Hindustan Aeronautics’ marginal revenue miss for the June quarter was offset by better-than-expected margins and higher other income, which contributed to its profitability.
Motilal Oswal believes that with engine supplies ramping up from GE for the Tejas Mk1A aircraft order, deliveries will accelerate in the coming quarters.”We also anticipate a strong manufacturing order book to support its execution growth,” Motilal Oswal said.
Having corrected 25% from its all-time high levels, shares of HAL are trading at valuation multiples of 31 times and 27 times current and one-year forward price-to-earnings, which, according to Motilal Oswal, are “attractive.”
HAL’s growth catalysts are emerging from the Tejas aircraft deliveries and the finalisation of orders for 97 Tejas-Mk1A, according to Motilal Oswal. The brokerage is projecting eight aircraft deliveries for this year and 16 from financial year 2027 onwards.
The brokerage expects HAL’s revenue to grow at a Compounded Annual Growth Rate (CAGR) of 24% over financial year 2025-2028, primarily driven by a scale-up in manufacturing revenue, while margins will remain strong due to indigenisation efforts taken by the company and lower provisions. Net profit may grow at a 17% CAGR over the same timeframe.
Slower-than-expected finalisation of large platform orders, further delays in deliveries of key components such as engines for Tejas Mk1A, delays in payments from the Ministry of Defence and increased involvement of the private sector are some key risks that Motilal Oswal has highlighted for HAL.HAL’s operating performance beat was led by a 38% drop in provisions from the same quarter last year and material costs declining to 30% from 35% last year.
Nomura has maintained its “buy” recommendation on HAL with a price target of ₹6,100, which is the highest target on the street for the Defence PSU. The brokerage said that execution timelines for all projects are either on or ahead of schedule and that it sees minimum downside risks to execution estimates.
The brokerage sees a 24% profit CAGR for HAL over financial year 2025-2028.
Morgan Stanley though, has maintained its “equalweight” rating on HAL with a price target of ₹5,092 per share, stating that stronger order momentum and faster execution will aid HAL’s growth.
CLSA has an “outperform” rating on HAL with a price target of ₹5,436. It is anticipating a large fighter aircraft order in 2025 for HAL and visibility on GE engine deals as key catalysts, while a shift in the key aerospace programmes to PPP mode and sustaining its high margins are some key risks.
While JPMorgan has maintained its “overweight” rating on HAL with a price target of ₹6,105, UBS has cut its price target on the stock to ₹4,900, while maintaining its “neutral” recommendation. It said that it continues to prefer Bharat Electronics (BEL) over HAL within the defence space.
Out of the 22 analysts that have coverage on Hindustan Aeronautics, 17 of them have a “buy” rating on the stock, three say “hold”, while two have a “sell” recommendation.
Shares of Hindustan Aeronautics saw choppy moves after the results announcement on Thursday, recovering initial losses, but eventually ending 0.6% lower at ₹4,420. The stock is down 10% in the last one month.
