Defence stocks rally as government approves Rs 1.4 lakh crore worth acquisition

Shares of defence companies like BEML, Paras Defence, and Mazagon Dock rallied up to 3% on Wednesday after the Defence Acquisition Council (DAC) approved proposals worth Rs 1.4 lakh crore to enhance the operational capabilities of the Indian Armed Forces.

The government's focus on indegenisation has intensified as the defence ministry said 99% of the acquisitions will be sourced from domestic players.

"This is a tremendous opportunity for Indian defence manufacturers like HAL, BEL, Mazagon, GRSE, and other defence players. Hence, we maintain a BUY rating on these defence PSUs under our coverage," Antique Stock Broking said.


The brokerage has a target price of Rs 6,145 on HAL, Rs 381 on BEL, Rs 1,579 on BDL, Rs 5,486 on Mazagon Dock and Rs 2,092 on GRSE.

Analysts say the key right now is to focus more on valuations of the pure play defence and invest in those which are undervalued.

"The investment universe needs to be broadened to non-conventional proxy defence and other forms of more subtle defence so that undervalued companies can be found. Most defence funds or portfolios have not done this and are likely not able to find undervalued companies to take exposure to the theme in a scientific manner," said Vikas Gupta, smallcase Manager and CEO at OmniScience Capital.

The Defence Acquisition Council (DAC)'s procurement of Future-ready combat vehicles (FRCV) may benefit Bharat Forge, Mahindra Defence, and Tata Advanced Systems. BEL is in focus for air defence fire control radars while HAL is seen as a preferred player for Dornier-228 aircraft.

Mazagon Dock, GRSE, and Cochin Shipyard are in focus for the supply of next-generation fast patrol vessels and offshore patrol vessels.

HAL's order book at the end of FY24 stood at Rs 94,000 crore, providing revenue visibility of 3.2x its TTM 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, Antique said.