BDL, BEL, HAL, Mazagon Dock, MIDHANI: Q4 previews, price targets for defence stocks

ICICI Securities in its latest earnings note said March would to be another good quarter for defence companies. Despite it being the immediate quarter before Lok Sabha elections 2024, the quarter saw ordering, acceptance of necessities (AoNs) and product developments continuing unabated, ICICI Securities said.

"As a result, all the companies have ended up with strong order book and near-term prospects," the brokerage said. The brokerage expects mean revenue growth (YoY) at 15 per cent, with Mazagon Dock Shipbuilders Ltd (MDSL)  and Garden Reach Shipbuilders and Engineers Ltd (GRSE) showing 37 per cent and 47 per cent growth, respectively, as major platforms reach peak revenue booking phase. 

ICICI Securities said revenue is likely to decline for Solar Industries, tracking explosives prices; however, Ebitda margin for the company is likely to breach 25 per cent on higher contribution from defence. Steady margins of 20–25 per cent is likely for Bharat Dynamics (BDL), Bharat Electronics (BEL) and Hindustan Aeronautics Ltd. Azad Engineering is likely to sustain its high growth trajectory with revenue/Ebitda growth expected at 30 per cent each, ICICI Securities said.

Going ahead, ICICI Securities expects order accretion and execution as big ticket orders such as QRSAM, MRSAM and Pinaka rockets are on the anvil. Besides, it sees the commencement of manufacturing of Tejas Mk-1A to open new opportunities for the domestic aerospace ecosystem.

"Despite decent returns in FY24, we believe that there is more steam left in the defence stocks as there are several big-ticket orders lined up for FY25. Besides, the execution of LCA Tejas Mk-1A would be beneficial for domestic aerospace ecosystem. In this context, we believe that the Indian government’s ongoing indigenisation drive is likely to result in faster percolation of orders from DPSUs to the private companies engaged
in defence sector," it said.

The brokerage recommended Solar Industries (Buy; target price: Rs 10,950), Astra Microwave (Buy; target price: Rs 800) and Azad Engineering (Buy; target price: Rs 1,600) as key stock picks in the defence space.