Defence PSU stock Hindustan Aeronautics Ltd is a 'Buy' with 22 per cent upside potential, Nirmal Bang Institutional Equities said after hosting ex-CMD R Madhavan at the NBIE November Investor Conference.
Nirmal Bang said the delays in the production of F404 GE engines means Tejas Mark 1 deliveries are not planned until FY26. LCA Mark 1 accounts for 7 per cent of HAL's overall orderbook in FY25, which it said does not reflect in its revenue expectations. The domestic brokerage is factoring in revenues from developmental orders, repair and overhaul, spares, 15 Rd 33 engines, and ALH in FY25 projections.
"The delivery of F404 engines, initially expected between September and November, has been delayed to March, with production projections reduced from 16 to just 3-4 units annually. Supply chain challenges, primarily due to dependence on specialised overseas suppliers, are creating significant bottlenecks," it said.
Addressing these issues by exploring alternate suppliers or indigenous options could take 2-3 years. To mitigate risks, HAL is pursuing agreements with other engine suppliers, such as Safran in Europe, and is exploring local production possibilities, Nirmal Bang said.
Nirmal Bang said the LCA Mark 1 and Mark 2 aircraft programs are encountering delays due to shared facilities creating bottlenecks, making Mark 1's timely progress essential to meet future deadlines.
Additionally, using composite materials in helicopters, which enhances radar capabilities, requires stringent production controls. "Unlike metals, composites cannot be inspected after production, necessitating high manufacturing standards to ensure quality and reliability," it said.
Nirmal Bang said it has made minor revisions to its estimates for HAL. Over FY25E-FY27, it anticipated revenue, Ebitda and PAT for HAL to grow at a CAGR of 15.6 per cent, 26.5 per cent and 11.5 per cent, respectively, driven by strong execution of MRO contracts, steady order inflows, and shorter execution timelines.
It maintained its 'Buy' rating on HAL with a target price of Rs 5,509, valuing the stock at 24 times December 2026 EPS, supported by a robust order book and implying an upside potential of 21.9 per cent.