HAL Q4: Revenue up 18%
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00:00 Hello and welcome. This is Semina Nalwala and Agam and me will take you through all the market action on EFNO Spotlight.
00:05 But before and bigger than that is a conversation with the management of Hindustan Aeronautics.
00:10 But we have with us the CFO CB Anand Krishnan in a bigger NDTV exclusive in conversation with us.
00:17 But sir, just before we do that, we have a pleasant surprise for you, which I want to quickly play.
00:22 And then, of course, we'll come back to this conversation.
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02:15 The man behind that profit is going to be talking to us very shortly.
02:18 CB Anand Krishnan of HAL.
02:21 We will try and connect with him in a minute to understand what lies ahead for the company.
02:26 The stock performance has been phenomenal.
02:28 Earnings have been record.
02:30 Brokerages are very optimistic on the counter.
02:33 You are seeing a 2% gain on a day when the broader markets are looking quiet.
02:36 But over the last six months itself, HAL has had a multi-digit gain on its stock price
02:43 up about, I think it was 100 odd percent in terms of returns on HAL.
02:47 It has been one of the best performing PSU stocks for good reason from what we can see.
02:52 Well, we will talk to the management in a minute.
02:54 But just to give you a sense, the likes of UBS and Jeffries believe that we could see
02:58 an order book increase of over 25% on HAL in FY25.
03:02 Margins are expected to improve as well.
03:04 They could be seeing a pickup in large military orders due to a depleting fleet,
03:08 a robust supply chain, which is ready as well.
03:11 We will get a sense of how HAL is competing with global suppliers when it, of course,
03:16 provides and makes those fighter aircrafts.
03:18 So, the future is ready and, of course, the Prime Minister hailing HAL in terms of the
03:24 kind of good work that the company has done.
03:27 CB Anand Krishnan is now with us.
03:29 Good morning, sir.
03:30 Thank you very, very much for joining us.
03:32 Just before we came to you, we had an exclusive conversation with the Prime Minister where
03:36 he hailed HAL and hailed you for the good work that you have done at HAL.
03:41 The company has record earnings, profitability, investors are happy.
03:47 I mean, across the board, there is cheer and you represent the PSU basket in some sense.
03:52 And, of course, I want to start by talking about your earnings.
03:55 It's been a record-breaking quarter for HAL on top line, bottom line, order book.
04:00 As we go into FY25 and, of course, beyond FY25 as well, this is a multi-year story for a
04:08 company like yourself.
04:09 Guide us with what sort of expectations you have for HAL in terms of revenue growth and
04:15 order book.
04:16 Fifty percent of your order book, I believe, comes in from manufacturing.
04:20 What is it that you're working with?
04:22 Hello?
04:30 Hello?
04:31 Okay, so I think we'll have to come back to you.
04:37 There's a little bit of a struggle, I guess, when you're trying to do a long-distance
04:41 conversation in Bangalore.
04:42 Sometimes tech doesn't support you, but yeah, you've been reading out about specific
04:47 products about the company, right?
04:48 And the pipeline looks…
04:49 Actually, I was just going through how things have panned out for, you know, in the start
04:55 of aeronautics.
04:56 Now, over the last five years, they firstly got a very large order book when it comes
04:59 to Tejas.
05:00 Tejas is, of course, you know, that light aircraft.
05:03 And, well, the key takeaway here is that while they did get those orders over the course
05:10 of the last three to four years, the execution of orders has been slotted for perhaps later
05:16 on in FI25 and FI26, the delivery of which will happen then, which also gives the company
05:22 a substantial runway, a considerable amount of visibility going forward.
05:27 And, you know, that, of course, is something which is playing out in favor of the company.
05:32 This also means that there will be, you know, good, well, reading of revenues.
05:39 And, of course, we are also looking at at least one broking house, which is suggesting
05:43 that its order book could, well, grow by as much as three times over the course of the
05:48 next three years for each Hindustan Aeronautics.
05:52 And, of course, we also had updates from the DRDO where the suggestion is that there's
05:57 going to be a lot more in terms of Atma Nirbharta when it comes to the Indian defense space.
06:02 And that also means that there's going to be more outlay when it comes to defense sector.
06:08 The beneficiary of which is among many Hindustan Aeronautics.
06:12 And as we know about the very strong order book coming through, so, well, that's obviously
06:16 the something which continues to play in favor of the company.
06:19 Right.
06:20 I believe we have the man himself back again.
06:23 Sanam Krishnan, sorry, I think there is a little bit of a technical problem, but I want
06:28 to start by first complimenting you.
06:31 Every investor is a very happy investor.
06:35 HAL has had a record quarter in terms of earnings.
06:39 We also heard the prime minister in an exclusive conversation hailing the performance of HAL.
06:44 And, of course, the man at the helm of it is none other than you.
06:47 Tell us about what lies ahead for HAL.
06:50 It's been a journey.
06:52 It's been a journey of sorts.
06:54 The last five years have been very significant for your company.
06:57 Looking at the next five to 10 years, what is the sort of guidance that you're expecting
07:01 or you're putting out for yourself in terms of order book, manufacturing?
07:06 I believe you're looking to diversify as well across maintenance, repair and overhaul of
07:11 commercial aircrafts.
07:13 So help us, just wrap that up for us.
07:15 Tell us what lies ahead in FY25 and, of course, the roadmap for HAL over the next few years.
07:20 Yeah.
07:26 Good morning and thank you for this opportunity.
07:28 And we are also grateful to the Honorable Prime Minister for his words of appreciation,
07:33 which will be a real morale booster for all of our team at HAL.
07:37 And we expect the trust and confidence which he has, we'll be able to fulfill to his full satisfaction.
07:43 That apart, HAL has been showing a very robust growth consistently for the last four to five years.
07:49 And we have been on a single-digit growth.
07:51 And we have always projected that we will be on a double-digit growth from FY25 onward.
07:56 But, in fact, we have reported that by IR and we could show a double-digit growth in FY24 itself.
08:03 And that shows the resilience which HAL has got and the commitment which HAL has got towards its various stakeholders.
08:09 And as you are aware, the outstanding order book position as of FY24 is somewhere around 94,000 crores.
08:17 And we expect this order book to swell to 125,000 crores by FY25,
08:22 with the addition of another 45,000 crores of orders which are there in the pipeline,
08:27 which will all get neutralized in the next three to six months' time frame.
08:31 That apart, we are also having very clear visibility of our future orders,
08:36 that is, for a period of one year beyond and up to three-year time frame,
08:41 where we have got this additional 97 LCA Mark IA and then around 150 numbers of LCH combat helicopters.
08:49 And then the various other programs which are running through.
08:52 There is very clear visibility of an additional 2 lakh crores,
08:56 which would mean that almost 3.5 lakh crores of order visibility is there as of today.
09:01 And with our present double-digit growth rate of around 13%,
09:07 the momentum will be continued and the growth story will continue as far as HAL is concerned for the next five to six-year time frame.
09:14 And the order book as of now, and with visibility of almost further order book,
09:19 we will be in a position to execute all of this up to 2032 with the current growth rate momentum being maintained.
09:26 Sir, I want to quickly get a sense from you on margins as well and how you compete with the other global players.
09:34 On margins, there has been a very clear improvement this quarter.
09:37 Again, record margins for HAL on back of cost optimization and operational efficiency.
09:43 Going into the next couple of years, can we expect margins to only improve from these levels
09:49 or there is a better chance that you would sustain these margins?
09:53 Today, the operating margin is somewhere between 18% to 20%.
10:01 In fact, last year it has been 20%.
10:03 There was some abnormal income of almost 1,500 crores,
10:08 which is the pricing which has been refixed for the LCS which has already been delivered.
10:13 And so that has added and helped our margin to have a very healthy growth.
10:17 But that apart, we are very confident that with our execution plan and then with our mix of both manufacturing as well as our repair and overall platforms,
10:26 we will be in a position to maintain this operating margin at 20% at the minimum
10:31 and then the EBITDA margin can be at around 30% to 33% depending on what level of interest income we will add to that.
10:38 Broadly, if you see the operating margin is around 20% plus 7% is our depreciation and amortization
10:44 and then the other 6% will add on to 5% to 6% will add on to our interest income,
10:49 which means that around 30% to 33% the EBITDA margin will range between 30% to 33%.
10:56 And I know this is sustainable and we will be able to maintain at this level.
11:01 Right, so sir, from our understanding is that the first set of delivery of when it comes to the LCA,
11:07 MK1A is set to come through over the next couple of quarters.
11:11 So can you give us an idea or some timelines with respect to execution and deliveries over the course of FY25
11:19 and also what FY26 could look like when it comes to deliveries?
11:24 Yeah, we have started delivering this LCA MK1A.
11:31 We should be starting from the current financial year.
11:34 In fact, last year we should have started towards the end of March,
11:38 but we will be now delivering it before July.
11:42 The first aircraft is expected to be delivered before July
11:45 and as far as the contractor delivery schedule, 16 numbers of aircraft are supposed to be delivered in the current financial year
11:50 and year on year we are to deliver 16 numbers.
11:53 In fact, we are trying to expedite these delivery schedules by opening up a third line
11:57 where we are trying to enhance our capacity from 16 to 24,
12:01 which would speed up the delivery of this MK1A aircraft
12:04 and we are expecting to complete the deliveries of this MK1A by one year in advance.
12:11 And as far as the additional orders towards MK1A, that will get executed subsequently
12:16 and on the helicopter front we will be delivering again 25 ANH,
12:20 which is something we have received in the month of March, out of which 6 has already been delivered
12:25 and we will be delivering the balanced helicopters also in the current year.
12:28 So, the execution for the next 3 to 4 years also will be there as per the delivery contract
12:33 and delivery schedules which we have signed with the customers
12:37 and wherever we need to augment the capacity to see that these deliveries are happening,
12:41 we are augmenting the capacities and we are sure that the delayed deliveries will be a thing of the past
12:47 and HAL will be consistently delivering as per the contract and delivery schedule.
12:51 Sir, you have told us about the order book that stands at record levels as well.
12:57 Now, what about capacity?
12:59 Are you going to be investing in capacity because in order to fulfill this order book
13:04 and the fact that you are also competing in the global market, you will have to build on capacity.
13:10 Can you share with us your capacity expansion plans currently?
13:13 Yeah, capacity is not going to be a constraint at all because we have planned well in advance
13:21 that anticipating these orders to materialize, we have started augmenting our capacities.
13:26 Like for instance, in case of LCA Tejas Mark 1A, the earlier capacity was 16 numbers.
13:33 In fact, we started with 8 numbers and we augmented it to 16 numbers
13:36 when the contract for 83 LCA Mark 1A was getting signed.
13:40 But now that we have wanted to see that the deliveries are expedited,
13:44 we have also opened a third line in Nasik and that line is expected to become operational
13:48 sometime in the month of October of this current financial year.
13:52 So, which means that we wanted to roll out the first aircraft from our Nasik production line
13:57 in the current financial year and from next year we expect the deliveries,
14:01 we wanted to see that the deliveries are enhanced from 16 numbers.
14:05 We wanted our target is 24, but definitely we would like to see that a minimum of 20 aircrafts
14:10 of LCA Tejas is being delivered from 25, 26 and we will see to it that 24 numbers are reached
14:17 in the next one to year time frame.
14:19 This is as far as the helicopters are concerned, I mean aircraft is concerned.
14:23 As far as the helicopters are concerned, as you know that we have also started a new helicopter factory in Tumkuru
14:28 where we have got a capacity to start with 30 numbers.
14:32 We are into the phase 2 of expansion which would mean that the capacities can be increased
14:36 from 30 to 60 numbers to take out the future requirement
14:39 and the peak capacity load of 90 numbers can be reached with further investments in the Tumkuru facility.
14:44 And similarly, we have also realized that to support all these platforms,
14:48 we need to strengthen our accessories and avionics divisions.
14:51 We are also putting in the various capital infusions into these divisions to see that these divisions also
14:56 keep the supply chain is not getting constrained by the capacities of these accessories and avionics.
15:03 So all in all we are seeing that to the extent possible that the capacities will not become a constraint.
15:08 In fact, we can take up much more, I mean we are also planning ahead for the taking,
15:13 for catering to our export orders as well.
15:16 So we will be in a position to deliver with our existing capacity and with the plan for enhancement
15:21 in the next 2 to 3 years capacity is not going to be a constraint at all.
15:25 A curiosity when it comes to exports, now we understand that you being in a very unique business at the moment,
15:31 of course India being, considering a substantial of your order book,
15:37 going ahead when it comes to markets abroad, so what is the opportunity here,
15:41 where is it that there is a chance to exploit that market
15:46 and what is the thought process as far as the company is concerned?
15:53 Yeah, in fact we have started very aggressively marketing in the global aerospace market in the last 2 to 3 years time frame only.
16:00 And we have also today got a range of our own products which we can offer to the global customers,
16:05 which will be of interest to them.
16:07 And we are also taking certain aggressive measures in terms of, I mean,
16:12 opening the marketing offices in the various regions, also engaging the channel partners,
16:17 besides also actively involving our embassies abroad,
16:20 along with which we get the support from the DA and the defence attaches and the embassies abroad
16:25 to see that the market potential of those countries is getting fully exploited.
16:29 Now with these sort of initiatives being taken by the company,
16:33 the leads have also started coming and the leads are quite interesting.
16:37 We have got leads from the various regions, as you know that we have got the leads from Argentina,
16:42 we have got the leads from Egypt, we have got certain leads from Nigeria, Philippines,
16:46 and then of course in Malaysia even though the LCA Tejas could not make it,
16:50 but there are other interests which are being shown.
16:53 So which would mean that all these export potential, all these leads will get converted into business contract in the near future.
16:59 And we are hopeful that we will be able to contribute substantially through our exports revenue,
17:05 I mean, our overall revenue, we will be able to substantially bring in our exports also as part of our revenue profile.
17:12 We expect at least 10% of our total revenue in the next 3 to 5 year time frame to be generated from our exports.
17:20 And we are confident that today while we are trying to focus on the indigenous industry
17:24 with our initiatives in the export market, export market also is going to contribute in a big way to the company's future revenue growth.
17:32 Sir, export business gives you better margins?
17:40 Can I get you the question?
17:42 I said export business sir gives you better margins?
17:45 Yeah, to start with we would like to see that export we don't see from the margins perspective,
17:53 but we will slowly afterwards we get established as you know that margins will always,
17:57 we will generate margins from our subsequent repair and overall activities which are there.
18:02 But we wanted to just have a foothold in all of these regions.
18:05 So, we are not initially to start with we wanted to have a foothold in the export market rather than looking at the margins at present.
18:13 Okay, thank you very very much sir for joining us.
18:17 It's such a pleasure to talk to you and we hopefully can catch up in a longer format conversation with you sometime soon.
18:24 But good luck and congratulations once again, it's been phenomenal.
18:27 We wish you all the luck going ahead.
18:30 Thank you.
18:32 you
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