Hindustan Aeronautics Ltd

NSE:HAL

Earnings Call Analysis

HAL’s Impressive Growth and Future Prospects

In FY 2023-2024, Hindustan Aeronautics Limited (HAL) achieved a substantial 13% revenue increase, reaching INR 30,381 crores. The executive team highlighted improved cost efficiency, reducing manpower costs from 23% to 17% of revenue. The outstanding order book is now at INR 94,000 crores, with anticipated new orders potentially adding INR 47,000 crores within a year. HAL expects sustained double-digit growth, targeting a 29%-33% EBITDA margin, bolstered by strong future orders, including LCA Mark-1A and various helicopter programs.

Record-Breaking Revenue Growth

Hindustan Aeronautics Limited (HAL) had a stellar financial year, showcasing resilience and innovation. The company reported a robust revenue from operations of INR 30,381 crores for FY '23-'24, a 13% surge compared to the previous year's INR 26,928 crores. This leap was achieved despite global geopolitical challenges and disruptions in the supply chain.

Enhanced Order Book and Future Prospects

The company's order book is a significant highlight, standing at INR 94,000 crores, with an outstanding addition of nearly INR 19,000 crores last year. HAL expects this to grow further to approximately INR 120,000 crores by the end of March 2025, supported by anticipated contracts including 97 LCA Mark-1A units and 156 light combat helicopters.

Operational Efficiencies and Cost Optimization

HAL has made substantial strides in optimizing its costs. The company reduced its manpower costs from 23% of revenue in 2018-19 to 17% in FY '23-'24, aiming to cut it further to 16% in FY '24-'25. Overhead expenditures were also trimmed from 8% to 4.66%. These efforts have contributed significantly to improving the company's profitability.

Optimistic EBITDA Margin Projections

The company has set an optimistic projection for its EBITDA margins, targeting a range of 32% to 33% in a best-case scenario, with a minimum expectation of 29%. This forecast stems from strong operational profit margins, lower depreciation, and reduced impairment costs.

Strong Product Pipeline and Capacity Expansion

HAL’s strategic focus on capacity and capability building is evident. Significant investments have been made in greenfield projects and capacity augmentation, such as the new helicopter factory in Tumakuru. The company is prepared to meet growing demands by maintaining independent manufacturing facilities for different platforms, ensuring there is no production bottleneck.

Anticipated Deliveries and Product Rollouts

The company plans to scale up the deliveries of LCA Mark-1A and commence deliveries of light utility helicopters in FY '24-'25. By FY '26-'27, HAL expects to deliver prototypes of the LCA Mark-II and commence manufacturing of the Indian medium role helicopter, demonstrating a promising rollout schedule.

Revenue Growth and Guidance

For the current and upcoming financial years, HAL forecasts consistent double-digit revenue growth, supported by a robust order book and reducing costs. The company aims for manufacturing revenue growth of around 15% to 18% annually, complemented by repair and overhaul growth of about 9% to 10%.

Investor Confidence

The company maintained a reassuring tone for its investors, emphasizing its consistent growth trajectory aligned with government initiatives to promote self-reliance in defense aerospace manufacturing. With a strong foundation and strategic investments, HAL aims to continue delivering value to its shareholders.

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Hindustan Aeronautics Limited Q4 FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshit Kapadia from Elara Securities Private Limited. Thank you, and over to you, sir.

[Harshit Kapadia, analyst]

Thank you, Manav. Good evening, everyone. On behalf of Elara Securities, we welcome you all for the Q4 FY '24 and FY '24 conference call of Hindustan Aeronautics Limited. I take this opportunity to welcome the management of Hindustan Aeronautics represented by Shri C.B. Ananthakrishnan, Director, Finance and CEO with additional charge of Chairman and Managing Director; Shri Jayadeva, Director, Operations, along with that team. We will begin the call with a brief overview by management, followed by Q&A session. I'll now hand over the call to Ananthakrishnan sir, for his opening remarks. Over to you, sir.

[C.B. Ananthakrishnan, executive]

Thank you, Harshit. Good evening, and welcome to you all. Thank you all for joining us today for this earnings call. In fact, yesterday, we declared our financial results for the fourth quarter of the financial year 2023-2024, which has been well received by the investor community. The same has also been uploaded in our company's website.

And today, for this earnings call, I have with me Mr. Jayadeva, Director Operations and other senior management team for the interactions. It has been quite some time since our last interaction, which was sometime in May 2023, last year, almost exactly a year back, and we are eager to engage with you today providing insights into our financial results, offering updates on the various physical advancement of our project and addressing any clarification you may see.

The FY '23-'24 has been an exceptional year for HAL and was the journey of resilience, innovation and unwavering commitment to meet the expectations of the various stakeholders. Despite the challenges we faced in the geopolitical landscape and supply chain disruptions, HAL has once again demonstrated the capability to try through the adversity. You are aware that our revenues have surged to new highs in FY '23-'24, marking a very significant increase compared to the preceding year.

Revenue from operations almost stood at INR 30,381 crores as compared to INR 26,928 crores in the previous year, almost registering an increase of 13%. We have given our guidance last year for achieving a double-digit growth from FY '24-'25 onwards, upon the commencement of the LCA aircraft delivery of LCA aircraft against the 83 LCA program.

However, we could achieve this target a year in advance in FY '23-'24 itself. With our robust order book and a very strong pipeline, we are confident of sustaining this growth. Apart from focusing on revenue growth, we have also been focusing on cost optimization so as to offer these affordable platforms and services to our customers and also to improve the profitability margins. The manpower cost, which used to be around 23% of the revenue during the year from 2018, '19, some 5 years back, 4 years back, have consistently been rationalized to almost 17% during the current financial year -- I mean, to the last financial year, '23-'24.

We expect it to bring it down to further to 16% of revenue in the current financial year. Similarly, the overhead expenditure also has been rationalized so that we can eliminate certain -- I mean avoidable expenditure. The overall expenditure to revenue as a percentage, which was standing at around some 8% during '18, '19 has also been brought down to 4.66%, almost a 3% reduction over the last 3 to 4 years' time frame.

Improvement is also being noticed in our inventory because we were also very conscious of our inventory holding when we had an inventory of almost 359 days, almost 360 year with inventory in 2017, '18, which we thought was quite high. And today, it stands somewhere around 159 days, which we feel it's the most optimal level below which we would not intend to reduce further. Another area where there has been consistent improvement is on the data turnover. This also, as you are aware, from almost 227 days when we had bad times during 2018, '19, when our receivables were quite high. It has now been brought on to 55 days, which is, again, the optimal level. I think that will be maintained in the next few years as well.

These improvements all have consistently resulted in cost optimization and improvement in the overall profitability of the company. Now let me also highlight certain initiatives, which we have been taking for the future growth and expansion. We are focusing on 2 major strategy areas during the year 2023, '24, and we wanted to continue with our efforts in similar lines in the years to come. One is on the capacity building, as we have always been telling to increase the capacity to meet the commitments of our customers.

And the second one is the capability building to see that the company is ready for the future requirements and future products, which are coming up. The focus today is on proactive procurement, strengthening the CapEx and increasing the R&D investments. HAL has been continuously been taking several proactive initiatives in the last financial year towards capacity building for the quick execution and reduce the developmental time lines post the contract signature.

Similar depending finalization of contracts. HAL also has launched the procurement and manufacturing of our platforms, various aircrafts like Dornier, then you are light utility helicopters, one flight helicopter, AL-31FP engines required for Sukhoi, hardly 33 engines. All this has helped us to deliver the 2 Dorniers to Guyana, which is there for exports within 10 days of the contract execution. In fact, the contract got signed in March '24 and we could deliver 2 aircraft to Guyana. And similarly, to Army, when the contract was signed 25 ALH, we could deliver 6 ALH in FY '23-'24 itself before 31st March. Similarly, in the case of RD-33 engines as well, where 15 RD-33 engines have been delivered to Indian airports within the month of contract signature.

We are also investing in various greenfield projects and capacity augmentation of various programs. As you are aware, the new helicopter factory has come over into Tumakuru. Third line of LCA, which is very, very critical for augmenting our capacity in respect of delivery of the LCH Tejas aircraft has also been getting established in Nashik, and we expect it to become operational sometime in the month of October 20 in the current financial year, that is '24. So that these infrastructure and facilities are readily available for launching the various manufacturing activities immediately on receipt of the customer orders.

And meeting our customer requirements is of our utmost priority to us. And we understand today, there is a need for the services to expedite the delivery so that they can acquire the assets at a faster rate. To support this requirement as a proactive approach, HAL also has been investing towards capacities as we have already told to increase the indigenous platforms, increasing deliveries of indigenous platforms like LCA, HTT-40 and helicopters.

These enhanced capacities would not only enable HAL to speed up execution of the existing order, but would also help us to free up our capacities for additional orders from our customers and aggressively pursue the export markets. We have also got a very robust CapEx turn because we keep expanding and then we are getting newer projects. So the CapEx plan for the next 5 years is estimated to be somewhere between INR 14,000 crores to INR 15,000 crores, which translates into an average CapEx of almost INR 3,000 crores on an annual basis.

This CapEx would also be utilized for augmenting the manufacturing facilities for establishment of ROH facilities for various platforms. In addition, as you're aware, since we are also embarking on a new projects like LCA Mark II and then the -- I mean GE 414 engine manufacturing, then the IMRH engine manufacturing and the various infrastructure, which is secured -- design and development of these newer projects of IMRH, AMCA and various other DMD projects we keep investing in our capacities and building the -- wanting to invest in the capital expenditure for all of these projects.

We also wanted to create a certain strategy cases, which would enhance our capabilities in the field of -- in forging process. So we plan to invest a 20,000 tonne isothermal press and 50,000 tonne hydraulic press for manufacturing forgings for engines and aero structures and carbon fiber facility with an investment of almost INR 600 crores for our various platforms. All these are intended towards indigenization, activities being picked up because we have realized till now in the recent geopolitical situation, there is a larger need to become self-reliant and to keep indigenizing more and more so that in the years to come in the next 5- to 10-year time frame.

We will have all these strategic assets where we have dependability on the foreign sources will come down drastically. And as you are aware, HAL has been developing more and more indigenous platforms in the last 10 years. Today, we have got a range of indigenous decent and developed platforms and more or less of licensed production and we wanted to really maintain this trend. And with that view, we are investing heavily on R&D as well.

So we have sanctioned almost INR 4,000 crores as part funding for our IMRH product. The board has sanctioned this, and we have started initiating the various activities on the R&D front as far as IMRH program is concerned. Similarly, we have also launched the Utility Helicopter Marine, for which is the navel requirement with internal funding of around INR 2,000 crores for the Indian Navy from our own internal resources.

As I have told you, the current geopolitical situation and the need to be self-reliant our indigenously designed and developed platforms, R&D efforts are of critical importance. We have brought indigenously designed and developed state-of-the-art platforms like HTT-40, LUH, LCH, LCA, Mark-IA -- I mean making India among the global players with tremendous opportunities for export. Our R&D expenditure is on an average, around 78%, which is among the best in the industry as you are aware.

We are also earmarking [ 15% ] of our PAT towards creating an R&D corpse every year. Apart from the certifications from the Indian [indiscernible] authorities since we are trying to embark on to the export. HAL is also focusing towards certification from the global agencies to enhance the outreach of our products. These efforts are helping us to progress as an end-to-end solution provider in the aerospace demand.

Now most importantly, I would like to update on the order book position. The order book of the company as on date is around INR 94,000 crores, which is much more -- which is almost INR 12,000 crores more than the order book, which was there as on last year, that is on April '23. From INR 84 -- INR 82,000 crores, today, it is INR 94,000 crores even after executing...

[Operator]

Ladies and gentlemen, we have the management line disconnected. Please stay connected we will get them back.

Ladies and gentlemen, thank you for patiently waiting. We have the management back with us. Over to you, sir.

[C.B. Ananthakrishnan, executive]

Sorry, I was talking on order book position when the call got disconnected. I mean, this is something very, very important for us, all of us. So the outstanding order book as on date is almost INR 94,000 crores, which was -- which is showing even after liquidation of almost INR 30,000 crores, it stands at INR 94,000 crores. So the increase is on account of the conclusion of various contracts, almost close to INR 19,000 crores in the last financial year, including RD-33 engines and then the ALH for Army, then the ALH for coast guard, then the various types of engines and then the Navy Dornier 25 numbers of midlife upgrade.

And on the receipts also the ROH, repair and overall orders and the supply of almost INR 21,000 crores. We have also received an export order of almost INR 500 crores, which I have been telling on the 2 Dornier aircraft to Guyana, which is -- which included that almost INR 200 crores of Dornier aircraft. In addition, significant progress, we have also made on the AL31 SP program, 12 light utility helicopters and 12 additional Sukhoi towards conclusion of contracts. The proposals are at very financed approval stages.

And we expect it to get the same finalized very soon. These stay orders will happen in the time line of 6 months to 1 year, and we expect almost INR 47,000 crores to materialize in this 1-year time frame. With these orders and the other ROH order book as on 31st March '25, we expect the outstanding order book position to be somewhere around INR 120,000 crores even after liquidation of the certain portion of order as part of the revenue year '24-'25.

In addition, the order pipeline also looks very promising with anticipated contracts for LCM Mark-1A, the additional 97 numbers for which [ AOL ] has already been approved. And then the light combat helicopter Prachand for 156 number, then similarly for the advanced light helicopter grew for 43 numbers from IA or Indian Army, then similar Dornier aircrafts are also there opening. And Indian Navy is also looking to buy some 60 numbers of utility helicopter marine. The upgrade of Dornier aircrafts, for which all of the charges programs, the acceptance of necessity has already been approved.

So these are all to be converted into contracts and the initiated process has also already been initiated towards that. The aggregate value of all these orders are expected to be somewhere around INR 160,000 to INR 170,000 crores. And our -- it will all materialize in the next 18 months to 3 years' time frame. These orders will keep our manufacturing lines occupied until 2032 and help HAL to propel itself into the next growth trajectory.

The outlook for the current year and the year are appears very promising. Each year from the current financial year '24, '25, we will be adding new platforms, thereby expanding our product profile. During the FY '24, '25, we will be scaling up the deliveries of LCA Mark-1A in line with the contractual commitments and commencing deliveries of light utility helicopters as well. The next financial year, '25-'26, we will commence delivery of our HTT-40 basic trainer and civil ALH, which we have initiated the process and we expect the certifications to get over in the current financial year. And the deliveries for the civil ALH, we expect to -- we have got some interest being shown by some of the Indian customers, which we will be able to deliver in the next financial year.

And in addition to the delivery of this LCH helicopters or with the new orders are expected. The year 2026, '27, that is 2 years down the line, we'll see the addition of the marine helicopter to the navy to our manufacturing line for the Indian Navy in addition to the commencement of delivery of prototypes of this Mark-II -- LCA Mark-II and also commence manufacturing of prototypes of the Indian medium roll helicopter, which is the 12 tonne category, which we achieved under the design and development.

Therefore, the number of aircrafts, which are going to get manufactured each year, we'll see consistent improvement during the next 3- to 4-year time frame. During the same period, we are also -- will be executing the various engine programs, including AL-31FP, RD-33 engines, then the LM2500 engines, Shakti engine variance of ALH, LCH and LUH besides the new engine design and development program of GE 414 with the GE engine and Safran engine development -- I mean, along with Safran for the IMRH program, engine development also with material is during this time frame.

I mean looking ahead, I envision very future filled with bright promises where the brand HAL will continue to build on a solid foundation of trust, teamwork and unwavering commitment to our stakeholders. We will continue to create value for our shareholders and drive our nation towards the mission of Atmanirbhar Bharat in defense aerospace manufacturing. Thank you all. I think I have given very concise brief. Maybe now that we can start the discussions and initiate the queries. Thank you.

[Operator]

[Operator Instructions] We have our first question from the line of Jonas Bhutta from Birla Mutual Funds.

[Jonas Bhutta, analyst]

Congratulations on a great set of numbers. And a couple of questions, sir. Firstly, from a bookkeeping side, sir, if you can help us understand what transpired in the fourth quarter in terms of gross margins, basically material margins, given that they've come up upwards of 60% -- 63% to be more precise. What drove these margins because typically, we were more in the 58% kind of band, 57%, 58% kind of band. What transpire here if you can help us with that?

[C.B. Ananthakrishnan, executive]

See, I mean, as far as the gross margin is concerned, as we have disclosed in our results as well, the change order free, as we call it, this is in respect to pricing of IOC contracts, the LCA initial operational clearance, we were to supply 20 numbers to the Indian airports, which we have completed the supplies as well.

So there, there have been some contractual changes and scope changes have been made and the contract provided for certain elements of cost to be claimed at a later date as and when it materializes. So we have gone that price fixation redone. And because of which the IOC contract to change order 3, which was spending for quite some time, it has been finalized in the last quarter of the current -- I mean last financial year '23, '24. And that has resulted in almost INR 1,500 crores of additional revenue, which is reflected in our last quarter results.

And this is also -- this has substantially increased the margin. And that is one major reason why the margins have gone up in the last quarter and which has also been reflected in the total full year as well.

[Jonas Bhutta, analyst]

Because if I remove -- as and if I adjust from our top line also, sir, then also we are getting like a 63% gross margin. So this INR 1,900 crores of change in inventory that is, is that the pending deliveries of the 2 LCM Mark 1A prototypes or something that we have supposed to give that?

[C.B. Ananthakrishnan, executive]

No, no, no. That has nothing to do with the change in deliveries. It's nothing to do. It is an accounting adjustment as far as the inventory, which is being used; inventory, which has been built in the last year, that is a [ WIP ], which is being utilized, which is drawn now and which is getting included in the current year revenue. It has nothing to do with the pending deliveries. All the deliveries, which has been -- I mean delivered in the current financial year have already been recognized in the revenue and pending deliveries have not been recognized there.

So that's the -- probably the -- apart from this change order 3, the other area is that last year, the depreciation and amortization, there is almost a reduction of INR 400 crores between last year and the current financial year. This reduction is on account of the HTT 40, which was there in the last year with amortization, which is not there in the current year.

So that is another reason. And of course, there is also an impairment loss, which has happened in Sukhoi in the last financial year, which is not there in the current financial year. These 2 expenditures add up to almost INR 900 crores, which has also helped us to improve the margin in the current financial year, as compared to the previous year.

[Jonas Bhutta, analyst]

Understood. The second data that I wanted, sir, could you help us with the platform-wise deliveries made in FY '24, like the typical rotating machine -- sorry, your rotary aircraft and fixed wing and the engines.

[C.B. Ananthakrishnan, executive]

No, broadly, I can -- I mean these aircraft deliveries, it is all on LCA, ALH and Dornier. We have already indicated that the LCA -- I mean we have delivered close to some 5 aircraft of LCA and ALH -- 6 number for ALH. Apart from that Indian RD-33 engines, 15 number, we have delivered, then the 2 export of Dornier. This is also added to the revenue. These are the platform deliveries which has happened, but the major portion is on the repair and overall, which is almost INR 20,000 crores, which forms the bulk of almost 68% of our total revenue [indiscernible].

[Jonas Bhutta, analyst]

Understood. Then lastly, if you can, while you have said when you expect the NUH to come through, but just a slightly more granular understanding on the status of the program because if you're going to start doing R&D today with a INR 2,000 crore investment, do you think that it will sort of show up in terms of commercial order by FY '27. And the second project on which I wanted clarity was the Su-30 engines at the ALF 331, that order been pending for quite some time. Any particular update on that, sir. Those are my questions.

[C.B. Ananthakrishnan, executive]

As far as the Su-30 engines are concerned, it is in the -- I mean it has all -- from our side, the C&C has been over, we expect the order to materialize because it is an advanced stages of finalization. We expect the orders to get materialized in the next 2 years -- 2 months' time frame -- 1 to 2 months' time frame, it should happen. And there is nothing which is left from our side. So it is a process which is happening. So we will be able to get it done.

And the UHM program, it is in the developmental stage. We are confident that in the next 2 years, we will be able to come -- convert it into a commercial contract and start executing the deliveries. Director of operations can add to that.

[Unknown Executive]

UHM program is for the navy. So naval [indiscernible] ALH. So in addition to existing ALH features, we are also bringing a new features like a bit holding and assisted track and landing on to the ships. So these are major things, which will [indiscernible] will support now. So we are in advanced stage of proving all these new features on the helicopter. And we are on track for this also to be flight tested and completed during the next 2 years. So we are good to go by production trends from '26 onwards.

In fact, we would also like to start this in advance like we did in other programs, but we can expect deliveries from '26 to '27 onwards.

[Operator]

We have our next question from the line of Abhishek Poddar from HDFC Mutual Fund.

[Abhishek Poddar, analyst]

Congratulations for great number, sir. So first, regarding the LCA Mark-1, if you could give some understanding that we currently have 83 number of orders, and there is an expectation of 97 orders more, how will the production ramp-up happen here in the next 3, 4 years, including both the orders?

[C.B. Ananthakrishnan, executive]

Yes. We have about 83 numbers, the delivery time line -- the delivery at -- rate at which we'll have to deliver for this 83 contract is 16 aircrafts. So we are at present in our LCA division and the aircraft division at Bangalore. We have got the capacity to produce 16 numbers. We wanted to augment the capacity to 24 numbers because we will want to expedite the delivery of this 83 Mark-1A and is making further orders, which is also -- I think another 97 also is likely to come.

So for the 16 aircraft is not sufficient, we want to augment the capacity to 24. That is the reason why we have started establishing the third line in Nashik. The activity has started last year sometime in September, and we expect [indiscernible] getting installed today. And the third line is likely to become operational from October of the current financial year. So this year, probably, we wanted to have at least one aircraft to roll out from our Nashik division to start with.

And from next year onwards, Nashik division also will be equipped to produce another 8 aircrafts. So depending on the requirement, we will be able to expedite the delivery beyond 16, but 16 will be the minimum as per the contracted delivery schedule, but we would like to expand our capacity to see that this 83 Mark-1A contractor is getting liquidated a year in advance of the -- their contracted delivery schedule so that we can take up the subsequent 97 at a much faster rate and we'll be able to complete the entire 97 plus 83 latest by 2032, '33.

[Abhishek Poddar, analyst]

And sir, how much will be in '25, this year?

[C.B. Ananthakrishnan, executive]

In the current year, we -- after the contract, we are supposed to deliver 16 number and this is what we plan to -- we are overall -- even though some challenges are there, we are trying all our efforts to see this 16 numbers are getting there.

[Abhishek Poddar, analyst]

Okay. 16 plus 1 at Nashik was 17 maybe this year, sir?

[C.B. Ananthakrishnan, executive]

No. I mean, we would keep it at that the 16 number. Nashik, we wanted to -- we are making efforts to see that it happens.

[Abhishek Poddar, analyst]

Understood. Sir, second question, if I look at the order pipeline and the current order book, we have LCA and there is LCH, there is RD engine. And then there is ALH-31 and Sukhoi and [indiscernible], all these 5, 6 are large programs. Would you expect the bunching of these manufacturing to start in '26 or '27? How do we see that ramp-up happening, sir?

[C.B. Ananthakrishnan, executive]

Pardon?

[Abhishek Poddar, analyst]

Sir, my question was that we have 7 -- 6, 7 large programs, including the LCA, LCH, ALH, HTT-40, probably LUH and there are 2 engine programs RD-33 and ALF-31 engines. So the 7 to 8 program, sir, would we start seeing a bunching above the manufacturing happening in '26 or '27 because all the programs will be in the manufacturing stage by that time?

[C.B. Ananthakrishnan, executive]

Yes, but not bunching really because we have got the facilities created for each of these platforms separately. So we will be in a position to, I mean, manufacture all of those. So it will all happen between the next 2- to 3-year time frame. But we -- since we have got independent capacities available at a different location, it will not be really be bunching. They will be able to independently handle and start manufacturing and delivering the product. Like, for instance, helicopter complex is capable of producing up to 30 helicopters in Bangalore only, then the Tumakuru facility is also ready for manufacture of another 30.

And the -- as far as the LCA is concerned, the 2 facilities at Bangalore is capable of producing 16, third line is getting created at Nashik. And in Nashik, we are also creating a line for HTT-40 apart from the LCA and the Sukhoi line. So HTT-40 also will get produced from Nashik. And the engine programs already, we have got the capacities at our Koraput division for AL-31FP engine. So we will be able to fully utilize that capacity.

So all in all, all of these programs we are having independent capacity I mean facilities where they can generally produce these products and the big quantities, which are required.

[Abhishek Poddar, analyst]

So sir, all these facilities by '27 should start producing all these platforms together, like...

[C.B. Ananthakrishnan, executive]

Yes. Like for instance, AL-31FP engines already we are producing and supplying to the Indian Air Force. Then as far as the ALH is concerned, again, helicopters, we have been continuously using and we are supplying it to the airport to the various different customers. LCA, we have started supplying to the Indian Air Force. So HTT-40 will start commencement of deliveries from September '25 onwards, from the next year, that is '25, '26 FY. HTT-40 should start getting delivered.

So we will not be delivering. It will all be in phases. It is as per the contract and deliveries, should keep delivering those things.

[Abhishek Poddar, analyst]

Understood, sir. Sir, one last question. If I look at the EBITDA margins in '22, it was 23% and last year, it was 27% in '23. And this year, if I take off the one-off item of our LCA, then it is about 28%, 29%. How should we think about these EBITDA margins for next 2, 3 years, sir?

[C.B. Ananthakrishnan, executive]

See, broadly, what we expect the EBITDA margins should be in the range of -- I mean on the most optimistic note, it could be somewhere around 32% to 33%. And at the minimum level, it should be not less than 29%. Because broadly, our operating profit ranges between 18% to 20%. The amount depreciation and amortization is approximately around the 5% to 7% range.

And the interest income may accept to another 6%. So this would mean that it should be somewhere around 30%, 31%, should be our EBITDA margin.

[Abhishek Poddar, analyst]

Okay. So after adding 6% interest income, it will be 32%, 33%. Excluding that, it will be 26%, 27% sir?

[C.B. Ananthakrishnan, executive]

Yes. I mean without interest income, it should be somewhere around 26%, 27%. And within interest income, it should be around 33%.

[Operator]

[Operator Instructions] We have our next question from the line of Deepesh Agarwal from UTI AMC.

[Deepesh Agarwal, analyst]

My first question is, with this 97 MK-1 order, possibly by end of FY '25. Would there be any change in the requirement of this MK-2 in the future? Or would there be any cannibalization?

[C.B. Ananthakrishnan, executive]

[indiscernible] Mark-1A configuration. So this will not have any impact on Mark-2. Mark-2 is under development now. So IAF has got the range to accommodate more aircrafts. That's what we feel. And we don't see this Mark-1A cutting into Mark-2 or vice versa. So it not happened that way. So the Mark-2 is a different -- I mean it's a different weight category aircraft and the roles are slightly different. So IAF can accommodate both.

We don't see any each other cutting into other prospects.

[Deepesh Agarwal, analyst]

Okay. Okay. And sir, is it fair to understand it would be in view of MMRCA not going through the ramping up on the Mark-1A.

[C.B. Ananthakrishnan, executive]

No. As far as HAL is concerned, we are getting these orders and our sort of view else with that, whether MMRCA will be there or not, it is for them just to answer.

[Deepesh Agarwal, analyst]

And sir, on the Super Sukhoi program, when do you expect the order inflow for the Super Sukhoi and how will the execution time lines on this?

[C.B. Ananthakrishnan, executive]

Sukhoi upgrade -- you're talking about Sukhoi upgrade?

[Deepesh Agarwal, analyst]

Yes, sir.

[C.B. Ananthakrishnan, executive]

Yes. Sukhoi upgrade, now the case has been initiated and we will be also participating in the program. In fact, HAL will be the lead agency to integrate the supply upgrade program with the Indian industry. So we have -- that program will now pick up -- I mean, as a speed and then we will start -- we have already started the discussions with the various stakeholders. And probably in the next 6 months' time frame, we should be able to have some contractual clarity on these things.

A1 has already been approved. There is an acceptance of necessity has already been approved. So they should get converted into the contract shortly. Once we get more clarity and more discussions happen and the contract negotiations will commence thereafter once we submit the [indiscernible], and then we'll be able to finalize it. But this is going on in the -- I mean right way, and we expect the things to materialize within the next 1-year time frame.

[Deepesh Agarwal, analyst]

Sure, sure. And sir, on the ROH front, what kind of a growth should we expect going ahead?

[C.B. Ananthakrishnan, executive]

ROH, we expect the growth to be consistent in line with the past, and it should be somewhere between 8% to 9% growth should be there in ROH activities.

[Operator]

We have our next question from the line of Gagan Thareja from ASK Investment Managers.

[Gagan Thareja, analyst]

I hope I'm audible?

[C.B. Ananthakrishnan, executive]

Yes.

[Gagan Thareja, analyst]

Yes. Sir, my first question is around even the potential for sales growth available given that we have almost INR 90,000 crores of order book, which you think next year I think will more like INR 120,000 crores of order book. Even the delivery schedules of various platforms, is it reasonable to assume that an early double-digit sort of revenue growth is consistently possible for the next 3, 4 years?

[C.B. Ananthakrishnan, executive]

Yes. That is what we are confident of with the order -- current order book positions and with orders in the pipeline and with new orders likely to materialize in 2 to 3 years' time frame. We will be able to show a consistent double-digit growth, which we will be for the next -- in fact, all these orders, which will be in the position to execute up to 2032 in the current -- with the current visibility of orders. We'll have our workload pool for 2032, and we can consistently maintain this double-digit growth without any problem.

[Gagan Thareja, analyst]

Right. And also, sir, while -- in the last 2-3 years, the share of ROH in your total revenues has kept on going up. I think last year it was more than 70% while our spend it is 68%. Now from where on the share of platform base revenue will increase and does this change therefore in sales mix? I mean, first of all, how much will this sales mix change by? And secondly, consequently what sort of margin implications stays at?

[C.B. Ananthakrishnan, executive]

You see the -- it's like a cycle. Always this industry, there are some contracts will get signed for the platform deliveries in a particular period and then subsequently when the delivery happens, the ROH activity will pick up. Again, the manufacturing contracts will keep coming and it will be going on like that. And today, with the sort of contracts what were the deliveries of platforms, which we have got, we will start executing those from the current financial year.

For instance, there 83 Mark-1A will get -- major portion of it will start getting executed from the current financial year. And this would -- this along with the other helicopters and then we train the aircraft, we'll keep increasing the manufacturing margin -- the manufacturing proportion of manufacturing sales will keep increasing and the proportion of ROH will keep coming down, but not in absolute terms. Absolute terms, ROH also will keep growing at 7% -- 8% to 9% growth. And manufacturing will grow at a much faster rate, basically because of the execution of the contracts, which has all been signed in the past.

[Gagan Thareja, analyst]

So perhaps in 3 years' time, what could be mix -- revenue mix looks like in terms of...

[C.B. Ananthakrishnan, executive]

Yes, mix will be probably in the ratio of 60% to 40%. 60% will be the ROH activity, 40% should be the manufacturing activity.

[Gagan Thareja, analyst]

And sir, for -- this is just a yes or no question. You can perhaps just answer yes and no, it won't take too much time. The media articles have stated that LCA Mark-2 prototypes are supposed to come on stream by FY '25. Actually, according to [indiscernible] supposed to have started coming in FY '22 itself, but now the time line seems to keep on making postponed. You have indicated it is going to FY '27 when we will supply the prototype. Can you clarify, is it going to be prototype supply by FY '27 or by FY '25?

[C.B. Ananthakrishnan, executive]

See, at HAL, we have started the manufacture of prototype plant. So the initial structural assembly has already commenced at HAL. So we are planning to get the full aircraft ready by around later part of '25. And so aircraft will be rolled out sometime or will be ready for flight sometime in '26, around March '26.

[Gagan Thareja, analyst]

And what is the dry empty weight of LCA Mark-1A? Is it 6,500 kg or less than 6,500 kg?

[Unknown Executive]

It is around 7 tonnes approximately.

[Gagan Thareja, analyst]

7 tonnes, okay.

[Unknown Executive]

Approximately, exact figure around 6....

[Gagan Thareja, analyst]

This is -- I mean that is higher than perhaps a Gripen, which is a bigger aircraft so wondering with so much composites why this...

[C.B. Ananthakrishnan, executive]

I mean I'm sorry to interrupt, but this is certain technical specification, which we can discuss -- we will discuss it later.

[Operator]

Thank you sir, I would request you to rejoin the queue for more further questions. [Operator Instructions] We have our next question from the line of Amit Dixit from ICICI Securities.

[Amit Dixit, analyst]

Good evening, everyone, and thanks for the opportunity. I have 2 questions. The first one is, you indicated a shorthand band there that we would see the target for us to deliver 16 LCA Mark 1A in this financial year. Now given that we have not delivered such a quantity in the past. So is there any critical equipment [indiscernible] on which this is contingent or we have everything lined up for the 16 aircraft?

[C.B. Ananthakrishnan, executive]

Yes, there are certain supply rate challenges out there. As far as this 16 numbers delivery is concerned, but we are working on that. Some of the major LRUs we have to get there because of the geopolitical situation, there have been some concerns, but we are working on that. We are confident that we will be able to get this thing -- get the LRUs well in time for the deliveries, which we are planning for the current financial year in respect to LCA Mark-1.

[Amit Dixit, analyst]

Okay. The second question is essentially on progressive indigenization. So as we move from initial 83 numbers to 97 numbers possibly later on. So what is the kind of indigenization that we are going to be see from -- it is reported in media articles that is from [indiscernible] radar. And if you could just highlight what would be the major milestone for indigenization and in the end what kind of indigenization percentage we will see?

[C.B. Ananthakrishnan, executive]

Yes. You're rightly said around 40 plus -- after 41 aircraft, we are planning to integrate our indigenous system radar on to the LCA Mark-1 program and also, the Raksha Kavach that is the electronic warfare. So in fact, considerably our engineers content in LCA Mark-1A will go up. And in addition to that, there are other so many [indiscernible] which compared to Mark-1. We have also indigenous couple [indiscernible]other activities.

So definitely, the indigenous content, what we can see in Mark-1A will be higher than Mark-1.

[Amit Dixit, analyst]

Okay. Any idea sir, what we will end up, I mean at the end of let us say 180 of aircraft...

[Operator]

Sorry to interrupt, sir. I would request you to please rejoin the queue as there are several participants.

[Amit Dixit, analyst]

No [indiscernible] just one number would be...

[C.B. Ananthakrishnan, executive]

Yes. I'll just quickly answer that. It should be in the range of around 65% -- should be above 65% and above.

[Operator]

We have our next question from the line of Aadesh Mehta from Motilal Oswal Financial Services.

[Aadesh Mehta, analyst]

Sir, there was a news flow that would be working with there but in commercial MRO opportunity. If you are in a position to give some more details in terms of time lines, scope or resale market size margins, that would be great sir.

[C.B. Ananthakrishnan, executive]

We have -- we're trying to iterate the civil MRO business at our Nashik facility. We already started this activity at Nashik. And we also entered into some sort of a working arrangement and with Airbus for the A320 -- Airbus 320 aircraft. So it will take shape in a bigger way in years to come. We have started now and it's going to take off, and we are going to augment this in the coming years.

[Aadesh Mehta, analyst]

So anything definitive happening in FY '25 or '26, sir, on this arrangement?

[C.B. Ananthakrishnan, executive]

Yes, it will happen. Already, we are entered in the contract with them. It will happen.

[Operator]

We have our next question from the line of Lavina Quadros from Jefferies.

[Lavina Quadros, analyst]

Sir, congrats again on a good set of numbers. Just 2 questions. One is on the defense. Firstly, how much was exports as a percentage of your sale in FY '24. And any color you can share on the defense exports the government is planning to take it from INR 20,000 crores to INR 60,000 crores. I would believe that HAL would have a very big role to play in this. So any comments you'd like to give there, please?

[C.B. Ananthakrishnan, executive]

Exports as of date, we are not doing that and the numbers are not so great. We are there an export of close to INR 480 -- INR 311 crores which is approximately -- I mean a very negligible percentage, 1% around, 1%, 1.5%. But this initiative of export has gone in -- we have really taken it up only in the last 2 to 3 years. Before that, we were contented with this because that the defense requirements were there, we are trying to focus on the defense requirements.

Now that we have taken it on a full scale basis with the various -- aggressively in the export market, and with the range of indigenous product profile, which we have got today. Because earlier we were in license production, not much of indigenous products were available. Today, we have got range of platforms where we will be able to offer to the various global in various countries. So the leads which we are getting today is quite impressive. So there have been a lot of interest being shown in various countries, especially on the helicopters side ALH and on the LCA Tejas. So we are in decisions with various countries.

As you are aware, we are in discussions with Philippines. We are in discussions with Argentina. We are in discussions with Nigeria. We are in discussions with Egypt. So there are quite a few countries, which are [indiscernible]. We are confident that we will be able to get through some order in the current financial year. This has been something which has been, we are also very eagerly waiting. And we expect that we will get at least 1 break through order in the current financial year.

And once we -- we expect that this sector to grow the global -- we will be able to globally become competitive in the next 2 years -- 2 to 3 year time frame and offer our products successfully to the various countries.

[Operator]

We have our next question from the line of Umesh Raut from Nomura.

[Umesh Raut, analyst]

Congratulations for the good set of numbers. Sir, my first question is pertaining to the deal that got signed between HAL and GE regarding F414 engine. So I just wanted to understand what kind of technology transfer that GE is kind of coming along with HAL. And what -- how can it help in terms of indigenously developing our fighter jet own version in future?

[C.B. Ananthakrishnan, executive]

This [indiscernible] which has been signed and the contract which will get signed between HAL and GE is with respect to transfer of technology to the extent of 80% of the GE 414 engine. So under TOT, we will be manufacturing the engines in India, 80% and 20% will be sourced from directly from GE. We'll be able to -- at this point of time, we will be able to share this much of information. And out of the specific technologies, which we are still working out with GE, and we will probably be able to get it cleared and more clarity we will lever when we sign the contract. And moreover, it is also reclassified information, which maybe we are not able to publicly share.

[Umesh Raut, analyst]

Got it, sir. Sir, regarding engines, do we see any major export opportunity, whether it is related to fighter jet engine or helicopter engine, as we also got signed MoU with Safran as well.

[C.B. Ananthakrishnan, executive]

No, at present, what we are saying, the MoU with Safran for the IMRH project and with the GE F414 for LCA Mark-2. It is basically for our own consumption. But as and when the export opportunity arises, we will be in a position to meet those exports as well. We are -- that Safran, especially the log engines, it is jointly developed along with HAL. So we'll be able to do the export because the IPR will remain within the country. And as far as GE engines are concerned, that we will have to get the -- case-to-case basis, we will have to get the permission from GE, and then we will be able to export if there is a need. But at present, we are working out for our domestic requirements only.

[Operator]

We have our next question from the line of Harshit Patel from Equirus Securities.

[Harshit Patel, analyst]

My first question is on the light utility helicopters. Could you share an update on the limited unit that we were manufacturing against a letter of intent. Have we already started booking the revenues on this? Also, when do you see the bulk order materializing? And how would the execution schedule will look like of it?

[C.B. Ananthakrishnan, executive]

LUH facility has been created, and we are in the process of manufacturing. We have almost 8 aircraft has already been manufactured. We are expecting the first 12 numbers of limited series to be received from the defense army and IAF. We are -- I mean it is -- CNC and all the other activities are over, which is under process of getting the contract getting contoured for the dual numbers initial dual numbers, for which we expect the deliveries also to happen in the current financial year.

As far as the bigger orders are concerned, once and happen -- when these execution happens for this limited series production of dual number and subsequently, based on the expectation, they will come out with the changes of further scope change, if anything is required or further have an improvement. And then we will be able to get the bigger order sent, but that will also happen. We expect it to happen in the next 2-year time frame, it should be with the [indiscernible] and the activity should get initiated.

[Harshit Patel, analyst]

Sir, secondly, on the Sukhoi 30 engines, you mentioned that we will very soon receive the final order. So will the production start as soon as we will receive the order or there will be some gestation as to T plus 12, T plus 18 or something like that?

[C.B. Ananthakrishnan, executive]

No. In fact, since this [indiscernible] already been approved and RFP and other things have been initiated a year back. We have also -- we have taken certain proactive action of placing the order with the Russians, not waiting for the contract to be signed. Contract signing once it happens, we will be in a position to buy them. We will get the supply of these engines. And we'll be able to deliver it in the next financial year itself -- I mean, in the current financial year, that is FY '24, '25, we should be in a position to deliver.

We are not waiting for the supply order to be place with the Russians for the manufacture of this kit -- I mean, for the contract with the customer to be signed. We have already placed the kit order. And once we get that, we will start manufacturing and start delivering it to the Indian customers.

[Harshit Patel, analyst]

Just last one, bookkeeping question on the development front. So could you tell us the quantum of revenues and the orders, which we have done in financial year '24 on the developmental programs. That will be my last question.

[C.B. Ananthakrishnan, executive]

Yes. Development sales for the last financial year, it was somewhere around INR 1,500 crores. Out of INR 30,000 crores, it was somewhere around INR 1,500 crores. And the other sales now put together, it was -- it would come to roughly around 5% of the total revenue.

[Harshit Patel, analyst]

And orders -- developmental orders, what was the quantum last year?

[C.B. Ananthakrishnan, executive]

Developmental orders -- we need to check that. Outstanding developmental orders is somewhere around INR 900 crores.

[Operator]

We have our next question from the line of Girish from MS.

[Girish Achhipalia, analyst]

Congrats and just one request, we won't hear from you often. So if you could spare more time. We respect your time, but if you could do at least 6 monthly calls. I had 2 questions, sir. Firstly, on the manufacturing side, I know it is going to be lumpy because different platforms get into execution at different points of time. Can you help us with what could be the revenue growth that we should expect for this year? And then maybe is it like 15% and then it steps up to 20%, 25%, if you could help us because ROH as you rightly said, will be lower than double digits so just wanted to understand that one.

And secondly, on the GE platform bit, I just wanted to understand that whether there will be a onetime payment that HAL will make and it will be capitalized or it will be something like expensed out as you pay some royalty for this TOT arrangement, if you can help with that.

[C.B. Ananthakrishnan, executive]

As far as your second question is concerned, it is a little premature at this point of time since we haven't started our commercial discussions with GE. So we would get to know what is the sort of compensation, which they will be looking for only when we start discussing with them the commercial offer. So that will be there happening in the next 6 months' time frame, and after that, we'll get more clarity on that.

So as of now, we will not be able to tell much on that. And as far as the manufacturing growth is concerned now that with orders getting executed, the manufacturing growth, definitely, it has to be around 15% to 18% growth, has to be there every year. And there is a repair and the overall growth of around 9% to 10% growth. We will be able to maintain -- sustain our growth, what we have shown in the current financial year of 13% on an average growth, manufacturing and repair of overall put together, we will be able to sustain that growth.

[Operator]

We have our next question from the line of Amit Mahawar from UBS.

[Amit Mahawar, analyst]

Sir, this [ INR 470, INR 480 ] billion order intake guidance, that doesn't include the MRO orders, right? My understanding is correct?

[Unknown Executive]

Yes. MRO orders -- can you just clarify, what is it?

[Amit Mahawar, analyst]

Yes, the [ INR 407 billion ], INR 47,000 crore order guidance for FY '25, largely for those 3, 4 platforms that you mentioned, that does not include the MRO orders.

[C.B. Ananthakrishnan, executive]

Yes, you're right. You're right. Absolutely, right. The [indiscernible] accretion will be on an average, INR 20,000 crores per annum.

[Amit Mahawar, analyst]

Fair point. And the second part is, sir, do you think Mark-1A 97 is possible by the fourth quarter of fiscal '25? Or do you think paperwork and the process will basically take it only to '26 first half, something like that?

[C.B. Ananthakrishnan, executive]

But as we -- the way things are moving, I think it will be -- we should be in a position to conclude the contract by the current financial year, that is before 31st March '25.

[Amit Mahawar, analyst]

Sir, can I ask one bookkeeping question, if you allow?

[C.B. Ananthakrishnan, executive]

Yes.

[Amit Mahawar, analyst]

Yes, the EBITDA margin guidance of 26%, 27% that you issued does not include any provision reversals or provision change if any...

[C.B. Ananthakrishnan, executive]

No, no. That doesn't include. We are only talking about the operating margin, plus depreciation and amortization and of course your interest income...

[Amit Mahawar, analyst]

Because growing by last 2 years, it has been reversing. I would assume FY '25 will be the same reversal process.

[C.B. Ananthakrishnan, executive]

No. There will not be any substantial reversals, which will have a major impact on the EBITDA margin. There will be normal reversal, which are happening in year-on-year. And that will only be continuing, but no major reversal will be there.

[Operator]

That would be the last question for today. And I would now like to hand the conference over to Mr. Harshit Kapadia for closing comments, over to you, sir.

[Harshit Kapadia, analyst]

Yes. Thank you, Manav. We would like to thank the management Shri. C.B. Ananthakrishnan Director, Finance, CFO with an additional in-charge Chairman and Managing Director; Shri. Jayadeva, Director, Operations for giving us an opportunity to host this call. We would also like to thank all investors and analysts for joining for this call. Any closing remarks, Ananth sir, you would want to share.

[C.B. Ananthakrishnan, executive]

Thank you for this opportunity. In fact, as somebody was pointing it out, we would also be happy to have this analyst call at least once in a quarter. We'll let us see that how to figure out that, and we will try to have the discussion and keep all the -- I mean our investors updated on what is happening in the company. And one thing which I can tell you is that HAL is today in a very consistent growth profile.

And with the sort of the policies which has been initiated by the government and with Atmanirbhar and the need for becoming self-reliant, I feel the question is that there is not going to be any depth of orders. And we are also conscious of the fact that we also need to execute these orders and we are taking all round own initiatives to see that these orders are also getting executed within the given time line.

So which would mean that the growth and the performance with the company has been reflecting in the last 2 to 3 years, will keep continuing and keep improving year-on-year. And I'm confident that the sort of all the stakeholders, we will be able to satisfy whether it be the shareholder investors of the company or whether it be the customers or our partners in the programs, we will be able to really keep all the stakeholders in a very happy state of mind.

And I wish you all happy investing in HAL and I wish you and the company will always keep up your trust and confidence which you have on us. Thank you.

[Operator]

On behalf of Elara Securities Private Limited, that concludes this confidence. Thank you for joining us and you may now disconnect your lines.