Hindustan Aeronautics: Hit by rating downgrade

Hindustan Aeronautics (HAL), the state-run aerospace major, has witnessed a slide in its share price to one-month low due to the rising competition from private players and reluctance of the user segment to source products from the company.

Adding miseries to HAL’s bad run is rating downgrade.

Care Ratings downgraded HALs’ long-term banking facilities worth Rs 7,300 crore to AA+ from AAA.

However, it maintained its outlook unchanged at Stable. It has also reaffirmed the ‘A1+’ rating for the short term.

The agency in its rationale took into consideration the company’s recent developments, including the operational and financial performance of the state-owned entity.

The ratings of bank facilities of HAL derive strength from its strategic importance as the core aviation equipment supplier to the Indian defense sector with majority ownership by the government of India.

HAL plays a strategic role in India’s defense program being the only Indian company having specialization in aircraft manufacturing and providing its maintenance, repair and overhauling services (MRO).

HAL posted an all-time high turnover of Rs 19,705 crore for the financial year ended March 31, 2019, registering a year-on-year growth of 7.8%.

Its profit after tax (PAT) for the fiscal stood at Rs 2,282 crore, an increase of 14.8% over Rs 1,987 crore in the corresponding previous year.

During the September quarter, HAL posted 116 percent growth in net profit at Rs 621 crore, compared to Rs 287 crore in the same period a year ago.

Sequentially, net profit, however, rose 10% from Rs 564 crore a quarter ago.

Revenue from sales rose 32% to Rs 3,451 crore from Rs 2,610 crore in the same period a year ago.

However, for public shareholders, HAL has delivered unattractive returns ever since its initial IPO

With the bulk of its revenue generated from the government, we expect business growth to be slow in the near term as the government is grappling with lower tax revenues and hence want big rerating in the near term looks unlikely

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