HAL - Flying High To Make India Combat-Ready: Prabhudas Lilladher Initiates Coverage With A 'Buy'

Prabhudas Lilladher Report

We initiate coverage on Hindustan Aeronautics Ltd. with a ‘Buy' rating at a target price of Rs 2,266 (weighted average of prices using discounted cash flow and price-to-earning multiple).

HAL is a play on the growing strength and modernisation of India’s air defence given-

1. its position as the primary supplier of India’s military aircraft,

2. longterm sustainable demand opportunity, owing to the government’s push on procurement of indigenous defence aircraft,

3. leap in HAL’s technological capabilities due to development of more advanced platforms (Tejas, Advanced Medium Combat Aircraft, etc.),

4. robust order book of Rs 818 billion with further five-year pipeline of ~Rs 2 trillion, and

5. improvement in profitability through scale and operating leverage.

We estimate revenue/adjusted profit after tax compound annual growth rate of 11.0%/14.2% over FY23-26E.

The stock is currently trading at a price/earning of 20.8 times/18.3 times on FY25/26E earnings.

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