Can HAL Maintain Its Growth Momentum Despite the Q2 Margin Miss?
About HAL
Hindustan Aeronautics Limited (HAL) is India’s flagship aerospace and defence manufacturer, supplying fighter jets, helicopters, engines and avionics to the Indian Armed Forces. Known for long-tenure order visibility and strong cash generation, HAL plays a central role in India’s defence modernization and indigenisation strategy. The Q2 FY26 performance, however, triggered mixed brokerage reactions due to an operational miss and softer margins.
HAL’s Q2 results showed double-digit revenue growth but an EBITDA miss led by lower gross margins and higher provisions. Brokerages remained divided—some staying bullish on the long-term defence cycle, while others flagged near-term pressure from execution and provisioning.
Q2 FY26 Brokerage Highlights on HAL
| Brokerage | Rating | Target Price | Key Commentary |
|---|---|---|---|
| Morgan Stanley | Equal-Weight | ₹5,092 | EBITDA −10% vs est. due to lower gross margin (56.1%) and higher provisions. PAT beat due to strong other income. |
| CITI | Buy | ₹5,800 | Margin volatility not a major concern; expects revenue acceleration as Tejas delays reduce. |
| CLSA | Outperform | ₹5,436 | PAT above estimates; margin hit due to non-cash LD provisions that may reverse; strong global order pipeline. |
| Nomura | Buy | ₹6,100 | Execution good; EBITDA 6% below expectations. Long-term CAGR potential strong. |
Revenue Growth: Double-digit and broadly in line with expectations, supported by backlog execution.
EBITDA Miss: Driven by lower gross margins and elevated provisions, weighing on profitability.
PAT: Ahead of estimates due to sharp rise in treasury income.
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Peer Comparison
| Company | Segment | Valuation Tone |
|---|---|---|
| HAL | Aerospace & Defence | Mixed (Execution Strong, Margins Soft) |
| BDL | Missile Systems | Positive on Order Inflows |
| Mishra Dhatu | Special Alloys | Stable Outlook |
HAL continues to outperform peers on visibility and scale, but margin risks are likely to persist in the near term.
Strengths & Weaknesses
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Weaknesses
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Opportunities & Threats
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Valuation & Investment View
- Short-term: Stock may consolidate given EBITDA miss.
- Medium-term: Order execution to remain healthy with margin normalization.
- Long-term: Defence indigenisation offers multi-year visibility.
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Investor Takeaway
Indian-Share-Tips.com Nifty & Bank Nifty Expert Gulshan Khera, CFP®, notes that HAL remains a high-quality defence compounder, though investors should watch margin trends and provisioning levels closely. Explore more insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions.
