Why Defence Stock HAL Buzzing in Trade Today?

Shares of Hindustan Aeronautics Ltd. (HAL) soared to an intraday high of Rs 4,864 on Friday, drawing significant attention from market participants. The surge in HAL’s stock price comes in the wake of a key development in India’s defence sector, particularly after the recent signing of the Security of Supplies Agreement (SOSA) between the United States and India. This agreement, inked during Defence Minister Rajnath Singh’s visit to the US, has sparked optimism around HAL’s future prospects, especially concerning the timely delivery of critical defence equipment.

The Strategic Importance of SOSA

The SOSA is a significant bilateral agreement aimed at ensuring the timely supply of defence equipment and technologies between the two nations. For HAL, this agreement holds particular importance as it directly impacts the production and delivery of the Tejas Mark-1A fighter jets, which are powered by General Electric’s F404 engines. The engines are a crucial component for these jets, and any delay in their supply could have a cascading effect on HAL’s production timelines.

Delays in F404 Engine Deliveries: A Cause for Concern

Despite the promising outlook brought by SOSA, HAL has faced challenges due to delays in the supply of the F404 engines from General Electric (GE). These delays have been attributed to supply chain disruptions at GE Aerospace, which have hampered HAL’s ability to meet its delivery commitments. Initially, GE planned to deliver 16 jets annually starting from the financial year 2023. However, to date, none have been supplied, leading to significant setbacks in the production schedule.

HAL’s Assurance to the Indian Air Force

In response to the delays, HAL has assured the Indian Air Force (IAF) that it will deliver 16 LCA Mk1A jets in the financial year 2024-2025, with a total of 83 jets expected by the financial year 2029. The first batch was originally scheduled for delivery by March 31, 2024, but the timeline has been pushed to November 2024 due to the aforementioned delays. To mitigate these issues and ramp up production, HAL has established a new facility in Nashik. This facility is expected to increase manufacturing capacity from the current 16 jets per year to 24 jets per year.

As of now, HAL’s shares are trading 1% higher at Rs 4,815. Despite being down by 2.24% in August, the stock has delivered a robust 72% return in 2024. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.