Defence stocks: HAL, BEL to gain big from SBS-III programme; target prices

Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd (BEL) are two defence players, which are likely to gain from the government's is fast-tracking of 52 dedicated military surveillance satellites.

India will be designing, building and deploying these next-generation satellites, with ISRO and DRDO producing and launching the first 21, and private industry handling the remaining 31. 

As for HAL is concerned, the Space-Based Surveillance-III Programme (SBS-III) will significantly increase demand for Indian launch vehicles. Many of the new satellites will be in the small-to-microsat class. 

"This plays directly to HAL’s SSLV: with an agile launch service, HAL could win contracts to launch portions of the SBS-III fleet, providing “launch-on-demand” capability for the defense sector," InCred Equities said while suggesting 'Add' and a target price of Rs 6,325 on HAL.  

To recall, the Indian space regulator (IN-SPACe) in June awarded Hindustan Aeronautics the contract to acquire the complete SSLV technology package. The SSLV deal provides HAL with a new business line. The Rs 511 crore paid for the ToT covers ISRO’s training and two development vehicles; afterward HAL can sell SSLV rockets and launches on its own.

"HAL’s CMD has explicitly stated India’s ambition to be a global smallsat launch hub; militarized satellite constellations would seek domestic providers for better scheduling and security. HAL’s SSLV could become the workhorse for many of these new military launches, increasing its order book and utilization," it said.

InCred Equities said the much smaller SSLV might command on the order of Rs 40–80 crore per launch. If HAL achieves, say, 10 SSLVs per year at Rs 60–80 crore each, that is Rs 600–800 crore per year in revenue, in addition to the one-time Rs 511 crore fee," InCred Equities said.

Bharat Electronics is poised to benefit from the SBS-III program. The new satellites will require sophisticated radar and communication payloads – for example, synthetic-aperture radar (SAR) sensors operating in microwave bands.

In the case of Bharat Electronics, the defence PSU has been rapidly expanding into space electronics -- it has signed MoUs with ISRO’s Space Applications Centre to produce indigenous space-grade travelling-wave tube amplifiers (TWTAs) and radar electronics . 

"These devices are exactly the kind of components needed for satellite radar and comm systems. These TWTAs (developed by ISRO and built by BEL) are integral to satellite communication/navigation and microwave sensing radar payloads. BEL can expect orders to build or co-design the radar/imaging systems for SBS-III satellites, as well as ground-segment equipment," InCred Equities said. 

The domestic brokerage noted that every such satellite that goes up will likely carry BEL-made electronics, making BEL a clear winner in this push. 

To be sure, BEL also handles radars and avionics for defense on the ground. The expansion of space-based surveillance can open new contracts for data links and control terminals, the broking firm said.

InCred Equities has 'Add' rating and a target price of Rs 459 on BEL.