Motilal Oswal Financial Services has issued a BUY rating for Hindustan Aeronautics Limited (HAL), citing robust growth prospects anchored on a record-breaking order book, accelerating indigenization, and sustained margin expansion. HAL is undertaking its most substantial contract yet—an Rs 624 billion follow-on order for 97 LCA Mk1A jets, fortifying India's national defense strategy with heightened domestic content. The research report forecasts an average 24% CAGR in revenue through FY28, with enduring profitability and healthy capital allocation. HAL emerges as a mainstay for aerospace and defense investors demanding visibility, resilience, and transformative growth. The investment thesis remains risk-conscious, with specific attention to supply chain, order execution, and competitive dynamics.

Buy Recommendation and Target Price

Motilal Oswal advises a clear BUY call for Hindustan Aeronautics Ltd, reiterating an unchanged price target of Rs 5,800. This valuation incorporates a weighted average of discounted cash flows and a 32x earnings multiple based on September 2027 projections. HAL currently trades at a PE of 29.6x for FY27E and 24.1x for FY28E, ensuring scope for re-rating as operational leverage and order execution gain momentum.

Stellar Order Book Expansion

HAL has secured an unprecedented Rs 624 billion contract for 97 LCA Mk1A jets from the Ministry of Defence. This order is supplementary to its prior deal for 83 Tejas LCA Mk1A, driving its manufacturing orderbook and affirming HAL's role at the forefront of India's indigenization strategy. Deliveries are scheduled to commence in FY28, with a robust six-year execution window, positioning HAL to capture sustained revenue growth.

Accelerating Indigenization and Technology Transfer

The LCA Mk1A contract stipulates at least 64% indigenous content and integration of 67 additional domestic components. These include advanced UTTAM AESA radar and the Swayam Raksha Kavach electronic warfare suite, signaling quantum progress in indigenous capability construction. HAL has formalized a crucial manufacturing license agreement with GE for local production of F414 engines, projected to increase indigenous content in future aircraft up to 75% and stimulate private sector partnerships in next-gen aviation projects like AMCA.

Production Momentum and Delivery Outlook

Engine supply chain bottlenecks have eased, with ramped-up deliveries enabling HAL to target its first Tejas Mk1A rollouts by October 2025. Production rates are set to escalate, contingent on the smooth integration of radar and avionics. The phased retirement of legacy Mig-21 jets in September prioritizes rapid Tejas deployment, which will be pivotal for rebuilding Indian Air Force squadron strength.

Financial Performance and Outlook

HAL is expected to clock a 24% CAGR in total revenues between FY25-28, driven primarily by scaled manufacturing. EBITDA margins are forecast to remain resilient, fluctuating between 27-30% across FY26 to FY28, buttressed by cost rationalization and low provisioning. Capex allocations are set at Rs 40-60 billion per annum, with working capital well-managed, supporting bottom-line growth and consistent return metrics.

Key Investment Metrics

Strategic Projects and Forward-Looking Catalysts

The Rs 600 billion Su-30 avionics upgrade and local F414 engine production offer expansive growth levers. HAL’s roadmap aligns with the government’s TPCR 2025, enabling it to scale defense platforms, sustain technological advancement, and ensure continuous order intake. The company's collaboration with 28 private firms for the AMCA stealth fighter program points to ambitious capabilities waiting to be unlocked.

Risk Considerations for Investors

Investors should monitor risks including slower-than-expected order finalization, Tejas engine supply delays, payment lags from the Ministry of Defence, and rising private sector competition. While HAL mitigates many operational hazards via its scale and government patronage, any significant setback on the above fronts could impinge on medium-term performance.

Shareholding and Market Performance

The promoter holds a formidable 71.6% stake as of June 2025, with strong institutional and foreign investor interest. The stock has outperformed the benchmark indices, riding on its visibility, execution prowess, and indigenization narrative, currently positioned around Rs 4,775 per share.

Investor Takeaway and Views on PSU Sector Stocks

Motilal Oswal’s BUY call and Rs 5,800 target rest on HAL’s unique confluence of record order backlog, accelerating domestic production, resilient margins and transformative aerospace programs. Investing in HAL delivers exposure to a rare blend of government policy tailwinds, operational reliability, and embedded optionality in next-generation defense technology. For investors focused on high-conviction industrials, HAL stands as an essential portfolio anchor in the aerospace and defense sector.