Hindustan Aeronautics gains Tejas Mk1A delivery visibility as engine supplies normalise

Investment View and Valuation

In its August 13, 2026 result update, Prabhudas Lilladher maintained its BUY rating on Hindustan Aeronautics (HAL), citing healthy Q1 FY27 execution, improving visibility on Tejas LCA Mk1A deliveries and a substantial defence opportunity pipeline. The broker raised its target price to Rs5,795 from Rs5,423, valuing HAL at 36 times March 2028 estimated earnings per share, compared with 35 times previously.

The target revision reflects expectations that improving availability of GE F-404 engines will support a ramp-up in LCA Mk1A deliveries. At the report CMP of Rs4,995, HAL traded at 35.1 times FY27E and 31.0 times FY28E earnings.

Q1 FY27 Financial Performance

HAL reported consolidated Q1 FY27 revenue of Rs55,152 million, up 14.4 per cent year on year and 7.2 per cent ahead of Prabhudas Lilladher's estimate of Rs51,467 million. The broker attributed the growth to healthy execution.

EBITDA rose 19.1 per cent year on year to Rs15,268 million, exceeding the estimate of Rs13,433 million by 13.7 per cent. EBITDA margin expanded 107 basis points year on year to 27.7 per cent, against the broker estimate of 26.1 per cent, aided by lower other expenses. Gross margin, however, declined 277 basis points year on year to 65.3 per cent.

Adjusted PAT rose 14.9 per cent year on year to Rs15,897 million, 5.1 per cent above the broker estimate. Performance was supported by higher other income of Rs9,002 million, despite a marginal increase in the effective tax rate to 25.7 per cent from 25.5 per cent in Q1 FY26.

Earnings Outlook

Prabhudas Lilladher revised FY27E and FY28E EPS upward by 2.7 per cent and 3.9 per cent, respectively, primarily due to changed assumptions for other income and the effective tax rate.

Order Pipeline and Execution Visibility

The broker highlights order opportunities of about Rs9,00,000 million over the next two years across ALH helicopters, Su-30 upgrades, Dornier aircraft and engine-manufacturing programmes. HAL's broader two-year order pipeline exceeds Rs1,00,000 crore.

Management is targeting annual production of more than 24 LCA Mk1A aircraft in the coming years as engine supplies normalise. Execution on LCH Prachand, HTT-40 and engine programmes is stated to be on track. Longer-term growth options include UAVs, AMCA and indigenous aero-engine programmes.

Capacity Expansion and Strategic Initiatives

Management plans cumulative investment of about Rs12,000 crore by 2030 for capacity expansion, aero-engine infrastructure and next-generation platforms. HAL is also targeting indigenisation of 65 per cent to more than 75 per cent across major platforms, supported by automation, advanced manufacturing and research and development.

Export initiatives across Africa, the Middle East and Southeast Asia could diversify demand. The positive long-term thesis rests on HAL's role as India's primary military-aircraft supplier, indigenous-procurement demand, order visibility, advanced-platform development and potential profitability gains from scale and operating leverage.

Key Risks and Monitorables

• Execution of Tejas Mk1A deliveries as engine supplies normalise.
• Supply-chain constraints, including dependence on foreign original equipment manufacturer supplies.
• Progress in executing LCH Prachand, HTT-40 and engine programmes.