Target: ₹5,000
CMP: ₹4,161.60
GE Aerospace has delivered the first of 99 (nos.) F404-IN20 engines to Hindustan Aeronautics Ltd (HAL) for Tejas Mk 1A. We see this is a vital development that allays execution risk concerns. At Aero India, HAL expressed confidence in receiving 12 F404-IN20 engines for the LCA Mk 1A this year. While it can manufacture 24 Tejas Mk 1A, we estimate only a gradual ramp-up from 10 in FY26 to 24 by FY30.
We estimate revenue growth of 25/28 per cent y-o-y in FY26/FY27, resulting in an EPS CAGR of 39 per cent through to FY27 (from FY25 level). We also see the commencement of execution of Tejas Mk-1A order as a positive for other defence companies in our coverage – BEL and Astra Microwave.
We believe HAL’s OB is likely to get a leg-up with a further order of 97 Tejas Mk 1A and 156 LCH Prachand. Besides, HAL aims to complete the assembly of the first Tejas Mk-II aircraft by Oct’25 and achieve its maiden flight by end-Mar’26. Taking cognizance of lower risk on execution, we roll back WACC to 11 per cent (earlier 12 per cent), resulting in a revised TP of ₹5,000 (earlier ₹4,065) on a DCF-based methodology. Upgrade to Buy (earlier Add).
Key risks: Delay in execution of the existing 83 nos. Tejas Mk-1A orders; delay in receipt of further orders for which AoN has been executed; and Margin decline owing to higher raw material price
