The Government of India’s Regional Connectivity Scheme, also known as UDAN (Ude Desh Ka Aam Nagrik), is a major driver of growth for the domestic aviation sector. The scheme plays a vital role in integrating Tier 2 and Tier 3 cities into the national aviation grid, thereby stimulating new market supply and encouraging the entry of new regional airlines.
The ₹28,840 Crore UDAN Budget
In a major boost, the Government of India has increased the total budget for the UDAN scheme by 6X, from the initial allocation of ₹4,500 crore in 2017 to ₹28,840 crore. Of this, ₹10,043 crore has been earmarked as subsidies to support airlines operating on regional routes over the next 10 years.
The objective of this scheme is to expand the regional aviation network by developing 100 airports over eight years, at an estimated cost of ₹12,159 crore. This time around, in addition to airport development, the scheme also provides support for their operations and maintenance.
Most notably, the government has extended the subsidy tenure for airlines operating in select Tier-2 and Tier-3 cities from 3 to 5 years. The scheme also includes a proposal to construct 200 helipads with a total investment of ₹3,661 crore. On a similar note, this article outlines three companies expected to benefit from this budgetary support. Let’s take a look…
#1 Hindustan Aeronautics: The Defense Giant Moving into Civil Skies
Hindustan Aeronautics (HAL) is an aerospace and defence player. It designs, develops, and manufactures aircraft, helicopters, and aero-engines. This company primarily serves the Indian Armed Forces. HAL primarily manufactures combat aircraft, helicopters, transport and trainer aircraft, and unmanned systems.
Civil Aviation: Expanding Beyond the Military Umbrella
The upgraded civil variant of HAL’s flagship Advanced Light Helicopter (ALH) “Dhruv” received certification from the Directorate General of Civil Aviation (DGCA) on 20 November 2024. This certification was a major milestone that allowed HAL to address the growing demand in India’s emerging civil aviation space.
In addition, to expand its civil aviation footprint, HAL signed a contract in January 2026 worth over ₹1,800 crore with Pawan Hans, to be executed by 2027. This contract is for the supply of 10 indigenously developed Dhruv new generation helicopters, along with spares and accessories.
The UDAN scheme also proposes to procure two HAL Dhruv helicopters for Pawan Hans and two HAL Dornier 228 aircraft for Alliance Air. This aims to improve connectivity on low-demand routes.
This is important because smaller aircraft and helicopters are better suited to remote and low-traffic regions, helping make operations viable. This move aims to build initial traffic and connectivity, after which these routes can gradually become commercially sustainable.
The ₹4.2 Lakh Crore Pipeline: HAL’s Addressable Market FY30
Looking ahead, HAL’s medium- to long-term addressable market up to FY30 is estimated at a staggering ₹4.2 lakh crore. This pipeline will keep the company’s production lines busy well into the next decade.
Infrastructure and MRO: Building for the LCA Mk2 Era
For the next 2-3 years, HAL expects upcoming projects worth ₹1.7 lakh crore, which include the Tejas Mk2 fighter jets (designed to replace aging Mirage 2000, MiG-29, and Jaguar fleets) valued at ₹68,000 crore, the Light Utility Helicopter to replace Cheetah and Chetak fleets, indigenous upgrades for Su-30 MKI jets, and the Naval Utility Helicopter.
Over the next 5-6 years, an additional ₹2.5 lakh crore worth of projects is anticipated, driven by the Indian Multi-Role Helicopter program (₹1 lakh crore for 400 units to replace Mi-17s) and the Twin-Engine Deck-Based Fighter for the Indian Navy (₹1.45 lakh crore).
To support this pipeline, HAL plans to invest around ₹15,000 crore over the next five years. This investment will expand manufacturing and Repair & Overhaul facilities, specifically by building infrastructure for the LCA Mk2, GE-414, and IMRH engines.
Maintenance is another area where HAL is expected to gain. HAL is expanding into commercial maintenance by establishing an MRO hub in Nasik for the Airbus A320 family. This MRO will provide “C Checks” and one-stop solutions for commercial airlines.
Q3 Performance: Record Revenues and Order Visibility
From a financial standpoint, HAL revenue increased by 11% year-on-year to ₹19,100 crore in 9MFY26. EBITDA surged by 9% to ₹4,700 crore, while margins expanded by 40 bps to 24.6%. Net Profit increased by 12% to ₹ 4,900 crore. Its order book stood at ₹2.3 lakh crore, providing revenue visibility of around 7 years.
#2 GMR Airports: The Turnaround King of Regional Hubs
GMR Airports, a part of the GMR Group, is Asia’s largest and the world’s second-largest private airport operator by passenger volume. The company currently operates, manages, and develops Indira Gandhi International Airport (Delhi), Rajiv Gandhi International Airport (Hyderabad), and Manohar International Airport (Goa).
The Feeder Effect: Driving Regional Traffic to GMR Metro Hubs
UDAN serves as a powerful catalyst for GMR Airports’ growth strategy; it primarily channels the growing number of passengers originating from smaller cities to GMR’s key aviation hubs. This opens up new opportunities for the development and operation of airports.
To capitalize on this surge in regional air travel, GMR operates and is developing several key regional airports. This includes Bidar Airport (Karnataka), Dr. Babasaheb Ambedkar International Airport (Nagpur), and Bhogapuram International Airport (Visakhapatnam). These airports play a pivotal role in regional connectivity.
Regional Strategy: Tapping into the 11-Airport Privatization Wave
Notably, with growth in regional airlines, GMR has aggressively expanded passenger handling capacity at its primary airports to accommodate the incoming domestic supply. To capitalize on the surge in regional travel, GMR plans to focus on the upcoming privatization of 11 regional airports.
Under the government’s National Monetization Pipeline, which aims to privatize 25 airports over four phases, GMR is also actively seeking new airport concessions to expand its domestic footprint beyond metropolitan areas.
GMR is actively expanding its portfolio to include key regional and Tier-2 city airports that serve as vital connectivity nodes. It is also evaluating major upcoming airport opportunities in cities like Pune, Chennai, and Kolkata to capture regional growth.
Financial Turnaround: From ₹560 Crore Loss to Positive Territory
From a financial standpoint, GMR’s gross income increased by 42% year-on-year to ₹11,160 crore in 9MFY26. Its total passenger traffic stood at 9 crore, commanding a 27% market share in India and providing strong visibility for continued cash flow generation.
EBITDA surged by 50% to ₹4,600 crore, while margins stood at 41.2%. Net profit turned positive, reaching ₹70 crore (a recovery from a net loss of ₹560 crore in Q3FY25).
The Debt-to-Dividend Trigger: GMR’s FY27 Roadmap
In Q3FY26, the company reported its highest profit since the demerger, and expects to remain profitable for the rest of FY26 and going forward. GMR also expects its net debt to steadily decline starting FY27. Management indicated that achieving a net debt-to-EBITDA multiple of 3 to 3.5x will serve as the trigger to begin distributing dividends to shareholders.
GMR has largely completed its heaviest capital expenditure cycle for the near future. The Greenfield Bhogapuram Airport is nearing completion. It aims to start commercial operations in Q2FY27. The Crete International Airport in Greece is currently 65% complete.
The next major capital investment will be the expansion of the Hyderabad Airport (including a new terminal and runway). This project is expected to cost between ₹12,000 and ₹13,000 crore over four years, but spending will not begin until late FY28.
Beyond Aviation: The High-Margin Duty-Free Growth Engine
The company is also focusing on non-aeronautical, consumer-facing businesses. Both Delhi and Hyderabad airports achieved their highest-ever monthly duty-free sales in December 2025. These businesses are expected to deliver a sustainable growth of around 15% moving forward.
#3 InterGlobe Aviation (IndiGo): Using the ATR Fleet to Dominate the Map
IndiGo, India’s leading airline, has a network of 96 domestic destinations and 44 international destinations. This network covers 90% of the Indian population living within 100 kilometers of an airport served by IndiGo. IndiGo operates a continuously growing fleet, which stood at 440 aircraft as of 31 December 2025.
The Feeder Strategy: Using ATR Fleet to Drive Metro Traffic
Being a leading airline, IndiGo also participates in UDAN routes where economics make sense. To service this extensive network, particularly regional airports that require smaller capacity, IndiGo relies on its ATR fleet. As of 31 December 2025, the airline operated 47 ATR aircraft.
To support these regional operations, IndiGo also maintains a dedicated pool of pilots specifically for the ATR fleet, which is managed separately from its Airbus line-ready pilots. Just like GMR, at the core, as more regional routes open up, these passengers often connect to larger metro routes, where IndiGo has a more dominant presence.
More regional airports mean more routes that IndiGo can tap. This effectively turns UDAN into a feeder network, indirectly boosting IndiGo’s load factors on its main routes. This improves airport traffic density, which supports better aircraft utilisation and route expansion.
Premium Evolution: Scaling the “Stretch” Business Class Offering
Moving beyond regional connectivity, IndiGo’s business model is evolving to capture premium corporate and leisure demand. In November 2024, the airline launched a new business class product called “Stretch”. Based on positive responses, IndiGo currently operates Stretch on 8 domestic and 9 international routes, with plans to expand the offering to 65 aircraft.
Q3 Financials: Profit Slumps 77% Amid Exceptional Headwinds
From a financial standpoint, total income increased by 7% year-on-year to ₹24,541 crore in Q3FY26. Its total passenger traffic stood at nearly 3.2 crore. EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortisation, and Rent) slightly declined by 1% to ₹6,008 crore, while margins contracted by 180 bps to 25.6%.
Net profit declined sharply by 77.6%, reaching ₹549 crore. IndiGo’s business was severely impacted by cancellation of over 2,500 flights during the quarter. To manage the fallout, IndiGo recorded an exceptional provision of approximately ₹577 crore, impacting its bottom line. Its financials are expected to remain subdued due to the Middle-East crisis and higher fuel costs.
Valuation Check
Hindustan Aeronautics delivers high return ratios, including Return on Capital Employed (RoCE) and Return on Equity (RoE), followed by IndiGo. GMR Airports has recently turned profitable. Valuation-wise, all three companies are trading below the historical median multiple.
HAL is currently trading below industry valuations, while IndiGo is valued broadly in line with the industry, and GMR Airports commands a premium.
| Peer Comparison (X) | |||||
| Company | EV/EBITDA | 5-Year Median EV/EBITDA | Industry EV/EBITDA | ROCE (%) | ROE (%) |
| HAL | 15.2 | 13.4 | 28.0 | 33.9 | 26.1 |
| GMR | 23.2 | 26.2 | 14.3 | 6.9 | NA |
| IndiGo | 10.3 | 12.8 | 10.3 | 17.3 | 104 |
| Source: Screener.in (Data as of 25 March, 2026) | |||||
UDAN is steadily reshaping India’s aviation landscape by expanding regional access and building new demand pools. This ₹28,840 crore CAPEX is expected to benefit players across the ecosystem, from manufacturers to airlines and airport operators.
The opportunity now lies in execution, scale, and monetisation as regional connectivity transitions from policy support to a more sustainable, demand-driven growth cycle. Meanwhile, it’s worth adding them to your watchlist.
Disclaimer:
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. Only in cases where the data were unavailable have we used an alternative, widely accepted, and widely used source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
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