Indian defence stocks have seen a significant uplift following the Defence Acquisition Council (DAC)'s approval of capital equipment procurement proposals valued at Rs 52,000 crore. This substantial investment is set to bolster the domestic defence industry, with several key players poised for considerable growth, according to leading financial analysts.
Strategic Procurement Drives Domestic Growth
The recent approvals underscore India's commitment to enhancing its defence capabilities and promoting indigenous manufacturing. The procurement focuses on critical areas including air defence systems like Akash Tarang, VSHORAD, and MRSAMs, along with advanced solutions against unmanned vehicles, precision strike capabilities such as Kamikaze drones, and superior aerial surveillance (HAPS).
Specifically, the DAC greenlit the acquisition of Anti-Unmanned Aerial Vehicle (UAV) Electronic Warfare Systems, Man Portable Anti-Tank Guided Missile (MPATGM) Systems, and MR-SAMs. These strategic procurements are expected to drive substantial order inflows for domestic defence contractors.
Brokerages Pinpoint Key Defence Players
Following the DAC's announcement, brokerages have updated their outlooks on the defence sector, identifying companies that stand to benefit most from the increased spending.
Motilal Oswal Financial Services (MOFSL) Outlook
MOFSL has highlighted Bharat Electronics Ltd (BEL) as its top pick in the defence sector. The brokerage maintains a 'Buy' rating on BEL, Hindustan Aeronautics Ltd (HAL), and Astra Microwave. It holds a 'Neutral' stance on Bharat Dynamics Ltd (BDL) and Zen Technologies. MOFSL has set target prices of Rs 510 for BEL and Rs 5,500 for HAL. For BDL, their target price is Rs 1,250, reflecting a 'Neutral' rating.
Antique Stock Broking's Projections
Antique Stock Broking identified BDL, BEL, and Solar Industries as primary beneficiaries of the new approvals. The firm reiterated its 'Buy' recommendations on a broad range of defence stocks, including Mazagon Dock Shipbuilders, HAL, BEL, BDL, Zen Technologies Ltd, Solar Industries, and PTC Industries.
Antique noted that BDL is particularly well-positioned to benefit from the MPATGM Systems acquisition, given its role as a primary manufacturer of Anti-Tank Guided Missiles. The company is also a lead integrator for MR-SAMs and is currently executing an existing MRSAM order worth Rs 2960 crore.
Antique's target prices for select defence stocks include: BEL at Rs 1,558, HAL at Rs 5,706, Mazagon Dock at Rs 3,275, and Solar Industries at Rs 18,633. The brokerage also sees PTC Industries at Rs 24,415 and Zen Tech at Rs 1,700.
Anticipated Order Inflows and Major Projects
The defence sector's growth trajectory is further supported by anticipated large-scale projects. BEL expects to secure a significant Rs 30,000 crore QRSAM (Quick Reaction Surface-to-Air Missile) order in the coming weeks. Subsequent orders related to QRSAM are expected to benefit BDL for missiles, Astra Microwave Products for TR modules and EW subsystems, and Apollo Microsystem for on-board computers and navigation systems.
Another substantial opportunity is the Rs 900 billion P75I submarine deal, which is in its final stages of negotiation, with the contract signing anticipated by September 2026. Mazagon Dock, in partnership with ThyssenKrupp, will construct these submarines. BEL is projected to cater to 50-60 percent of the electronics portion, which is estimated to account for 25-30 percent of the total project cost.
Additionally, price negotiations for next-generation corvette orders have concluded, and these projects are on the cusp of receiving final approvals, signaling further robust opportunities for domestic players. Analysts believe that with project approvals totaling Rs 12.5 lakh crore in FY24-26, defence companies are set for strong growth in the foreseeable future.