Target: ₹2,266

CMP: ₹1,929.10

We initiate coverage on Hindustan Aeronautics (HAL) with a ‘Buy rating at a target price of ₹2,266 (weighted average of prices using DCF & PE multiple).

HAL is a play on the growing strength & modernisation of India’s air defence given: its position as the primary supplier of India’s military aircraft; long-term sustainable demand opportunity, owing to the government’s push on procurement of indigenous defence aircraft; leap in HAL’s technological capabilities due to development of more advanced platforms (Tejas, AMCA, etc.); robust order book of ₹81,800 crore with further 5-year pipeline of about ₹2 lakh crore; and improvement in profitability through scale and operating leverage.

We estimate Revenue/Adj. PAT CAGR of 11/14.2 per cent over FY23-26. The stock is currently trading at a P/E of 20.8x/18.3x on FY25/26 earnings.

Key risks: Delays in execution of manufacturing platforms may affect revenue recognition and also increase costs;

HAL’s sales & cash flows heavily depend on the quantum and timing of budgetary allocations by the MoD. Any changes to government regime can impact allocation to defence, domestic procurement policies,

Disruptions in supply chain for critical materials and LRUs from foreign OEMs (like seen in the Russia-Ukraine war) may adversely impact the business.