In a recent research report dated September 29, 2023, Prabhudas Lilladher has expressed a bullish outlook on Hindustan Aeronautics and recommended a buy rating on the stock. They have set a target price of Rs 2266.
Hindustan Aeronautics Limited (HAL) is seen as a strategic investment opportunity, driven by several factors. First, it stands as a key player benefiting from the growing strength and modernization of India’s air defense capabilities. HAL holds a prominent position as the primary supplier of military aircraft to India.
Secondly, the company is poised to capitalize on a sustainable demand opportunity due to the Indian government’s emphasis on the procurement of indigenous defense aircraft. This commitment to domestic defense production offers a stable and long-term growth trajectory for HAL.
Additionally, HAL has made significant strides in enhancing its technological capabilities, thanks to the development of more advanced platforms such as Tejas and AMCA (Advanced Medium Combat Aircraft). These advancements position HAL as a leader in the field of aviation technology.
Furthermore, HAL boasts a robust order book, currently valued at Rs 818 billion, and has a promising pipeline of orders for the next five years, estimated at approximately Rs 2 trillion. This healthy order book not only ensures revenue visibility but also supports the company’s growth ambitions.
Lastly, HAL is expected to improve its profitability through economies of scale and operating leverage. Prabhudas Lilladher forecasts a Revenue CAGR (Compound Annual Growth Rate) of 11.0% and an Adjusted PAT (Profit After Tax) CAGR of 14.2% over the period from FY23 to FY26.
As of the report, the stock is trading at a Price-to-Earnings (P/E) ratio of 20.8x for FY25 and 18.3x for FY26 earnings.
In conclusion, Prabhudas Lilladher initiates coverage on Hindustan Aeronautics with a ‘BUY’ rating and sets a target price of Rs 2,266, which is determined using a weighted average of prices through a Discounted Cash Flow (DCF) analysis and a Price-to-Earnings (PE) multiple evaluation.
