HAL share price cracks 12% in two sessions; time to buy the PSU defence stock?

Hindustan Aeronautics (HAL) share price declined over 6% in early trade on Thursday, extending the slump to the second session, on reports that the state-owned defence company was not shortlisted to develop and manufacture next-generation fighter jets. The PSU defence stock declined as much as 6.28% to ₹3,952.00 apiece on the BSE. HAL share price has fallen more than 11% in two sessions.

According to a report by Hindustan Times, HAL has been eliminated from the race to develop India’s fifth-generation stealth fighter jet under the Advanced Multirole Combat Aircraft (AMCA) programme.

Analysts believe the development to be negative for Hindustan Aeronautics Ltd, but was largely expected given the company’s large order book and a delay in delivery of the LCA Mk1A (Light Combat Aircraft Mark 1A), an advanced, multi-role fighter variant of India’s indigenous Tejas fighter jet.

Rating Downgrade

Brokerage firm Morgan Stanley has downgraded HAL shares to Underweight from Equalweight and cut HAL share price target to ₹3,355 apiece from ₹5,092 earlier, implying a downside of over 20% from Wednesday’s closing price.

Morgan Stanley sees downside risk to HAL stock price given increased private sector competition and if slower execution persists due to high import dependence as multiple countries look to increase defence spend.

It lowered EPS estimates by 2% and 5% for F27 and F28. The brokerage firm noted that HAL shares have outperformed Nifty 50 on a year-to-date (YTD) basis and consensus P/E is down 15% in the past year.

Krishna Doshi, Defence Analyst at Ashika Institutional Research said that there can be a downside risk from here considering the increase in competition from the private players.

“Further, this comes at a time when the company has been slow paced at executing its current orderbook, specifically Tejas Mk1A amidst dependence on imports for key components and systems. However, HAL currently has an extremely strong orderbook and large ticket opportunities lined up for them,” Doshi said.

Ashika Institutional Research has a ‘Neutral’ rating on HAL shares.

Opportunity for large orders

JPMorgan said that HAL getting out of the race to develop the fifth-generation stealth fighter jet was a negative development for the defence PSU, but was largely expected.

This is given the need for a fast-track development of AMCA, it said, highlighting HAL’s already large order book (7x revenue) and a delay in delivery of the LCA Mk1A. JPMorgan believes HAL has an ample opportunity to win large orders, excluding the AMCA

After the price correction, it believes HAL stock price valuations look attractive. JPMorgan has recommended ‘Overweight’ rating on HAL shares with a target price of ₹6,004 apiece.

According to Antique Stock Broking, 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.

“Large-ticket opportunities are lined up (Tejas MKII, SU-30 upgrades, SU-57, IMRH, LUH) that will ensure consistent long term business opportunities for the company. HAL also plans to diversify by focusing on the civil aerospace business which it intends to scale up to 25% 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,” Antique Stock Broking said.

While there can be near term overhang on the HAL stock due to AMCA related uncertainty, the brokerage firm continues to maintain its positive stance on the company given its structural growth story is in place.

Antique Stock Broking has a ‘Buy’ call on the stock, with HAL share price target of ₹5,841 apiece, valuing it at 35x its FY28E EPS.

Technical View

HAL share price has decisively broken below the critical base near ₹4,133 with a bearish gap-down, confirming a resumption of selling pressure across timeframes, noted Anshul Jain, Head of Research at Lakshmishree Investments.

“The breakdown has damaged the prior consolidation structure, with price now trading below key short-term moving averages, signaling trend weakness. Volume expansion on the breakdown adds conviction, suggesting institutional distribution rather than panic selling. The immediate downside support comes in near ₹3,807, a short-term demand zone, but any weak bounce into broken supports is likely to attract fresh supply. If selling momentum persists, the structure opens room toward the deeper support band around ₹3,350,” said Jain.

According to him, the risk–reward remains skewed to the downside unless the stock quickly reclaims ₹4,133 level, which now acts as a clear invalidation and resistance level.

HAL share price has fallen over 12% in one month, and has declined more than 15% in the past three months. The PSU defence stock has dropped 13% in six months, but has gained over 35% in two years. HAL share price has delivered multibagger returns of 682% in five years.

At 10:25 AM, HAL share price was trading 5.97% lower at ₹3,965.00 apiece on the BSE.

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