Hindustan Aeronautics Gets 'Buy' As Motilal Oswal Initiates Coverage Citing Positive Industry Tailwinds

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Motilal Oswal Report

We initiate coverage on Hindustan Aeronautics Ltd. with a Buy rating with a target price of Rs 5,100 based on average of DCF and 32x P/E on Mar’27 estimates.

We believe that near-term catalysts will emerge when aircraft deliveries commence as engine supplies from GE resume, while medium- to long-term triggers will stem from the finalization of orders for 97 Tejas-Mk1A, Tejas MK-II, LUH, Advanced Medium Combat Aircraft (AMCA), et al.

Financial outlook

We expect the overall revenue to record a CAGR of 29% over FY25-27, primarily driven by a sharp scale up in manufacturing revenue and a 5% CAGR in repair and overhaul and spares. We project its Ebitda margin to remain strong at 25.9%/27.4%/27.6% for FY25/ FY26/FY27, fueled by indigenization efforts taken by the company.

With an annual capex of Rs 30 billion/Rs 40 billion/Rs 50 billion and comfortable working capital, we expect PAT to register a 29% CAGR over FY25-27. With improving revenue and stable margins, we expect RoE/RoCE to remain comfortable, reaching 22.5%/23.2% by FY27.

Valuation and recommendation

HAL is currently trading at 31.9x/25.9x FY26E/FY27E EPS. We initiate coverage on the stock with a Buy rating and a target price of Rs 5,100 premised on average of DCF and 32x P/E on Mar’27E estimates.

Key risks and concerns

1. slower-than-expected finalization of large platform orders,

2. further delays in deliveries of key components such as engines for Tejas Mk1A,

3. delays in payments from MoD, and

4. increased involvement of the private sector.

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