HAL Q3: Analysts mixed but see up to 49% upside; should you buy?

Shares of Hindustan Aeronautics Ltd. are in focus on Friday, February 13, as analysts have mixed views on the stock post its third quarter earnings.

While, Nomura, Jefferies and CLSA are positive on the stock, Morgan Stanley has an 'underweight' rating.

Nomura

Nomura has a 'buy' rating on HAL with a target price of ₹6,000 per share, a potential upside of 45% from its previous close.

The analyst said HAL delivered a strong operating performance, beating estimates.

The delivery of light combat aircraft (LCA) is a key catalyst in the near-term, Nomura said, adding that it expects a 23% profit after tax (PAT) compound annual growth rate (CAGR) over FY25-28.

It said five LCA Mk1A aircraft are ready for delivery, nine more have been built and flown.

It added that despite the advanced medium combat aircraft (AMCA) hiccups, execution visibility remains robust in its view.

Nomura said the stock trades at 21 times its earnings per share (EPS) estimated for FY28.

Jefferies

The analyst too has a 'buy' rating on HAL with a target price of ₹6,220 apiece, indicating an upside of 49%.

It said the stock is a 40% discount to BEL. Its execution delay is priced in.

Jefferies said HAL's third quarter earnings before interest, tax, depreciation and amortisation (EBITDA) was 5% above estimates as revenue was a 3% beat and margins were flat annually at 24.3% compared to expectations of a 30 basis points dip.

It said 9M revenues were up 11% from the previous year and also above management guidance of 8-10% growth.

It believes the delivery of its first batch of Tejas Mk1A aircraft in the next six months is enough for a stock re-rating.

It added that the downside from the current levels is limited.

CLSA

CLSA has an 'outperform' rating on HAL, with a target price of ₹5,436 per share, a potential upside of 30% from its previous close.

It said the company's third quarter profit after tax (PAT) was ahead on higher topline growth on delivery of engines, helicopters and treasury income, while margins also expanded.

It said the 1H cash pile rose to $4.5 billion, up 55% from the previous year, driving treasury income up 45% annually.

HAL's decadal pipeline remains healthy at $66 billing, excluding AMCA 1.0, CLSA said.

The brokerage said it sees recent larger fighter aircraft order and visbility on GE engine co-production deal as key catalysts.

Morgan Stanley

The brokerage has an 'underweight' rating on HAL with a target price of ₹3,355 per share.

The company posted adjusted revenue, EBITDA and PAT growth of 11%, 11% and 29%, respectively. The analyst had estimated the same to be 2% down, 1% down, and 3% up analyst's estimates of up 2%, down 3% and up 1%, respectively.

HAL's gross margin was at 53.6% compared to the analyst's expectations of 54.6%.

Its EBITDA margin of 24.3% was lower than the analyst's estimate of 25.1%, mainly due to lower gross margin and higher employee costs, partly offset by lower provision (4.2% of the revenue compared to the analsyt's estimate of 7%0.

Its other income was at ₹910 crore, up 45% from the previous year and 11% more than Morgan Stanley's estimates.

Of the 25 analysts that have coverage on the stock, 21 have a 'buy' rating, one has a 'hold' rating and three have 'sell' ratings.

HAL shares ended the previous session 1.1% up at ₹4,178.8 apiece. The stock has gained 14.2% in the past year.

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