Defence Stocks in Focus: BEL, HAL and more, ICICI Sec lists key beneficiaries of DAC’s ₹21,772 crore boost

India’s Defence Acquisition Council (DAC) has approved five capital acquisition proposals worth ₹21,772 crore, aimed at bolstering the country’s military capabilities. This strategic move has caught the attention of brokerage firm ICICI Securities, which has highlighted nine defence stocks likely to benefit significantly from these procurements.

The approved proposals cover a range of strategic assets and upgrades, including fast attack crafts, interceptor vessels, electronic warfare systems for the Su-30MKI aircraft, advanced light helicopters for the Indian Coast Guard, and overhauls for tanks and air force equipment. These acquisitions are expected to drive growth for defence companies through potential contracts for manufacturing, technology upgrades, and overhauls, thereby boosting the sector’s overall prospects.

ICICI Securities has identified Bharat Electronics Ltd (BEL) as the top beneficiary of the DAC’s approval. The brokerage highlighted BEL’s pivotal role in developing Electronic Warfare Suites (EWS) for Su-30MKI fighter jets, alongside its potential involvement in shipbuilding and the overhaul of electronic components for tanks and infantry combat vehicles like T-72, T-90, and BMPs.

“BEL is expected to benefit the most, owing to the potential award of the EWS package for Su-30MKI, along with a 20-30 percent value addition from shipbuilding orders,” ICICI Securities noted, maintaining a ‘Buy’ rating on the stock with a target price of ₹350.

Other Stocks to Watch

In addition to BEL, ICICI Securities has maintained ‘Buy’ ratings on several other defence companies expected to benefit from the procurement plans:

Astra Microwave Products: Likely to gain from its involvement in jammer pods and radar systems.

Bharat Dynamics: Positioned to benefit from an uptick in domestic defence procurement.

Dynamatic Technologies: Expected to see growth from defence manufacturing contracts.

Solar Industries (India): Poised to capitalize on its role in indigenization and advanced defence manufacturing.

PTC Industries: Could benefit from Sukhoi engine overhaul projects through its collaboration with Hindustan Aeronautics Ltd (HAL).

Zen Technologies: Highlighted for its expertise in defence simulation and training technologies.

Cautious Outlook on some others

While the overall sentiment remains positive for most defence stocks, ICICI Securities has taken a cautious stance on certain shipbuilding companies. It has assigned ‘Sell’ ratings to Garden Reach Shipbuilders & Engineers Ltd. and Mazagon Dock Shipbuilders Ltd., citing competitive pressures and the smaller size of the vessels involved in the latest proposals.

For Hindustan Aeronautics Ltd. (HAL) and Mishra Dhatu Nigam Ltd., the brokerage has issued ‘Add’ ratings, reflecting a more neutral outlook. HAL is expected to benefit from the procurement of six Advanced Light Helicopters (ALH-MR) for the Indian Coast Guard and engine overhaul contracts for Su-30MKI aircraft.

Long-Term Impact on Defence Ecosystem

ICICI Securities emphasized that while these approvals mark a significant development, the conversion of these approvals into actual orders could take up to two years, followed by a mobilisation period of 12-18 months.

“Overhauls of the armoured fleet, involving mechanical, electrical, and fire control system (FCS) revamps, are likely to benefit both Ordnance Factories and private players in the defence ecosystem, given the high levels of indigenization,” the report stated.

The brokerage also noted that the competitive nature of bidding for shipbuilding contracts could limit immediate gains for smaller vessel projects, as both private and public sector units possess the necessary capabilities.

The DAC’s ₹21,772 crore capital acquisition proposals provide a much-needed boost to India’s defence sector, particularly after a three-month lull in domestic orders. Companies like Bharat Electronics, Astra Microwave, and Bharat Dynamics stand to benefit significantly from these approvals. However, investors should remain mindful of the long lead times involved in converting approvals into actionable contracts. In the long term, these investments are expected to enhance India’s maritime, aerial, and armoured defence capabilities, providing a strong growth trajectory for the sector.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.