HAL Shares Extend Losses to 20% from Record High, but Still Trade Above Historical Valuations

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HAL Shares Extend Losses to 20% from Record High, but Still Trade Above Historical Valuations

Shares of Hindustan Aeronautics Ltd. (HAL) continued to decline, with a notable 2.5% drop on Monday, marking the fifth consecutive day of losses. At its lowest point on Monday, the stock was down over 4%, mirroring the negative sentiment in global markets.

August 5th, 2024 News

Shares of Hindustan Aeronautics Ltd. (HAL) continued to decline, with a notable 2.5% drop on Monday, marking the fifth consecutive day of losses. At its lowest point on Monday, the stock was down over 4%, mirroring the negative sentiment in global markets.

Key Highlights:

Recent Decline: HAL shares have dropped 20% from their recent peak of ₹5,678, achieved on July 5, 2024.
Technical Analysis: The stock has slipped below its 50-Day Moving Average of ₹5,100 and is approaching its 100-Day Moving Average at ₹4,419. On Monday, the stock made an intraday low at ₹4,480.
RSI Indicator: The Relative Strength Index (RSI) is nearing oversold territory with a current reading of 33. An RSI below 30 indicates the stock is oversold.

Market Concerns:

The decline in HAL’s share price has coincided with a report from the Hindustan Times last Thursday, highlighting potential delays in the delivery timeline for the new Tejas Light Combat Aircraft. According to senior Indian Air Force officials, the first aircraft, expected by March 31, 2024, has yet to be delivered.

Financial Impact:

Over the last five trading sessions, HAL's market capitalization has diminished by over ₹30,000 crore. Despite this correction, HAL shares continue to trade above their historical valuations:

FY2026 Price-to-Earnings (P/E) Multiple: 33.6 times
FY2025 Price-to-Earnings (P/E) Multiple: 41.6 times
Five-Year Average P/E Multiple: 23 times

Analyst Sentiments:

HAL will announce its June quarter results on August 14. Among the 16 analysts covering the stock:

Buy Recommendations: 13 analysts
Hold Recommendations: 1 analyst
Sell Recommendations: 2 analysts

Nirmal Bang, in its note dated July 19, commented on the high valuations driven by strong order books in the defense sector. "We believe that the exuberance around the Defense sector has been built solely around strong order books for assigning high valuations. Therefore, the conventional financial metrics do not fully capture the industry's true value, particularly cyclicality, profitability, and efficiency," the note stated.

Conclusion:

Despite recent losses, HAL shares are trading 2.4% lower at ₹4,581 on Monday, yet remain 62% higher for the year 2024. This continued valuation above historical levels reflects both the market's confidence in the company's long-term potential and ongoing investor interest in the defense sector.