State-run defence counter has remained a buzzing word on Dalal Street for the last two years. The PSU defence counters turned multibaggers in the last two years as they surged anything between 300 per cent and 1,750 per cent until July 2024, when the rally in these stocks halted and they saw a sharp correction of up to 40 per cent from their peaks.
Stocks including Bharat Dynamics, Hindustan Aeronautics, Bharat Electronics, Mazagon Dock Shipbuilders, BEML, Mishra Dhatu Nigam (Midhani) and Garden Reach Shipbuilders & Engineers (GRSE) have seen a strong profit booking after a secular steep rally on the back of mixed Q1 performance and stretched valuations concerns. Brokerage firms have a mixed view on these stocks.
Shares of Bharat Dynamics Ltd (BDL) have rallied around 450 per cent in the last two years to Rs 1,794.70 in early July 2024. The stock has corrected more than 26 per cent since then. The company reported an 82.8 per cent YoY fall in net profit at Rs 7.2 crore, while its revenue from operations slipped 35.8 per cent YoY to Rs 191.2 crore for the quarter ended June 30, 2024.
Bharat Dynamics’ Q1FY25 performance took a hit owing to supply chain issues amid the ongoing Russia-Ukraine war and conflicts in the Middle-East region, said ICICI Securities with a 'buy' rating and a target price of Rs 1,745. However, Choice Broking said that the Q1 results were disappointing and the stock appears expensive. It has a 'reduce' rating and a target price of Rs 1,501.
Hindustan Aeronautics Ltd (HAL) has surged close to 650 per cent in the last couple of year to Rs 5,674.75 in July 2024. It has dropped 17 per cent since then. HAL reported a consolidated net profit of Rs 1,437 crore in Q1FY25, up 77 per cent YoY. Revenue from operations rose 11 per cent YoY to Rs 3,915 crore during the same period.
The rising share of indigenization with unexplored exports opportunity in the aircraft and helicopter industry warrant a rerating. Expect an earnings CAGR of 15 per cent in FY24-27E with 24 per cent ROE in FY25E-27E, said Elara Capital with a 'buy' tag and target price of Rs 5,730. Choice Broking also a 'buy' rating and a target price of Rs 5,346 on it citing a strong order book.
Bharat Electronics Ltd (BEL) rallied more than 350 per cent in the last couple of year, before giving up 12 per cent from those levels. The state run player's reported a 46 per cent YoY jump in its net profit at Rs 776.14 crore for the quarter ended 30 June 2024, with its revenue from operations increased 19.6 per cent YoY to Rs 4,198.77 crore.
JM Financial has ascribed a 'buy' rating on BEL with a target price of Rs 360 on the back of robust order pipeline next couple of years, driven by government focus on product localization and strong growth opportunities. However, Nirmal Bang Institutional Equities has maintained a 'sell' rating on BEL with a target price of Rs 280 citing its steep valuations relative fundamentals.
BEML Ltd shares have also surged nearly 370 per cent since March 2023 to Rs 5,400 in July 2024, but have dropped 30 per cent from those levels. Defence PSU reported a narrowing of its consolidated net loss to Rs 70.47 crore, with revenue from operations increasing about 10 per cent to Rs 634.61 crore in the first quarter of the ongoing fiscal year.
Prabhudas Lilladher (PL) upgraded the rating on BEML to ‘Accumulate’ from ‘Hold’ with a revised target price of Rs 4,484 following the recent sharp correction in stock price and a decent Q1 show. Order inflow and execution will be in focus, said PL. Nirmal Bang also has an 'accumulate' rating on BEML with a target price of Rs 4,613. It said Q1 results were in line with the estimates.
Mazagon Dock, whose shares have surged over 800 per cent since March 2024 to Rs 5,80 in July 2024, has crashed about 22 per cent in the last month and a half. Shares of Garden Reach Shipbuilders & Engineers Ltd (GRSE) have zoomed about 1,130 per cent in the last two years to Rs 2,833.80 last month. The stock has tumbled nearly 40 per cent since then.
Mazagon Dock's net profit jumped 121 per cent YoY to Rs 696 crore for the quarter ended June 2024, while its revenue from operations stood at Rs 2,357 crore against in the first quarter. GRSE reported a 14 per cent YoY increase in profit after tax (PAT) to Rs 87.2 crore for April-June 2024 period. The company's total income stood at Rs 1,083.58 crore for the reported quarter.
ICICI Securities has 'sell' ratings on both Mazagon Dock and GRSE with a target price of Rs 1,165 and Rs 515 on the back of extremely rich valuations. Elara Capital also has a sell rating on Garden Reach Shipbuilders with a target price of Rs 1,370, while Nirmal Bang has given Mazagon a sell rating with a target price of Rs 4,468. Antique Stock Broking pegs Mazagon's value at Rs 3,548.
Shares of Cochin Shipyard have skyrocketed nearly 1,750 per cent in the last two years to Rs 2,979.45 about a month ago, but the stock has tanked about 32 per cent since then. It reported a 77 per cent YoY rise in net profit at Rs 174.2 crore with revenue from operations jumping 62.1 per cent YoY to Rs 771.47 crore in the first quarter of FY25.
Shares of Midhani more than tripled investor's wealth in the last two year to Rs 541 in July 2024, before falling nearly 20 per cent since then. The company's standalone net profit tumbled 72.44 per cent to Rs 5.11 crore, with revenue from operations falling 12.93 per cent to Rs 163.45 crore in Q1FY25.
ICICI Securities has given a 'sell' rating on Midhani with a target price of Rs 360 on the stock after a muted Q1 performance as it sees that risk-to-reward ratio as unfavourable for the stock. Kotak Institutional Equities has a similar rating on Cochin Shipyard with a target price of Rs 740 on the stock, suggesting a 65 per cent crash in the counter.