HAL share price: Buy, hold or sell this defence stock? Here's fresh target

Hindustan Aeronautics Ltd (HAL) offers limited upside potential, said JM Financial as it suggested 'Add' rating on the stock with a target of Rs 180 apiece. The target suggests 6 per cent potential upside over Friday's closing price. A strong order book provides revenue visibility over the medium term, but execution remains a key concern, the brokerage said.

On Monday, HAL shares fell 0.89 per cent to Rs 4,801.85. JM Financial sees limited potential for significant valuation re-rating due to execution headwinds and potential for slowdown in order inflow growth as prospects are largely in various stages of approval or development and competition from imports and private players is rising.

"We value HAL at 29 times (unchanged) H1FY29E EPS of Rs 180 to arrive at our target price of Rs 5,210, providing 6 per cent upside from the current levels, and maintain ADD," JM Financial said.

The domestic brokerage said developments around Tejas LCA MK1A deliveries may act as key trigger for the stock in the near term, noting LCA deliveries have continued to face uncertainty from engine deliveries and radar integration issues. The broking firm expects 12, 20 and 20 Tejas deliveries in FY27, FY28 and FY29 but any delay in initial acceptance poses downside risks to its estimates.

"In our view, execution is likely to remain in focus for HAL as the order book is already strong. We expect developments around Tejas MK1A deliveries to act as key triggers for the stock in the near term," JM said adding that earnings downgrades from further delays in execution could also keep multiples supressed.

JM Financial expects gross margin for HAL to fall to 51.5 per cent by FY29 from 55.5 per cent in FY27 due to ramp-up in manufacturing revenue. It expects a 25 per cent CAGR in revenue to translate into 17 per cent and 15 per cent growth in Ebitda and earnings per share (EPS) over FY26–29.

On the 12 Su-30MKI aircraft order for Rs 13,500 crore, HAL plans to deliver 1/11 aircraft by FY28 and FY29. For this, it is reviving its production line at Nashik and has already procured material kits required from Russia.

"Thus, we estimate execution for the Su-30MKI order in line with management guidance. We acknowledge risk of delays from integration of indigenous equipment into the system, especially as the Virupaksha radar is in various phases of development and testing. We expect no major risks in execution of LCH Prachand from FY29. As a base case, we expect 25 per cent CAGR in revenue over FY26–29," JM said.