HAL retains bullish calls from brokerages despite margin contraction in Q1

In the last one year, HAL stock has zoomed almost 140 percent. In comparison, benchmark Nifty's rose 25 percent during this period.

Hindustan Aeronautics Ltd.'s (HAL) in-line Q1FY25 results left analysts impressed, prompting several brokerages to maintain bullish calls on the defence stock. The company’s strong order pipeline and promising future prospects, including expected robust ordering momentum and confidence in double-digit growth, have reinforced positive sentiment.

Despite some margin volatility and delays in order deliveries, the long-term growth outlook remains optimistic, driving continued support from leading financial firms, according to analysts. From its 52-week high of Rs 5,674.75, HAL shares have corrected around 18 percent.

HAL on August 14 reported consolidated net profit growth of 77 percent on-year at Rs 1,437 crore in Q1FY25. The PSU defence major's consolidated revenue from operations rose 11 percent YoY to Rs 4,348 crore. Its earnings before interest, tax, depreciation, and amortisation (EBITDA) grew 13 percent YoY to Rs 994 crore.

According to Jefferies, HAL's Q1 revenue exceeded expectations by 3 percent, though EBITDA margins contracted by 440 basis points to 22.8 percent, resulting in lower-than-anticipated EBITDA. However, a 27 percent YoY reduction in depreciation costs contributed to a profit beat.

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The brokerage has issued a 'buy' rating on HAL with a target price of Rs 5,725 per share. It believes HAL’s strong order book provides confidence in achieving double-digit growth over the next 3-5 years. The firm also expects volatile margins to improve in the second half of the fiscal year as revenue delivery picks up.

UBS has also placed a 'buy' rating on HAL with a target price of Rs 5,700 per share. The firm noted that HAL’s Q1 performance was operationally in line with expectations and believes the company is on track for robust ordering momentum.

UBS expects HAL to secure orders worth Rs 1 lakh crore in FY25, with significant orders anticipated for the LCH Prachand, 240AL31 engines, and SU30 upgrades. Over the FY25-26 period, UBS projects a total of Rs 2 lakh crore in orders to be awarded to HAL.

CLSA maintained an "Outperform" rating on HAL, setting a target price of Rs 4,731 per share. The firm acknowledged that HAL’s order pipeline remains intact despite a weaker Q1 performance.

Large engine orders expected in Q1 have been deferred to Q2, with the remainder expected in the second half of FY25. CLSA also noted that orders slowed due to delays in Russia-linked programs, which are now anticipated in Q2FY25.

Also Read | HAL Q1 results: Net profit jumps 77% to Rs 1,437 crore

In the previous session, HAL shares ended nearly a percent lower at Rs 4,658.90 on the National Stock Exchange (NSE). In the last one year, the stock has zoomed almost 140 percent. In comparison, benchmark Nifty's rose 25 percent during this period. Year-to-date, the counter has rallied 65 percent, outpacing Nifty's returns of around 11 percent in this period.

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