Hindustan Aeronautics Ltd. (HAL) is the cheapest pure-play defence stock despite its sector-leading position, according to brokerage firm CLSA, which believes the PSU is among the biggest beneficiaries of the government's Make in India push.
CLSA maintained its ‘Outperform' rating and raised its 12-month HAL share price target to Rs 5,625 from Rs 5,481 earlier. The revised target implies an upside potential of nearly 14% from Wednesday's closing price.
“We see HAL as the cheapest pure-play India defence major despite a high entry barrier and high-ROE business,” CLSA said in its latest report.
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The brokerage expects deliveries of HAL's Light Combat Aircraft (LCA) Tejas Mk1A to begin soon, with the commencement of deliveries in Q3/Q4 FY27 emerging as a key near-term catalyst.
The optimism follows Air Chief Marshal Ashutosh Dixit's assumption of office on October 31, 2026. In his address, Dixit identified the Tejas Mk1A and Mk II programmes as the Indian Air Force's highest priorities. He also highlighted the need to restore the IAF's combat strength to its sanctioned level of 42 squadrons from the current 29.
CLSA believes achieving this target will require the delivery of 10 squadrons of LCA Mk1A aircraft, reinforcing its view that the programme faces no fundamental issues.
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HAL has already lined up more than 25 LCA Mk1A airframes, of which over 10 are fitted with engines, according to the brokerage. The company has also entered the mass-production stage for active electronically scanned array (AESA) radars. These indigenous radars will replace Israeli-made systems in the next batch of 97 Mk1A aircraft.
The move is expected to improve indigenous content and reduce integration challenges involving the fighter aircraft and Indian missiles.
HAL's $25 Billion Order Pipeline
CLSA sees HAL as a major beneficiary of India's defence indigenisation ambitions, with potential orders worth around $25 billion visible by FY30. These include programmes involving the Light Utility Helicopter (LUH), Advanced Light Helicopter (ALH) and Sukhoi-30 upgrades.
The brokerage highlighted the potential $7.6 billion order for upgrading avionics and radars on 84 Sukhoi-30MKI aircraft. The government is funding 90% of the design and development costs, improving visibility for HAL.
Other growth drivers include improving platform deliveries, large export orders from Safran for LEAP engine components and visibility on the GE engine deal.
CLSA estimates that multiple engine programmes could support HAL's estimated $54 billion decadal pipeline, driving earnings per share (EPS) at a compound annual growth rate (CAGR) of 15% over FY25-FY28.
The brokerage believes HAL's integrated design-to-production capabilities, aftermarket business, net-cash position and operating leverage provide strong long-term growth levers.
At 12:45 PM, HAL share price was trading 0.78% higher at Rs 4,982.75 apiece on the BSE.
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