Amid the US flip-flop over the Russia-Ukraine war, ICICI Securities believes that the fresh "Re-arm Europe" plan by the EU represents a diametric shift from the earlier premise that the ongoing conflict might end soon. The broking firm feels the replenishment demand for weapons and ammunitions in the EU is likely to last for 5-6 years, bringing orders for many homegrown private players.
Among Indian defence makers, it said private players, which already have orders, MoUs or relationships in place with the EU players, would benefit the most. Among its coverage companies, we see benefits for Solar Industries India Ltd, PTC Industries Ltd, Dynamatic Technologies Ltd and Azad Engineering (Azad).
"We expect Solar Industries (Buy; target: Rs 13,720), PTC Industries (Buy; target: Rs 20,070), Dynamatic Technologies (Buy; target: Rs 9,330) and Azad Engineering (Buy; target: Rs 2,350) to likely be the key beneficiaries of such a policy. While the TPs for other stocks remain unchanged, we have revised the target for Azad Engineering, adjusting for the recent QIP issue," ICICI Securities said.
Solar Industries Solar Industries has gathered significant export orders in ammunitions in the past six months. The current defence order book stands at Rs 13,000 crore, of which 45–50 per cent is towards export orders ranging 3–7 years, ICICI Securities said.
"We expect the company to receive more orders for ammunition, as there is a shortage of TNT capacity around the world where SOIL can fill in. On the products front as well, the company is taking massive strides with export order for Pinaka worth Rs 300 crore, almost three years ago. We believe that given the focus of the EU on rocket systems, SOIL could be at a considerable advantage," it said.
Recently, France showed interest in Pinaka. SOIL’s indigenously developed counter-drone system (Bhargavastra) was also recently tested by armed forces. ICICI Securities believes there could be traction for this product as well in the EU.
PTC Industries ICICI Securities said this company is already integrated in the global supply chain of major European majors. It received orders for Ti castings from various European players. In addition, the PTC Industries management is in discussion with Airbus, Rolls Royce and P&W for further orders for Ti and superalloys castings.
"We believe that PTC could also be a source of Ti metal for EU-based companies. PTC has commissioned India’s largest Ti VAR capacity of 1,500tpa and is the process of setting up EBCHR (5,000tpa) and PAM (200tpa). Once the metal capacities are commissioned, we expect orders from that vertical as well," ICICI Securities said.
PTC Industries has already started discussions on this front. The firm orders might take 1–1.5 years, as capacities are still in the process of getting commissioned, ICICI Securities said.
"Besides, PTC recently acquired Trac Precision Solutions, which has the capability of machining complex cooling passages in the castings that ensure components can withstand extreme conditions. The value addition in casting and machining phases is 60–65 per cent and 35–40 per cent, respectively. With this acquisition, PTC has developed the capability of offering a single-window solution to its customers. In a market, that already has a handful suppliers, the capability provides a unique edge over peers," it said.
Dynamatic Technologies ICICI Securities said the war in Europe has given fresh impetus to Dynamatic Technologies' diversification efforts towards aerospace and defence. In Q3FY25, the company was successful in developing prototype defence products and now awaits serial orders from Western European customers.
"We believe, Dynamatic Technologies' foundry in Germany, Eisenwerk Erla GmbH could be instrumental in supplying artillery shell casings and development of aerospace castings in the near future. In aerospace, while the bulk of the contracts – Airbus, Dassault, Bell and Deutsche – are for the commercial space, we do not rule out the company’s participation in defence programs in the future," ICICI Securities said.
Azad Engineering Azad Engineering's order book has swollen from Rs 1700 crore to Rs 6,500 crore in a year. While bulk of the orders are for Power and Oil & Gas segments, the company has gained significant traction with Rolls Royce in the defence domain.
"Owing to its cost competitiveness, we expect Azad to gain significantly from the requirements for airfoils and components in aerospace," ICICI Securities said.