Shares of Hindustan Aeronautics Limited (HAL) were flying high on Friday after the stock received a bullish call from a global brokerage.

What Happened: UBS initiated coverage on HAL on Friday, labelling it a credible defence compounder with a target price of ₹3,600, indicating a 23% upside from the current levels.

The report from UBS cited the anticipated depletion of India’s military aircraft strength in the coming years, coupled with geopolitical factors and the increasing need for aircraft availability, as factors likely to accelerate ordering and lead to a manufacturing spurt at HAL versus the past decade.

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Anaylsts Estimates: UBS expects HAL’s order book, which stood at ₹80,000 crore in FY23, to triple to ₹2.4 lakh crore in FY26 due to heightened defence expenditure. The Budget 23-24 allocated ₹5.94 lakh crore to defence, marking a 13% increase over the previous year.

According to UBS, HAL has expanded its Tejas Mk1A fighter aircraft manufacturing capacity from eight to 16 per year, with plans to increase it further to 24. Additionally, the company has augmented its rotary wing platform’s manufacturing capacity to meet the growing demand for locally designed and manufactured aircraft.

UBS analysts highlighted that consensus estimates have not yet factored in faster order completions. HAL has also been actively reducing its dependence on imports, with the import component now standing at 77% compared to 85% in FY13. UBS noted the acceptance of several HAL-designed aircraft platforms, such as Tejas Mk1A, by the Indian military.

Based on these factors, UBS believes HAL is poised for a re-rating similar to Bharat Heavy Electronics Ltd (BHEL) over the past decade, depending on successful execution.

Price Action: HAL’s share price was soaring nearly 4% higher at ₹3,020 in early trade on Friday.

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