Defence stocks to buy: BEL, Astra Microwave key beneficiaries of Rs 7,800 crore proposals

Bharat Electronics Ltd (BEL) and Astra Microwave Ltd are seen as likely beneficiaries of the Defence Acquisition Council's Acceptance of Necessity (AoN) to various proposals envisaging investment of Rs 7,800 crore across the Armed Forces. ICICI Securities said BEL and Astra Microwave could benefit from installation of electronic warfare (EW) suite on MI-17 V5 helicopters.

On Bharat Electronics, ICICI Securities said the company is best placed bolstered by its direct or indirect participation in almost every major platform for which orders have been placed or AoN issued.

In the current proposal worth Rs 7,800 crore, ICICI Securities pegs BEL’s share at Rs 2,800-3,000 crore from EW suite and others. In addition, it believes Astra Microwave is likely to benefit due to the EW products it has developed.

"Furthermore, Astra Microwave has also received orders worth Rs 158 crore for supply of satellite sub-systems, airborne radar and sub-systems of radar and EW projects from DRDO, ISRO and DPSUs. We believe these orders are likely to be margin-accretive for the company," ICICI Securities.

The domestic brokerage has a target of Rs 150 on BEL and Rs 425 on Astra Microwave.

Shares of BEL were trading 0.26 per cent higher at Rs 134.65 on BSE. On the other hand, Astra Microwave shares rose 6.47 per cent to a high of Rs 393.95 on BSE.

ICICI Securities said while the AoNs are expected to translate into orders in 18-24 months, it sees a focused approach by the government to enhance capabilities of all the Armed Forces, even in a pre-election year.

"Hence, defence spending is unlikely to take abackseat, ensuring that orderbooks of the relevant companies remain robust," ICICI Securities said.

The Indian Air Force is procuring and installating EW suite on MI-17V5 helicopters under ‘buy’ (India-IDDM) category from BEL. ICICI Securities expects the trickle-down benefits to companies such as Astra Microwave as well.

The Indian Army is procuring ground-based autonomous system for mechanised infantry and armoured regiments to enable swift manoeuvrability, 7.62x51 mm LMG to enhance fighting capability, BMT to enhance faster movement and ruggedised laptops and tablets under Project Shakti.

Besides, Indian Navy is procuring weapons, possibly via Foreign Military Sales route for weapons (estimated at INR 24bn) for MH-60R helicopters.

"In our view, these weapons are likely to include AGM-114 Hellfire missiles (precision-guided), MK

54 lightweight torpedoes (anti-submarine warfare weapon)," ICICI Securities said.

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