Defence stocks rally up to 20% on strong growth prospects

While Premier Explosives was up nearly 20% in intraday trade, Bharat Dynamics and Zen Technologies rose 15% and 13%, respectively. Mazagon Dock Shipbuilders, on the other hand, was locked in the 10% upper circuit.

Other things going for defence companies include timely execution of projects due to localization, integrated modular construction, and subcontracting, domain expertise of government preference, and cash-rich balance sheets that avoid major working capital issues because of stage payments.

Overall, Philip Capital is positive on the sector, but looking at a favourable risk-reward ratio, its preferred bets are Bharat Electronics (BEL), Bharat Dynamics, Solar Industries and MTAR Technologies.

Shares of Bharat Electronics rose nearly 4% in Tuesday’s trade, while MTAR Technologies added 1%.

Despite a strong run-up in the past few days, analysts are bullish on the sector and see more upside in the coming days.

“I think it can continue going forward as well. Mazagon has run up quite a lot. So maybe, you know, there is not much of a risk load out there. But, for a stock like Cochin Shipyard, there is still much more upside pending,” said Jay Thakkar of Sharekhan.The Indian defence sector has experienced significant reforms, leading to improved efficiency, self-reliance, and capabilities. The Make in India initiative has contributed to a rise in domestic defence capital procurement to 68% of the total in FY23 from just 38% in FY13.

These companies are staring at a bottom-up derived opportunity pipeline of $110 billion spread over 6-8 years, against their cumulative FY23 revenue of just $8 billion.

“The tangibility for these orders is high because projects in the pipeline are for products already developed or transfer-of-technology (TOT) from foreign OEMs,” Philip Capital said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)