Defence · investment research
Hindustan Aeronautics
HAL
Verdict
NO ACTION
medium confidence · 3-5 years
Composite score
54/100
Weighted across all eight pillars
Business quality
47/100
Moat, returns, balance sheet, cash, management
Valuation score
61/100
At 47.5x against a sector median of 60.9x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
No action. Nothing here is compelling enough to deploy capital today.
WHY
- • Profitability & returns scores 7/100 (improving) — ROCE was 6.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- • Business & moat scores 86/100 (improving) — Approvals and order pipelines limit how quickly new entrants can compete.
- • Balance sheet scores 15/100 (deteriorating) — Leverage is high enough that a demand shock becomes a solvency question.
- • Growth quality scores 78/100 (improving) — Top-line compounding over the reported history.
WHERE
Defence · Mid cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 6% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹16,184 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Leverage — Debt is 8.5x EBITDA.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check Defence budget outlay — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
Hindustan Aeronautics is a moat-protected defence business compounding revenue at 10.0% and profit at 33.2%, earning 7.9% on capital. Quality scores 47/100 and valuation 61/100 at 47.5x. The decision is therefore no action with medium confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
Hindustan Aeronautics operates in the Indian defence sector with a mid-cap footprint and a listed market value of about ₹293k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 92/100
Regulatory / licence moat
Approvals and order pipelines limit how quickly new entrants can compete.
Segment mix
Growth 5.3% · margin 12.3% — Growing broadly in line with the overall business.
Growth 6.8% · margin 28.8% — Growing broadly in line with the overall business.
Growth -1.2% · margin 25.8% — Flat to declining; drags the consolidated growth rate.
Growth 18.5% · margin 12.2% — Fastest growing part of the mix — watch whether margins hold as it scales.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
86/100Trend: improving · weight 14%
- MoatRegulatory / licence moat
Approvals and order pipelines limit how quickly new entrants can compete.
- Segment concentrationRadars & avionics is 27.5% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin26.0%
Margin moved from 17.0% to 26.0% year on year.
Profitability & returns
7/100Trend: improving · weight 16%
- ROCE7.9%
ROCE was 6.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE6.2%
Return on equity after leverage — read alongside debt levels.
- Net margin18.7%
Share of every rupee of revenue that reaches reported profit.
Growth quality
78/100Trend: improving · weight 15%
- Revenue CAGR (4y)10.0%
Top-line compounding over the reported history.
- Profit CAGR (4y)33.2%
Profit is compounding faster than revenue — operating leverage is working.
- Growth sourceAsset-light / incremental
Capex is 7.0% of revenue this year.
Balance sheet
15/100Trend: deteriorating · weight 12%
- Debt / EBITDA8.49x
Leverage is high enough that a demand shock becomes a solvency question.
- Debt / equity0.79x
Capital structure relative to shareholder funds.
- Working capital22 days
Cycle is tight, so growth is largely self-funding.
Cash conversion
57/100Trend: stable · weight 13%
- OCF / PAT78%
Reported profit is backed by operating cash.
- Free cash flow₹10,854 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
71/100Trend: deteriorating · weight 14%
- Guidance delivery75% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding9.9% (-0.34 y/y)
Promoter ownership is stable or rising.
- PledgeNo pledge
No pledge disclosed in the sample data.
- Institutional flowFII -2.13 · DII +2.1
Direction of institutional ownership over the last year.
- Capital allocationSurplus cash is largely returned to shareholders…
Surplus cash is largely returned to shareholders rather than reinvested.
Industry & macro
60/100Trend: improving · weight 8%
- Demand trendimproving
Defence (India) demand is improving.
- StructureFragmented
Fragmented — share shifts are possible but price competition is real.
- Competitive intensityhigh
How hard it is to keep pricing and share.
- Macro driversDefence budget outlay, Order inflow, Indigenisation policy
Variables that move the earnings base regardless of company execution.
Valuation
61/100Trend: stable · weight 8%
- P/E vs sector47.5x vs 60.9x
At 47.5x against a sector median of 60.9x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted1.43 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield3.70%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹97,667 Cr | ₹14,650 Cr | ₹8,497 Cr | ₹5,948 Cr | ₹-4,795 Cr | 6.8% |
| FY2023 | ₹1.09 L Cr | ₹33,774 Cr | ₹16,549 Cr | ₹11,915 Cr | ₹4,289 Cr | 6% |
| FY2024 | ₹1.20 L Cr | ₹37,271 Cr | ₹15,654 Cr | ₹11,584 Cr | ₹-2,843 Cr | 8.2% |
| FY2025 | ₹1.32 L Cr | ₹22,356 Cr | ₹16,543 Cr | ₹12,573 Cr | ₹3,367 Cr | 6.4% |
| FY2026 | ₹1.43 L Cr | ₹37,125 Cr | ₹26,730 Cr | ₹20,849 Cr | ₹10,854 Cr | 7.9% |
No accounting-quality flags in the sample data.
Ownership & management
Who owns it, and have they delivered?
Promoter
9.9%
-0.34 y/y
Pledge
None
No disclosed pledge
FII
29.6%
-2.13 y/y
DII
20.9%
+2.1 y/y
Guidance delivered in 75% of the last eight quarters; average leadership tenure 4 years.
Surplus cash is largely returned to shareholders rather than reinvested.
No governance flags raised by the sample dataset.
Industry & macro context
Defence (India)
Demand trend
improving
Cyclicality
high
Competition
high
Regulatory pressure
medium
Fragmented — share shifts are possible but price competition is real.
Macro drivers: Defence budget outlay · Order inflow · Indigenisation policy
Valuation
cheap versus the sector
P/E
47.5x
Sector median P/E
60.9x
P/B
13.82x
Earnings yield
2.11%
FCF yield
3.7%
PE / growth
1.43
Estimated fair-value band ₹16,184 – ₹20,679 , built on FY2026 EPS of ₹399.6. Gap to the current price: +320.8%. Ranges are a modelling output, not a target price.
At 47.5x against a sector median of 60.9x, the price embeds roughly 32% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Leveragehigh
Debt is 8.5x EBITDA.
Monitor: Quarterly gross debt and interest coverage.
- Cyclicalitymedium
Defence (India) earnings swing with the cycle, so trailing numbers flatter the peak.
Monitor: Defence budget outlay
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 7.9% | stays above 6% | falls for two consecutive years |
| Cash conversion | 78% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 10.0% CAGR | tracks the 32% priced in | slows for two quarters with no margin offset |
| Promoter holding | 9.9% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 72/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.