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Healthy Quarter; Manufacturing Mix Set to Improve

Hindustan Aeronautics (HNAL) delivered a healthy Q1 performance, with revenue broadly in line with estimate, while EBITDA/PAT beat estimate. We believe the underlying growth outlook remains intact, with improving engine availability supporting the gradual ramp-up of LCA Tejas Mk1A production. As manufacturing programs scale up, we expect the revenue mix to shift gradually towards higher-margin manufacturing, providing scope for further margin improvement and resilient profitability. The management continues to guide for double-digit FY27 revenue growth with a stable margin, with manufacturing contribution expected to increase as Tejas, HTT-40 and other platforms ramp up.

In our view, the larger growth opportunity remains ahead, supported by HNAL’s record ~INR 2.55 lakh Cr order book and increasing manufacturing opportunities across Tejas, Su-30MKI, AL-31FP engines, HTT-40 and other platforms will further broaden the manufacturing opportunity. We anticipate the revenue mix to gradually shift towards manufacturing from the current MRO-heavy mix, supporting stronger growth and operating leverage over FY27–29E. While Tejas execution and conversion of the large order book into revenues remain the key near-term monitorable.

Revenue broadly in-line; profitability beats estimates

* Revenue for Q1FY27 up by 14.4% YoY and down by 60.4% QoQ at INR 55.2 Bn (vs CIE est. of INR 53.1 Bn)

* EBIDTA for Q1FY27 up by 19.1% YoY and down by 69.8% QoQ at INR 15.3 Bn (vs CIE est. of INR 13.3 Bn). EBITDA margin stood at 27.7%, expanded by 107 bps YoY (vs CIE est. of 25.0%)

* PAT for Q1FY27 up by 14.9% YoY and down by 62.1% QoQ at INR 15.9 Bn (vs CIE est. of INR 14.2 Bn). PAT margin expanded by 11 bps YoY, reaching 28.8% (vs CIE est. of 26.7%)

View & valuation:

We maintain a positive stance on HNAL, supported by its record order book, strategic positioning in India’s defence ecosystem and the anticipated ramp-up in manufacturing programs. The Q1 performance provides a healthy start to the year, with the EBITDA/PAT beat and margin expansion further strengthening our confidence in earnings resilience. Accordingly, we raise our FY27E/FY28E EPS estimate by 4.0%/5.9%, respectively, reflecting our improved expectation for the manufacturing-led growth trajectory. We value HNAL at 30x FY28E EPS, arriving at a TP of INR 5,650, and maintaining our ‘BUY’

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