Diwali 2025 – HAL gaining from indigenous defense production initiative, but quality issues remain a challenge

HAL’s (Hindustan Aeronautics Ltd) stock has been on quite a roll this year. Year-to-date in 2025, as on 17^th October, 2025, the stock has gained 18.65%. In the same period, Nifty 50 has gained 8.45%. So the stock has outperformed the Nifty 50 index by more than 10% this year. In the past 5 years, HAL shares have gained 1,231%. In this period Nifty 50 index has gained 118%. So HAL’s stock has outperformed the Nifty 50 index by a whopping 1,113% in this period.  Nifty Defense Index has gained 59.76% in the past 5 years. So HAL’s stock has outperformed its benchmark index too by around 1171% in the past 5 years.

Much of the gains in HAL’s share price have come in the last 2 years

Much of the gains seen in the stock price of HAL in the past 5 years have come since the start of 2023. This was when the central government emphasized on indigenous defense production. The main products that HAL manufactures are Tejas fighter jets, ALH Dhruv helicopters, trainer aircrafts etc. HAL also manufactures the Su-30 MKI under license from Russian fighter plane manufacturer, Sukhoi. The current focus of the Indian government on Make in India when signing defense deals with foreign companies, may mean that more such manufacturing under license will come to HAL.

HAL got a new order of Rs 62,000 crore last month

Last month, HAL got a new order of Rs 62,000 crore from Ministry of Defense for supply of 97 Light combat MK1A Tejas jets. The company has opened its third manufacturing facility for Tejas at Nasik. With the opening of this plant, the production capacity of HAL for MK1 A Tejas will increase from 16 to 24, annually.

Challenges before HAL

One challenge that remains before HAL is the ability to supply its orders in a timely manner. In the past, it saw some delays in supplying to Indian Air Force. Another challenge is with regard to quality. The whole emphasis of the Indian government on indigenous defense production will work in the medium and long term only if Indian manufacturers are able to match in terms of quality, their foreign competitors. Indian armed forces are the main customers of HAL and other Indian defense companies. If they are not satisfied with the quality of products supplied by HAL, then the indigenous defense manufacturing initiative cannot be sustained.

HAL faced many quality issues in the past. It needs to implement better quality controls. It needs to adopt the best practices in defense manufacturing that many of its foreign competitors follow. Only then it will be able to get more export orders too. The company got a Rs 194 crore export order from the defense forces of Guyana last year.

If HAL is able to solve quality and scheduling issues related to production, then it may get a comparative advantage against foreign manufacturers, in the export market. This comparative advantage will come from the lower cost of labor in India when compared to other countries that specialize in defense production.

HAL stock currently trading at a P/E ratio of around 39

At 11:30 a.m. today, 17^th October, HAL’s stock price is up by 1.79%, trading at Rs 4,948.30. 52-week high price of the stock currently is Rs 5,165. 52-week low price of the stock is Rs 3,046.05. The stock is currently trading at a P/E ratio of around 39. It is not cheap. But if the company is able to deliver on quality on a consistent basis, then HAL’s stock may give some stellar returns in the medium term.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest.

Source: NSE, HAL