Defence stocks rally up 19% after Indian Army proposal; brokerages see more upside

In keeping with its commitment to fight future wars with Indigenous Solutions, Indian Army invites Indian Defence Industry to offer critical defence equipment for Emergency Procurement, it said in a tweet.

ADG-PI Indian Army shared links for getting details on Requests for Proposals (RFPs) which are being fielded for guns, missiles, drones, counter-drone, loiter munition, communication and optical systems, specialist vehicles and more.

The process will be based on compressed timelines, wherein the procurement window will be open to the Indian industry for six months and the industry would be expected to deliver equipment within one year of signing the contract, it said.

Punit Patni, Equity Research Analyst,

, said the defence sector is poised to perform well on the back of strong ordering activity, the government’s thrust on indigenous manufacturing and export potential.
The strong balance sheets and reasonable valuations are cherries on the cake, he added.

Following the development, defence sector stocks were flying high, with the number of stocks rising to their 52-week highs.

Smallcap defence firm

zoomed about 19 per cent to Rs 178.75. (Midhani) soared more than 8 per cent to hit a new 52-week high of Rs 233.15, whereas Data Patterns (India) gained 7 per cent to Rs 1,266.35, its new record peak.

PSU major Bharat Dynamics (BDL) and smallcap defence player Rosell India gained 6 per cent each during the early trading hours, before giving up some gains.

and advanced 4 per cent each, while Garden Reach Shipbuilders & Engineers was 3 per cent up.

Other state-owned defence sector firms, including Bharat Electronics (

) and () were trading about 2 per cent higher.

Antique Broking has pegged Hindustan Aeronautics (HAL) target at Rs 3,140 and has a buy rating, while brokerage

has a buy rating on with a target price of Rs 1,770.

Patni is positive on the sector. His top picks are Bharat Electronics, Hindustan Aeronautics and Bharat Dynamics.

values HAL, BEL and BDL at 16-24x P/E on FY24E earnings, considering the strong visibility on orders execution and, thus, earnings growth over the next two years. “The healthy pipeline of orders gives us more comfort in terms of long-term earnings growth of these companies.”

The balance sheet of these defence companies looks better with zero debt and working capital support from the Ministry of Defence, added the brokerage firm.

“Cochin Shipyard is also well placed to benefit from India Navy’s plan of warship procurement. Data Patterns is also expected to see significant earnings growth over FY22-24E led by strong execution and increase in order inflows,” it added.

The local creation of these line replacement units (LRUs), subsystems, and components will boost the economy and lessen DPSU

on imports, said Mohit Nigam, Head – PMS, Hem Securities.

“It will support the local defence industry’s design capabilities and establish India as a design leader in these technologies. This action will further reduce the imports of defence,” he added.

Nigam remains positive on BDL, BEL, HAL, Mazagon Dockyard, Data Patterns, MTAR Technologies, Paras Defence, Garden Reach Shipbuilders & Engineers in the coming months.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)