Hindustan Aeronautics Limited (HAL) shares fell around 7% intra-day on Monday on the National Stock Exchange after the light combat aircraft TEJAS MK-1 crashed during a demonstration at the Dubai Air Show on Friday.

The unfortunate incident has raised immediate investor concerns over potential reputational risks and export delays, though analysts believe the company’s core production and delivery schedule remain unaffected.

Limited Operational Impact

According to analysts at Elara Capital, the crash took place during a display and not in a mission scenario, which reduces the likelihood of a fleet-wide grounding. This stands in contrast to the previous grounding of HAL’s Advanced Light Helicopter (ALH) DHRUV following repeated operational incidents.

The firm’s TEJAS MK-1 delivery schedule, therefore, is expected to proceed as planned under its February 2021 contract with the Indian Air Force for 180 aircraft valued at about ₹1.1 lakh crore.

Order Book Strength

The TEJAS order constitutes more than 40% of HAL’s total order book, which stood at ₹2.7 lakh crore at the end of the September quarter of FY26. The company recently commissioned a third TEJAS assembly line at Nashik, raising its annual production capacity to 24 aircraft. However, even at this rate, it is expected to take nearly eight years to fulfil the ongoing contract.

Initial delays in TEJAS delivery were attributed to the late supply of F404 engines from General Electric Co., but with engine deliveries resuming in April 2025, production momentum is expected to rebuild. HAL aims to deliver up to six aircraft in FY26, with plans to accelerate output from FY27.

Export And Structural Challenges

While domestic schedules remain intact, Elara Capital warns that the Dubai incident might delay potential export deals. HAL has been exploring opportunities with several friendly nations, positioning TEJAS as a cost-effective, reliable fourth-generation platform. However, international sales are sensitive to perception, certification timelines and comparative reliability vis-à-vis competitors.

Adding to operational pressures, HAL faces supply chain disruptions and integration bottlenecks across its broader portfolio. Deliveries of its light utility helicopters are lagging due to software integration challenges. Reports also suggest that the Government of India is considering restructuring the company — possibly carving out separate divisions for helicopters and combat aircraft — to improve efficiency and execution quality.

Growth Momentum And Financials

Despite these challenges, HAL’s performance in the first half of FY26 showed encouraging signs. Revenue rose 11% year-on-year to ₹11,500 crore, outpacing management’s guidance of 8%–10%. However, higher raw material costs moderated growth in earnings before interest, taxes, depreciation, and amortisation (EBITDA), which increased only 8% to ₹2,800 crore over the same period.

HAL’s shares have gained around 7% so far in 2025 and trade at roughly 33 times the forecast FY26 earnings, based on Bloomberg consensus data. The company’s stock is largely being valued on delivery consistency and execution discipline, which are critical to its medium-term credibility and profit trajectory.

Broader Defence Opportunity

India’s active fighter fleet currently stands at 29 squadrons, well below the sanctioned level of 42. The Indian Air Force’s continued shortfall in combat assets underlines the strategic importance of HAL’s TEJAS program. The upcoming TEJAS MK-1A and future MK-2 variants are seen as critical to filling this gap and reinforcing indigenous self-reliance in defence production.

A recent report from JPMorgan India projected annual order inflows of around ₹65,000 crore for HAL during FY26–FY28, pointing to a total addressable opportunity exceeding ₹2.5 lakh crore.

The company’s diversification into civilian aircraft manufacturing, including its memorandum of understanding with Russia’s PSJC-UAC for producing the SJ-100 narrow-body jet, broadens its long-term growth scope beyond the defence sector.

Outlook

While the TEJAS crash may dent sentiment in the short term, the fundamental drivers of HAL’s growth story remain secure. The government’s strategic emphasis on fleet modernisation and indigenous capability enhancement continues to favour HAL’s order pipeline.

The key variable in the near term will be the court of inquiry’s technical findings into the crash, which investors will watch closely for any signs of systemic or design-related issues.

HAL’s challenge is not demand but delivery. Its success will depend on turning its enormous order book into timely and reliable production — balancing ambition with flawless execution — to maintain investor confidence and India’s military readiness.

IDN (With Agency Inputs)