Buy Hindustan Aeronautics; target of Rs 5950: Anand Rathi

Anand Rathi's research report on Hindustan Aeronautics

Incorporated in 1963, Hindustan Aeronautics is a public sector Defence undertaking, the only Indian company to design, develop and assemble aircraft, helicopters & aero-engines, and upgrade, maintain, repair & overhaul them. As the MoD focuses on rebuilding squadron strength, HAL’s monopoly, policy tailwinds & long tail (a few programs now in mass production) augur well for its growth prospects. On the huge, Rs1.89trn, order book (assurance of orders of at least Rs2.9trn), we expect it to clock 19.0% CAGR over FY25-28 (55 aircraft/helicopter deliveries in FY28). Against global peers, it has one of highest OB/last twelve month (LTM) sales ratio at 6.1x, one of the highest EBITDA margins, strong earnings growth outlook, a clean balance sheet, strong CFO generating potential (Rs487.1bn in FY26-28, with a 108% CFO/EBITDA ratio) and healthy RoEs (>24%).

Outlook

We initiate coverage with a Buy and a Rs5,950 TP (implying 32.4x the average of FY27e & FY28e EPS).