Shares of Hindustan Aeronautics Ltd (HAL) witnessed a sharp intraday decline of approximately 7% on the National Stock Exchange (NSE) on Monday. This sell-off was triggered by the unfortunate crash of a Light Combat Aircraft (LCA) Tejas Mk 1 during a display at the Dubai Air Show the previous Friday.
Massive Order Book and Market Impact
The incident has put investors on high alert, given the colossal ₹1.1 trillion contract for 180 Tejas aircraft that HAL is tasked with fulfilling. This single order constitutes a staggering over 40% of HAL's estimated order book of ₹2.7 trillion as of the end of the second quarter of the fiscal year 2026 (Q2FY26). While the crash is expected to dampen investor sentiment in the immediate term, most analysts believe the fundamental delivery timeline for the fighter jets will remain intact.
In a report dated 23 November, analysts from Elara Capital provided a reassuring perspective. They stated, "We do not think Tejas Mk 1 aircraft will be grounded as the incident did not occur in mission mode and instead took place at an air show." This differentiates it from past incidents, such as the grounding of HAL's Advanced Light Helicopter due to frequent crashes during active missions. However, the analysts did caution that the crash could potentially delay future export prospects for the aircraft.
Production Ramp-Up and Execution Challenges
The Tejas contract, which was signed back in February 2021, had previously faced delays, primarily due to holdups in the supply of F-404 engines from General Electric Co. A significant development occurred in April, when the engine supply finally commenced. With this bottleneck easing, HAL has outlined a plan to deliver up to six aircraft in FY26 and then significantly accelerate the pace from FY27 onwards.
To meet this ambitious target, the state-owned aerospace giant is actively expanding its manufacturing capabilities. Last month, it commissioned a third assembly line for the Tejas in Nashik. This strategic move boosts its annual production capacity to 24 aircraft. Despite this enhanced capacity, it is estimated that it will take roughly eight years for HAL to complete the entire order of 180 planes.
The company's order backlog has swelled to over eight times its trailing 12-month revenue, a sharp increase from three times at the end of FY24. This highlights the immense execution challenge HAL faces, compounded by ongoing supply chain issues. For instance, despite receiving the first engine in April, the actual delivery of the aircraft is still pending. Deliveries of its Light Utility Helicopters are also stalled due to software integration problems.
Broader Defence Context and Future Prospects
HAL's prominence is underpinned by the Indian government's intense focus on modernizing and augmenting the country's defence fleet. India currently has an active fleet of 29 fighter squadrons, a number that has decreased from 31 in September following the retirement of the ageing MiG-21 fleet. This is against a required strength of 42 squadrons, underscoring the critical need for indigenously produced aircraft like the Tejas.
A JPMorgan India report from 13 November projected a robust annual order inflow of ₹65,000 crore for HAL during FY26-28, identifying a total market opportunity exceeding ₹2.5 trillion. Beyond its core defence business, HAL is diversifying. It recently signed a memorandum of understanding (MoU) with Russia's PSJC-UAC for the production of the SJ-100, a narrow-bodied civilian aircraft, signaling its entry into civilian aircraft manufacturing and repair.
There is also talk of a potential corporate restructuring within HAL, with the government reportedly hiring a consultant. One proposal being considered is carving out separate units for helicopters and fighter jets to improve operational efficiency.
Financially, HAL showed some momentum in the first half of FY26, with an 11% year-on-year revenue growth to ₹11,500 crore, surpassing its own annual guidance of 8-10%. However, EBITDA growth was slower at 8% due to higher raw material costs. Year-to-date in 2025, HAL's shares are still up about 7%, trading at a premium of almost 33 times its FY26 earnings estimates.
Moving forward, the stock's trajectory will be closely tied to HAL's ability to stick to the Tejas delivery schedule. Investors will also be keenly awaiting the findings of the official court of inquiry into the Dubai crash, which will provide crucial insights into whether any equipment malfunction was responsible.
