Defence Stocks Analyzed: Impact of LCA Tejas Crash

Key Points

• LCA Tejas crash impacted defence stocks, specifically HAL.
• Stock prices fell, with a 4% drop in HAL’s value.
• Analysts remain optimistic about HAL’s long-term prospects.
• Major defence orders remain unaffected by the incident.
• Domestic delivery ramp-up is the near-term focus.
• Exports may face temporary delays, but overall outlook positive.

Defence stocks experienced a downturn on Monday, November 21st, following a mishap involving a Light Combat Aircraft (LCA) Tejas Mk 1 during a demonstration at the Dubai Air Show. Shares of companies in the defence sector, including Hindustan Aeronautics (HAL), saw a decrease in value.

The crash, attributed to a Negative-G manoeuvre during a test flight, triggered a 4% drop in HAL’s stock price to ₹4,405. This adds to a previous four-day decline of 8% in the company’s market price.

Other defence stocks like Mishra Dhatu Nigam (MIDHANI), BEML, Astra Micro Systems, and Dynamatic Technologies also experienced a decline in their stock prices, ranging from 3% to 4%. The NSE India Defence index fell by 2%, while the Nifty 50 rose by only 0.08%.

Despite this short-term setback, analysts at Elara Capital have retained a ‘BUY’ rating on HAL with a target price of ₹5,680. They believe the crash won’t significantly impact HAL’s existing orderbook or future execution. India’s significant defence pipeline, valued at ₹3 trillion, remains a key factor supporting HAL’s growth.

The analysts emphasized that the crash occurred during a demonstration at an airshow, unlike operational missions, mitigating the risk of grounding the aircraft. While exports might experience a temporary delay, the ongoing production ramp-up for the Tejas Mk1A remains the primary focus.

Furthermore, the analysts highlighted the large existing orderbook for the Tejas Mk1A (83 + 97 orders) and expected delivery schedule, indicating continued stability. “We do not think Tejas Mk 1 aircraft will be grounded as the incident did not occur in mission mode and instead took place at an airshow (unlike the grounding of HAL’s ALH helicopter due to frequent crashes in missions).”

Ultimately, while a setback, the long-term outlook for India’s defence industry, particularly HAL, remains strong.