HAL stock hit a new 52-week high of Rs 3,078.8 in today’s trade, backed by heavy volumes on the NSE. A total of 31,57,100 equity shares worth Rs 954.6 crore changed hands so far.
Global brokerage firm UBS initiated coverage on the stock with a Buy rating and target price of Rs 3,600, which shows an upside potential of nearly 24% from the previous day’s closing price of Rs 2,905.8.
“We expect the depletion of India’s military aircraft strength in the coming few years, geopolitics and a need for greater aircraft availability to accelerate ordering and lead to a manufacturing ramp-up at HAL vs the past decade,” UBS said in a report.
After three years of flattish growth, UBS thinks HAL is set to triple its order book from Rs 80,000 crore in FY23 to Rs 2.4 lakh crore in FY26E. The brokerage firm believes HAL is on course to re-rate by a similar magnitude to BHEL in the past decade if it gets its execution right.
HAL recently expanded its Tejas Mk1A fighter aircraft manufacturing capacity from 8 to 16 per year and is working on expanding it further to 24 (with two new lines at the Bengaluru complex and another at Nashik), sufficient to deliver 10 squadrons over FY23-32E, based on UBS’ platform-wise production assessment.
“It has also expanded its rotary wing platform’s manufacturing capacity to meet growing demand for locally designed and manufactured aircraft. We believe consensus estimates have not yet built in faster order completions, HAL’s ability to ramp up production and improved manufacturing value add, and a defence eco-system in India spanning government, SOEs, and Tier II and III defence companies that is becoming increasingly responsive,” the brokerage said.With the government seeking to reduce import dependence and promote domestic manufacturing in the defence sector, the past decade has seen a steady reduction in import components for HAL and several HAL-designed aircraft platforms, such as Tejas Mk1A, gaining acceptance from the Indian military.
“We forecast FY23-26E 16%/18% top-line/net income CAGRs for HAL with a 20% ROE, implying stable gross margins (our estimate is 50bps above street), despite an adverse revenue mix (faster growth in manufacturing revenue impacts margins), as we expect higher local content and lower staff costs to support EBIDTA margins,” UBS said.
At 11.05, the scrip was trading 4.6% higher at Rs 3,041 on BSE. The stock has also delivered multibagger returns of 142% in the last one year, and 380% in the past two years.
Technically, the stock is in the overbought zone with RSI at 73.1. The RSI below 30 is considered oversold and above 70 is overbought, Trendlyne data showed. The stock is trading higher than the 10-day, 20-day, 30-day, 50-day, 100-day, 150-day, and 200-day simple moving averages (SMAs).
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