Analysts predict up to 38% gains in this defence PSU after Q1; do you own?

HAL posted a 4.11 per cent year-on-year (Y-o-Y) decline in net profit at ₹1,377 crore in Q1FY26, compared to ₹1,436 crore in the same quarter last year (Q1FY25).

India’s leading defence equipment maker, Hindustan Aeronautics (HAL), saw its shares rally on Wednesday after the public sector major’s 2025-26 (FY26) April–June quarter (Q1) earnings surprised the Street with robust margins and solid execution.

 

On the BSE, HAL’s stock rose as much as 3.66 per cent to an intraday high of ₹4,567.2 before closing 2.69 per cent higher at ₹4,524.2. In comparison, the Sensex ended 0.38 per cent higher at 80,539.91.

 

Despite a slight dip in net profit, the defence public sector undertaking’s strong operational performance and upbeat brokerage guidance have stoked bullish sentiment, with some analysts projecting as much as 38 per cent upside from current levels.

 

Operational performance surprises Street

 

HAL’s revenue rose 10.8 per cent year-on-year (Y-o-Y) to ₹4,819 crore, indicating steady execution despite a modest revenue miss. Net profit declined 4.11 per cent Y-o-Y to ₹1,377 crore in Q1FY26, compared to ₹1,436 crore in the same quarter last year (2024-25/FY25), but still came in ahead of expectations. Bloomberg had pegged Q1 revenue and net profit estimates at ₹4,996 crore and ₹1,205 crore, respectively.

 

Operationally, HAL delivered a standout performance. Earnings before interest, tax, depreciation, and amortisation (Ebitda) surged 29.2 per cent Y-o-Y to ₹1,284.3 crore, while margins expanded sharply to 26.7 per cent from 22.86 per cent in Q1FY25. The beat was driven by higher gross margins and lower provisions, offsetting the slight top-line miss and resulting in a stronger-than-expected bottom line.

 

Nomura maintained its ‘buy’ rating with a target price of ₹6,100, implying about 38.4 per cent upside. The Japan-based brokerage cited HAL’s 16–17 per cent Ebitda beat over estimates and highlighted its robust 24x book-to-bill ratio in the manufacturing segment. With execution timelines on or ahead of schedule and minimal downside risk, Nomura expects HAL’s net profit to grow at a compounded annual growth rate (CAGR) of 24 per cent between FY25 and 2027-28 (FY28). It also flagged the company’s strong indigenisation efforts, cost controls, and research and development investments as key positives.

 

Motilal Oswal Securities was similarly upbeat, saying: “HAL reported a decent quarter with a slight revenue miss offset by better-than-expected margins and higher other income, resulting in a beat at the profit after tax (PAT) level.” 

 

The brokerage remains optimistic on deliveries, particularly with GE engine supplies for the Tejas Mk1A ramping up. It retained its ‘buy’ rating and raised its target price to ₹5,800, based on 32x September 2027 estimated earnings, citing the stock’s attractive 31x/27x price-to-earnings valuation on 2025-26 (FY26)/2026-27 estimated earnings.

 

Nuvama said HAL’s better-than-expected Q1FY26 results, driven by strong execution, lifted operating profit margins to 26.7 per cent, well ahead of the Street’s 23 per cent estimate. With a ₹1.84 trillion order book and a ₹4.6 trillion pipeline over the next seven to eight years, it sees strong long-term growth, forecasting a 21 per cent revenue CAGR over FY25–28. The brokerage has maintained its ‘buy’ rating with a target price of ₹6,000, implying a 35 per cent upside from current levels.

 

Morgan Stanley, while more cautious, acknowledged HAL’s strong Q1 performance, noting a beat on both Ebitda and PAT. It maintained an ‘equalweight’ rating with a target price of ₹5,092.

 

What’s next for HAL?

 

With India’s defence modernisation drive accelerating, HAL is well-positioned to benefit, particularly amid a critical shortfall in the Indian Air Force’s fighter squadron strength (currently 31 squadrons versus a sanctioned 42). The rampup in Tejas deliveries and the finalisation of additional orders provide strong visibility for future revenue and earnings.

 

As execution gathers pace and valuations remain relatively reasonable, analysts believe HAL could be a long-term portfolio candidate for investors betting on India’s strategic and manufacturing self-reliance.