HAL share price: Nomura India ups target by 30%, says this on defence stock

Despite a 26 per cent rally in the past six months, shares of defence PSU Hindustan Aeronautics Ltd (HAL) have potential to see further upside, with Nomura India upping its target price on the counter by 30 per cent in its latest note.  
The foreign brokerage said the HAL management has conservatively guided for sales growth of 8-10 per cent in FY26, which has upside in its view. This is given HAL’s strong delivery schedule of aircrafts and helicopters and also the normalisation of the supply chain. 

HAL has also guided for FY26 Ebitda margin of 31 per cent similar to FY25), which is a significant positive surprise. Nomura India has upped its FY26 and FY27 EPS estimates by 8-11 per cent to account for healthy margin guidance and operating cash flow (OCF) generation.

"We expect a PAT CAGR of 20 per cent over FY25-28F. We maintain our Buy rating with a new target price of Rs 6,100 (previously Rs 4,700), at 35 times one-year-forward earnings (previously 32 times)," Nomura India said.

HAL shares settled at Rs 5,016.40 on Monday. Nomura India's target price suggests a 21 per cent potential upside over this price.

The brokerage said its increased valuation multiple factors in increased earnings growth visibility for HAL.

Nomura India noted that HAL’s total order backlog grew 101 per cent YoY to Rs 1.9 lakh crore, of which 90 per cent was contributed by manufacturing segment. 

HAL received manufacturing contracts comprising: 240 units of AL31FP engines worth Rs 26,000 crore; 156 units of Light Combat Helicopters (LCH) worth Rs 62,700 crore; and 12 units of SU-30 MKI worth Rs 12,600 crore. 

As a result, manufacturing segment order backlog grew 130 per cent YoY 
to Rs 1.7 lakh crore, an implied book/bill ratio of 23 times. 

"In addition, supply chain challenges are behind for HAL as General Electric has supplied one F404 engine and further committed for deliveries of 11/24 units of such engines by FY25/FY26," Nomura said.

Due to this, Nomura is expecting a 59 per cent CAGR in manufacturing revenues over FY25-FY28F. It believes the growth momentum is likely to sustain beyond FY28 as well, given a tendering pipeline for manufacturing contracts worth Rs 1 lakh crore within next two years.

This comprises of 97 units of LCA Mk-1A, Light Utility Helicopters (LUH), and Advanced Light Helicopters.