Indian aviation industry is expected to be supported by the country’s strong trade and commerce sectors. Since this industry has government’s attention, there are companies which should experience growth as this industry grows. Therefore, experts believe that this is the right time to invest in best aerospace stocks which should lead to capital appreciation. But how can you screen best aerospace stocks? Its pretty simple! Investors should look for stocks which have strong fundamentals, healthy financial profile, sound market share and above-average revenue and profit growth. If you can find companies with these capabilities, you search for best aerospace stocks ends.
Given strong growth outlook for civil aviation, military aviation, business aviation, regional and international aviation, helicopter aviation, and even the space industry, Indian government continues to recognize value of such segments and has set clear roadmap for India’s airline companies. International Air Transport Association (IATA) expects that, by 2024, India should be able to become world’s 3rd largest market for aviation.
International Civil Aviation Organization (ICAO) expects that output of Indian aviation industry should grow by ~3.25 times during this period. To aid this positive growth, a significant increase in employment opportunities is projected, with ICAO predicting 6.1-fold increase in employment within Indian aviation sector.
Indian Aerospace & Defense Market is expected to exceed US$23 billion by 2024 and this growth should stem from growing need for modernization of Indian armed forces. Modernization drive targets to leverage advanced military technology to improve operational capabilities. Need for improvement in areas like battlefield support systems, situational awareness, non-lethal weapons, and AI should support India’s aerospace & defense market over next 7 years.
Indian government continues to increase its defense budget and took numerous projects in line with Make in India campaign. For example, as part of Infantry Vision 2020, Indian government started Future Infantry Soldier as a System (F-INSAS) program to improve optical, electro, and situational capabilities of soldier. Increased investments in research fields such as nanotechnology, directed energy weapons, and NBC warfare should fuel India aerospace & defense market growth. India aerospace & defense market for marine applications should grow at steady pace because of plans of government to build 200-ship navy over duration of 10 years.
With this in mind, let us quickly have a look at some of the best aerospace stocks in India.
1. Hindustan Aeronautics Limited
The company is an Indian public sector aerospace and defence company, which has its headquarters in Bangalore.
It saw highest-ever revenue from operations of ~INR26,500 crores (provisional and unaudited) for FY23 as against INR24,620 for previous financial year. It saw revenue growth of 8% during FY23 in comparison to the previous year (2021-22). Even though there are some challenges related to supply chain because of geo-political situations, it was able to achieve targeted growth in revenues. This was possible with increased thrust on indigenization and with available inventory.
Order book of the company came in at ~INR82,000 crores at the end of March 2023 after liquidation of supplies during FY23. During FY23, fresh contracts of ~INR26,000 crores were received including manufacturing contracts for 70 HTT-40, 6 Do-228 Aircraft and PSLV launch vehicles. On ROH front, fresh order to the tune of INR16,600 crores was received during the year.
Cash flow of the company saw a significant improvement with payments of ~INR25,000 crores received from several defence customers during FY23. In FY23, the company maintained growth momentum and achieved an all-round improved performance.
2. Bharat Electronics Limited
This is an Indian Government-owned aerospace and defence electronics company which manufactures advanced electronic products for ground and aerospace applications.
The company has received new Defence and non-Defence orders worth INR3,289 crores during July and August 2023 (25th August). These orders are in addition to INR8,091 crore orders, which are already received. With this, the company has in all received orders of INR11,380 crores till now in FY23.
Bharat Electronics Limited and Israel Aerospace Industries (IAI) have signed an MoU for co-operation in addressing India’s requirements in areas of short-range air defence systems. This MoU targets at leveraging IAI and BEL’s capabilities. This is in sync with ‘Atmanirbhar Bharat’ and ‘Make in India’ policies of GoI.
3. MTAR Technologies
The company is a leading national player in precision engineering industry and is engaged in manufacture of mission critical precision components.
The company clocked highest-ever revenues of INR5,733.47 million in FY23, maintaining accelerated growth momentum with 78% year-over-year growth. The company registered EBITDA of INR1,539.62 crores with margin of 26.85% and net profit of INR1,040.75 million with margin of 18.2%.
Closing order book as 31 March 2023 was at INR11,729.46 million and this was in line with its guidance. There was a decline in EBITDA margins in comparison to given guidance because of salary corrections taken up in 4Q, which was one-of-a kind of scenario.
The company continues to target a revenue growth of 45% – 50% in FY24 which should be supported by strong order book with an EBITDA of 28% (+/- 100 bps). Given the visibility on several orders throughout different sectors, the company expects closing order book of minimum INR15,000 million by FY24 end.
The company has clear roadmap which is focused on expanding customer base and enhance product portfolio which can translate into potential revenue of INR30,000 million with healthy margins over upcoming 5 years. To realise such growth potential, the company expects to undertake a range of initiatives.
To sum up
While there are a range of other companies which are present in aerospace sector, the above stocks can be considered as best aerospace stocks in India to invest for long-term growth given their market presence and order book. This industry is characterized by numerous joint ventures of local and global companies.
Undoubtedly, Indian aerospace industry has come a long way, from simple beginnings to becoming the most promising sectors in India. With strong foundation in space research and increased presence in commercial aviation sector, the future of Indian aerospace industry appears to be bright.
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