HAL shares: Analysts see more upside in the defence multibagger, lift price targets up to 34%

Brokerage firms continue to remain positive on Hindustan Aeronautics Ltd (HAL) as they have lifted the target prices for the defence Multibagger by 34 per cent strong growth potential and robust outlook for the state-run player even after a sub-par performance in the March 2024 quarter. They see the stock to hit new highs in the coming months.

Hindustan Aeronautics reported a 7.8 per cent YoY fall in its net profit at Rs 3,958 crore, while its revenue declined 7.2 per cent YoY to Rs 13,700 crore. The state-run defence equipment manufacturer clocked an Ebitda of 5,292 crore, down 10.2 per cent YoY, but margins came in higher at 38.6 per cent. Its order book stood at Rs 2.6 lakh crore for FY26.

Revenue, Ebitda and PAT Growth CAGR during FY25E FY27E stand at 16 per cent, 21 per cent, and 18 per cent respectively higher than the management guidance. The stock is currently trading at a 1-year forward P/E of 35.5 times, above its 5-year average P/E of 15 times," said Nirmal Bang Institutional Equities.

"We have assigned a premium of 46 per cent to the target multiple and retain a 'buy' rating with a target price of Rs 6,140 (previously 4,851), valuing the stock at 35 times March 2027E EPS, supported by step in execution in the aftermath of India – Pak war necessitating the reduction in delivery timelines and availability of GE engines alongside robust order book ensuring revenue visibility and margin stability," it said.

Shares of Hindustan Aeronautics shares cracked nearly 2.95 per cent to Rs 4,972.10 on Monday, with its total market capitalization slipping below Rs 3.3 lakh crore mark. The stock had settled at Rs 5,126.95 on Friday. The stock is down more than 12 per cent from its 52-week high at Rs 5,675 hit in July 2024. However, it has gained 70 per cent in just 10 weeks.

HAL reported a better-than-expected FY25 performance, driven by improved margins on the back of lower provisions. The company ended the year with a robust order book. With engine supplies from GE, HAL is optimistic about delivering 12 Tejas Mk1A aircraft during the year along with the execution of other projects, said Motilal Oswal Financial Services.

"Management provided a conservative guidance of 8-10 per cent revenue growth, taking into account certain contract amendments, and it will revisit this guidance after six months. Our estimates build in healthy execution of the manufacturing order book. We revise our estimates by 12 per cent/4 per cent and roll forward our target price to Rs 5,650," it added.

HAL delivered a reasonably robust operational performance considering supply-side challenges it has been facing from GE for the GE 404 engines for its Tejas Mk-1A fighter aircraft. GE holds the key to HAL starting to deliver the Tejas Mk-1A to the Indian Armed Forces and will be the key monitorable. HAL should deliver 15 per cent earnings CAGR over FY25-27E, said Antique Stock Broking.

"We remain confident of HAL's business prospects as India is in the midst of modernizing its armed forces due to obsolescence and Prevailing adverse geopolitical situation, leading to strong ordering for fighter aircrafts and helicopters from the Indian Armed Forces. Given the strong business outlook, we retain 'buy' rating with a revised target price of Rs 6,545 (earlier Rs 4,884)," it said.

Shares of HAL have surged nearly 20 per cent in the last one month, while the stock is up 25 per cent in the last six months. In the last 5 years, the PSU counter has zoomed 1,800 per cent. Even after a strong short-term rally, brokerage firms like Antique Stock Broking and Nirmal Bang have upped their target prices by 34 per cent and 26 per cent, respectively, post Q4 show.

Buoyant order inflows of Rs 1.2 lakh crore during FY25, bulked up the backlog. Meanwhile, a staggering pipeline of Rs 4.4 lakh crore (LCA Mk-IA and Mk-II, IMRH, AMCA) implies growth can stay durably air-borne, said Nuvama Institutional Equities, which maintained 'buy' with a target price of Rs 6,000 on the stock.

"Given the improving execution visibility and strong project pipeline, we assign an 'add' rating and revise our target price to Rs 5,570. We also raise our valuation PE multiples from 32x to 35x FY27E EPS, reflecting confidence in HAL’s long-term strategic positioning and the visibility offered by its upcoming programs," said Choice Broking.