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.