HAL Gets 'Buy' Upgrade From ICICI Securities; Top Pick Among DPSUs — Here's Why

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ICICI Securities Report

GE Aerospace has delivered the first of 99 (nos.) F404-IN20 engines to Hindustan Aeronautics Ltd. for the light combat aircraft Tejas Mk 1A (Delivering for India Today and Into the Future | GE Aerospace News).

In our view, this development allays concerns on the execution front. We expect revenue growth of 25–28% through to FY27E, based on the order book estimated at more than Rs 1.3 trillion.

Besides, there are further orders of 97 (nos.) Tejas Mk 1A and 156 (nos.) LCH Prachand in the pipeline. As a result of reduced execution concerns and lower risk on our earnings estimates, we roll back our WACC to 11% (earlier 12%), resulting in a revised target price of Rs 5,000 (earlier Rs 4,065).

We upgrade HAL to Buy (from Add) and recommend it as our top pick among DPSUs.

Key risks

• Delay in execution of existing 83 nos. Tejas Mk-1A orders.

• Delay in receipt of further orders for which AoN has been executed.

• Margin decline owing to higher raw material prices.

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