Hindustan Aeronautics Ltd.'s (HAL) shares are hovering near their 52-week high of ₹2,425 each on NSE. Investors have little to complain about given that the stock has risen by a whopping 70% in the past one year. A robust order book and strong revenue visibility keep sentiments high. Also, the outlook for order inflow is firm on the back of a solid pipeline.

The order book at the end of the June quarter (Q1FY23) was ₹84,800 crore, which is about 3.2 times trailing 12 months revenue. Further, the order pipeline is robust at ₹45,000 crore, which is expected to materialize in the current financial year. This includes orders for 25 advanced light helicopters for the army, six Dornier aircraft, and 12 light utility helicopters. If these materialize,

HAL’s order book position will cross ₹1 trillion in FY23.

The order book is the biggest certainty to HAL’s valuation, according to ICICI Securities. The broking firm’s discounted cash flow-based target price for the stock is ₹2,665. “There are hardly any defence primes in the world that manufacture combat aircraft and have an equivalent book-to-bill ratio," said ICICI Securities analysts in a report dated 30 August.

Further, there would be opportunities in the export segment for HAL against the backdrop of the lingering geopolitical tensions. However, exports would not contribute significantly in the near-to-medium term. HAL aims for the revenue from export business to form 10% of total revenue by 2025.

On the margin front, increasing focus on indigenization is a positive. Almost half of the items in the third positive indigenization list released by the ministry of defence are for HAL platforms. This means lower dependence on foreign original equipment manufacturers and thereby savings in cost.

All said, execution of the orders is a key monitorable. In the past, HAL’s execution has not been up to the mark partly because of the delay by vendors, pointed out Harshit Kapadia, analyst at Elara Securities (India). “There are also headwinds from potential delay in the order inflow for HAL if the perception of threat from China reduces," he said.

Further, lack of diversification is a key risk as HAL operates only in the area of defence production. The company is looking for areas to expand its footprint.

Meanwhile, given the recent run up in the stock price, Elara Securities has downgraded its rating for the HAL stock from Buy to Accumulate. However, because of the strong Q1FY23 performance, the broking firm has raised its FY23/24E earnings per share estimates by 3-4%.