Systematix Institutional Equities has initiated coverage on two prominent Indian defence sector companies, Astra Microwave Products Ltd and Data Patterns (India) Ltd, with 'Buy' ratings. The brokerage firm anticipates significant upside potential, projecting up to 74% for Astra Microwave and 39% for Data Patterns, driven by increased defence spending and a strong push for domestic manufacturing.
The ratings come amidst a period of escalating global conflicts and a heightened focus on defence preparedness worldwide. Domestically, India's defence budget is expected to see double-digit growth, with private sector players poised to outpace overall industry expansion due to the government's emphasis on indigenization and a growing role in defence exports.
Key Drivers for Defence Sector Growth
India's defence production has experienced substantial growth, increasing 3.4 times from Rs 53,000 crore in FY16 to Rs 1.78 lakh crore in FY26. This acceleration, particularly notable post-FY21, is attributed to several policy initiatives:
- Defence Acquisition Procedure 2020: Streamlining procurement processes.
- Positive Indigenisation Lists: Mandating domestic sourcing for specific defence items.
- 75% Domestic Procurement Mandate: Ensuring a significant portion of defence capital acquisition is from Indian sources.
The private sector's contribution to defence production has also surged, growing at a 12% compound annual rate from Rs 14,100 crore in FY17 to approximately Rs 42,000 crore in FY26. Its share in total production rose from 19-20% during FY17-FY23 to 24% in FY26, indicating a clear shift towards greater private participation.
Astra Microwave Products: Poised for Significant Gains
Systematix highlights Astra Microwave's three-decade evolution from a component supplier to a Tier-1 systems company, deeply integrated across Indian aerospace, defence, and space platforms. The company has seen its order book triple over the past three years, accompanied by improved margins.
The proposed demerger of Astra Microwave's space business is expected to unlock further value as it scales towards full satellite manufacturing capabilities. Systematix forecasts approximately Rs 9,000 crore in orders for Astra Microwave between FY27E-FY30E. These orders are anticipated from major projects such as Super Sukhoi and Tejas Mk-1A airborne radars, QRSAM, Akash and Kusha missiles, and ARC software-defined radios. The company's limited competition in its niche segments is expected to support gross margins, with operating leverage further boosting EBITDA margins. Systematix has set a target price of Rs 2,600 for Astra Microwave, indicating a potential 74% upside.
Data Patterns (India) Ltd: Strong Outlook
Data Patterns, another key player in defence electronics, also received a 'Buy' rating from Systematix. The firm noted both companies' strong positions in critical defence electronics areas, including radar, electronic warfare, communications, and space. Systematix has assigned a target price of Rs 5,100 for Data Patterns, suggesting an upside potential of up to 39%.
Both companies are expected to benefit significantly from FY27 onwards, as prior investments and capability development translate into substantial new orders, potentially running into thousands of crores.