Saturday, 12 September 2020

Hindustan Aeronautics Limited - Educational Note #HAL

 

About the Company

Hindustan Aeronautics Limited (HAL), was incorporated in 1964 by amalgamation of Hindustan Aircraft Limited and Aeronautics India Limited, is a Navratana Company. Government of India (GoI) holds majority stake of 89.97% as on March 31, 2020. HAL is into carrying out design, development, manufacture, repair and overhaul of aircraft, helicopter, engines and related systems like avionics, instruments and accessories primarily serving Indian defense programme. It also manufactures the structural parts of various Satellite Launch Vehicles of the Indian Space Research Organization (ISRO)

Conclusion

On Valuation front company is doing okay but rising debt levels for Working Capital Management is a drag. Also, it caters to government which is why debtors’ days are worsening.

The hope for the company right now is increase Defense Supplies on back of Atma Nirbhar Mission. Company also needs to work on creating export markets

All in all, though I have invested a very small quantity for exposure to defense sector I won’t add any fresh investments here can continue holding my stake.

Based on Technical Structure I may exit on bounce

Analysis

Strengths

  • HAL’s strategic importance to Indian Defense Sector and Government of India ownership
  • Continuing healthy order book position
  • Strong financial risk profile marked by stable profitability and cash accruals
  • ·        Fully integrated production capabilities and continually improving product portfolio
  • ·        Strong Research and Development capabilities

Weakness

  •        Increasing reliance on WC borrowings while build-up of receivables continue
  •        Prospects of company depend on Indian Defense sector with limited exports
  •        Increasing private sector participation

Pros:

  • Stock is providing a good dividend yield of 3.90%
  • Company has been maintaining a healthy dividend pay-out of 40.61%

 Cons:

  • Contingent liabilities of Rs.10574.78 Cr.
  • Company has high debtors of 195.83 days.

 

 

 

 

 Performance Metrics

 

Technical Setup

  • Currently on Weekly Technical Structure looks weak
  • Stock has closed below Weekly EMA at 865
  • To regain strength stock needs to claw back above 865 on weekly closing basis
  • Next Support is at 780 which is convergence of 50 and 100 EMA