Hindustan Aeronautics targets Tejas execution ramp-up as Rs 2.55 lakh crore backlog supports growth

Investment View and Valuation

ICICI Direct Research maintains a BUY recommendation on Hindustan Aeronautics and revises its target price to Rs 5,820 per share, valuing the company at 32 times FY28E EPS. The broker believes HAL is entering a stronger manufacturing-led growth phase as execution of its large defence order book improves.

ICICI Direct expects revenue to grow at about 16 per cent CAGR over FY26-28E, while EBITDA margin is expected to remain near 30 per cent, consistent with management guidance.

Q1FY27 Financial Performance

HAL reported consolidated revenue from operations of Rs 5,515 crore in Q1FY27, up 14.4 per cent year-on-year and down 60.4 per cent quarter-on-quarter. The quarter was supported by steady execution in repair and overhaul, or RoH, and manufacturing programmes for helicopters and engines.

• EBITDA: Rs 1,527 crore, up 19.1 per cent year-on-year.
• EBITDA margin: 27.7 per cent, an improvement of 107 basis points year-on-year but a sequential decline of 860 basis points from Q4FY26.
• PAT: Rs 1,590 crore, up 14.9 per cent year-on-year.

The report does not explicitly characterise the quarterly outcome as a beat or miss against estimates.

Tejas Execution and Manufacturing Ramp-up

The key execution catalyst is the ramp-up of LCA Tejas Mk1A aircraft production. GE has committed to supply another 20-22 F-404 engines in FY27E, in addition to seven engines already delivered, and 30 engines in FY28E. ICICI Direct believes these supplies should improve Tejas execution.

HAL has an order book of 180 LCAs and is targeting annual delivery of more than 24 LCAs in coming years. The broker also notes ongoing execution in helicopters, RoH and engine contracts.

Capacity Expansion and Management Guidance

HAL spent Rs 2,465 crore on capital expenditure in FY26 and plans about Rs 14,000 crore of capex over the next five years. The investment will support aircraft, helicopter and engine manufacturing, RoH facilities and next-generation programmes.

HAL has guided for FY27 revenue growth of 10-12 per cent and EBITDA margin of about 30-31 per cent. ICICI Direct believes better execution and operating leverage can drive an earnings recovery while preserving healthy profitability.

Order Backlog and Long-term Growth Visibility

Longer-term visibility is underpinned by a consolidated order backlog of about Rs 2.55 lakh crore as of March 31, 2026, equivalent to about 7.6 times trailing-12-month revenue.

The prospective pipeline includes Tejas Mk2, combat and utility helicopters, GE-414 engines for Tejas Mk2 and AMCA Mk1, Sukhoi upgrades and RoH. Further opportunities include MALE and HALE UAVs, CATS Warrior, Indian Multi-Role Helicopters, SSLVs, SJ-100 civil aircraft in partnership with UAC, and LEAP engine components with Safran.

ICICI Direct considers the backlog, programme pipeline and rising localisation supportive of a multi-year aerospace growth runway.

Earnings Forecasts

Key Risks

• Dependence on government contracts.
• High working-capital requirements.
• Availability of critical raw materials and components.