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With policy ammunition, defence stocks set to fire

April 10, 2023 09:15 IST

A spate of recent orders under the Indigenously Designed Developed and Manufactured (IDDM) category have led to investor focus on defence stocks.


Photograph: ANI Photo

Actually, the defence index has been an outperformer for a long while with public sector undertakings (PSUs) like Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Bharat Dynamics (BDL), Garden Reach Shipbuilders Engineers (GRSE), Cochin Shipyard and Goa Shipyard being beneficiaries of the policy.

One of the primary gainers from this set of orders is likely to be BEL with direct orders of Rs 11,830 crore.

That will be followed by consequential benefits from Akash 3rd and 4th regiments and Next Generation Offshore Patrol Vessels (NGOPV) for Goa Shipyard and GRSE.


BEL was set to record Rs 20,000 crore of order inflows for the 2022-23 financial year (FY23).

The award of Akash 3rd and 4th regiment orders was a key factor in driving market expectations for BDL.

In the case of shipyards, the award of NGOPV benefits both GRSE and Goa Shipyard — and also Mazagaon (MDL) — since that is the holding company for Goa. Delivery is expected from September, 2026.

The defence ministry has placed orders worth Rs 44,240 crore.

The Akash 3rd and 4th regiment orders worth Rs 8,160 crore go to BDL with a current indigenous content of 82 per cent. which will be enhanced to 93 per cent by FY27.

The award of orders worth Rs 9,780 crore to GRSE and Goa Shipyard will be fulfilled until FY26 and beyond.

The award of NGPOV and Next Generation Missile Vessels (NGMV) contracts will require 11 million man-days over seven and half years and 4.5 million man-days over nine years, respectively.

BEL has a cumulative award of Rs 11,830 crore of orders in the past week, with additional opportunities from Akash 3rd and 4th regiments, which are estimated at Rs 3,000to Rs 4,000 crore.

Defence order and delivery is always lumpy but this will ensure that BEL has a revenue growth of 15 per cent, annually, over the next few years.

For BDL, a key worry in the delay of Akash Weapon System orders has been addressed.

BDL could see the order book double from the current level of Rs 11,700 crore and there’s visibility for revenue guidance of Rs 3,800 crore.

Meanwhile HAL announced it had registered highest-ever revenue from operations of around Rs 26,500 crore (provisional and unaudited) for FY23 against Rs 24,620 in FY22.

The order book stood at around Rs 82,000 crore.

Cash flows have improved according to the management with over Rs 25,000 crore received so far in FY23.

The HAL share jumped on the news that it has bagged an order worth Rs 6,800 crore to manufacture 70 HTT-40 basic trainer aircraft.

The Nifty India Defence Index was launched last year with a base date of April 02, 2018 and 12 companies.

The index is up 48.5 per cent in the last 12 months.

The performers included GRSE up 100 per cent, HAL up 83 per cent, BDL up 80 per cent, Cochin up 61 per cent, BEL up 39 per cent, Data Patterns up 95.7 per cent and MDL up by a whopping 176 per cent.

Discounted cashflow analysis for BDL results in a price target of Rs 1,175 and, similarly, the target for BEL is Rs 125.

Assuming the IDDM category policy remains consistent, the defence and aerospace space could continue to yield strong returns

Devangshu Datta
Source: source image