Hindustan Aeronautics order book supports manufacturing growth despite delayed Tejas Mk1A deliveries

Investment View and Key Drivers

Motilal Oswal Financial Services (MOFSL) has reiterated its Buy rating on Hindustan Aeronautics following an ahead-of-estimates 4QFY26 performance. The broker views HAL’s Rs 2.5 trillion order book and the expected ramp-up across several manufacturing platforms as the key drivers of future growth.

Although Tejas Mk1A deliveries slipped during FY26, HAL expanded execution in ALH helicopters, AL31-FP engines and RD-33 engines, resulting in 30 per cent year-on-year growth in manufacturing revenue.

MOFSL’s target price is Rs 5,500, based on 30 times two-year forward earnings, compared with the current market price of Rs 4,387.

4QFY26 Financial Performance

HAL reported 4QFY26 revenue of Rs 13,940 crore, up 2 per cent year on year and 6 per cent above MOFSL’s estimate of Rs 13,100 crore. Gross margin contracted to 54.0 per cent against the broker’s estimate of 57.9 per cent.

However, lower-than-expected provisions led to EBITDA of Rs 5,060 crore, which was 28 per cent above MOFSL’s estimate despite declining 5 per cent year on year. EBITDA margin fell 230 basis points year on year to 36.3 per cent, but remained above the estimated 30.2 per cent. Supported by higher-than-expected other income, PAT rose 6 per cent year on year to Rs 4,200 crore, representing a 57 per cent beat versus the broker’s estimate.

FY26 Performance and Cash Flow

For FY26, HAL reported revenue of Rs 33,100 crore, EBITDA of Rs 9,800 crore and PAT of Rs 9,100 crore, representing year-on-year growth of 7 per cent, 2 per cent and 9 per cent, respectively. FY26 EBITDA margin moderated by 150 basis points to 29.5 per cent.

Operating cash flow declined 20 per cent year on year to Rs 10,900 crore, while free cash flow fell 18 per cent to Rs 10,000 crore.

Order Book and New Orders

HAL closed FY26 with an order book of Rs 2.5 trillion, compared with approximately Rs 1.9 trillion at the start of the year. Fresh orders totalled Rs 97,000 crore, including Rs 69,700 crore of manufacturing contracts, Rs 26,500 crore of repair, overhaul and spares orders, Rs 3,000 crore of development orders and Rs 400 crore of export orders.

Major awards included 97 additional LCA Tejas Mk1A aircraft worth Rs 62,400 crore, six ALH Mk3 helicopters for the Indian Coast Guard worth Rs 2,700 crore, and eight Dornier-228 aircraft worth Rs 21,900 crore. Management indicated an order pipeline of roughly Rs 90,000 crore over the next two years, including 143 ALH helicopter orders, Sukhoi upgrades and Dornier upgrade programmes.

Tejas Mk1A Delivery Outlook

Management expects Tejas Mk1A deliveries to start during August-September 2026 after refinements and testing. HAL has received six GE-F404 engines and expects another 15-20 in FY27. It targets approximately 20 Tejas deliveries in FY27, contingent on GE engine availability.

More than 20 aircraft structures are fully built, making engine availability and final refinements the principal bottlenecks. MOFSL, however, factors in only six Tejas deliveries in FY27, while noting potential upside if engine supplies accelerate.

FY27 Guidance and Business Mix

Management guided for FY27 revenue growth of 10-12 per cent and an EBITDA margin of 30-31 per cent, with growth weighted towards the second half of FY27. HAL expects the revenue mix between manufacturing and repair, overhaul and spares to gradually move from around 30:70 towards 50:50 as large production programmes scale up.

Estimates and Valuation

MOFSL has raised its FY27E and FY28E PAT estimates by 15 per cent and 8 per cent, respectively. The revisions reflect slightly lower revenue assumptions but higher margins aligned with delivery schedules.

The broker forecasts FY26-28 revenue, EBITDA and PAT compound annual growth of 20 per cent, 18 per cent and 15 per cent, respectively. Its FY27E estimates are revenue of Rs 37,650 crore, EBITDA of Rs 11,070 crore and PAT of Rs 10,020 crore.

Key Risks

• Slower finalisation of large platform orders.
• Further delays in Tejas Mk1A engine or component deliveries.
• Delayed payments from the Ministry of Defence.
• Higher private-sector participation.