Defense firms performed moderately in terms of sales growth and margins in the quarter ended September 2023. During the most recent quarter, the Defence Acquisition Council approved procurements of new platforms and modernization programmes totaling 722.6 billion dollars.
Choice Broking analysts predict that the defense sector will see robust investment over the next 5-6 years, with acquisition of new platforms and modernization of existing platforms leading to an increase in spending in the future years.
According to Choice Broking, the Indian defense market will continue to develop in the coming quarter due to the execution and delivery of projects such as LCA Mk1A, LCH, LUH, and HTT-40, as well as naval fleets, enhanced bombs and missiles, and platform modernization.
"We are optimistic about the growth story of defense manufacturing companies, which is being driven by the Indian government's push for localization. We anticipate that defense companies under our coverage will continue to benefit from the trend of platform acquisition and technological upgrades," the brokerage stated in a report.
TP: 2,427 | Hindustan Aeronautics | Outperform
Choice Broking believes that Hindustan Aeronautics (HAL) will outperform the private sector due to the high capital intensity and long gestation periods for creating manufacturing capabilities in the industry.
This is supported by strategic diversification into the civilian sector; some big ticket future orders, with new orders expected for LUH, LCH, Su 30 and HIT 40 in the near to medium term; strategically positioning itself as a sole supplier domestically; collaboration with foreign giants such as Safran and Airbus, as well as the company's large order book, would support the company's growth story. The stock is rated 'Outperform' by the firm, with a target price of $2,427 per share and a valuation of 22x FY26E EPS.
Bharat Dynamics | Outperform | Target Price: 1,346
With over five decades of missile and countermeasure system production experience, Bharat Dynamics has emerged as the Government of India's Premier Organisation. Bharat Dynamics is ready to enter the manufacturing of a wide range of weapon/systems in both defensive and offensive platforms as part of its diversification programme.
