Hindustan Aeronautics Limited (HAL) appears to be flying towards the future considering it is well-positioned for significant long-term growth. The expansion is underpinned by a robust order book and promising revenue prospects in both--near as well as long term.
HAL has smoothly shifted from making products through licensed production to creating a line-up of indigenous designs. With a history spanning eight decades, the company has crafted a diverse array of aircrafts, like the Sukhoi Su-30 MKI, MiG-21, and MiG-27, through licensed initiatives.
Furthermore, HAL has excelled in manufacturing helicopters, trainer aircraft, and aero-structures for ISRO, Airbus, and Boeing. Its significant presence is evident, with approximately 80 percent of the defence forces' fleet being supplied or serviced by the company.
According to Sharekhan, “HAL has multiple growth triggers, which if unfolded at the right time can set the company on a high-growth pedestal”.
Optimism over the company’s growth prospects had helped the upswing in the stock. YTD, the scrip has gained 54 percent while in the past three years, the investors enjoyed a return of 210 percent.
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Revenue prospects – solid as rock
The global geopolitical situation could drive demand for fighter aircrafts and helicopters, along with a demand for their engines and spares, which could bolster HAL’s order outlook.
Its immediate focus is on introducing the LCA Tejas into the Indian Air Force (IAF). The company’s defence portfolio is expected to expand over time due to the ongoing modernisation of the Indian armed forces, say analysts.
While manufacturing is crucial to HAL's existence, there's also growing potential in the repair and overhaul (ROH) segment. Over 250 Su-30s and 300+ ALHs that have been delivered to the Indian armed forces will require maintenance, repair, and overhaul (MRO) services, added analysts.
At Rs 82,200 crore, HAL’s outstanding order book is three times its trailing twelve month (TTM) revenues, with a healthy mix of manufacturing (75 percent) and ROH (23 percent). This makes PhillipCapital positive on HAL. The brokerage expects HAL to deliver a revenue growth of 14 percent compounded annually over FY23-26.
Moreover, the government's emphasis on the 'Make in India' campaign and decreasing reliance on imports aligns favourably with HAL's position as a domestic player.
Much-awaited deal with GE – shot in the arm
As and when the company’s much-awaited deal with US-based General Electric (GE) fructifies, it would mark a significant step in the transfer of technology from advanced nations like the US. Sharekhan has highlighted that this collaboration could set the stage for other such partnerships. The proposed partnership between GE and HAL involves the joint manufacture of jet engines in India, intended for fighters like Tejas Mark 2.
The forthcoming collaboration with GE and possible export partnerships, like the one with Argentina, hold the potential for substantial long-term expansion. This, along with a robust order book, instills confidence in HAL’s revenue prospects and profitability, analysts feel.
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Valuation
PhillipCapital has valued HAL’s stock at 20 times its Sep 2025 Earnings Per Share, with a 10 percent premium. This is after the recent agreement (with whom) to manufacture advanced fighter aircraft engines, which is expected to grant HAL greater independence in developing fighter jets in future.
The public sector undertaking (PSU) has moved from licenced production to self-developed initiatives like LCAs, justifying a higher valuation for its stock. Thus, PhillipCapital also sees a story of capability enhancement in HAL, likely resulting in an even higher premium for its stock going ahead.
The order pipeline is substantial, exceeding Rs 1,50,000 crore in total opportunities. Plus, with zero debt, solid cash reserves, improved working capital management, and impressive return ratios, the company appears to be in a good place.
Given the multi-year, double-digit earnings growth potential and more than 20 percent return ratio, Antique Stock Broking is of the view that the scrip can see a re-rating in the near term. It also sees HAL logging 11 percent compounded annual growth in earnings over FY23–25.
In the quarter ended June, the defence player posted a 31 percent year-on-year (YoY) growth in consolidated net profit, at Rs 620.14 crore, while sales was up 8 percent, at Rs 3,915.35 crore. Its EBITDA rose 26 percent on-year to Rs 1,286.77 crore.
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