Motilal Oswal has initiated coverage on Hindustan Aeronautics Limited (HAL) with a ‘BUY’ rating and a target price of Rs 5,100, implying an upside of 27% from its current market price of Rs 4,031. The brokerage highlights HAL’s transformation into an indigenized aerospace defense behemoth, backed by a robust Rs 1.8 trillion order book and a Rs 6 trillion prospect pipeline. With marquee platforms like Tejas Mk1A, LCH Prachand, LUH, and AMCA in the pipeline, HAL is poised to benefit from India's push toward defense self-reliance and multi-year procurement cycles.

HAL’s Order Book and Project Pipeline Signal Strong Revenue Visibility

HAL’s order book stood at approximately Rs 1.8 trillion as of March 2025, ensuring earnings visibility over the next three years. This includes recent inflows of over Rs 1.2 trillion during FY25 from projects such as:

156 Light Combat Helicopters (LCH) worth Rs 627 billion

240 AL-31FP aero engines for Su-30 aircraft worth Rs 260 billion

12 Su-30 MKI jets worth Rs 135 billion

The future addressable market for HAL spans approximately Rs 6 trillion, driven by upcoming orders for Tejas Mk1A (97 units), Tejas Mk2, Twin Engine Deck-Based Fighter (TEDBF), AMCA, and LUH.

Manufacturing Ramp-Up Begins FY26; Execution to Scale from Tejas Mk1A

HAL is preparing to scale up production, particularly of Tejas Mk1A, from FY26 onwards, contingent on engine supply resumption from GE. The company is expanding its Nasik facility and setting up a third assembly line to increase production from 16 to 24 aircraft annually.

This manufacturing ramp-up is supported by HAL’s strategy of outsourcing key structural components to Indian private players such as L&T, Tata Advanced Systems, and Alpha Tocol. BEL will deliver avionics, while radars are being sourced from ELTA Systems initially, with a transition to India’s Uttam radar over time.

RoH Revenues to Provide Cushion Amid Manufacturing Scale-Up

While the manufacturing segment takes off, HAL’s Repair and Overhaul (RoH) segment continues to provide stability. RoH revenues registered a 17% CAGR from FY16–24, and management expects continued growth of 8–9% in the near term.

This segment includes servicing and upgrades of critical assets like Su-30 MKI, ALH Dhruv, Dornier-228, and MiG-29 engines under Transfer of Technology (ToT) agreements.

Long-Term Growth Anchored in AMCA and TEDBF Programs

HAL is slated to be the primary producer of AMCA, India’s fifth-generation stealth fighter. The project is in the prototype stage with the first flight expected by FY28–29 and induction by FY34.

Simultaneously, the TEDBF (a twin-engine carrier-based fighter for the Navy) is being developed, with production targeted post-2030. These platforms will represent the next phase of growth, taking HAL beyond current fourth-generation technologies.

Financial Outlook: Margins and Profitability to Remain Robust

Motilal Oswal projects HAL to deliver a 29% revenue CAGR over FY25–27, led by ramp-up in Tejas, LCH, and LUH manufacturing. EBITDA margins are expected to improve from 25.9% in FY25 to 27.6% by FY27, thanks to indigenization and scale economies.

Key financial metrics:

FY25E EPS: Rs 93.5

FY26E EPS: Rs 126.5

FY27E EPS: Rs 155.7

Return on Equity (RoE) FY27: 22.5%

Return on Capital Employed (RoCE) FY27: 23.2%

The stock is trading at 31.9x FY26E EPS and 25.9x FY27E EPS, which Motilal Oswal believes is reasonable given HAL’s strong balance sheet and visibility.

Defense Capex and Policy Tailwinds to Boost Order Flows

India’s FY26 defense capex is set at Rs 1.8 trillion, a 13% YoY increase. Notably, 27% of this allocation is toward aircraft and aero-engines—a domain where HAL dominates.

Additionally, 21 of HAL’s platforms have been included in the Ministry of Defense’s Positive Indigenization List (PIL), reinforcing government preference for domestic suppliers.

MRO and Export Opportunities Offer Adjacent Growth Channels

HAL is making inroads into civilian MRO services, partnering with Airbus to establish an A320 maintenance facility in Nasik. With India's fleet expansion and rising MRO costs, this vertical could become a Rs 4,000 crore industry by 2030.

On the exports front, HAL’s platforms like Tejas, HTT-40, and Do-228 are gaining traction, particularly among friendly foreign nations such as Guyana and Argentina.

Capex and R&D: Strengthening Execution and Innovation

HAL has earmarked a capex of Rs 140–150 billion over the next five years, with Rs 30–50 billion annually to support expansion and new program requirements.

R&D spend has increased from 6% of sales in FY20 to 9.5% in FY24, driving the development of new platforms and resulting in over 1,000 IPRs. Notable innovations include the 25kN turbofan and 1,200kW turboshaft engines.

Key Risks: Supply Chain and Bureaucratic Delays

Despite the robust outlook, risks include:

Delays in engine supplies from GE, which could impact Tejas Mk1A delivery schedules

Slower-than-expected order finalization, especially for high-ticket programs like AMCA

Payment delays from MoD or procurement process hurdles

Rising competition from the private sector

Long Term Investment: A Strategic Asset in India's Defense Modernization Drive

HAL stands at the epicenter of India’s defense self-reliance mission. Its transformation from a license manufacturer to an indigenized, platform-driven enterprise positions it as a long-term compounder in the aerospace and defense space. With a scalable execution model, rising indigenization, and multi-decade visibility on orders, the company is well poised to deliver both strategic value to the nation and robust returns to investors.

Motilal Oswal’s target of Rs 5,100 per share reflects confidence in HAL’s structural growth story, underpinned by policy support, superior R&D, and operational leverage. For investors seeking exposure to India’s defense renaissance, HAL is a frontline stock to consider.