HAL shares plunge 6%, 2-day fall at 12%; here’s why, target prices for PSU defence stock

Hindustan Aeronautics Ltd (HAL) plunged 6 per cent in Thursday's trade, taking its two-day fall to 12 per cent, as Morgan Stanley reportedly downgraded the stock to underweight. The stock has been in news amid reports the defence PSU has been excluded from the development of Advanced Medium Combat Aircraft (AMCA) program the fifth-generation stealth fighter aircraft, as it did not meet the mandatory criteria. Although the AMCA program's success would have helped HAL to further beef up its already robust order book, there are multiple similar size programs that will ensure strong growth prevails for the company in the long term, Antique Stock Broking said today.

On Thursday, the stock fell 6.28 per cent to hit a low of Rs 3,952. The scrip had fallen 5.7 per cent in the previous session. Morgan Stanley has reportedly cut its target price to Rs 3,355 on the stock.

Antique Stock Broking kept its 'Buy' rating intact on the stock. "While there can be near term overhang on the stock due to AMCA related uncertainty, given HAL structural growth story is in place we retain Buy rating on the stock with a target price of Rs 5,841, valuing it at 35x its FY28E EPS," it said.

Antique said large ticket opportunities such as Tejas MKII, SU-30 upgrades, SU-57, IMRH, LUH will ensure consistent long term business opportunities for the company.

HAL, it said, also plans to diversify by focusing on the civil aerospace business which it intends to scale up to 25 per cent of revenue over the next decade. 

"Additionally, in the near term a pick up in the delivery of Tejas MK-IA should support earnings growth. While there can be near term overhang on the stock due to AMCA related uncertainty, we continue to maintain our positive stance on the company with a revised target price of Rs 5,841," it said.

Meanwhile, HAL said it will meet the  LCA MK1A delivery guidance projected for the ongoing financial year. 

"HAL confirms that five aircraft are fully ready for delivery, incorporating major contracted capabilities in accordance with the agreed specifications. An additional nine aircraft have already been built and flown. Upon receipt of engines from GE, these aircraft will be made ready for delivery," it said.  

HAL said all design and development issues identified are being addressed in an expedited manner. HAL is in active discussions with the Indian Air Force to deliver the aircraft at the earliest. 

The defence PSU said it has received five engines from GE as on date. The supply position from GE is positive, and the future delivery outlook aligns with HAL's delivery plans, it said.