Hindustan Aeronautics Limited (HAL) is set to steal the spotlight in Tuesday’s trading session, following significant announcements made on March 28. The aerospace giant recently inked two substantial contracts with the Ministry of Defence, which has positively influenced its stock performance. On Friday, HAL’s share price climbed nearly 1%, closing at ₹4,179.90 on the National Stock Exchange (NSE). Over the past five years, HAL has impressively surged by 1,491.86%, earning its status as a multibagger stock. Notably, it emerged as the leading performer on the Nifty PSE index in March, boasting a remarkable 35% increase, marking its highest monthly return in five years.

Key Contracts Signed by HAL with the Ministry of Defence

The recent agreements between HAL and the government are significant, with a total worth of ₹62,700 crore. This includes the procurement of 156 Light Combat Helicopters (LCH), known as Prachand. According to the Ministry of Defence, the first contract entails supplying 66 LCHs to the Indian Air Force (IAF), while the second contract covers 90 LCHs for the Indian Army.

• Delivery Timeline: The helicopters are expected to start being delivered in the third year, continuing over the subsequent five years.
• Indigenous Development: The LCH is India’s first combat helicopter designed and developed domestically, capable of operating at altitudes above 5,000 meters. It incorporates a substantial number of Indian-made components, aiming for over 65% indigenous content during the procurement process.

This ambitious project will engage more than 250 domestic companies, especially MSMEs, and is projected to create over 8,500 direct and indirect jobs. Additionally, the Ministry has entered into a contract with Metrea Management for the wet leasing of a Flight Refueling Aircraft (FRA), enhancing air-to-air refueling training for pilots of the IAF and Indian Navy.

Groundbreaking Developments Ahead

In another noteworthy update, HAL announced that GE Aerospace has delivered the first of 99 GE-404 engines for the Light Combat Aircraft (LCA) Mark 1A, following a two-year delay. The rollout of the first aircraft is anticipated by April.

Analyst Insights: Should You Consider Buying HAL Stock?

Brokerage firm Axis Securities has upgraded HAL’s stock rating from ‘add’ to ‘buy’, positioning it as their top choice among Defence Public Sector Undertakings (DPSUs). They highlighted that the developments regarding the LCA and LCH alleviate execution concerns.

• Projected Revenue Growth: The firm anticipates a revenue growth rate between 25-28% through FY27E, supported by an order book exceeding ₹1.3 trillion.
• Future Orders: In addition to the current contracts, HAL has further orders for 97 Tejas Mk 1A and 156 LCH Prachand helicopters in the pipeline.

Due to diminished execution risks and better earnings estimates, Axis Securities has adjusted its Weighted Average Cost of Capital (WACC) from 12% to 11%, resulting in a new target price of ₹5,000, up from ₹4,065.

In summary, HAL’s recent contracts and the promising outlook for its stock make it a compelling option for investors looking to tap into the growing aerospace and defense sector.