Motilal Oswal Issues a buy recommendation on Hindustan Aeronautics, setting a price target of ₹5,650

HAL has reported a higher-than-expected FY25 financial performance, thanks to better margins due to the effect of lower provisioning. HAL ended the year with a strong buy book worth INR1.8t with inflows of INR1t.

With the help of engine suppliers coming from GE, HAL is optimistic about the delivery of 12 Tejas Mk1A aircraft in the coming year, in addition to the completion additional projects. Management gave a conservative forecast of 8-10% growth in revenue considering the changes to contracts and will review the guidance in six months.

Our estimates are based on an efficient production of our manufacturing orders book. We raise our estimates by 12%/4%, and then roll forward our TP up to INR 5,650 basing it on the DCF average and 32x earnings for Jun'27E.

Since we started our program in April'25 the price has gone by 27% due to the geopolitical tensions that border the US. We remain positive on the defense sector in general However, the recent surge is too sharp. While we are reaffirming our BUY rating, we'd prefer to wait until we have better entry options, as we recognize that the risk-reward ratio is not a good fit at the moment.

Outlook

Hindustan Aeronautics currently trades at 36.3x/31.8x FY26E/FY27E Earnings per share. We've revised our forecasts upwards by 12percent as well as 4% allowing us to increase our price target by 12% to INR 5,650. This revision is based upon an estimate of the average DCF valuation and 31x earnings multiple for Jun'27E of 32x. We remain optimistic and suggest an Buy.

The brokerage reported strong growth and strong margins, as well as an earnings beating. The company has robust long- and short-term pipelines for the future.

The report also stated that ROH will grow at a steady rate. MOSL highlighted low recommendations in the face of a robust orderbook.

A 21% rise in revenue is anticipated for FY25-27, driven mainly by rising manufacturing operations.