HAL Q2 margins disappoint but analysts retain optimism on growth prospects

Shares of state-run defence major Hindustan Aeronautics Ltd. (HAL), which settled nearly 3% lower on November 12, opened lower on Thursday, November 13.

Brokerage firms have maintained their ratings on the stock following its September-quarter earnings, which came in below Street expectations across most parameters.

Citi has a 'Buy' rating on the stock, with a price target of ₹5,800. The brokerage said HAL's second-quarter performance was affected by margin volatility but expects growth momentum to pick up in the coming quarters.

It said that despite the miss on operating margins, it remains confident given HAL's strong sales visibility.

Citi expects revenue growth to accelerate as delays around Tejas aircraft deliveries bottom out and manufacturing revenues gather pace.

For the first half of financial year 2025-26, HAL's earnings before interest, tax, depreciation and amortisation (EBITDA) margin stood at 24.8%, compared to 25.5% in the first half of FY25.

Citi also said that the stock's valuation looks reasonable, trading at seven times trailing twelve months (TTM) sales, driven by robust return on equity (ROE) and a healthy order backlog.

CLSA maintained an 'Outperform' rating with a price target of ₹5,436. It said the recent large fighter aircraft order and visibility on the General Electric (GE) engine co-production deal remain key catalysts for HAL.

HAL's cash pile increased 55% year-on-year to $4.5 billion, boosting treasury income by 63%. The company's decade-long pipeline continues to look healthy at around $54 billion.

Nomura also retained its 'Buy' rating, with a price target of ₹6,100.

The brokerage projects HAL's earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 24% between FY25 and FY28. It pegs the company's manufacturing book-to-bill ratio at 31 times FY25 sales.

Nomura added that HAL trades at 29 times and 23 times its FY27 and FY28 forward EPS, respectively.

In Q2FY26, HAL's net profit rose 10.5% year-on-year to ₹1,669 crore, while revenue grew 11% to ₹6,629 crore. However, EBITDA declined 5% to ₹1,558 crore from ₹1,640 crore a year earlier.

For the quarter, HAL's EBITDA margin came in at 23.5%, lower than both the 27.4% reported last year and the 28.2% CNBC-TV18 poll estimate. The first-half margin of 24.8% also lagged the company's full-year guidance of 31%.

Of the 24 analysts tracking HAL, 19 have a 'Buy' rating, three recommend 'Hold', and two advise 'Sell'.

Shares of Hindustan Aeronautics were volatile post-results on Wednesday, ending 2.67% lower at ₹4,732.70. The stock, however, remains up 14% so far in 2025.