Despite a fall of 23.5% in Hindustan Aeronautics (HAL) operating profit margin (OPM), the weakest in recent quarters, Nuvama Institutional Equity remains positive on the company’s performance in the upcoming quarters and maintains a ‘Buy’ rating. Nuvama released key risks and positive factors about Hindustan Aeronautics in its recent report.
HAL’s order book swells to Rs 2.3 trillion
HAL’s robust backlog of approximately Rs 2.3 trillion (7x FY25 sales), according to Nuvama, ensures sustained multi-year growth visibility for HAL despite short-term pressure.
During the quarter, HAL secured a Rs 62,400 crore contract for 97 Light Combat Aircraft (LCA) Tejas Mk1A fighter jets, significantly expanding its order backlog to around Rs 2.3 trillion — nearly seven times its FY25 sales. Deliveries for these jets will begin in FY28 and continue over six years.
India’s largest defence CPSE has also signed a contract with General Electric for the supply of F404-GE-IN20 engines, with deliveries planned between FY27 and FY32.
In a recent interaction, management indicated that deliveries for the LCA Mk1A could be slightly lower at ten units this fiscal compared with the earlier guidance of twelve. HAL continues to execute key programmes such as the Advanced Light Helicopter (ALH), Utility Helicopter Marine (UHM), and Do-228 aircraft.
Revenue to grow 17% annually through FY28: Nuvama
Nuvama expects the company to report a 17% revenue compound annual growth rate (CAGR) between FY25 and FY28, supported by its strong order pipeline and steady execution.
Nuvama, however, expects earnings growth to remain moderate at about 8% CAGR over the same period, with return on equity easing from 26% in FY25 to around 20% by FY28.
HAL’s revenue up 11% on steady execution
Hindustan Aeronautics posted a 12% year-on-year rise in consolidated net profit at Rs 16,625 crore in Q2FY26 helped by a 63% jump in other income, Revenue from operations rose 10.9% to Rs 66,285 crore, driven by steady progress on its existing orders.
Operating margin slips on lower gross margin
Nuvama noted that the decline in operating profit margin was mainly due to a 2.9 percentage point drop in gross margin and a twofold rise in penalties for delayed deliveries, which Nuvama expect not to be reversed in the future.
Rs 4 trillion opportunity pipeline hinges on faster execution
Nuvama noted that HAL has a strong long-term opportunity pipeline of Rs 4 trillion. However, to make the most of this potential, the company needs to speed up execution of its large projects that are already in the order book. It also needs to manage supply chain issues better, especially ensuring timely availability of key parts and components, as it continues to invest in new projects and research & development.
