Target: £5,000
CMP: £4,161.60
Ge Aerospace has provided the first of its 99 (Nos.) F404-IN20 engines to Hindustan Aeronautics Ltd (HAL) of the Tejas MK 1A. We consider this to be a critical development that hinders concerns about execution risk. At Aero India, HAL has shown confidence this year to receive the 12 F404-IN20 engines in its LCA MK 1A. We can manufacture 24 Tejas Mk 1As, but by 200 we estimate only gentle ramp ups between 10 and 24th.
EPS CAGR is 39% (from the FY25 level) as we estimate the year-over-year revenue growth rate of 25/28% for FY26/FY27. We also consider the initiation of the Tejas MK-1A order execution to be positive for BEL and other defense companies at Astra Microwave.
Hal’s OB thinks he’s likely to get a leg up with further orders of 97 Tejas Mk 1a and 156 Lch Prachand. Moreover, HAL aims to complete the assembly of its first Tejas MK-II aircraft by October 2025, achieving its first flight by End-Mar’26. Getting low risk perception at runtime, we rolled back the WACC to 11% (previously 12%) and revised the TP of £5,000 (previously 4,065 £4,065) with a DCF-based methodology. Upgrade and buy (previous addition).
Key risk: Delay in the execution of existing 83 Nos. Tejas MK-1A order; delay in receipt of further orders that AON was executed. Increased raw material prices reduce margins
