Hindustan Aeronautics Limited (HAL) is India’s largest defence stock by market cap. Since its 2018 IPO, the stock has gained more than 10x, with most of the rally occurring in 2023 and 2024. Today, HAL trades at a 37x price-to-earnings (P/E) ratio, lower than most defence and aerospace peers but far above its own 5-year median of 17x. This is despite FY25 EPS growth slowing to 10% from 31% in FY24. It is because HAL has no competitive peer in India.

HAL’s EPS and Sales Growth from FY19 to FY25 Source: Screener.in

Another lens to view the rally is its order book, which doubled in FY25 to Rs 1.89 lakh crore even as revenue growth plateaued at just 2%.

This raises important questions: Why is the stock rallying while sales and earnings lag? How should valuation multiples be interpreted?

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