Defence has been a priority sector for the Indian Government for realising its objective of ‘Atmanirbhar Bharat.’ How will it impact India’s largest defence PSU, HAL?

Defence stocks have been on fire recently. Stocks of most defence companies are trading close to their 52-week highs. In Budget 2022, the government had reiterated its commitment to reduce imports and promote self-reliance in defence manufacturing by allocating 68% of defence capital procurement budget towards local procurement.

Recently, the government has approved another list of 107 strategically important line replacement units and sub-systems that will be indigenised.

Of them, 22 items will be taken up for indigenisation by Hindustan Aeronautics Ltd (HAL).

HAL is an Indian state-owned aerospace and defence company headquartered in Bangalore, India.

It was a historic moment in 2016, when the company handed over India’s first indigenous light combat aircraft, “Tejas" to the Indian Airforce.

However, in the past, the company has been criticised for its inefficiencies.

After all, it took HAL over 3 decades to finally build India’s first indigenous combat aircraft.

Critics have often highlighted the company’s wasteful production processes and bureaucratic style of functioning because it’s a monopoly.

But in recent times, the defence sector has undergone some major changes.

The Indian Air Force has initiated the process of buying around 110 fighter jets, which could be worth more than US$15 bn.

And private companies have entered the fray.

Lockheed Martin, the U.S. defence giant has entered a joint venture with Tata Advanced Systems to produce F-16s in India.

The Adani group along with SAAB, a combat aircraft manufacturer based in Sweden plan to jointly manufacture Gripen E combat jets in India.

Will HAL be able to keep up with private players or will it be left on the side-lines?

HAL: Up, Up And Away

The top brass at HAL don’t seem too worried about the competition from the private sector.

On the contrary, the management believes as India increases exports of defence equipment, HAL alone won’t be able to meet the demand. Private players will need to supplement their production.

Recently, HAL bagged a contract for production of 15 Light Combat Helicopters (LCH) from the Indian air force and Indian army.

Further, the company has been focused on boosting exports in line with the government’s ambitious defence exports target of US$5 bn by 2025.

It has identified Southeast Asia, West Asia, and North Africa to sell key platforms like Tejas, attack helicopter Rudra, and the advanced light helicopter, Dhruv. HAL is looking to be a one-stop shop for all defence requirements in the aviation sector. It also wants to capture a greater share of the export pie. It will work alongside private firms to achieve this goal. In January 2021, the Indian Airforce approved a deal worth ₹47,000 cr to procure 83 indigenously developed light combat aircraft, Tejas.

This deal came as a boost for HAL as it ensures continuity in production for the company which is necessary for it to grow. HAL has already ramped up its production facilities and set up second-line manufacturing facilities at its Nasik and Bengaluru divisions.

Production has since doubled from 8 to 16 aircrafts per year as the company is committed to ensure timely deliveries of the jets to the IAF.

HAL recorded its highest ever revenue of over ₹240 bn for the financial year ended on 31 March 2022. It paid a dividend of ₹10.05 bn to the Government for in the last financial year.

Nothing But Blue Skies Ahead…

In its first major attempt to develop small civil transport aircrafts, last week, HAL introduced Hindustan 228, a 19-seater aircraft that can be operated even in semi-prepared and unpaved airstrips. The company believes there is a huge potential for these kinds of aircraft designed for short-haul travel in the market.

The multi-role utility aircrafts can be used for VIP transport, passenger transport, air ambulance, flight inspection roles, cloud seeding, recreational activities like 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 establish 100 new airports.

Hence, HAL anticipates good demand for these aircrafts from state governments, civil operators, and private parties of intra and inter-state connectivity.

HAL is looking forward to exporting the aircrafts as well to countries like Nepal.

Earlier in March, the company had entered a joint venture with Safran, the French aerospace giant to set up a new facility of Helicopter Engines MRO in Goa. The facility will be operational by the end of 2023 with a capacity to repair 50 engines a year and a full-capacity goal of 150 engines in the coming years.

Defence has been a priority sector for the Indian Government since 2014, both for realising its objective of ‘Make in India’ and ‘Atmanirbhar Bharat’ and it’s providing a boost to HAL.

HAL looks set to continue to be the leading aircraft company in the foreseeable future.

With decades of experience and huge infrastructure investments made over the years, it’s unlikely private players will be able to reach its scale and size any time soon. Competition from the private sector is likely to intensify in the long-term. But HAL has a long-standing relationship with the Indian defence forces. It also has manufacturing facilities and experienced manpower.

Backed by its strong research and development capabilities, the company has plans to design and develop more indigenous platforms and offer more products in the domestic and export market.

HAL is currently leading some of the most strategic projects in the aerospace and defence sector in India. With an order book of ₹1 lakh crore and with several other projects on the anvil, HAL is all set to continue soaring higher.