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Healthy Q1, LCA deliveries in focus

We revise our EPS estimates by +2.7%/+3.9% primarily reflecting revisions to our other income and effective tax rate assumptions. Hindustan Aeronautics (HAL) reported a healthy Q1FY27 performance, with revenue growing ~14.4% YoY, likely supported by improved execution, while EBITDA margin expanded 107bps YoY to 27.7%, aided by lower other expenses. HAL continues to strengthen its position in India’s defence and aerospace ecosystem, supported by robust order opportunities of ~Rs900bn over the next two years across ALH helicopters, Su-30 upgrades, Dornier aircraft and engine manufacturing programs. LCA Mk1A execution visibility is improving as GE engine supplies normalise, with management targeting production of ~24+ aircraft annually in the coming years. Execution across LCH Prachand, HTT-40 and engine programs remains on track, while long-term opportunities across UAVs, AMCA and indigenous aero-engine programs provide multiple growth levers. HAL plans cumulative investments of ~Rs120bn by 2030 towards capacity expansion, aero-engine infrastructure and next-generation platforms, supporting higher production rates and localisation. The company is also targeting 65–75%+ indigenisation across major platforms, alongside greater automation, advanced manufacturing and R&D investments. Expanding export initiatives across Africa, Middle East and Southeast Asia provide additional avenues for diversification. Overall, strong order visibility, improving LCA execution, capacity investments and rising indigenisation position HAL well for sustained long-term growth, with execution ramp-up and foreign OEM supply remaining key monitorables. The stock is currently trading at a P/E of 35.1x/31.0x on FY27/28E earnings. We maintain ‘Buy’ rating valuing the stock at a PE of 36x Mar’28E (35x Mar’28E earlier) as improving GE F-404 engine availability should likely enable a ramp-up in LCA Mk1A deliveries, with HAL targeting higher production of 24+ aircraft annually. This results in a revised TP of Rs5,795 (Rs5,423 earlier).

HAL’s execution on the deliveries of Tejas Mk1A aircrafts and supply chain related issues will be a key monitorable in the coming quarters, however its long-term play on the growing strength & modernization of India’s air defense given

1) it is the primary supplier of India’s military aircraft

2) long-term sustainable demand opportunity owing to government’s push on indigenous procurement of defense aircraft

3) a robust order book with a 2-year pipeline of Rs1.0trn+

4) leap in HAL’s technological capabilities due to development of advanced platforms (Tejas, AMCA, GE-414 & IMRH engines, etc.)

5) improvement in profitability via scale & operating leverage.

Healthy execution led to revenue growth further aided margin expansion:

Consolidated revenue increased by ~14.4% YoY to Rs55.1bn (PLe: Rs51.5bn) driven by healthy execution. Gross margin contracted by 277bps YoY to 65.3% (Ple: 66%). EBITDA increased by 19.1% YoY to Rs15.3bn (PLe: Rs13.4bn) while EBITDA margin expanded by 107bps YoY to 27.7% (PLe: 26.1%) due to lower other expenses (-4.7% YoY to Rs4.6bn). PBT increased by ~15.1% YoY to Rs21.2bn (PLe: Rs20.2bn) aided by higher other income (+20.5% YoY to Rs9bn). Adj.PAT increased by 14.9% YoY to ~Rs15.9bn (PLe: Rs15.1bn) aided by higher other income and marginal increase in effective tax rate (25.7% vs 25.5% in Q1FY26).

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