The global brokerage house UBS has slashed the rating on Hindustan Aeronautics to ‘Neutral’ from ‘Buy’. Already price in near-term drivers and longer timelines for major orders are the reason behind the downgrade. However, the brokerage has raised the target price marginally to Rs 5,600 from Rs 5,440, an upside of 3%.
UBS on HAL: F404 engine delivery resolution already priced in
First things first, the brokerage said that the company’s share price is already reflecting its near-term drivers. Including the resolution for the delay problem of the GE F404 engine and the anticipated excess orders of LCA MK1A fighter aircraft.
Also, HAL was facing problems with the resolution on the F404 engine, because of which it had to listen to an earful from the Indian Air Force chief as well. The issue was solved recently, and the markets priced that in, recognising the value of the company’s manufacturing business. Now, the manufacturing business is valued at around Rs 1 lakh crore, which is trading at an almost 100x 12-month forward PE.
UBS on HAL: Cuts order book estimates on management’s guidance
Coming to the second point, the brokerage has cut its compounded annual growth rate (CAGR) estimate for the company’s order book to 14% from 21% for FY26-28. UBS said that the cut in order book estimates came after HAL’s management indicated a longer timeline to complete major orders, specifically the upgrade of Su-30 MKI fighter aircraft and the LCA Mark 2.
These two large platform orders, which were supposed to be delivered by FY28, have been pushed back beyond FY28. This leads to a revised order book estimate by FY28E that is 17% lower than previously estimated, standing at Rs 2.8 lakh crore compared to Rs 3.4 lakh crore.
“Our expectation of a sharp ramp-up in HAL’s order book has been diluted post-recent management guidance of Rs 1.2 lakh crore of orders (30% of the pipeline) after FY28,” said UBS.
However, UBS said that the strong guidance on margins should help the bottom line nd give downside risk support.
HAL Q4 results
HAL reported a 7.7% drop in consolidated net profit to Rs 3,977 crore Q4 FY25, compared with a net profit of Rs 4,309 crore in the same quarter a year ago. However, on a quarter-on-quarter basis, the company’s net profit more than doubled, jumping 176% from Rs 1,440 crore. Its consolidated revenue from operations fell 7.2% YoY to Rs 13,700 crore in Q4FY25 from Rs 14,769 crore. Sequentially, revenue rose 97% from Rs 6,957 crore.
HAL’s stock performance
The share price of HAL has risen over 11% in the last five trading sessions. The stock has given a return of 16% in the past one month and 26% in the last six months. HAL’s share price has surged by almost 5% in the last one year.