HAL, BEL, MDL, Cochin Shipyard, Solar Ind shares: Kotak picks its preferred defence pick

Kotak Institutional Equities prefers Hindustan Aeronautics Ltd (HAL) as its preferred stock pick in the defence sector. Kotak said the 6th Positive Indigenization List focuses more on sub-assemblies and components rather than platform-level indigenization, which should benefit the defence component ecosystem.

"Defense Electronics (56 per cent share) and Aerospace (21 per cent share) account for majority of the items and we see Bharat Electronics and smaller defense electronics suppliers as key beneficiaries of the current indigenization list," it said.

Kotak said the most important read-through from the 6th Positive Indigenization List is its meaningful skew toward defence electronics. A total of 56 per cent of the items are linked to Bharat Electronics Ltd (BEL), it said adding that the opportunity set includes components and subsystems associated with radars, sonars, satellite communication systems, fire-control systems, communication systems and other mission-critical electronic equipment.

"This should benefit broader defence electronics systems, including Bharat Electronics, Astra Microwave, Data Patterns and Paras Defence, among listed players," Kotak said.

The brokerage suggested 'Add' rating on HAL with a target of Rs 5,305. The domestic brokerage said aerospace is another key focus area, with the list focusing on components associated with advanced light helicopter, light utility helicopter, Su-30MKI, LCA Tejas and the AL-31FP engine.

"Missile-related opportunities are also visible, with components linked to MRSAM, Konkurs-M and Invar systems included in the list. The list also includes items associated with armored platforms such as T-72, T-90 and BMP-II, along with a focus on warship components, sonars, communication equipment and maritime electronics for the Indian Navy," Kotak said.

The beneficiaries of these would primarily be MSME, Kotak said citing the focus on multiple sub-systems and components.

On Cochin Shipyard Ltd, Kotak suggested a target of Rs 860. The brokerage suggested a target of Rs 1,950 on Mazagon Dock and Rs 11,200 for Solar Industries.

"We retain our estimates and face vale. We have an ADD rating on HAL, REDUCE on BEL and SELL on MDL, Cochin Shipyard and Solar Industries," Kotak said.