The Indian government has allocated a total budget of Rs 6.21 lakh crore for the Ministry of Defence for the Financial Year 2024-25. This represents a 13% increase year-on-year, bringing the Ministry’s budget to a substantial USD 72 billion, which accounts for 13.18% of the total national budget.
In parallel, the government has introduced various reform measures under the ‘Make in India’ initiative and the ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Mission) to bolster the Indian arms industry and position the country as a major exporter of defence equipment.
The government aims to achieve a turnover of Rs1,70,000 crores (approximately USD 26 billion) in defence goods and services by 2025.
Here are three defence stocks expected to see a strong order book in the coming years, driven by the growth in India’s defence industry.
Bharat Electronics Ltd
On Friday, Bharat Electronics Ltd shares closed at Rs 297.10 per share, up 3.02 percent on the National Stock Exchange. The company has a market capitalization of Rs 2,17,173 crores.
The company’s shares have delivered a return of around 106 percent in six months and 166 percent in a year.
Bharat Electronics Ltd(BEL). manufactures and supplies electronic equipment and systems to the defense sector. The company has expertise in designing, developing, manufacturing, and supplying a wide range of strategic electronic products/systems.
The company’s product portfolio includes defense communication products, naval systems, land-based radars, avionics, electro-optics, tanks, etc.
BEL management is aiming for double-digit revenue growth of 15% in FY25, with an EBITDA margin of 23-25%. The company anticipates large orders worth Rs 15,000 crore in the near future and projects order acquisitions of Rs 25,000 crore for FY25. Additionally, BEL expects an export order exceeding $200 million.
Over the next two years, the management forecasts orders totaling Rs50,000 crores and has planned a capital expenditure outlay between Rs700 crores and Rs800 crores.
The company’s revenue increased by 35% year-on-year, rising from Rs6,344 crore in Q4FY23 to Rs8,564 crore in Q4FY24. During the same period, net profit grew by 31%, from Rs1,366 crore to Rs1,785 crore.
Morgan Stanley has an ‘overweight’ rating on BEL and has revised its target price upward to Rs. 300 per share. The brokerage expects some operational efficiencies to persist and has raised its EBITDA margin estimates to 24-24.5%, up from the previous 22.5-23%.
Data Patterns (India) Ltd
Data Pattern Ltd. belongs to a small-cap category of stock with a market capitalization of Rs 17,051 crores. On Friday, company shares closed at Rs 3,045 per share, down 1.76 percent on the Stock Exchange.
The stock has gained 70% on a year-to-date basis and 97% in the last 12 months. On Thursday, company shares were trading at Rs 3,145 per share, up 3.12 percent on the stock exchange.
In the upcoming fiscal year 2024-25, Data Patterns’ management anticipates securing defence sector orders exceeding Rs1,000 crore. The company is projecting a revenue growth of 20-25%, anticipating a EBITDA margins of 40% and PAT margins of 30%.
Despite a slight 1.6% decline in revenue year-on-year, from Rs185 crore in Q4FY23 to Rs182 crore in Q4FY24, the company witnessed a notable 29% increase in net profit, rising from Rs55 crore to Rs71 crore during the same period.
Data Patterns is engaged in the in-house development and manufacturing of the complete range of defence and aerospace systems, including space, air, land, and sea. It provides solutions for strategic aerospace and defence electronics systems.
BEML Ltd
On Friday, BEML Ltd shares closed at Rs 4,569 per share, up 0.35 percent on the Stock Exchange. The company has a market capitalization of Rs 19,027 crores.
BEML Ltd is actively engaged in the defence sector, manufacturing a wide range of equipment including ground support vehicles for the Integrated Guided Missile Development Project, such as Aircraft Towing Tractors, Aircraft Weapon Loading Trolleys, Multi-purpose Weapon Loaders, and Crash Fire Tenders.
In addition, BEML produces various defence vehicles like HMVs, Arjun ARRV, and Mobile Standby Command Post Vehicles, along with licensed Czech Tatra trucks.
The company’s revenue increased by 9 percent year-on-year, rising from Rs1,387 crore in Q4FY23 to Rs1,513 crore in Q4FY24. During the same period, net profit surged by 63 percent, from Rs157 crore to Rs256 crore.
BEML management anticipates significant opportunities in the next 5-7 years, with a potential Rs30,000-40,000 crore opportunity in defence orders alone. The company is targeting a 20% revenue growth in FY24 and 20-25% in FY25.
Optimistic about the manufacturing scenario for defence production, BEML envisions a substantial order size of Rs40,000-45,000 crore in the rail and metro sectors.
In an earlier interview with CNBC TV18, Shantanu Roy, Chairman and Managing Director (CMD) of BEML, projected that by the end of FY25, the company’s order book could range between Rs 20,000-25,000 crore if all goes as planned.
The company’s shares have delivered a return of around 90 percent in six months and 221 percent in a year.
Written by Omkar Chitnis
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