Taneja Aero’s a long-haul flight

Taneja Aerospace & Aviation Ltd (TAAL) manufactures small civilian aircraft, aero-structures and aircraft parts, provides aircraft maintenance services from its own airfield and represents Cessna Aircraft Company, USA, for the sale of its aircraft in India. TAAL is the only private sector company manufacturing entire aircraft in India. Given the breadth of this product portfolio, TAAL enjoys a very strong position in the Indian aviation market.

Business: Incorporated in 1988, Bangalore-based TAAL has structured its business into three distinct business divisions — aerostructures, maintenance, repair and overhaul (MRO) and airfield services, and aircraft sales.

Aerostructures division: TAAL started operations in 1994, entering into a collaboration agreement with an Italian firm, Partenavia, to manufacture the twin-piston engine 6-seater P68C and the 11-seater twin turboprop Viator aircraft. Towards this, TAAL created manufacturing and assembly infrastructure in Hosur, Tamil Nadu. Since then, the business has evolved to cover manufacturing aerostructures and aircraft parts for Hindustan Aeronautics Ltd (HAL), Indian Space Research Organisation (ISRO), National Aerospace Laboratory (NAL) and the Aeronautical Development Establishment (ADE).

Salil Taneja, MD of TAAL, says, “We currently have an order book position of Rs 30 crore for the aerostructure division, to be executed over two and a half years.”  The company expects decent growth from this segment with few more orders in the pipeline from the defence sector and a couple of orders from foreign tier-1 vendors for Airbus.

MRO and airfield services division: TAAL’s new and promising activity is in the field of maintenance, repair and overhaul (MRO). It owns a private airfield strategically located at Hosur, just 50 km from Bangalore city, which is capable of receiving A320 B737- 900 aircraft and is equipped with night landing facility, ATC tower with VHF set, basic navigation aids and support services like refueling, parking, aircraft hangar
accommodation, aircraft maintenance and cleaning services, crew rest area and guest house.

TAAL has recently signed an MoU with Sabena Technics for setting up an MRO business at its private airfield at Hosur. This MRO facility shall initially be targeted at regional turboprop aircraft like ATR 4272. Subsequently, mid-size single aisle commercial jet aircraft like Airbus A320 and the Boeing 737 series shall be included in the service portfolio. 

Aircraft sales division: TAAL represents the Cessna Aircraft Company in India for the Citation range of business jets and Caravan aircraft.

With companies in India looking to replace their outdated turboprops with modern business jets and with Cessna dominating the light and mid-sized jet  market worldwide, TAAL sees  a tremendous business opportunity  in this area. 

SEZ development to boost business
TAAL has already received in-principle approval from the government to set up an special economic zone (SEZ) dedicated to aviation at its current location, which has 250 acres for new facilities in addition to the present airfield.

This SEZ can house many investments that several foreign and Indian companies would want to make to take advantage of multi-billion dollar defence and civil offset business.
Investment rationale

Indian aviation is set to boom with rapid expansion in the deregulated civil aviation space. Also, the government’s offset clause mandating 30% offset provisions for all aviation purchases would benefit TAAL, the only Indian company other than the government-owned HAL to have garnered such broad-based experience in aviation.
SEZ concessions, along with the massive opportunity for aviation manufacturing and services arising out of the defence and civil aviation offset policy, present a very interesting future for TAAL.

Concerns
Being in the aviation segment, TAAL faces risks from economic slowdown,
political uncertainty and fuel price  increases, all of which have a bearing
on revenues.

Valuations
TAAL, the only listed company in aerospace manufacturing in India, is expected to gain from its aerostructure and airfield services, besides getting a boost on account of SEZ plans.

TAAL’s revenues are expected to grow at a CAGR of 39% over FY08A-FY10E and net profit at a CAGR of 110% over FY08A-10E. At the current market price of Rs 64.45, TAAL trades at a price-earnings multiple of 21.68x & 15.97x its FY09E and FY10E earnings, respectively. Considering the strong margin growth, TAAL looks attractive at current levels from a long-term perspective.

(Sunder Subramanian contributed  to this story.)
Disclaimer: The author does not hold any shares in the company.