The brokerage house Motilal Oswal has initiated coverage on Hindustan Aeronautics (HAL) with a ‘Buy’ rating. It has a target price of Rs 5,100 on HAL, an upside of 27% from its current market price of Rs 4,031. The share price of Hindustan Aeronautics was up 2.7% at Rs 4,139.70 around 1.15 PM.
According to the brokerage firm, there are a lot of triggers behind the coverage like a strong order book underpinning revenue visibility, positive industry tailwinds, plans to foray into MRO services, transitioning from a licensed model to an indigenized model, and others.
Motilal Oswal on HAL: Strong order book
The defence company’s order book stands strong at Rs 1.8 lakh crore, which provides stable visibility at least for the next three years. In FY25, the company order book was strengthened by inflows of Rs 1.2 lakh crore. The brokerage believes that the manufacturing order book bottomed out in FY24. From here on it is poised for healthy growth as there is clear visibility for the various platforms manufactured by HAL.
“We expect an addressable market of Rs 6 lakh crore for HAL over the next 3-4 years, which would materialize from the finalisation of large-scale platforms such as 97 aircraft of Tejas Mk-1, Tejas Mk-II, AMCA, and Twin Engine Deck Based Fighter (TEDBF), as well as the RoH order book stemming from existing deliveries within the current order book,” said Motilal Oswal in a research note.
Motilal Oswal on HAL: Positive industry tailwinds
The Indian Air Force (IAF) has been the biggest procurer of HAL’s equipments. The IAF is upgrading and modernising the existing fleet, which is beneficial for the company. In a recent development, the IAF has prioritized acquiring radars, combat aircraft, helicopters, and mid-air refuelers for FY25-26, focusing on indigenous upgrades and self-reliance under Aatmanirbhar Bharat. IAF listed low-level radars, light combat aircraft, light utility helicopters, multirole helicopters, and the leasing of mid-air refueler aircraft as its key priorities for acquisition for the coming financial year where HAL is already present.
“The IAF also plans to prioritize the indigenous upgrade of Russian-origin Sukhoi 30 fighter jets, along with acquiring signal intelligence and communication jamming aircraft and airborne early warning and control aircraft, which we believe again is positive for HAL,” said Motilal Oswal.
Motilal Oswal on HAL: Plans to expand into MRO services
Also, the company is mulling to foray into MRO (maintenance, repair, and operations) services within the civil sector. The company has already commenced operations at the Nashik facility and is negotiating arrangements with Airbus for its A320 aircraft. Additionally, HAL aims to capitalize on the growing fleet of aircraft in India, which will translate into an increase in demand for maintenance services and MRO facilities.
HAL stock performance
The share price of Hindustan Aeronautics has dropped 4.8% in the last five trading sessions. The stock has given a return of more than 19% in the past one month. HAL’s share price has declined over 7% in the previous six months. The stock has given a return of 13% in the last one year.