Defense stocks have garnered significant attention from Dalal Street investors, driven by a sense of optimism stemming from several key factors including the surge in exports, robust order books, and a positive outlook over fillip to domestic manufacturing capabilities along with the localization campaign within the defense sector.
The month of August was eventful for the sector as the defence companies saw a slew of new orders and other developments in the sector.
An order worth ₹190 billion for 5 fleet support ships was awarded to Hindustan Shipyard, while Acceptance of Necessity (AoN) worth ₹78 billion was accorded for various platforms.
Progress is being made on development and acquisition of fighter aircraft along with a visit by Air Chief Marshal to Hindustan Aeronautics Ltd (HAL).
Additionally, successful firing of Astra BVR missile from Tejas, progress on P75I and P76 submarine programmes and guided Pinaka Rocket System is likely to enter final user trials in the next 1-2 months, are among key developments in the sector.
ICICI Securities believes the progress on fighter aircraft and integration of indigenous missiles on them is likely to be positive for HAL, Bharat Dynamics (BDL), Bharat Electronics (BEL) and Astra Microwave Products. In particular, it sees benefits for BEL and Astra Microwave Products in the near term.
“In our view, continued AoNs, orders and tests even in the pre-election year (General Elections are due in CY24 bode well for the defence sector. It allays apprehensions of investors pertaining to orderbook accretion,” ICICI Securities said in a report.
In the sector, BEL, BDL, Astra Microwave and HAL are key picks of the brokerage house.
Also Read: Stocks to buy: Lupin, Federal Bank, Ashok Leyland among top midcap stock picks by Axis Securities
Let us take a look at top stocks to buy in the defence sector by ICICI Securities.
Astra Microwave Products | Buy | TP: ₹425
ICICI Securities has a ‘Buy’ rating on Astra Microwave Products with a target price of ₹425 per share. It expects EV/EBITDA of 15.7x and 12.5x for FY24 and FY25, respectively.
Astra Microwave Products last month won orders worth ₹158 crore for supply of Satellite sub-systems, Airborne Radar and sub-systems of Radar and EW projects, to Defence Research and Development Organisation (DRDO), the Indian Space Research Organisation (ISRO) and Defence Public Sector Undertakings (DPSUs).
The brokerage sees order accretion at Astra Microwave gathering momentum led by a trickle-down effect from orders issued to BEL.
Bharat Electronics | Buy | TP: ₹150
Bharat Electronics received orders worth ₹329 crore in August, taking the order inflow to ₹11,380 crore thus far in FY24.
ICICI Securities finds BEL particularly in vantage position, having crossed 50% of order flow guidance (of ₹20,000 crore) for FY24 already.
The brokerage has a ‘Buy’ call on the stock with a target price of ₹150 per share.
Bharat Dynamics | Buy | TP: ₹1,325
ICICI Securities expects Bharat Dynamics to deliver RoE of 14.6x and 18.1x in FY24 and FY25. It expects the company’s EV/EBITDA to be at 27.4x and 17.3x in FY24 and FY25.
The brokerage has a Buy rating on the stock with a target price of ₹1,325 per share.
Hindustan Aeronautics | ADD | TP: ₹4,350
In case of HAL, ICICI Securities is positive on the timely delivery of LCH Prachand. However, it will monitor the progress around the deliveries of Tejas and Tejas Mk1A.
The brokerage firm has an ‘Add’ rating on HAL with a target price of ₹4,350 per share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Download The Mint News App to get Daily Market Updates.
Updated: 06 Sep 2023, 01:11 PM IST