Shares of state-owned aerospace and defence PSU, Hindustan Aeronautics Ltd (HAL), climbed to a 52-week high of Rs 5,054.40 during intraday trading on Wednesday. This surge followed the company's announcement of its June-quarter earnings for Q1 FY27. However, the stock eventually settled 1.22 per cent higher at Rs 4,960.
Nuvama Institutional Equities, a domestic brokerage, assessed HAL's Q1 FY27 performance as mixed. While the company demonstrated healthy execution growth of 14.4 per cent year-on-year (YoY), this was partially offset by a 280 basis points (bps) YoY contraction in gross margin (GM). Despite this, EBITDA margins expanded by 110 bps to 28.7 per cent, aided by lower other operating expenses. Profit After Tax (PAT) increased by 15 per cent YoY, largely due to elevated other income, which accounted for 42 per cent of Profit Before Tax (PBT), mitigating the impact of a 65 per cent YoY rise in depreciation.
Nuvama Downgrades HAL Stock to 'Hold'
Despite HAL's substantial Rs 2.5 lakh crore order backlog, Nuvama stated that near-term growth remains contingent on the accelerated execution across key platforms such as the Light Combat Aircraft (LCA) Tejas, Advanced Light Helicopter (ALH), and HTT-40 basic trainer aircraft. Factoring in these elements, the brokerage downgraded HAL's stock recommendation to 'HOLD'.
The downgrade comes as the stock has already rallied significantly, reaching Nuvama's target price (TP) of Rs 5,040. The brokerage highlighted that weaker-than-expected product-led execution limits further upside potential. Nuvama values HAL stock at 30x FY28E EPS, projecting a 14 per cent revenue CAGR and 10 per cent EPS CAGR, alongside 30 per cent EBITDA margins by FY28E.
Key Monitorables for Future Growth
Nuvama outlined several critical factors for HAL's performance over the next 12–24 months. A primary monitorable is the ramp-up in LCA Tejas deliveries during H2 FY27, which is dependent on timely supplies from General Electric (GE). Additionally, consistent execution across other major programmes like ALH, HTT-40, and Sukhoi, along with the conversion of a significant Rs 90,000 crore order pipeline, are crucial for maintaining growth visibility.
The brokerage also emphasized that margin sustainability amidst improving execution and new order inflows will serve as key re-rating triggers for the stock's future valuation.