After more than two years of delay, HAL’s Tejas Mk-1A programme is moving closer to deliveries, as the key weapon-integration, software and engine-supply bottlenecks subside. Trials involving Astra, ASRAAM and laser-guided bombs are largely complete, pending certification, while the recent twin-ASRAAM firing indicates meaningful progress in resolving software, systems-integration issues. It has received seven GE F404-IN20 engines and expects a larger batch by Nov-26. With ~20 aircraft manufactured and flight-tested, the principal constraint has shifted from airframe production to engine availability. HAL targets delivery of first 16-18 aircraft by Mar-27. An OB of Rs2.54trn, likely order inflow of ~Rs900bn over FY27/28, HTT-40 ramp-up, Su-30 upgrade opportunity and ROH annuity support long-term growth. Thus, we maintain BUY rating on HAL with a DCF-based TP of Rs5,431.

Tejas Mk-1A Programme Moves Closer to Delivery: After more than two years of delays, its Tejas Mk-1A programme seems to be moving closer to delivery. Original Mar-24 timeline slipped not because of a single “air-to-ground missile software bug”, rather due to GE F404 engine shortages, radar-electronic-warfare integration challenges, weapon qualification and software validation.

Pending Software Patches Await Certification: As per our check, air-to-air and air-to-ground weapon trials (including Astra, ASRAAM missiles and laser-guided bombs) have been completed, while pending software patches are awaiting certification. The software patches now enable seamless integration, and communication between LCA Mk-1A’s Israeli-origin radar, electronic-warfare suite, multiple weapon systems. Recent successful test firing of twin ASRAAM missiles on Tejas Mk-1A, validate our above thesis of software glitch being addressed up to certain extent.

Marked Improvement in Engine Supplies: HAL’s Tejas Mk1A programme is seeing a marked improvement in engine. While it has received seven GE F404-IN20 engines so far, it should get a batch of 10 engines from GE, USA before Nov-26. Further, HAL has manufactured first 20 Tejas Mk-1A (another 8-9 are at different stages of fabrication) and flight-tested, parked pending engine fitment, indicating that the constraint has shifted from airframe production to powerplant supply. It aims to deliver first squadron of 16-18 aircrafts by Mar-27.

Order Book: HAL’s order book remains strong at Rs2.54trn, led by large wins in FY26 including 97 LCA Tejas, 6 ALH and 8 Dornier Do-228 orders.

Guidance: The management expects ~Rs900bn order inflow over FY27/28e (including ROH), which offers multi-year visibility. Outlook and Valuation: The management has guided for 10-12% revenue growth in FY27 and sees EBITDA margin at 30-31%. We continue to remain bullish on HAL based on its Rs2.54trn long-cycle OB. We expect near-term re-rating to be driven by Mk-1A deliveries, GE engine supply discipline. We retain BUY rating on HAL with a DCF-based TP of Rs5,431.

Key Risks: (a) Undue delay in engine supply; (b) execution slippages in Mk-1A; (c) WC intensity, and (d) deferral of large defence contracts.