Hindustan Aeronautics: The high-flying PSU

Public sector stocks are often recognised for their dividends but not necessarily for their wealth creation. However, in recent years, some of these companies have defied this trend, and Hindustan Aeronautics is a notable example. Over the past five years, Hindustan Aeronautics (HAL) has witnessed an impressive annual share price growth of 34 per cent, in contrast to Sensex's 12 per cent growth. The bulk of this growth has occurred in the last year, thanks to consistent improvements in its fundamentals and favourable sectoral conditions. In this article, we delve into the factors behind HAL's remarkable growth. What is HAL's core business? HAL operates within the aerospace and defence (A&D) industry. Its activities encompass the design, development, manufacturing, repair, and upgrading of defence aircraft and helicopters for the Indian Defence Force. Additionally, HAL collaborates with ISRO on certain space programs. It is evident that the primary clientele of the company are the Indian defence services. While HAL's revenue growth has been on the lower side, it has experienced explosive profit growth and strengthened its balance sheet. The key to this growth has been a focus on efficiency and profitability, rather than solely concentrating on the top line. Changing fortunes HAL's financials have improved significantly over last five years FY23 FY22 FY21 FY20 3Y growth (% pa) Revenue (Rs cr) 26927 24620 22882 21445 7.9 Operating profit (Rs cr) 4901 4305 4186 3916 7.8 Operating profi