Hindustan Aeronautics Limited (HAL) shares experienced a fourth consecutive decline on Friday, August 2, closing 2.5% lower at ₹4,693.15 on the NSE. This drop is largely attributed to General Electric's (GE) significant reduction in engine deliveries, with only two F404-IN20 engines expected in September instead of the projected 16. This shortfall impacts the production timeline of the Tejas fighter and has broader implications for HAL's performance.
HAL's stock has fallen 6.69% since July 29, reflecting a wider trend in the defence sector. Other prominent players like BEML and Bharat Dynamics have also seen declines in recent weeks, with many stocks trading considerably below their 52-week highs.
Market analyst Ambareesh Baliga highlights that while the market has been optimistic about defence stocks due to the government's "Make in India" focus, concerns are growing regarding execution risks. He points out that companies like L&T and BHEL have faced execution challenges in the past, and the defence sector is not immune to similar issues.
Baliga emphasizes that the market is now taking a reality check, considering factors like production capacity constraints, skilled labor shortages, and the ability to manage rapid growth. He suggests that the market's reliance on projections and order books may have overlooked these potential pitfalls.
The situation raises questions about the sustainability of growth in the defence sector, especially with order books already full for many years. The sector faces challenges in expanding production levels to meet future demand due to limitations in skills and manpower.
