- Hindustan Aeronautics' Q1 profit fell 4% despite a strong operational quarter
- Morgan Stanley and JPMorgan maintain positive outlooks with high target prices
- UBS cuts target price, citing execution risks and valuation concerns for HAL
Hindustan Aeronautics (HAL) received mixed reactions from Morgan Stanley, UBS, and JPMorgan with an encouraging outlook, even after the profit slipped by 4%. While all three acknowledge a strong first quarter for the financial year 2026, they differ in their long-term views.
Morgan Stanley and JP Morgan remain positive on their outlook, while UBS flags concerns around valuation and visibility. They also point out the need for the company to show strong and continued execution to justify stretched valuations.
Ebitda Beat Led By Margins, Lower Provisions
Morgan Stanley has maintained its 'Equal-weight' rating with a target price of Rs 5,092. The brokerage notes that HAL's first-quarter results were strong, with a beat on expectations.
The Ebitda beat was primarily driven by a higher-than-expected gross margin of 68% and lower provisions, according to the brokerage. A higher 'Other income' also contributed to the beat on profit after tax.
Target Price Trim And Re-Rating
UBS has maintained a 'Neutral' rating but has cut its target price to Rs 4,900 from Rs 5,600. While acknowledging an operationally better profit and loss statement, UBS believes that a significant re-rating of the stock solely depends on the ramp-up of key projects, such as the Light Combat Aircraft (LCA) Mk1A and the Light Combat Helicopter (LCH) Prachand.
The firm has reduced its valuation multiples due to concerns over execution challenges, potential risks to margins, and a lack of new large orders until the financial year 2028.
UBS also picks Bharat Electronics Limited over HAL, citing stronger earnings visibility and a more promising order book.
Healthy Revenue Growth
JPMorgan has maintained its 'Overweight' rating with a target price of Rs 6,105. The brokerage views the healthy revenue growth positively, which is a positive indicator for the execution in the financial year 2027.
It also notes that margins expanded during the quarter. However, it points out that growth in profit after tax was impacted by variations in the tax rate.
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