Hindustan Aeronautics Ltd (HAL) has seen its stock gain over 5% since its close on Thursday, following reports that it received a third GE 404 engine. The delivery of these engines is a critical step for HAL to begin delivering Tejas MK-1A aircraft to the Indian Air Force, a process that has been delayed for more than a year and a half.
The state-owned company plans to deliver 12 of these planes in FY26 as part of a total order of 83 aircraft, a deal worth ₹48,000 crore. These deliveries are expected to pave the way for an additional order of 97 more aircraft, valued at ₹67,000 crore, which the government approved last month.
Other than Tejas, HAL is also working on some other big-ticket orders such as 156 light combat helicopters (LCH) Prachand, worth ₹62,700 crore, 12 Su-30 MKI aircrafts for ₹13,500 crore, and 240 AL31 FP aero engines for Su-30 MKI worth ₹26,000 crore.
Fuel in the tank: A large order book
Substantial investment in defence fleet modernization means the company’s order inflow has jumped from ₹26,000 crore in FY23 to ₹1.2 trillion in FY25. Besides the total order backlog of ₹1.9 trillion at FY25-end, HAL has an order pipeline worth ₹1 trillion expected to be awarded within the next one to two years. However, this strong demand could also lead to tougher pricing for HAL in the future as they factor in efficiency gains.
Despite the impressive order book, near-term revenue growth remains modest because these large-value orders will take time to translate into earnings.
“Although near term financials may seem a bit volatile on account of supply chain challenges it has been facing to execute the large Tejas Mk-1A order, we retain our positive stance on the company given the multi-year double-digit earnings growth potential and robust return ratio profile of +20%,” said Antique Stock Broking in a 15 September report.
After clocking 2% revenue growth in FY25, the management has guided for an 8-10% growth for FY26, expecting this to accelerate from FY27. HAL’s revenue was up 11% to ₹4,800 crore in the June quarter (Q1FY26), whereas Ebitda rose nearly 30% to ₹1,280 crore, aided by lower raw material cost and other expenses.
Building the engine: Capex and new ventures
To meet its delivery commitments, HAL has planned a capital expenditure of ₹15,000 crore over the next five years. This will go towards setting up new assembly lines and establishing repair and overhaul (RoH) facilities, a high-margin business that contributes nearly 70% of its annual revenue. HAL expects a steady annual order inflow of about ₹20,000 crore for this segment.
HAL is also increasing its focus on domestic value addition through key partnerships. Its joint venture with Mishra Dhatu Nigam Ltd is working to indigenize raw materials for AL31 FP engines, and a recent MoU with PTC Industries Ltd is for the supply of titanium casting parts. HAL is also entering the space technology sector through a new contract with the Indian Space Research Organisation (ISRO) to manufacture a small satellite launch vehicle. Furthermore, a joint venture facility with Airbus for civil aircraft RoH is set to begin operations in FY27.
Robust order inflows and the commencement of GE engines delivery, has led to the stock gaining nearly 60% over its 52-week low of ₹3,046.05 seen on 3 March. The shares now trade at 36x FY26 estimated earnings, shows Bloomberg. Hereon, investors would monitor the delivery timeline of Tejas for further cues.
