HAL shares at Rs 6,600? LCA Tejas Mk1A engine delivery holds key, says Jefferies

Jefferies has suggested a 'Buy' on Hindustan Aeronautics Ltd (HAL) with a base target price of Rs 4,715, saying engine delivery for LCA Tejas Mk1A will be the key trigger for the stock going ahead. In its upside scenario, where Jefferies assumed defence orders to move at a faster pace with more proposals getting cleared and tenders being floated in the near future, it sees a target of Rs 6,600 for HAL. This scenario also assumed 'Make in India' program gains pace.

The downside scenario, which assumed regulatory roadblocks and ordering process slows down, could see the HAL stock falling to Rs 2,400, down 38 per cent, Jefferies said.

To recall, engine deliveries from GE Aerospace got pushed back from August 2023 to September 2024, and from then to November 2024. It noted that HAL has been offering a consistent commentary since Oct 2024 that engine delivery will start in March-April.

The defence PSU reaffirmed this at Aero India 2025, which gives confidence that Mk1A deliveries will be back on track from Q1FY26 and execution of 97 additional Mk1A will not be disrupted, Jefferies said.

To be sure, LCA Mk1A order accounts for 49 per cent of the Rs 94,100 crore March 2024 order book and 35-40 per cent of the current Rs 1.2 lakh crore order book.

HAL had ordered 99 F404-GE-IN20 engines from GE worth $716 million in 2021 to power the Mk1A. Supply chain issues delayed engine deliveries by over 1.5 years, pushing HAL’s aircraft delivery from FY24-29 to FY26-30.

"We expect deliveries to gradually ramp up as GE stabilizes the production line which it had closed a few years ago, resulting in time taken to recertify vendors and components," Jefferies said.

Jefferies said the FY26 Budget hinted at defence capex growth of 13 per cent and said the indigenisation focus remains intact.

"HAL has access to technology tie-ups, given its standing in defence PSUs, which is also a key advantage. Our estimated 3 times rise in absolute profits over 6 years, 23 per cent-plus ROE, and debt-free balance sheet with technology should keep valuations elevated," it said.

The foreign brokerage values the stock at 30 times FY27 EPS. Its target implies 25 times PE for FY30E discounted back.