As demand for indigenisation grows, defence stocks come into focus; ICICI Securities picks, BEL, HAL, Bharat Dynamics, others for gains

Amid rising demand for indigenisation, the defence sector outlook is seen positive, domestic brokerage house ICICI Securities noted in its report, while citing the triggers around the sector. The brokerage sees an upside of around 85 per cent in the defence sector stocks from current levels. 

The government’s move to ban imports of subsystems and components from Russia and Parliamentary standing committee urging for 44 per cent increase in defence capital budget are some of the major important triggers, which could benefit the defence stocks, the brokerage stated. 

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Ministry of Defence (MoD) approved another list that progressively bans imports of 107 sub-systems, components or 'line replacement units (LRUs)' of major weapon systems and platforms between December 22-28, 2021, the brokerage added in its note. 

The list includes sub-systems for weapons and platforms, including T-90 and T-72 tanks, BMP-II infantry combat vehicles, warships and submarines, and anti-tank missiles. 

ICICI Securities believe there is added importance of the demand of the parliamentary standing committee (on defence) to make up for Rs 630 bn of shortfall and expects shortfall in the budget allocation to be addressed in the medium term, which entails 44 per cent rise in the capital budget.  

Navy and Airforce have seen 2x increase in indigenous procurement over FY15-21 and have been instrumental in allowing the MoD to set a 68% indigenous target for capital procurement in FY23E, amid which brokerage expect HAL, Bharat Electronics and Bharat Dynamics to be key beneficiaries. 

Among favourite picks, ICICI Securities pick Bharata Electronics, Hindustan Aeronautics, Bharat Dynamics, Mishra Dhatu Nigam and Astra Microwave. It sets a price target of Rs 242, Rs 2618, Rs 600, Rs 274, and Rs 250 per share, respectively with an upside of between 10 to 85 per cent. 

While other defence stock such as Garden Reach, Mazagon Shipyard, and Solar Industries with Add and Hold rating, however, sets price target of Rs 255, Rs 330 and Rs 2365 per share.