Hindustan Aeronautics Limited (HAL) was gaining in the bourses on Tuesday after winning the government’s approval for a contract with the Indian Air Force.

What Happened: The Cabinet Committee has approved a contract worth over ₹26,000 crore between the Indian Air Force and the Bengaluru-based firm, the Ministry of Defence said in a press release on Monday. This involves the procurement of 240 aero engines for the Air Force’s Su-30 MKI aircraft from HAL.

The engines will contain over 54% indigenous parts and will be produced at HAL’s Koraput division. The delivery of these aero engines would start after one year and complete over eight years.

“Su-30 MKI is one of the most powerful and strategically-significant fleet of IAF. The supply of these aero-engines by HAL would meet the fleet sustenance requirement of IAF to continue their unhindered operations and strengthen the defence preparedness of the country,” the Ministry added in its statement.

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Brokerage Views: Antique Stock Broking says that this will further strengthen HAL’s robust order backlog, which stood at ₹94,000 crore at the end of FY24, pushing it to around ₹1.2 lakh crore. This will lead to strong revenue visibility, equivalent to 3.8 times its revenue over the past twelve months, the brokerage said.

Further, HAL’s strong order pipeline from a medium- to long-term perspective will enhance the company’s revenue visibility. While near-term financials may appear somewhat volatile due to ongoing supply chain challenges, the stock is considered attractively valued given the potential for multi-year double-digit earnings growth and a robust return ratio profile of over 20%, the brokerage added.

Antique has a “buy” rating for the stock with a target price of ₹6,145.

Price Action: Shares of HAL were up 3.18% to ₹4,836.90 on Tuesday morning.

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