UBS downgrades HAL shares to neutral, stock down 3% on muted near-term outlook
HAL shares: Global brokerage UBS downgraded the stock to 'Neutral' from 'Buy', stating that near-term catalysts have already been factored into the current price.
HAL shares: UBS has set a new 12-month price target of Rs 5,600 per share for HAL, indicating a potential upside of 14.5% from its Monday closing price of Rs 5,016. The brokerage had previously set the target at Rs 5,440.
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Revenue ramp already priced in
Valuation and outlook
Shares of Hindustan Aeronautics Ltd (HAL) fell as much as 2.8% to Rs 4,877.25 on Tuesday after global brokerage UBS downgraded the stock to 'neutral' from 'buy', citing that near-term triggers have already been priced in and lowering its order book growth outlook.UBS set a new 12-month price target of Rs 5,600 per share, implying a potential upside of 14.5% from HAL's Monday closing price of Rs 5,016. The brokerage's previous target was Rs 5,440.'We downgrade HNAL to Neutral from Buy, as we believe: 1) near-term drivers (resolution of the GE F404 engine delay, the Light Combat Helicopter order, the LCA MK1A fighter aircraft order overhang) are now in the price,' UBS said.The brokerage trimmed its FY26-28 order book compound annual growth rate (CAGR) estimate to 14% from 21% following recent management guidance that indicated a longer timeline for the Su-30 MKI upgrades and LCA Mark 2 orders.UBS also cut its manufacturing revenue growth estimates and now expects the topline contribution from manufacturing to rise from 23% currently to 40% by FY28, while MRO (maintenance, repair, and overhaul) share drops to 54% from 70%.'The market has priced in the resolution of the F404 engine issue and expects a 24% sales CAGR FY25-28E,' UBS noted, adding that HAL's manufacturing ramp-up, strong margin guidance, and expanded capacity across its LCA and helicopter factories are already factored into the stock price.The brokerage said HAL's recently commissioned Tumkuru helicopter factory and expansion at its Bangalore and Nashik units will support a shift in the company's revenue mix toward manufacturing. However, it cautioned that 'a slower ramp in the manufacturing topline is the major downside risk to our Neutral rating.'UBS said it valued HAL at 35x 12-month forward earnings in its base case, reflecting strong growth visibility but limited near-term upside. 'We forecast order inflow of Rs 2.2 trillion over FY26-28 with a revenue CAGR of 21.5% for FY25-28E,' the brokerage said.The brokerage projects average EBITDA margins of 28.6% over FY25-28E and net income growth at a CAGR of 12% in the same period. In the bullish scenario, net income could grow at 18.9%, while the bearish case sees a modest 5% CAGR.UBS noted HAL's strong positioning in India's expanding defence manufacturing landscape, driven by localisation efforts and growing domestic capex. However, it flagged risks such as delays in order finalisations, GDP-linked budget constraints, and execution bottlenecks in the private supply chain.Despite these risks, UBS acknowledged that HAL could still benefit from a faster-than-expected rollout of large defence contracts. 'Risk to current share price is skewed to the upside,' UBS said.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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