Hindustan Aeronautics shares cross ₹2 lakh crore in market cap after UBS projects 23% upside

Calling Hindustan Aeronautics a "Credible Defence Compounder" in the making, UBS said that the depletion of India's military aircraft strength in the coming few years, geopolitics and the need for greater aircraft visibility will accelerate ordering and lead to a manufacturing ramp-up at the company.

After three years of stagnant growth, UBS believes that Hindustan Aeronautics is set to triple its order book from ₹80,000 crore in financial year 2023 to ₹2.4 lakh crore in financial year 2026.

UBS is projecting a Compounded Annual Growth Rate (CAGR) of 16% in revenue and 18% in net profit with Return on Equity of 20% over financial year 2023 - 2026. "We expect higher local content and lower staff costs to support EBITDA margins," the note said.

The brokerage further wrote that the consensus estimates on HAL have not yet built in faster order completions, its ability to ramp-up production, improved manufacturing value add and a responsive defence eco-system in the country.

India's Defence Secretary, Giridhar Aramane, in an exclusive interaction with CNBC-TV18 called the GE-HAL deal a "landmark decision." He also said that he sees a long and transformative relationship between the two companies, where GE's engines continue to power India's fighter jets.

UBS also mentioned that HAL is on course to re-rate the way Bharat Electronics did over the last decade if it gets its execution right.

Shares of Hindustan Aeronautics are trading 3.9% higher at ₹3,018. The stock has gained 140% over the last 12 months.