Whalesbook
Prabhudas Lilladher has maintained its 'Buy' rating on Hindustan Aeronautics Limited (HAL), increasing the target price to ₹5,507. The upgrade follows HAL's 10.9% YoY revenue growth and significant new orders, including 97 LCA Tejas Mk1A aircraft worth ₹620 billion and 113 GE F404 engines for $1 billion. HAL is also pursuing the AMCA program and diversifying into passenger aircraft manufacturing via an MoU with UAC for the Sukhoi Superjet 100. The brokerage notes a concern regarding GE engine delivery pace.
Hindustan Aeronautics Limited (HAL) has reported a 10.9% year-on-year (YoY) revenue growth, attributed to improved operational execution. However, its EBITDA margin contracted by 394 basis points (bps) YoY, primarily due to higher provisions.
Key Orders and Milestones:
HAL secured a significant order for 97 LCA Tejas Mk1A aircraft, valued at approximately ₹620 billion (around $7.4 billion). This order solidifies its position in India's defence and aerospace sector.
A separate $1.0 billion contract was signed with GE Aerospace for 113 F404-IN20 engines, which will power these Tejas jets.
The Nashik division of HAL achieved a milestone with the maiden flight of its first Tejas Mk1A during the quarter.
Strategic Initiatives:
HAL is leading a consortium bidding for the Advanced Medium Combat Aircraft (AMCA) program, which analysts consider a potentially transformative opportunity for the next decade.
The company is also diversifying into the civil aviation segment through a Memorandum of Understanding (MoU) with Russia’s United Aircraft Corporation (UAC). This collaboration aims to domestically produce the Sukhoi Superjet 100 (SJ-100) passenger aircraft.
Concerns:
The pace of F404 engine deliveries from GE Aerospace remains a concern, with HAL having received only four out of twelve engines committed for the current year.
Analyst Outlook:
Prabhudas Lilladher maintains a 'Buy' rating on HAL.
The stock is currently trading at a Price-to-Earnings (P/E) ratio of 34.4x and 31.3x on estimated earnings for FY27 and FY28, respectively.
The brokerage has rolled forward its valuation to September 2027E, applying a PE multiple of 38x (previously 40x on March 2027E).
This revised valuation leads to a new target price (TP) of ₹5,507, a slight increase from the previous target of ₹5,500.
Impact:
This news is highly positive for Hindustan Aeronautics Limited's stock. The substantial orders for Tejas and GE engines, coupled with strategic future programs like AMCA and civil aviation diversification, significantly enhance its growth prospects. The analyst's 'Buy' rating and increased target price further bolster investor confidence, likely leading to upward price movement. The defence sector as a whole may also see positive sentiment.
Rating: 9/10
Definitions:
Revenue Growth: An increase in the total income generated by a company from its normal business operations over a period of time.
YoY (Year-on-Year): A comparison of financial data over a period of one year to the same period in the previous year.
EBITDA Margin: Earnings Before Interest, Taxes, Depreciation, and Amortization margin. It measures a company's operating performance by showing the profitability of its core business operations before accounting for financing, tax, and non-cash expenses. A higher margin indicates better profitability.
bps (Basis Points): A basis point is one-hundredth of a percentage point. 100 bps = 1%. So, a 394 bps contraction means a 3.94% decrease.
Provisions: Funds set aside by a company to cover anticipated future losses or expenses. Higher provisions can reduce current profits.
LCA Tejas Mk1A: Light Combat Aircraft, a multirole fighter jet developed by Hindustan Aeronautics Limited for the Indian Air Force. Mk1A is an upgraded version.
₹620bn: Indian Rupees 620 billion (62,000 crore).
GE Aerospace: A division of General Electric that manufactures aircraft engines and related components.
F404-IN20 engines: A specific model of turbofan engine manufactured by GE Aerospace, used in fighter jets.
MoU (Memorandum of Understanding): A preliminary agreement between two or more parties that outlines the basic terms of a potential future contract or partnership.
AMCA program (Advanced Medium Combat Aircraft): A stealth fighter jet being developed in India.
UAC (United Aircraft Corporation): A Russian state-owned company that consolidates major Russian aircraft manufacturers.
Sukhoi Superjet 100 (SJ-100): A Russian regional jetliner.
P/E (Price-to-Earnings) Ratio: A valuation metric that compares a company's stock price to its earnings per share. It indicates how much investors are willing to pay for each dollar of earnings.
FY27E / FY28E: Fiscal Year 2027 Estimates / Fiscal Year 2028 Estimates. Projections for the company's financial performance in those future fiscal years.
TP (Target Price): The price at which an analyst or broker believes a stock will trade in the future.
