Profit booking seeped across shares of Hindustan Aeronautics, triggering a near 3% fall in the stock after global brokerage UBS downgraded the stock from ‘buy’ to ‘neutral’. The brokerage stated that near-term growth drivers have largely been factored into the current valuation and revised its outlook for order book expansion.
Accordingly, UBS slightly raised its price target for the stock to Rs 5,600, reflecting a potential upside of around 14.5% from the last closing price.
According to UBS, key developments such as the resolution of the GE F404 engine delay, the Light Combat Helicopter (LCH) order, and the LCA MK1A fighter aircraft contract are already priced in. The firm also revised its estimate for the compound annual growth rate (CAGR) of HAL’s order book from 21% to 14% for FY26–28, citing delays in programmes like the Su-30MKI upgrades and LCA Mark 2 orders.
The brokerage also adjusted its projections for HAL’s manufacturing revenue. UBS now expects manufacturing to contribute 40% to HAL’s topline by FY28, up from the current 23%, while the share of MRO (maintenance, repair, and overhaul) is forecasted to drop from 70% to 54%. Although HAL’s manufacturing capacity is expanding with new facilities in Tumkuru and upgrades at Bangalore and Nashik, the brokerage showcased caution over the pace of revenue ramp-up.
In terms of valuations, UBS has priced HAL at 35 times its forward 12-month earnings, reflecting strong long-term visibility but limited room for near-term upside. The brokerage forecasts revenue CAGR of 21.5% over FY25–28, with expected order inflows of Rs 2.2 lakh crore. EBITDA margins are projected to average 28.6%, with net income growing at a CAGR of 12%. In the best case scenario, UBS believes income growth could reach 18.9%, while the downside case pegs it closer to 5%.
Despite these revisions, UBS did take note of HAL’s strategic role in India’s growing defence manufacturing space, supported by localisation efforts and increased domestic capital expenditure. However, risks such as delayed order finalisations, budgetary pressures tied to GDP growth, and execution challenges in the private supply chain could impact performance.
Having said that, UBS also stated that the ‘risk to current share price is skewed to the upside’, leaving the door open for potential gains if execution accelerates or major contracts are awarded ahead of expectations.
