Synopsis: Shares of this defence company fell sharply after Morgan Stanley downgraded the stock and cut its target price by 34%. The downgrade was driven by rising private-sector competition, execution risks linked to import dependence, and weaker earnings visibility despite steady revenue growth.
The shares of this company, which is engaged in the business of manufacturing aircraft and helicopters and repairing and maintaining aircraft and helicopters, were in the news today following one of the world’s largest investment banks, Morgan Stanley, downgrading the company’s share target price.
With the market cap of Rs 2,68,827 crore, the shares of Hindustan Aeronautics Ltd have crashed about 6% and reached a low at Rs 3,952, compared to the previous day’s closing price at Rs 4,216.95.The shares are trading at a PE of 31.7 whereas the industry PE is at 63.
Morgan Stanley’s downgrade
Hindustan Aeronautics Ltd shares continued to tumble, falling 6% on Thursday, with a two-session loss of nearly 11% following the downgrade of the stock to underweight from equal weight by Morgan Stanley.
The stock tumbled after the sharp 34% reduction in the target price, which badly affected investor sentiment and raised concerns about near-term risks. Morgan Stanley reduced its target price to Rs 3,355 from Rs 5,092, a 34% reduction, which forecasts a further downside of about 20% from Wednesday’s closing levels. Considering the CMP of Rs 4,052 , the shares have a further downside of 17%.
Although Morgan Stanley accepted that HAL has outperformed the Nifty by 4% year-to-date, the broking firm pointed out that the stock’s consensus P/E multiple has fallen 15% over the past year, which showed that, despite the recent correction, the stock has lost support in terms of valuation.
The investment bank identified growing competition from private defence companies and execution risks due to high import dependence as major factors contributing to the downside risks, especially with the acceleration of global defence spending. In view of these considerations, Morgan Stanley reduced its EPS estimates by 2% for FY27 and 5% for FY28, which showed the broking firm’s expectations of lower earnings growth due to execution risks.
HAL, however, tried to reassure the investors by reiterating that it is on track to meet its full-year guidance. The company also said that five LCA Mk1A aircraft are fully ready for delivery and that it is having active discussions with the Indian Air Force to expedite the delivery of the aircraft, while also saying that the supply of GE engines is improving. Market sentiment is still weak after reports emerged that HAL may be out of the AMCA programme, which resulted in the loss of almost Rs 18,000 crore of market capitalisation in the previous session.
Financials
The revenue from operations for the company stood at Rs 6,629 crores in Q2 FY26 compared to Q2 FY25 revenue of Rs 5,976 crores, up by about 11 per cent YoY. Similarly, the net profit stood at Rs 1,669 crore in Q2 FY26, up compared to the Rs 1,510 crore profit in Q2 FY25.
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