Why HAL Share Price is Falling

Imagine a car lover driving her favourite car at a swift speed on a wide road filled with scenic beauty. She is quite literally living her dream.

But what could shatter her dream at that very moment? The answer is quite simple. Speed bumps! Nothing could annoy a good driver other than the speed bumps.

Well, car drivers aren't the only ones annoyed at speed bumps. Currently, Hindustan Aeronautics (HAL) investors are going through this same feeling.

HAL has remained under investors' radar ever since the Indian government showed its commitment towards the defence sector.

A prime beneficiary of government's emphasis on self-reliance in the defence sector, HAL is currently leading some of the most strategic projects in the aerospace and defence sector in India.

Owing to strong order book, and growing revenues HAL share price rallied in the past two years.

However, the rally seems to have hit a roadblock as HAL shares fell more than 5% yesterday. Let's find out why.

#1 OFS by the government of India

On 22 March 2023, the government of India announced that it is planning to sell a 3.5% stake from the aerospace and defence company via an offer for sale (OFS).

The OFS was announced to comply with the market regulator's listing obligation guidelines regarding minimum public shareholding in the company.

The offer price was fixed at Rs 2,450 per share, which is a 5% discount compared to Wednesday's closing price. After the announcement, the share price took a dip on the bourses.

The government has proposed to sell 1.75% of its equity shares on 23 and 24 March and additional 1.75% stake in the event the oversubscription option is exercised.

The offer opened for subscription yesterday. Market investors lapped at the offer as it was oversubscribed by 4.5 times on the first day of the offer itself.

This is not the first time the government sold stake in HAL. In 2020, government sold 15% stake in the company as a part of its divestment programme.

#2 Profit booking

Profit booking is a tendency of the stock market. In multiple cases, you would see a stock come down after rallying sharply.

Take the case of Varun Beverages. Shares of Varun Beverages rose over 120% in 2022, touching their 52-week high in December 2022. The stock outperformed the Nifty FMCG index, which gained 14% in 2022.

But the stock came under pressure in January 2023 for a short span of time. In January 2023, Varun Beverages fell by 14% despite strong growth prospects.

This is an effect of profit booking. Investors who think the stock has run its course and will likely stay in a range for the time being exit the stock.

It appears something similar has happened to HAL. After rallying non-stop, some investors might have opted to book profits.

Why the fall looks like a temporary blip...

HAL is one of the biggest beneficiaries of the defence sector boom in India. Recently, the Defence Acquisition Council (DAC) gave accord to Acceptance of Necessity to projects worth Rs 705 bn.

Out of the total outlay of Rs 705 bn, the largest proposal approved was for 60 utility helicopters-marine being constructed by HAL, costing Rs 320 bn.

Before this order, the cabinet approved the acquisition of 70 HTT-40 basic trainer aircraft from HAL for Rs 68.3 bn.

The Atmanirbhar Bharat vision for the Indian defence sector may bring in more orders for the company which may ultimately boost the business of the company. The company may also benefit from the UDAN scheme, the central government aims to set up 1,000 new air routes and establish 100 new airports.

HAL is starting to live up to its vision of being a global aerospace company as it looks forward to exporting aircraft to countries like Nepal.

About HAL

Hindustan Aeronautics is an Indian public-sector aerospace and defence company, headquartered in Bangalore. Established on 23 December 1940, HAL is one of the oldest and largest aerospace and defence manufacturers in the world

HAL is managed by a board of directors appointed by the President of India through the ministry of defence, the government of India. HAL is currently involved in designing and manufacturing fighter jets, helicopters, jet engines and marine gas turbine engines, avionics, software development, spares supply, overhauling and upgrading of Indian military aircraft.

For more details about the company, you can have a look at HAL's factsheet and quarterly results.

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