Hindustan Aeronautics shares downgraded by Morgan Stanley with a 34% price target cut

Shares of Hindustan Aeronautics (HAL) Ltd. after a 6% fall on Wednesday, will be in focus on Thursday, February 5, after the stock has been downgraded by brokerage firm Morgan Stanley.

Morgan Stanley has downgraded Hindustan Aeronautics to "under-weight" from its earlier rating of "equal-weight" and also cut its price target by 34% to ₹3,355 from ₹5,092 earlier. The revised price target implies a further 20% downside potential compared to Wednesday's closing price for HAL.

The brokerage wrote in its note that HAL has outperformed the Nifty by 4% on a year-to-date basis, while its consensus price-to-earnings multiple is down 15% over the last 12 months.

Hindustan Aeronautics stock price has further downside risk, according to Morgan Stanley, given the increased competition from the private sector, and if slower execution persists due to the high import dependance, as multiple countries increase their defence spend.

As a result, Morgan Stanley has reduced its Earnings Per Share (EPS) estimates for financial year 2027 by 2% and for financial year 2028 by 5%.

Hindustan Aeronautics' shares fell 6% on Wednesday

after reports suggested that the company is no longer in the race to build India's fifth-generation stealth fighter jet or the Advanced Medium Combat Aircraft (AMCA). Wednesday's fall wiped out ₹18,000 crore in Hindustan Aeronautics' market capitalization.

25 analysts have coverage on HAL, of which 21 still have a "buy" rating, while two each have a "hold" and "sell" recommendation.

Shares of HAL ended 6% lower on Wednesday at ₹4,213.9. The stock has risen 11% in the last 12 months.