Six reasons why HAL may continue to remain a darling for investors

Analysts at Prabhudas Lilladher, in their recent report, initiated coverage on the stock on September 29 with a Rs 2,226 target price, more than 15 percent from the current value, indicating potential for continued healthy returns in the coming days.

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26 Aug, 2025 12:21

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The push for Indian manufactured aircraft and helicopters for the Indian Air Force, according to a recent report, could be for to defence public sector unit HAL’s gain. HAL has been on steady growth over the years, and given its already growing profitability, the modernisation of India’s air defence systems will only be to its benefit.

According to analysts, there are six reasons why HAL may continue to rise:

1. Strong revenue growth

For the quarter ended June 2023, HAL reported 31 percent year-on-year growth in consolidated net profit, at Rs 620.14 crore. Sales for the quarter also grew 8 percent to Rs 3,915.35 crore. Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 26 percent year-on-year to Rs 1,286.77 crore. Prabhudas Lilladher analysts estimate that HAL will report a revenue CAGR of 11 percent over FY2023-2026E on the back of a robust order book and healthy expected inflows.

Also read: HAL and Hearty: Flying high on defence demand

With a Buy call, the analysts estimate EBITDA CAGR of 11.4 percent and Adjusted PAT of 13.7 percent over FY2023-2026E for HAL. This is based on the operating leverage achieved from scale in revenues versus employee costs, normalisation of provision expenses, strong growth in interest income owing to a healthy cash balance and cost efficiencies originating from a localised supply chain. Compared to its domestic peers, such as BEL, and global peers Lockheed Martin and Boeing, HAL also has the highest margins (24.3 percent for FY24E).

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2. Growth in Indian defence capex

India’s FY2024 defence capital outlay budget stood at Rs 1.7 trillion. The budget has grown at a 9.4 percent CAGR over FY2017-2024E. Over FY19-23, 168 out of 239 capital acquisition contracts have been signed with Indian vendors (including MSMEs), accounting for more than 68% of the total contract value, the Prabhudas Lilladher report said.

Also read: DAC approves proposals worth Rs 45,000 crore, including procurement of 12 Su-30MKIs for IAF

3. Demand for indigenous manufacturing 

The Government of India, over the last few years, has been focusing on making India self-reliant in defence. By FY2025, the aim is to increase domestic defence production by almost double, to Rs 1.75 trillion. This will reduce import dependency, while simultaneously scaling up exports to 20 percent of total production or Rs 35000 crore to make India a defence export hub.

India was the world’s largest importer of arms over the 2013-2022?, with a huge dependency on Russia. However, in the wake of the Russia-Ukraine war, India has faced challenges procuring key supplies from Russia, which has disrupted local defence production, the report noted.

According to the Prabhudas Lilladher analysts, HAL’s monopoly-like position in India’s defence aerospace sector coupled with the government’s push to procure indigenously designed and developed defence aircraft has put the company “in a sweet spot to benefit from a long-term demand opportunity”. HAL is currently involved in several major fighter jet projects and helicopter projects. These projects will replace various outgoing fleets. The Defence Acquisition Council (DAC) is a decision-making authority within the Indian Defence Ministry. It has accorded Acceptance of Necessity (AoN) status to nine capital acquisition proposals worth Rs 45 crore covering all three armed forces. According to analysts at ICICI Securities, HAL will be a major beneficiary from the AoNs for 12 Sukhoi-MKI aircraft and the avionic upgrade of Dornier aircraft. ICICI Securities gives HAL an Add rating with a target price of Rs 4,350.

4. Growth in manufacturing order book

In FY2023, according to Prabhudas Lilladher, the closing order book stood at Rs 81.8 crore. Currently, manufacturing contracts account for around Rs 60.5 crore, with an order pipeline of Rs 48 crore for FY2024. These projects are expected to commence in FY2025. Operating leverage from the growing manufacturing scale, coupled with normalising provisions and higher interest income on cash advances will improve margins and net profitability, analysts say.

5. Augmenting technological capabilities

With the responsibility of modernising India’s air defence, according to a report, HAL has also been scaling up its expenditure on R&D to ensure that the new platforms under development are state-of-the-art and comparable with their global counterparts. Partnerships and joint ventures with global companies will enable HAL to gain access to “advanced technologies and best practices to eventually design and develop cutting-edge platforms in-house for both domestic and export markets”, wrote Prabhudas Liladher’s Amit Anwani in the report.

6. Opportunities for exports

Another big area for HAL is exports. According to the Prabhudas Lilladher report, HAL is making proactive efforts to promote its international business with its indigenous range of aircraft and helicopters such as LCA Tejas, ALH, LUH, and LCH. The defence manufacturer has also signed an MoU to supply light and medium utility helicopters to Argentina’s military. “(HAL) also has advanced leads with Philippines and Egypt. It recently opened an office in Malaysia to facilitate engagement with South-East Asia,” the report noted.

Steady gains 

Over the last year, the stock has gained over 50 percent and over the last five years, it has risen by over 390 percent. At mid-day on October 3, the stock was trading at Rs 1,940. In a September 28 exchange filing, the company announced that the face value and paid-up value of its equity shares had been changed from Rs 10 per share to Rs 5 per share, effective September 28. The stock had hit a 52-week high (Rs 3,785) on June 9, when news of the impending stock split was announced.

Analysts at Prabhudas Lilladher, in their recent report, initiated coverage on the stock on September 29 with a Rs 2,226 target price, more than 15 percent from the current value, indicating the potential for continued healthy returns in the coming days.

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