Defence stock HAL gains 4% post Q1 results; worth a buy?

Shares of Hindustan Aeronautics (HAL) climbed 4 per cent in Wednesday's trade even as the defence major reported a slight miss on revenue, which was offset by better-than-expected margins and higher other income. 

Stock analysts said HAL's Ebitda margin at 26.6 per cent was aided by improved gross margin and sharply lower provisions. With engine supplies ramping up from GE for the Tejas Mk1A aircraft order, they expect aircraft deliveries to accelerate in the coming quarters.

"We anticipate a strong manufacturing order book to support its execution growth. We maintain our estimates and roll forward our target to Rs 5,800 based on the average of DCF and 32x Sep’27E earnings," MOFSL said. 

On Wednesday, HAL shares advanced 3.66 per cent to hit a high of Rs 4,567.20 on BSE. HAL shares have come off from their recent high and are currently trading at attractive valuations, MOFSL said.

ICICI Securities has re-initiated coverage on HAL with 'Buy' and a target price of Rs 5,800. Going ahead, te management has guided for 8-10 per cent revenue growth, including RoH revenue of Rs 20,000 crore and stable Ebitda margin, said said.

Nomura India sees healthy earnings visibility for HAL due to manufacturing book and bill ratio of 24 times. Although General Electric has delivered two engines to date and has committed for monthly deliveries of two engines for LCA, share of this contract in the backlog has dipped from 50 per cent in FY24 to 20 per cent in FY25. 

"Further, execution timelines for all other projects are on or ahead of schedule, implying minimal downside risk to execution estimates, in our view," Nomura said while suggested a target price of Rs 6,100. 

Nuvama retained its ‘Buy’ rating on the HAL stock, baking in a revenue CAGR of 21 per cent over FY25–28E. This envisaged a higher product mix (62 per cent in FY27E versus 23 per cent in FY25), Rs 15,000 crore in capex over four–five years and WC build-up, yielding 11 per cent EPS CAGR.  The brokerage kept its target price unchanged at Rs 6,000.

HAL’s growth catalysts are emerging from the Tejas aircraft deliveries and the finalization of orders for 97 Tejas-Mk1A, analysts said.