Antique Stock Broking has maintained its 'Buy' rating on five defence PSU stocks under its coverage namely Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Bharat Dynamics Ltd (BDL), Mazagon Dock Shipbuilders Ltd (MDL) and Garden Reach Shipbuilders & Engineers Ltd (GRSE). It suggested a 'Hold' on Cochin Shipyard Ltd.
The reiteration came as the Defence Acquisition Council (DAC) approved proposals worth Rs 1.4 lakh crore to enhance the operational capabilities of the Indian Armed Forces. These include procurement of future-ready combat vehicles (FRCV), which may benefit Bharat Forge, Mahindra Defence, Tata Advanced Systems. It also includes Air defence fire control radars, which is positive for BEL. The approval for Dornier-228 aircraft is positive for HAL. The procurement of next generation fast patrol vessels would be positive and offshore patrol vessels would be positive for MDL, GRSE, Cochin Shipyard.
To recall, the government, in FY24, accorded Acceptance of Necessity (AoN) to proposals worth approximately Rs 3.61 lakh crore under various categories of capital procurement, which promotes domestic manufacturing as per DAP-2020. Antique Stock Broking said the total share of domestic procurement has seen a phenomenal improvement from 54 per cent in FY19 to 75 per cent in FY24 and is expected to improve further.
"This should be feasible as 99 per cent of the announced proposals are to be sourced from the domestic industry under Buy (Indian) and Buy (indigenously designed, developed, and manufactured) categories. This is a tremendous opportunity for Indian defence manufacturers like HAL, BEL, Mazagon, GRSE and other defence players," it said.
Antique said defence PSUs have strong growth opportunities in the near to long term, as it maintained a target price of Rs 6,145 for HAL, Rs 381 for BEL, Rs 1,579 for BDL, Rs 5,486 for Mazagon Dock, and Rs 2,092 for GRSE. It has a 'Hold' rating on Cochin Shipyard with a target price of Rs 1,622.
Hindustan Aeronautics Antique Stock Broking said HAL’s order book at the end of FY24 stood at Rs 94,000 crore, providing revenue visibility of 3.2 times its trailing 12-month revenue. The order book will be further bolstered by orders worth Rs 26,000 crore for 240 aero engines of Su-30 MKI aircraft and would stand at Rs 1.2 lakh crore, delivery of which should begin from FY26 onwards.
"Incrementally, the order pipeline looks extremely healthy with orders worth Rs 48,000 crore for ALH (25), LUH (12), Su-30 (12), and RD-33 engines (80) being in advanced stages of finalization and are expected to materialize in the near term," it said.
Mazagon Dock Shipbuilders In the case of Mazagon Dock Shipbuilders, the defence PSU's order book as on August 14 stood at Rs 40,400 crore, which was the highest among the three shipyards. This includes Rs 2,870 crore for 21 NGOPVs and FPVs for the Coast Guard, which is already under execution. A major chunk of the order book comprises of P17A stealth frigates (Rs 16,630 crore, pending from a total order value of Rs 26,900 crore), P15B destroyer (Rs 9,850 crore remaining from a total order value of INR 320.9 bn).
"The company is planning seven deliveries in the next two years (FY27 to witness delivery of one fast patrol vessel). This additional AoN could translate to a larger order book for MDL," Antique said.
GRSE GRSE's present order book stands at Rs 25,230 crore. The saw an order inflow of Rs 3,610 crore in the June quarter. The present timeline indicates a majority of this should be executed by FY26 and FY27. GRSE has existing orders for next generation offshore patrol vessel update (four ships) with a total order value of Rs 3410 crore (Rs 220 crore executed till 1QFY25, remaining: Rs 3,180 crore).
"Collection against milestones stood at Rs 720 crore. Construction is on-going as per schedule (completion status of the four ships is in the range of 17-23 per cent). This additional AoN could mean an even larger order book for GRSE," Antique said.