The government has accorded Acceptance of Necessity (AoN) to proposals worth ₹3.61 lakh crore under various categories of capital procurement, which promotes domestic manufacturing as per DAP2020.

The total share of domestic procurement has seen a phenomenal improvement from 54 per cent in FY19 to 75 per cent in FY23 and is expected to improve as 90 per cent of proposals are to be sourced from the domestic industry. The total share of domestic procurement has seen a phenomenal improvement from 54 per cent in FY19 to 75 per cent in FY23 and is expected to improve as 90 per cent of proposals are to be sourced from the domestic industry.

Defence Acquisition Council (DAC) has approved proposals worth ₹84,560 crore to enhance the operational capabilities of the Indian Armed Forces; and if one goes by what Antique Stock Broking said there could be three key beneficiaries of the announcement.

To be sure, the government has accorded Acceptance of Necessity (AoN) to proposals worth ₹3.61 lakh crore approximately under various categories of capital procurement, which promotes domestic manufacturing as per DAP2020. The total share of domestic procurement has seen a phenomenal improvement from 54 per cent in FY19 to 75 per cent in FY23 and is expected to improve further as 90 per cent of the announced proposals are to be sourced from the domestic industry.

"This is a tremendous opportunity for Indian defence manufacturers like Hindustan Aeronautics Ltd (HAL), Bharat Dynamics Ltd (BDL) & Bharat Electronics Ltd (BEL) and hence we maintain BUY rating on these defence PSUs under our coverage with a target price of ₹3,618 (HAL), ₹2,038 (BDL) and ₹221 (BEL). HAL & BEL key beneficiaries of ₹846 billion worth defence proposals approved by DAC," Antique Stock Broking said.

Key Approvals

The approvals included Medium Range Maritime Reconnaissance and Multi-Mission Maritime Aircraft for the Costal Guard, Follow on Supply Support (FOSS) for 24 MH60R aircraft, and Flight Refueler Aircraft for the IAF; these approvals will be beneficial for HAL, Antique Stock Broking said.

For BEL, the proposals include Air Defence Tactical Control Radar, Active Towed Array Sonar for the Navy and Software Defined Radios for the Coastal Guard.

BDL has also benefitted from the announcement with opportunities in Canister Launched AntiArmor Loiter Munition System and Heavy Weight Torpedoes for the Navy. Apart from these DAC approved the proposal for new-gen anti-tank mines as well, Antique Stock Broking said.

Hindustan Aeronautics

Antique Stock Broking said HAL order book currently stands at ₹82,000 crore (FY23) providing revenue visibility of 3 times its trailing 12-month (TTM) revenue. The order pipeline looks extremely healthy with orders worth ₹48,000 crore for DHRUV, LUH, Su-30, AL-31FP Sukhoi engines, and RD-33 engines being in advanced stages of finalisation and are expected to materialize in the near term.

"Additionally, DAC has already approved AoNs worth ₹1.6 lakh crore including TEJAS MK-1A, LCH, and Su-30 upgradation which will boost HAL’s order book even further. Even the long-term order pipeline continues to remain robust with projects like a) TEJAS MK-2, b) AMCA, c) TEDBF, d) IMRH, e) Prachand, and f) DHRUV expected to provide HAL with business opportunities of ₹4.5 trillion over the next decade," it said.

Bharat Electronics

Antique Stock Broking said BHEL's 9MFY24 order inflow stood at ₹26,800 crore (up 616 per cent YoY) supported by large ticket orders from BDL and shipyard companies. Order backlog stood at ₹76,200 crore (up 52 per cent YoY), providing revenue visibility of 4.2 times its TTM revenue.

"BEL has achieved its ₹20,000 crore order inflow target in FY24 and has already reported YTD order inflows worth ₹26,800 crore and expects another ₹50,000 crore worth of orders in FY25 & FY26 cumulatively. The ordering pipeline stands healthy and includes large-ticket orders like i) The ₹20,000 crore QRSAM order, ii) Avionics packages, iii) Long-range radars, and iv) Electronic warfare system, which will ensure more than ₹200 billion annual ordering for BEL,"

Bharat Dynamics

Antique Stock Broking said BDL reported ₹1,660 crore worth of orders in 9MFY24 supported by ATGM orders, Akash missile upgrade orders, LBRM orders, and ULPGM orders. These have resulted in a robust order book of ₹20,200 crore , providing healthy revenue visibility of 8.8x its TTM revenue, it said.

"The company expects ₹5,000 crore worth of additional orders in the next couple of quarters. Incrementally, the ordering pipeline (₹20000 crore-plus) looks equally strong from the next two to three-year perspective, with large ticket orders like Astra MK II, QRSAM, and MRSAM expected to be finalised," Antique said.

Antique said with approval for ₹3.61 lakh crore worth of projects in YTDFY24, defence PSUs like HAL, BDL & BEL have strong growth opportunities in the near to long term.