Accumulate Hindustan Aeronautics; target of Rs 4110: Prabhudas Lilladher

Prabhudas Lilladher's research report on Hindustan Aeronautics

We downwardly revise our EPS estimates by -2.0%/-1.5% for FY26/27E factoring the delays in deliveries of Tejas aircraft and maintain the rating of ‘Accumulate’ with a revised TP of Rs4,110 (Rs4,692 earlier). Hindustan Aeronautics (HAL) reported 14.8% YoY revenue growth in Q3FY25 with EBITDA margin increasing by 50bps YoY to 24.2%. During the quarter, HAL secured an order worth approximately Rs135bn from the MoD for 12 Su-30 MKI aircraft. The Tejas Mk1A program continues to experience delays due to the postponed delivery of F-404 engines from GE Aerospace. However, the company expects the delivery of 12 engines over the next 12 months, which is expected to provide some relief to the program. In addition, HAL’s negotiations for the F-414 engines have encountered challenges, with GE Aerospace demanding an additional ~$500.0mn over the previously agreed contract value of ~$1.0bn. Despite this, HAL remains optimistic about finalizing the F-414 deal by the end of FY25. Overall, the company has secured orders exceeding Rs400bn during the first nine months of FY25 and aims to achieve an order book of ~Rs1.2trn the end of FY25 (vs Rs941bn in FY24).

Outlook

The stock is currently trading at a P/E of 32.8x/28.7x on FY26/27E earnings. We value the stock at a P/E of 35x Sep-26E (40x Sep-26E earlier) due to possible execution delays being a key risk. Maintain to ‘Accumulate’.