The Indian defence sector is set for a significant boost as the Cabinet Committee of Security (CCS) recently approved two major defence orders worth ₹21,100 crore. These orders are expected to benefit several key players in the sector, including Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Larsen & Toubro (L&T). ICICI Securities has highlighted four stocks that investors should watch closely in light of this development.
A Shot in the Arm for HAL
HAL is expected to be a primary beneficiary of the order for 12 Su-30MKI aircraft, valued at ₹13,500 crore. ICICI Securities notes that this comes at a critical time for HAL, which has been grappling with execution challenges related to the Tejas Mk-1A fighter jet. The Su-30MKI order is seen as a significant boost for the state-owned aerospace giant, potentially alleviating some of its current operational pressures.
The upgrade of 84 existing Su-30MKIs is also anticipated in the near future, which would further strengthen HAL’s position. Additionally, General Electric (GE) has committed to delivering 24-26 engines per year, which is expected to resolve ongoing engine-related issues by FY26. This development could lead to annual revenue growth of 20-25% for HAL in FY26 and FY27.
Key Beneficiaries Beyond HAL
While HAL and L&T stand out as key players, other companies are also poised to benefit from the recent defence orders. According to ICICI Securities:
- Bharat Electronics Limited (BEL): BEL is expected to see gains from its radar and electronic warfare (EW) systems that are integral to the new orders.
- Dynamatic Technologies: As the only company co-located at HAL’s Nashik factory for fuselage production, Dynamatic Technologies is uniquely positioned to benefit.
- Astra Microwave Ltd: This company may gain indirectly through BEL’s contracts.
- PTC Industries: Known for its expertise in engine components, PTC Industries could also capitalize on the trickle-down effect of these orders.
- Solar Industries: The company may benefit from increased demand for ammunition-related raw materials, driven by the recent approvals.
Boost to Domestic Defence Manufacturing
The repeat order for 100 K-9 Vajra self-propelled howitzers, valued at ₹7,600 crore, underscores the government’s commitment to strengthening artillery infrastructure. The Vajra platform, a 155mm artillery gun, plays a crucial role in India’s artillery modernization efforts.
Importantly, ICICI Securities highlighted that the indigenization level for both the Su-30MKI and K-9 Vajra platforms is expected to exceed 60%. This focus on indigenous production aligns with the government’s “Make in India” initiative and is expected to create significant opportunities for the domestic defence ecosystem.
Upcoming orders for the Pinaka multi-barrel rocket launcher system and Project 75 (three new submarines) are anticipated in FY25. ICICI Securities predicts that these orders will further bolster India’s defence manufacturing sector.
ICICI Securities’ Top Picks in Defence
ICICI Securities has identified several stocks with strong growth potential in the defence sector. These include:
- Solar Industries Ltd: Buy recommendation with a target price of ₹13,250.
- Azad Engineering: Buy recommendation with a target price of ₹2,450.
- PTC Industries: Buy recommendation with a target price of ₹20,070.
The brokerage also holds an “ADD” rating on HAL, reflecting its optimism about the company’s growth trajectory in the coming years.
Outlook for Defence Orders
Looking ahead, ICICI Securities believes that the Indian Air Force’s focus on strengthening its squadrons could lead to additional orders worth ₹63,000 crore for 84 upgraded Su-30MKI aircraft. These orders, along with expected approvals for the Pinaka system and Project 75 submarines, are likely to be expedited in the next 2-3 months.
Conclusion
The recent ₹21,100 crore defence orders represent a significant milestone for India’s defence sector, with HAL, BEL, and L&T set to reap substantial benefits. The government’s emphasis on indigenization and infrastructure modernization is expected to drive growth across the domestic defence ecosystem.
For investors, ICICI Securities’ recommendations offer valuable insights into potential opportunities within the sector. As India continues to prioritize defence modernization, these developments could pave the way for long-term growth and investment in the industry.