Analysts at Choice Broking expect the defense sector to witness health spending over the next 5-6 years, acquisition of new platforms and modernization of existing platforms, which will lead to increased spending in the coming years.
In the next quarter Indian Defense market will continue to grow due to execution and delivery of projects like LCA Mk1A, LCH, LUH and HTT-40, Naval fleets, updated Bombs and Missiles, and modernization of platforms will drive the demand for the. near future, according to Choice Broking.
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“We are optimistic about the growth story of Defense manufacturing companies driven by the Government of India’s push for localization. We expect defense companies under our coverage to continue to benefit from the trend of platform acquisitions and technology upgrades,” the brokerage said in a report.
Its top picks in the defense space are Hindustan Aeronautics, Bharat Dynamics and Astra Microwave Products.
Hindustan Aeronautics | Surpass | TP: ₹2,427
Choice Broking has a positive outlook on Hindustan Aeronautics (HAL) as the company faces limited competition from the private sector due to the high capital intensity and long gestation periods for developing manufacturing capabilities in the sector.
This is supported by strategic diversification into the civilian sector; some large ticket future orders with new orders anticipated for LUH, LCH, Su 30 and HIT 40 in the near to medium term; strategically positioned itself as the only supplier domestically; cooperation with foreign giants like- Safran, Airbus and the company’s huge order book, would support the company’s growth history.
The brokerage has an ‘Outperform’ rating on the stock with a target price of ₹2,427 per share, valuing it at 22x of FY26E EPS.
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Bharat Dynamics | Surpass | TP: ₹1 346
Bharat Dynamics has evolved as the Premier Organization of the Government of India, with its more than five decades of missile and countermeasures systems in defense equipment manufacturing experience. Under its diversification programme, Bharat Dynamics is set to enter into the manufacturing of a wide range of weapons/systems in defensive and offensive platforms.
“We have a positive outlook on Bharat Dynamics as it addresses the strategic needs of the MoD, Indian defense forces, supported by- 1) Sole supplier of offensive as well as defense systems domestically, 2) Next big ticket project is in the pipeline it started to materialize from H2FY24 onwards, 3) Huge exportability, negotiations are off with 4-5 friendly countries, 4) Diversified product portfolio across armed forces, 5) The company’s huge order book, which stood at ₹200 billion as on September 2023 8.2x of FY23 revenue will support the company’s growth story,” said Choice Broking.
Currently, it has an ‘Outperform’ rating on the stock with a target price of ₹1,346 per share, valuing it at 32x FY26E EPS.
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Astra Microwave Products | Surpass | TP: ₹651
The brokerage firm is positive about the growth history of Astra Microwave Products due to its position as a long-term supplier of various equipment and systems, continuous innovation in various products.
“We have a positive outlook on Astra Microwave Products, supported by 1) Huge addressable market, 2) Military modernization across all segments, 3) Diversified business model, 4) The company’s healthy order book would support the company’s growth story,” said the broker
It maintained an ‘Outperform’ rating on the shares with a TP of ₹651 valuing it at 35x of FY26E EPS. It increased the multiple given the expectation of a new order in next quarters as a radar for Tejas MK-1A, Sukhoi 30MKI upgrade program.
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Updated: 21 Nov 2023, 12:22 pm IST