With the Defence Acquisition Council (DAC) according Acceptance of Necessity (AoN) for five capital acquisition proposals amounting to Rs 21,772 crore, Bharat Electronics Ltd (BEL) is expected to benefit the most due to direct benefit from EWS for Su-30MK-I and share from almost all the other proposals. Astra Microwave is likely to benefit from trickle-down effect, ICICI Securities said adding that Hindustan Aeronautics Ltd (HAL) is likely to benefit from procurement of ALH (M) MR and the engine overhaul of Su-30MK-I.
That said, ICICI Securities does not see immediate benefits from the current AoNs, as the process from AoN to order conversion can take at least two years, followed by mobilisation period of 12-18 months.
"Among the stocks under coverage, we see BEL likely benefitting the most due to: 1) possible award of EWS package for Su-30MKI; 2) trickle-down benefit of 20–30 per cent of value of shipbuilding orders; and 3) overhaul of electronic components and FCS of T-72, T-90 and BMPs. We envisage, Astra Microwave Products Ltd likely benefitting from EWS package, particularly Jammer pods and NGRWR," ICICI Securities said.
ICICI Securities said PTC Industries Ltd may benefit in engine overhaul, as the company has executed an MoU with HAL’s Koraput facility for the supply of critical components during the overhaul.
"Overhauls of armoured fleet – entailing mechanical, electrical and FCS revamp – are likely to benefit OFBs and other players in the defence ecosystem, as indigenisation levels are likely to be high. In case of proposals for ships, we believe that the bidding shall be competitive, as these are smaller vessels and various shipbuilders – private and DPSUs – have requisite capabilities," it said.
While the recently accorded AoN is one of the smaller ones in recent times, it comes after a gap of three months, which is comforting. The AoNs accorded thus far in FY25 amount to Rs 1,66,500 crore compared with Rs 3,61,000 crore and Rs 2,64,200 crore in FY24 and FY23, respectively.
"As the primary objective of the current AoNs is to augment defence preparedness, we expect ordering to follow broadly in the same direction. We expect orders for 12 (nos.) Su-30MK1 and Pinaka in the next 3–4 months. Our key picks in the defence space are Solar Industries (Target price: Rs 13,250; BUY); Azad Engineering (Target price: Rs 2,450; BUY) and PTC Industries (target price: Rs 20,070; BUY)," it said.
Among defence PSUs, ICICI Securities prefers BEL and suggested a target price of 350. On Wednesday, BEL shares were trading 0.24 per cent higher at Rs 312.75.