In Budget 2022, the government had reiterated its commitment to reduce imports and promote self-reliance in defense manufacturing by allocating 68% of the defense capital procurement budget for local procurement.
Recently, the government has approved another list of 107 strategically important line replacement units and sub-systems that will be indigenous.
Of them, 22 items will be taken up for indigenization by Hindustan Aeronautics Limited (HAL).
HAL is an Indian state-owned aerospace and defense company headquartered in Bengaluru, India.
It was a historic moment in 2016, when the company handed over India’s first indigenous light combat aircraft, the “Tejas”, to the Indian Air Force.
However, in the past, the company has been criticized for its inefficiencies.
After all, it took HAL over 3 decades to build India’s first indigenous fighter aircraft.
Critics have often highlighted the company’s dysfunctional production processes and bureaucratic style of functioning as a monopoly.
But in recent times some major changes have taken place in the defense sector.
The Indian Air Force has started the process of procuring around 110 fighter jets, which could be worth more than US$15 billion.
And private companies have entered the fray.
American defense company Lockheed Martin has entered into a joint venture with Tata Advanced Systems to produce the F-16 in India.
The Adani Group along with SAAB, a fighter aircraft manufacturer based in Sweden, plans to jointly manufacture the Gripen E fighter jet in India.
Will HAL be able to keep pace with the private players or will it be left to the side?
HAL: Up, Up and Away
Top HAL officials are not worried about competition from the private sector.
Conversely, the management is of the view that as India ramps up exports of defense equipment, HAL alone will not be able to meet the demand. Private companies will need to supplement their production.
Recently, HAL has received contracts for the production of 15 Light Combat Helicopters (LCH) from the Indian Air Force and the Indian Army.
In addition, the company is focusing on increasing exports in line with the government’s ambitious defense export target of US$5bn by 2025.
It has identified South East Asia, West Asia and North Africa for selling key platforms like Tejas, attack helicopter Rudra and advanced light helicopter, Dhruv. HAL aspires to be a one-stop shop for all defense requirements
aviation sector. It also wants to capture a larger share of the export pie. It will work closely with private firms to achieve this goal.
In January 2021, the Indian Air Force approved the deal of 47,000 crore for the purchase of 83 indigenously developed light combat aircraft, Tejas.
The deal came as a boost for HAL as it ensures continuity in production for the company which is essential for its growth.
HAL has already expanded its production facilities and established second line manufacturing facilities at its Nashik and Bengaluru divisions.
Production has doubled from 8 to 16 aircraft per year as the company remains committed to ensuring timely delivery of jets to the Indian Air Force.
HAL records highest ever revenue 240 billion for the fiscal year ended 31 March 2022. it paid a dividend of 10.05 billion to the government in the last financial year.
Nothing but blue skies ahead…
In its first major effort to develop a small civil transport aircraft, last week, HAL introduced the Hindustan 228, a 19-seater aircraft that can be operated in semi-finished and unpaved airstrips.
The company believes that there is great potential in the market for such aircraft designed for short distance travel.
Multi-role utility aircraft can be used for recreational activities such as VIP transport, passenger transport, air ambulance, flight inspection roles, cloud seeding, para jumping, aerial surveillance, photography, remote sensing and cargo transport.
Under the UDAN scheme, the central government aims to set up 1,000 new air routes and set up 100 new airports.
Hence, HAL expects good demand for these aircraft from state governments, civil operators and private parties for intra and inter-state connectivity.
HAL is also hoping to export the aircraft to countries like Nepal.
Earlier in March, the company entered into a joint venture with French aerospace giant Safran to set up a new facility of helicopter engine MRO in Goa.
The facility will be operational by the end of 2023, with a capacity to repair 50 locomotives annually and will target a full capacity of 150 locomotives in the coming years.
Defense has been a priority area for the Government of India since 2014 to realize its objective of ‘Make in India’ and ‘Atmanirbhar Bharat’ and is promoting HAL.
HAL is poised to remain the leading aircraft company in the near future.
With decades of experience and large infrastructure investments made over the years, it is unlikely that private players will be able to reach their scale and size anytime soon. Competition from the private sector is likely to intensify in the long term. But HAL has a long standing relationship with the Indian Defense Forces. It also has manufacturing facilities and experienced manpower.
Backed by its strong R&D capabilities, the company plans to design and develop more indigenous platforms and offer more products in the domestic and export markets.
HAL is currently leading some of the most strategic projects in the aerospace and defense sector in India. with order book 1 lakh crore and with several other projects, HAL is all set to move ahead at a higher level.
about stock
HAL’s shares have gained 55% in the last one year while it has gained 28% in 2022.
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As of December 2021, HAL’s latest shareholding pattern shows promoter holding at 75.2% and mutual fund holding at 21.4%. FIIs hold 3.15% stake in the defense company.
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
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