India remains the largest global importer of military equipment, as indicated by a 2023 study conducted by the Stockholm International Peace Research Institute (SIPRI). Despite a decline of 11% in arms acquisitions between 2013–17 and 2018–22, India continues to lead in terms of importing military hardware. Over the past 4-5 years, the nation has undertaken various initiatives to enhance its self-reliance in defence and give boost to the best defence stocks in India.
In the Union Budget for the Financial Year 2023-24, the Ministry of Defence has been allocated a substantial budget of US$ 72.2 billion (Rs. 5,93,537.64 crore), constituting 13.18% of the total budget. This allocation includes US$ 16.8 billion (Rs. 1,38,205 crore) earmarked for Defence Pensions. Notably, the total Defence Budget reflects an increase of US$ 8.3 billion (Rs. 68,371.49 crore), marking a 13% rise over the 2022-23 budget.
The government is really focusing on making India self-reliant in defence, and this is good for the country’s economy. It means that India won’t have to depend on other countries for its defence needs as much. This effort will not only make India more self-sufficient but also create jobs, reduce the need to buy things from other countries, and even let India sell its own defence products to other nations. It’s like opening doors for the defence sector in India and the rise of best defence stocks in India.
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Atmanirbharta in the Defence Sector
As per IBEF, as part of the Atmanirbhar Bharat Initiative, the Department of Military Affairs and the Ministry of Defence have issued four lists containing a total of 411 products. These items are earmarked for domestic production within India’s defense sector instead of relying on imports.
Recently, a new list of approximately 1,000 military items, including replacement units, subsystems, and spares, has been announced. These items will be gradually phased out from imports between December 2023 and December 2029. This marks the fourth list of strategically important components placed under an import ban in the last two years.
Notably, the previous three lists have already seen the indigenization of around 2,500 items, with another 1,238 identified for phased manufacturing in India until 2028-29. Of these 1,238 items, 310 have already been successfully indigenized.
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Recent Trends In Growth Of defence stocks in India
As per the Indian Defence Manufacturing Industry Analysis, a report presented by IBEF, India’s defence production has hit a historic milestone, crossing Rs. 1 lakh crore (US$ 12 billion) for the first time. This surge is credited to pivotal sector reforms, with FY23 recording Rs. 1,08,330 crore (US$ 13.07 billion), up from Rs. 95,000 crore (US$ 11.47 billion) in FY22 and a significant leap from Rs. 54,951 crore (US$ 6.63 billion) five years ago. The Defence Sector has seen 595 industrial licenses issued to 366 companies by October 2022.
Over the past five years, defence exports have seen a remarkable surge, experiencing a staggering 334% increase. India is now actively exporting to over 75 countries, thanks to collaborative efforts in the defence sector. The Ministry of Defence sets an ambitious target, aiming to achieve defence exports worth Rs. 35,000 crore (US$ 4.27 billion) by 2024.
In a pioneering move, Indian and American startups are collaborating to co-develop advanced technologies, including those in space and artificial intelligence. This initiative is part of the India-United States Defence Acceleration Ecosystem (INDUS-X). With around 194 defence tech startups actively contributing innovative solutions, as of July 31, 2023, engagement has extended to 393 startups/MSMEs/individual innovators, resulting in 270 signed contracts.
The Indian defence sector, standing as one of the world’s largest and most lucrative industries, unveils a 10-year pipeline with over US$ 223 billion in aerospace and defence capital expenditure. Furthermore, a projected medium-term investment of US$ 130 billion underscores the sector’s considerable growth potential. For those who are keen on seizing opportunities, exploring the landscape of the best defence stocks in India aligns strategically with the ongoing momentum and expansion within this dynamic industry.
Best Defence Stocks In India
Best defence stocks in India are: Hindustan Aeronautics Ltd, Bharat Electronics Ltd, MTAR Technologies, Cochin Shipyard Ltd, Paras Defense and Space Technologies, Mazagon Dock Shipbuilders, Bharat Dynamics Ltd, Data Patterns, ideaForge Technology Ltd, and Solar Industries India Ltd.
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Let’s discuss about the fundamentals and financials of the best defence stocks in India.
Solar Industries India Limited
Solar Industries India Limited actively manufactures a complete range of industrial explosives and explosive initiating devices. It manufactures various types of packaged emulsion explosives, bulk explosives and explosive initiating systems. Furthermore, Solar Industries has made progress in producing ammunition for use in military purposes. At its single-location facility in Nagpur, India, the company proudly holds the record for the world’s largest production facility for packaged explosives.
As per INDIA TODAY, the Defence Ministry approves the acquisition of 6,400 advanced rockets for the Pinaka weapon system, stationed along the border with Pakistan and China. This strategic move, valued at over Rs 2,600 crore, exclusively involves Indian firms, with Solar Industries emerging as a top contender.
The company witnessed a robust financial performance last year, with a remarkable 75.29% increase in annual revenue, reaching Rs 6,954.05 Crores. The annual net profit also surged by 71.59% to Rs 757.19 Crores. Despite a notable 63.23% rise in stock price, it underperformed its sector by 16.73%. The company maintains a healthy financial structure, with a Debt to Equity Ratio of 0.45, indicating mainly equity financing. The Price to Earning Ratio is favorable at 75, lower than its sector’s PE ratio of 94. The Trailing Twelve Months (TTM) EPS of 89.33 Rs per share exhibits consistent and growing performance.
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Hindustan Aeronautics Ltd
Hindustan Aeronautics Limited (HAL), a dynamic Public Sector Enterprise. The company actively engages in designing, developing, manufacturing, repairing, overhauling, upgrading, and servicing a diverse range of aviation products. This spans aircraft, helicopters, aero-engines, avionics, accessories, and aerospace structures.
In 2023, HAL achieved substantial milestones, producing 22 new Aircraft and Helicopters. This includes Light Combat Aircraft (LCA) Tejas, Dornier Do-228 Aircraft, Advanced Light Helicopter (ALH) Dhruv, Light Combat Helicopter (LCH), and Light Utility Helicopter (LUH). Alongside, 51 new engines and accessories were crafted across divisions, while the company conducted overhauls on 216 Aircraft/Helicopters and 536 engines.
The Ministry of Defence’s commitment is evident with a Rs 36,468 crore allocation for the delivery of 83 LCA Mk 1A aircraft by HAL, scheduled to commence in February 2024. Additionally, a noteworthy Rs 9,000 crore has been sanctioned to propel the development of the advanced LCA Mk 2, amplifying India’s defense capabilities.
In the previous year, the company experienced noteworthy financial growth, with an 11.69% increase in annual revenue, reaching Rs 28,597.58 Crores. The annual net profit also saw a robust surge of 14.72%, reaching Rs 5,827.74 Crores. Remarkably, the stock price demonstrated remarkable strength, rising by 115.09%, surpassing its sector performance by 35.17%. The company maintains a debt-free status, reflected in a Debt to Equity Ratio of zero. With a Price to Earning Ratio of 30.81, lower than the sector’s PE ratio of 94. Consistent (TTM) EPS of 90.37 Rs per share shows the company exhibits steady and growing performance.
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Bharat Dynamics Ltd
Bharat Dynamics Limited (BDL) stands as a key defence Public Sector Unit (PSU) in India. It specializes in the production of Surface to Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), Underwater weapons, Launchers, Counter Measures Dispensing System (CMOS), and Test Equipment.
BDL, from its inception, has collaboratively worked with DRDO and Foreign Original Equipment Manufacturers (OEMs) for the manufacture and supply of various missiles and allied equipment to the Indian Armed Forces. As the exclusive manufacturer in India for SAMs, torpedoes, and ATGMs, BDL holds a unique position, serving as the sole supplier of SAMs and ATGMs to the Indian Armed Forces.
BDL is poised to contribute further by producing the world-class ‘Beyond Visual Range’ Astra Weapon System, developed by DRDO, for the Indian Armed Forces.
In the past year, the company experienced a decline in annual revenue by 9.69%, amounting to Rs 2,644.79 Crores. The annual net profit also saw a decrease of 29.55%, reaching Rs 352.17 Crores. Surprisingly, despite these financial challenges, the stock price rose by 65.67%, albeit underperforming its sector by 14.67%. The company maintains a debt-free status, evident in a Debt to Equity Ratio of zero. With a Price to Earning Ratio of 65.54, lower than the sector’s PE ratio of 94, and a Trailing Twelve Months (TTM) EPS standing at 23.21 Rs per share, the company showcases resilience and steady financial indicators.
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MTAR Technologies Ltd
Through the integration of its value chain, which includes design, precision machining, assembly, testing, quality control, specialised fabrication, brazing, heat treatment, and other specialised processes, the company offers one-stop solutions. The company specialises in difficult-for-most service providers complicated mission-critical projects, particularly precision components with tight tolerances (5–10 microns) and crucial assemblies supporting projects of national significance.
MTAR Technologies has provided technology for a number of national projects, such as India’s defence, civilian nuclear power, and space programmes. It has contributed significantly to the Chandrayaan-3 programme by supplying vital parts including cryogenic engines, Vikas engines, and other subsystems.
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In the last year, the company demonstrated robust financial performance with an impressive 79.35% increase in annual revenue, reaching Rs 593.23 Crores. The annual net profit also experienced significant growth, rising by 69.89% to Rs 103.42 Crores. Despite a commendable 41.76% rise in stock price, it underperformed its sector by 38.58%. The company maintains a healthy financial structure with a Debt to Equity Ratio of 0.23, indicating primarily equity financing. The Price to Earning Ratio is favorable at 69.27, lower than the sector’s PE ratio of 94. The Trailing Twelve Months (TTM) EPS of 33.51 Rs per share reflects consistent and strong performance.
Future of Defence Stocks in India
India is one of the strongest military forces in the world and holds a place of strategic importance for the Indian government. The government and the military industrial sector come together to form the Indian defence ecosystem. Ministry of Defence has set a target of achieving a turnover of US$ 25 million in aerospace and defence manufacturing by 2025, which includes US$ 5 billion exports. Defence exports grew by 334% in last five years; India now exporting to over 75 countries due to collaborative efforts.
BOTTOM LINE
In the coming years, the defence sector in India holds great promise. Fueled by a commitment to self-sufficiency, technological advancements, and strategic collaborations, the landscape is poised for significant transformations. Initiatives such as Make in India, Atmanirbhar Bharat and a dedicated focus on cybersecurity add layers to this evolution, shaping a dynamic defence ecosystem. As global dynamics shift, these endeavors not only fortify national security but also position India as a notable player on the global stage.
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
