By Aritra Banerjee
Hindustan Aeronautics Limited (HAL) shares increased by more than 5% on 11 August 2022; this was a day ahead of the Public Sector Undertaking (PSU) reporting its earnings for the fiscal year report for its April-June 2022 quarter. HAL has been a longstanding player in the defence manufacturing sector globally. Some industry watchers believe that this year has seen the company’s investors reaping significant investment returns, and HAL’s growth could prove worthwhile for two other defence manufacturing companies.
One of the critical drivers believed to have led to a surge in HAL stock is the indigenous Light Combat Aircraft (LCA) Tejas and the recent interest in the product by six different companies. With indigenisation being the clarion call for the Indian defence industry Make-In-India has been the rallying point for the domestic sector, aiming for self-reliance over dependence on foreign vendors.
Defence Secretary Ajay Kumar had previously spoken to IA&D about the Government of India’s $5 Billion defence export target. This stated objective has seemingly bolstered the indigenous defence market. Reports indicate that HAL investors have profited to the tune of 75% this year alone.
Egypt, Malaysia, and Nigeria are in talks with HAL. These could potentially lead to exports higher than $5.5 billion. This includes tenders to establish manufacturing facilities for the Tejas Mk1A, choppers, and maintenance contracts for Malaysia’s Sukhoi fighter jets with the potential for more avenues of exploration.
The Indian Government’s emphasis on self-reliance and defence indigenisation has aided HAL in achieving economies of scale and offering more lucrative export contracts. These developments and the indigenous fighter’s high technical ratings have given it a competitive edge for bagging deals with Malaysia and Egypt.
HAL’s latest financials highlight that its present order book stands at ₹82,000 crores. The amount is significant as it is 3.3 times HAL’s FY22 revenue. Analysts foresee the PSU boasting a ₹1.24 lakh crore strong pipeline of manufacturing orders in the next three to four years. If HAL stays on the course, it could deliver double-digit revenue growth.
Six nations- Argentina, Australia, Egypt, Indonesia, the Philippines, and the US- have shown interest in India’s Tejas aircraft, while Malaysia has already shortlisted the jet under its acquisition program. In February last year, the defence ministry sealed a Rs 48,000 crore deal with HAL to procure 83 Tejas light combat aircraft for the Indian Air Force (IAF). HAL responded to a Request for Information (RFI) or initial tender received from Royal Malaysian Air Force in February 2019.
Subsequently, the HAL responded in October 2021 to a Request For Proposal (RFP) issued by Malaysia for 18 aircraft, adding that the twin-seater variant of the Tejas was offered. Malaysia is procuring the aircraft to replace its ageing Russian MiG-29 fighter planes. The number of aircraft Malaysia is looking at procuring is not immediately apparent. Last month, the then Chairman and Managing Director of HAL R Madhavan said that the Tejas aircraft has emerged as the top choice for Malaysia.
There are also plans to manufacture a stealth fighter jet, and the Defence Research and Development Organisation (DRDO) has already successfully tested the autonomous flying wing technology demonstrator. The LCA Tejas is a single-engine multi-role fighter aircraft capable of operating in high-threat air environments. A market survey carried out last year indicated that Tejas is one of the top four LCAs in the global market, alongside competitors from China and Pakistan.