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Healthy set of results

Hindustan Aeronautics (HAL) reported a healthy set of numbers in 1QFY27, with in-line profitability, while margins came in ahead of our estimate. The company has received seven GE F404 engines till date and targets to commence deliveries of Tejas Mk1A aircrafts soon, with the first jet targeted for Aug-Sep’26. The company has already ramped up its LCA manufacturing capacity to 24 aircrafts annually. With supply chainrelated issues starting to ease out for GE, we expect Tejas deliveries to ramp up from FY28 onwards. Beyond Tejas, execution of other platforms,such as LCH Prachand, ALFP31 engines, HTT-40, RD-33 engines, and 12 units of Su-30 aircraft, is also expected to ramp up and support topline growth. We maintain our estimates and roll forward our TP to Sep’28 earnings. Reiterate BUY with a revised TP of INR5,800 (earlier INR5,500), premised on the average of DCF and 30x two-year forward earnings.

In-line profitability, beat on margins

HAL’s 1QFY27 revenue and PAT were in-line, while margin beat our estimates. Revenue increased 14% YoY to INR55.2b, broadly in-line with our estimate of INR53b. Gross margin contracted 270bp YoY to 65.3% vs our estimate of 68.0%. However, lower-than-expected other expenses during the quarter led to an 11% beat on absolute EBITDA of INR15.3b (+19% YoY), with EBITDA margin expanding 110bp YoY to 27.7% (vs our est. of 26.0%). While EBITDA beat our estimates, higher-than expected depreciation and lower-than-expected other income led to PAT of INR15.9b (+15% YoY) come broadly in-line with our estimates.

Updates on key projects

* Tejas Mk1A: HAL received the seventh F404 engine from GE in Jul’26, while the sixth engine, which had developed a minor technical issue after arriving in India, has now been cleared for operational use following rectification by GE. GE has promised to deliver 20-22 engines per year, with the first batch of two engines together expected in Aug’26. The Defence Ministry also expects 18-24 LCA to be ready by the end of FY27. HAL targets to deliver the first aircraft in Aug-Sep’26.

* LCH Prachand: The delivery of the LCH Prachand helicopter order worth INR650b for 156 units is expected to begin from FY28 onwards, up till FY33. The helicopter is going to be powered by Shakti1H1 engine, jointly developed by HAL and Safran. HAL plans to raise the indigenous content in LCH to 65%, vs initial 45% over the years. It is also establishing an additional production line at its Tumakuru unit to meet the contractual timelines.

* Su-30MKI: HAL is reviving production of Su-30 fighter jets in its Nashik unit, with the first aircraft (out of the 12 units order) targeted to be delivered in FY28, with balance 11 units in FY29.

* AL-31FP: HAL is targeting an increase in AL-31FP production to ~50 engines annually by FY29-30, versus the current capacity of ~30 engines a year.

* HTT-40: Honeywell has overcome its supply chain bottlenecks and delivered the first batch of three TPE331-12B turboprop engines for the overdue indigenous HTT-40 trainer aircraft in Jun’26. The new manufacturing facility for the HTT-40s will help accelerate deliveries as engine supply ramps up

Financial outlook

We maintain our estimates for FY27 and FY28, and expect overall revenue/EBITDA/PAT to clock a CAGR of 23%/19%/17% over FY26-29. We expect EBITDA margin to remain strong at 29.4% in FY27, while it is expected to contract slightly to 28.9%/27.2% in FY28/FY29 as the share of manufacturing revenues ramps up. The stock is currently trading at 33.1x/27.6x/22.8x P/E on FY27E/FY28E/FY29E EPS. We roll forward our TP to Sep’28, and reiterate our BUY rating with a revised TP of INR5,800, based on average of DCF and 30x P/E Sep’28E earnings.

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