CLSA analyst Bharat Parekh has recommended an 'Accumulate' on Hindustan Aeronautics Ltd (HAL), with a revised target price of Rs 5,625 against Rs 5,481 earlier, calling it the cheapest pure-play defence stock despite a sector-leading position. The call comes days after Ashutosh Dixit, a vocal supporter of India's Make in India (MII) initiative, assumed office as Air Chief Marshal (ACM) on October 31.

Noting that ACM Dixit has spoken of the need to restore the IAF's combat strength to the sanctioned level of 42 squadrons from the current 29, CLSA said this would depend on the delivery of Light Combat Aircraft (LCA) Mk1A, which should start soon.

"This would reinforce our view that the LCA Mk1A faces no fundamental issues and that Modi 3.0 is delivering on its defence MII ambitions. HAL has a decadal pipeline of US$48bn. We see the start of Mk1A deliveries (3Q/4QFY27) and visibility on the GE engine deal as key catalysts. HAL is the cheapest pure-play defence stock," it said.

ACM Dixit has been a vocal supporter of Make in India and has been involved with the Tejas programme since its initial days. In his speech on assuming office, he said the 'Tejas Mk1A, Mk II are our highest priority' and restoring the IAF's combat strength to its sanctioned level of 42 squadrons from the current 29 would be his 'foremost task'.

This, CLSA said, depends on the delivery of 10 squadrons of LCA Mk1A, accounting for 39 per cent of the order backlog.

"HAL has patiently lined up over 25+ LCA Mk1A frames and 10+ are fitted with engines. HAL entered the mass-production stage of active electronically scanned array (AESA) radars to replace Israeli-made radar in the next batch of 97 Mk1A. This will improve its MII content and reduce integration issues between the fighter and Indian missile's onboard seeker, which has proven to be a demanding software engineering task as its AESA radar uses proprietary algorithms," CLSA said.

CLSA said HAL is the biggest beneficiary of the government's Make in India push, adding that the best is yet to come in terms of multi-billion-dollar projects, with several orders worth $25 billion visible by FY30, including LUH, ALH and the SU-30 upgrade.

"Government's funding of 90 per cent design and development (D&D) order for SU-30 upgrades for HAL secures a potential $7.6 billion order (23 per cent of orders over FY27-30CL) for the upgrade of avionics and radars for 84 SU-30MKI aircraft," it said.

Catalysts for HAL include improving platform deliveries, large export orders from Safran for LEAP engine components and its $25 billion manufacturing order pipeline over FY26-30.

"We see HAL as the cheapest pure-play India defence major despite a high entry barrier and high-ROE business," CLSA said.