UBS initiates buy on this defence PSU; sees 24% potential upside

Stock market news: Global brokerage UBS has initiated a 'buy' rating on Hindustan Aeronautics (HAL) with a target of Rs 3,600, implying a 24 per cent upside from the last closing price. The rationale behind the global brokerage's bullish stance on the defence major is that the company has sharpened its policy focus and is working to compress the US$60 billion opportunity into 5-7 years.
 
The brokerage further highlighted that the new orders will result in a material step-up, with revenues rising at a 16 per cent compound annual growth rate (CAGR).
 
UBS further added that the company's own-design manufacturing will drive a high double-digit EPS (earnings per share) CAGR and a 20 per cent return on equity (ROE). UBS pointed out that the company will see more orders as well as execution post FY25E.
 
In November, the defence major partnered with Air Bus to support the Bengaluru-headquartered company's entry into the servicing of commercial aircraft, especially the A320 family of aircraft. Through this, Airbus said it is also seeking to strengthen the aircraft maintenance, repair, and overhaul (MRO) industry in India.

On the development, the stock inched higher by 4.6 per cent to Rs 3038 apiece.
 
Besides, Jigar S Patel, Sr. Manager, Equity Research, Anand Rathi, is also bullish on the counter. The expert notes that support for the stock will be at Rs 2,750 and resistance at Rs 3,000. A decisive close above the Rs 3,000 level may trigger a further upside to Rs 3,150.
 
"The expected trading range will be between Rs 2,700 and Rs 3,200 for a month. On the indicator front, monthly stochastics are in the overbought zone, which further confirms a bullish stance on the counter," the expert noted.
 
HAL has outperformed the headline Sensex with a return of 131 per cent in the past 12 months, while the headline index delivered 19 per cent during the same time frame.

Hindustan Aeronautics is an Indian state-owned aerospace and defence company that is categorised as a largecap stock commanding an m-cap of Rs 1,91,938 crore.