HAL, Astra Microwave, other defence stocks rally up to 4% after DAC clears Rs 1.10L cr proposals; Motilal picks 3 stocks to buy

Shares of defence companies such as Hindustan Aeronautics, BEL, Paras Defence, BEML, Astra Microwave, among others rose up to 4% on Tuesday after the Defence Acquisition Council (DAC), chaired by Defence Minister Rajnath Singh, gave in-principle approval to acquisition proposals worth around Rs 1.10 lakh crore for the Indian defence forces. Around 98% of the approved procurements will be sourced from Indian industry.

In today’s session, defence stocks traded higher, with Hindustan Aeronautics Ltd (HAL) rising 2% to Rs 4,943 and Astra Microwave Products gaining over 4% to Rs 1,783. Paras Defence and Space Technologies advanced 3% to Rs 1,530 on the BSE. BEML rallied 3% to Rs 2,159, while ideaForge Technology and Zen Technologies gained 2% each.

The council granted Acceptance of Necessity (AoN), which constitutes in-principle administrative approval, for a range of acquisition proposals covering the Indian Army, Navy and Air Force.


Also read: Will BDL, HAL & other defence stocks deliver rocketing returns? Here’s why this brokerage remains bullish

DAC proposal decoded

For the Indian Army, the approvals include Chemical Biological Radiological and Nuclear (CBRN) Recce Vehicles, High Mobility Vehicles (HMV), Self-Propelled Mechanical Mine Layers (MML), Advanced Light Helicopters (ALHs), Trawl Tanks and the Sarvatra Bridge System. The CBRN Recce Vehicles will be used to detect, identify, monitor and mark areas contaminated by CBRN agents, while the High Mobility Vehicles aim to strengthen operational capabilities, logistics support and mobility across challenging terrains.

The Self-Propelled Mechanical Mine Layers will provide fast and responsive mine-laying capabilities in difficult terrains. The Advanced Light Helicopters will be used by the Army and Air Force for complex missions across different terrains and operational situations. The Trawl Tanks and Sarvatra Bridge System will support fighting formations by providing composite crossings during operations across varied terrains.

For the Indian Navy, the DAC approved AoN for the procurement of Arudhra Radars and for the design and development followed by procurement of Marine Gas Turbines (MGT). The Arudhra Radars will replace existing Air Route Surveillance Radars at various Naval Air Stations. Marine Gas Turbines, used as propulsion systems for warships, aim to reduce the Navy's dependence on foreign vendors.

The council also cleared several proposals for the Indian Air Force to strengthen the war-fighting capabilities of fighter aircraft, transport aircraft and helicopters. These include the procurement of Ground-Based Multi-Purpose Jammers (GBMPJ) and installation of the Defence Forces Secure Access Card (DEFSAC) System.

The GBMPJ will provide jamming capabilities against adversary radars. The DEFSAC system will replace existing paper-based identity cards, passes and permits with an interoperable smart-card system based on Radio Frequency Identification technology.

Read more: First drones, now missiles. The spending is certain, who gets the maximum is not: 14 stocks

Motilal top 3 defence stock picks

Motilal Oswal has maintained its Buy rating on Bharat Electronics, with a target price of Rs 530. The brokerage said the stock is currently trading at 42.2x, 36.2x and 32.2x its FY27E, FY28E and FY29E earnings per share (EPS), respectively. It has retained its estimates and valued the stock at 45x two-year forward earnings.

On Hindustan Aeronautics Ltd. (HAL), Motilal Oswal has also reiterated its Buy rating and retained its target price at Rs 5,800. HAL is currently trading at 32.4x, 27.0x and 22.3x its FY27E, FY28E and FY29E EPS, respectively. The brokerage has maintained its estimates and based the target price on the average of discounted cash flow (DCF) valuation and 30x two-year forward earnings.

For Astra Microwave Products, Motilal Oswal has maintained its Buy rating and unchanged target price of Rs 1,900. The stock is currently trading at 66.3x, 48.5x and 34.4x its FY27E, FY28E and FY29E EPS, respectively. The brokerage has retained its estimates and based its target price on 42x two-year forward earnings.

Defence stocks outlook

India's defence sector has emerged as one of the most attractive long-term structural growth ideas within the manufacturing universe, and remains structurally well-positioned to benefit from long-term military modernisation needs, rising localisation, strong domestic order pipeline, growing exports and sustained policy support, Bajaj Broking said in its latest research report.

This sustained increase in capex, along with procurement preference for domestic manufacturers under the Atmanirbhar Bharat initiative, has created a robust multi-year opportunity across aircraft, helicopters, missiles, naval platforms, artillery systems, air-defence systems, defence electronics, radar systems and unmanned platforms, according to Bajaj Broking Prive’s report.

It added that the Defence Acquisition Procedure (DAP), positive indigenisation lists, defence industrial corridors, and liberalised FDI norms have further boosted the domestic manufacturing ecosystem.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)