Shares of Hindustan Aeronautics Limited (HAL) maintained their stability on August 23rd despite ongoing concerns about delays in the delivery of crucial F-404 engines from General Electric, which are essential for HAL's Tejas Mark-1A fighter jet program. The steady performance comes as India's Defence Minister, Rajnath Singh, visits the United States to bolster defence cooperation, with hopes that issues surrounding the engine deliveries may be resolved.
The delays in engine deliveries, reportedly due to supply chain disruptions at GE Aerospace, have pushed back the initial delivery of 16 LCA Mk1A jets to the Indian Air Force from March 2024 to November. This setback has also impacted HAL's stock price, raising concerns about the company's ability to meet its production targets. HAL has committed to delivering a total of 83 Tejas Mark-1A jets by 2029.
To address the increasing demand, HAL has established a new facility in Nashik to expand its production capacity from 16 to 24 jets annually. However, pending approvals for the engine deliveries have further complicated the LCA Mk1A timeline, with brokerage firm Nomura lowering its GE engine delivery estimate for FY25 from 14 jets to 10.
Despite these challenges, HAL shares were trading over 1.3 percent higher at Rs 4,827.55 on the National Stock Exchange (NSE) at 1:23 pm. The stock has shown impressive performance this year, rallying 70 percent and outpacing the benchmark Nifty's returns of around 14 percent. Over the past 12 months, HAL shares have surged 139 percent, more than doubling investors' capital, significantly outperforming the Nifty's 27 percent return during the same period.
The signing of the Security of Supply Arrangement (SOSA) between the US and India during Defence Minister Rajnath Singh's visit has fueled optimism about HAL's prospects, especially regarding the timely delivery of critical defence equipment. The SOSA aims to ensure the smooth and timely supply of defence equipment and technologies between the two nations, which could be crucial in resolving the engine delivery issues and enabling HAL to meet its production targets.
While challenges remain, the steady performance of HAL shares amid engine delays and the positive developments surrounding the US-India defence pact indicate a degree of confidence in the company's ability to navigate these hurdles and deliver on its commitments.
