HAL shares: Why this PSU defence stock is a ‘Buy’; here’s price target

Hindustan Aeronautics Ltd (HAL) has received a ‘Buy’ rating from MOFSL, as the  brokerage stayed upbeat on the defence aerospace segment and believes some of the major supply chain issues with HAL are broadly under control.  

HAL would now have to focus on execution, MOFSL said, as it suggested a target price of Rs 5,100, based on March 2027 estimated earnings. The target suggested a 18.74 per cent potential upside over Thursday’s closing price of Rs 4,294.90 apiece. 

MOFSL noted that there is a need to put defence and aerospace projects on a fast track and said the total addressable market (TAM) for HAL would remain strong  over the next 2-3 years. 

This is where the initial groundwork on prototypes is already being done for projects such as follow-on orders from Tejas Mk1A (97 aircraft) worth Rs 65,000 crore, Su-30 Mk1 (84 aircraft) worth Rs 63,000 crore, followed by LUH and NUH orders, and subsequently Tejas Mk2, MOFSL said.

“This translates into a medium-term pipeline of Rs 2.4 lakh crore for HAL, and the overall long-term TAM remains around Rs 6 lakh crore,” MOFSL said.

According to its discussion with a defense expert, MOFSL said India is likely to seek bids this year for 114 multi-role fighter aircraft. The Indian Air Force plans to begin induction of these planes in the next four to five years through a fast-tracked MRFA global tender worth $20 billion. 

This planned induction of these 114 multirole fighter jets is needed to help the IAF maintain its squadron strength over the next 10 years along with the indigenous fighter jets (including the different variants of the Light Combat Aircraft, such as the Mark 1A and the Mark-2). 

Various aircraft that can be part of the global tender and future requirements of the IAF could be the F-35, Su-57E, Super Sukhoi, South Korean KF21 Boramae, Saab JAS 39E/F Gripen, and Lockheed Martin F-21, MOFSL said.

Other options that can also be in the queue could be the F-16, F-18, MiG-29 upgrade, Eurofighter Typhoon and MiG-31. 

“However, we are given to understand that the government will have to take a balanced view based on 1) retiring the fleet and the immediate requirements of the IAF, 2) budgetary constraints in sourcing large G2G deals, 3) technology transfer and any kind of indigenization benefit to Indian players or component suppliers, as well as 4) future maintenance and integration of these new fleets into the existing fleet,” MOFSL said.

The broking firm expects HAL’s overall revenue to record a CAGR of 29 per cent over FY25-27, primarily led by a sharp scale-up in manufacturing revenue and a 5 per cent CAGR in RoH and spares. 

It projected HAL’s Ebitda margin to remain strong at 25.9  cent, 27.4 per cent and 27.6 per cent for FY25, FY26 and FY27, respectively. This would be fueled by indigenisation efforts taken by the management. 

“With an annual capex of Rs 3,000-Rs 5,000 crore and comfortable working capital, we expect HAL’s PAT to register a 29 per cent CAGR over FY25-27. With improving revenue and stable margins, we expect HAL’s RoE/RoCE to remain comfortable, reaching 22.5 per cent/23.2 per cent by FY27,” MOFSL said.