned for R&D on Utility Helicopter Marine (UHM) program for Indian Navy.
  • New features like blade folding and assisted deck landing being developed.
  • Advanced stage of proving these features, expected to complete flight testing in next 2 years.
  • Commercial order expected by FY 2026-27, with deliveries starting from that year onwards.
• AL-31 Engines Update
  • Order for Su-30 AL-31 engines in advanced stages of finalization.
  • Expected to materialize within 1-2 months.
  • No pending actions from HAL’s side, awaiting process completion.
• LCA Mark-1 Production Ramp-Up
  • Current capacity of 16 LCA aircraft per year at Bangalore facility.
  • Setting up third production line at Nasik to augment capacity to 24 aircraft per year.
  • Nasik line expected to be operational from October 2024, targeting one aircraft rollout this year.
  • Capacity enhancement aimed at delivering 83 aircraft order ahead of schedule and accelerating 97 additional expected orders.
  • Target to complete combined 180 aircraft by 2030-2033.
  • Plan to deliver minimum 16 aircraft in FY2024-25.
• Multiple Program Delivery Timeline
  • Independent manufacturing facilities established for various programs like LCA, Helicopters, HTT-40, and Engines.
  • AL-31FP engines already in production at Koraput division for Indian Air Force.
  • HTT-40 deliveries to commence from September 2025 onwards.
  • Phased deliveries planned as per contracted schedules for each program.
  • Manufacturing ramp-up expected across multiple programs by 2026-2027.
• EBITDA Margin Outlook
  • Optimistic scenario of 32-33% EBITDA margins possible.
  • Minimum target of 29% EBITDA margins.
  • Operating profit expected in the range of 18-20%.
  • Depreciation and amortization around 5-7%.
  • Interest income contributing around 6% to EBITDA.
  • Excluding interest income, EBITDA margins projected at 26-27%.
• Super Sukhoi Program
  • Sukhoi upgrade program initiated, with HAL as the lead integration agency with Indian industry partners.
  • Acceptance of Necessity (AoN) already approved, contract negotiations expected within 6 months.
  • Contract finalization anticipated within the next 1 year after submission of quotations and negotiations.
• Revenue Mix/Growth Outlook
  • Manufacturing revenue to grow at a faster pace due to execution of new platform orders.
  • ROH revenue to grow in absolute terms but at a slower rate compared to manufacturing.
  • Expected revenue mix in 3 years – 60% ROH, 40% Manufacturing.
  • Manufacturing revenue expected to grow at 15-18% annually.
  • Repair and Overhaul (ROH) revenue growth projected at 9-10% annually.
  • Combined revenue growth of around 13% sustainable, similar to FY2023-24.
  • ROH growth to be lower than manufacturing growth rate.
• Defense Exports Outlook
  • Current defense exports around 1-1.5% of total revenue of INR 480-311 crores.
  • Focused on exports for the last 2-3 years, with a range of indigenous products now available.
  • Engaged in discussions with multiple countries like Philippines, Argentina, Nigeria, and Egypt for potential orders.
  • Expecting at least one breakthrough export order in the current financial year.
  • Targeting to become globally competitive in the next 2-3 years for defense exports.
• LUH Program Update
  • 8 LUH aircraft already manufactured against the initial limited series production.
  • Expecting contract for first 12 aircraft from Army and IAF in the current financial year.
  • Deliveries of these 12 aircraft also planned in FY2024-25.
  • Bulk order expected to materialize within the next 2 years after completion of limited series.