This defence sector stock boosted investor wealth by 75%

• HAL is one of the world’s largest and oldest defence manufacturing companies, and its investors have gotten very rich this year.
• HAL’s rise could also benefit two other defence manufacturers, say analysts.
• The company’s large orderbook, and interest in the Tejas LCA by six countries has driven the rally in its stock.

Defence indigenization has been one of the goals of the current Indian government, with an aim to reduce dependence on foreign countries. But a crucial aspect that gets relatively less airtime is defence exports – and it has made investors of Hindustan Aeronautics richer by 75% in 2022 alone.

Hindustan Aeronautics Limited (HAL) has been identified by analysts as “the defence Prime” – essentially crowning HAL as the kingpin of the Indian defence sector.

According to the analysts at ICICI Securities, HAL’s defence export efforts could also open up export opportunities for two other state-owned defence manufacturers – Bharat Electronics and Bharat Dynamics, thereby helping to expand the Indian defence industrial complex in general.

₹1 lakh invested in HAL at the beginning of 2022 is now worth ₹1.75 lakh.


Why is HAL surging?

HAL is in talks with Egypt, Malaysia and Nigeria for defence exports that could amount to over $5.5 billion, with tenders for setting up manufacturing facilities for the Tejas Mk1A light combat aircraft, helicopters and maintenance of Malaysia’s Sukhoi fighter jets, among others.

The Indian government’s focus on increasing defence indigenization has also helped HAL in securing economies of scale, making its export offers more competitive. This, coupled with the high technical ratings of Tejas, have made it a key contender for bagging contracts from Egypt and Malaysia.

According to the company’s latest financials, HAL’s current orderbook stands at ₹82,000 crore – this is 3.3-times the company’s FY22 revenue. Further, it has a strong pipeline of ₹1.24 lakh crore of manufacturing orders over the next three to four years, which will help the company deliver double-digit revenue growth, according to a report by ICICI Direct Research.

India’s defence exports: A quick dekko

In the Defence Production Policy of 2018, the Indian government set out an ambition of hitting $5 billion in annual defence exports by 2025.

In 2017-18, India’s defence exports stood at $0.66 billion and have crossed $1.6 billion this year. Its latest major defence deal was for the BrahMos cruise missile with the Philippines, worth $375 million.

Some major players in the Indian defence industry include HAL, Bharat Electronics, Bharat Dynamics, Bharat Forge, BrahMos Aerospace, Tata Advanced Systems and L&T, among others.

A Tejas success story

Once rejected by the Indian Navy as “too heavy”, Tejas has been one of the success stories of India’s defence indigenization efforts. And now, according to the government, six countries are interested in HAL’s light combat aircraft.

The Egyptian air force needs 70 light combat aircraft at an estimated cost of $3 billion. HAL has offered to set up production facilities for the Tejas aircraft and helicopters in Egypt.

HAL has already offered the twin-seater variant of the Tejas LCA to Malaysia in a deal worth $1.5 billion, in addition to maintenance of the Russian-origin Sukhoi 30 fighter jets.

The Indian government said that the US, Australia and Indonesia have also expressed interest in the Tejas.

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