Hindustan Aeronautics Tejas deliveries and expanding platforms underpin FY26-29 earnings growth

Investment View and Valuation

Motilal Oswal Financial Services retained its Buy rating on Hindustan Aeronautics (HAL) following healthy Q1 FY27 results and a favourable execution outlook across major defence platforms. The broker increased its target price to Rs 5,800 from Rs 5,500 after rolling its valuation forward to September 2028 earnings.

The target price is based on the average of discounted cash flow valuation and 30 times two-year forward September 2028 earnings.

Q1 FY27 Performance

HAL reported Q1 FY27 revenue of Rs 5,520 crore, up 14 per cent year-on-year and broadly in line with Motilal Oswal's estimate of Rs 5,300 crore. Reported PAT increased 15 per cent year-on-year to Rs 1,590 crore, in line with the broker's expectation.

Lower-than-expected other expenses supported the EBITDA outperformance. However, higher depreciation and lower other income offset the EBITDA benefit at the PAT level.

Tejas Mk1A Delivery Ramp-up

The central growth driver is expected to be a ramp-up in Tejas Mk1A deliveries as GE engine supply constraints ease. HAL had received seven GE F404 engines by July 2026. The sixth engine, which developed a minor technical issue after reaching India, was cleared for operational use following rectification by GE.

GE has committed to delivering 20-22 engines annually, with a batch of two engines expected in August 2026. HAL is targeting delivery of its first Tejas Mk1A aircraft in August-September 2026 and has increased LCA manufacturing capacity to 24 aircraft annually. Motilal Oswal expects Tejas deliveries to ramp up from FY28.

Execution Across Other Defence Platforms

LCH Prachand and Su-30MKI

The Rs 65,000 crore order for 156 LCH Prachand helicopters is expected to begin delivery from FY28 and continue through FY33. HAL plans to increase indigenous content in the LCH Prachand to 65 per cent from an initial 45 per cent and is adding a production line at Tumakuru.

HAL is also reviving Su-30MKI production at Nashik. The first of 12 aircraft is expected in FY28 and the remaining 11 in FY29. The company is targeting AL-31FP engine production of about 50 units annually by FY29-30, compared with current capacity of about 30 units.

HTT-40 Trainer

Honeywell supplied its first batch of three TPE331-12B engines for the HTT-40 trainer in June 2026. The new HTT-40 facility is expected to accelerate deliveries as engine supply improves.

Order Book and Capacity Expansion

HAL's order book stood at about Rs 2.5 lakh crore as of March 31, 2026. The company plans around Rs 14,000 crore of capex over five years to expand manufacturing capacity and develop repair and overhaul facilities.

FY26 capex and research and development spending was about Rs 2,500 crore. This included the Tumakuru helicopter project, LCA augmentation, Su-30 and AL-31FP overhaul facilities, and programmes such as IMRH, CATS, UHM, Civil ALH and LUH.

Earnings Outlook

Motilal Oswal maintained its FY27 and FY28 estimates. It forecasts FY26-29 revenue, EBITDA and PAT compound annual growth of 23 per cent, 19 per cent and 17 per cent, respectively.

The expected moderation in EBITDA margin reflects a larger share of manufacturing in HAL's revenue mix.

Key Risks

• Slower finalisation of large platform orders.
• Further delays in critical component deliveries, including Tejas Mk1A engines.
• Delays in payments from the Ministry of Defence.
• Greater private-sector participation.