Analysts bet on a few stocks related to defence equipment production and see up to 30 per cent upside in their target prices.
To push the ‘Atmanirbhar Bharat’ initiative, Defence Minister Rajnath Singh announced that the Ministry of Defence has put an embargo on the import of 101 defence weapons and equipment. The decision which aims to boost indigenisation will help the country to become self-reliant in defence production. Analysts bet on a few stocks related to defence equipment production and see up to 30 per cent upside in the target prices. The import restrictions have been imposed on Short Range Surface to Air Missiles, Battalion Support Weapons Simulators, all sorts of ammunition, and high power radars among others. “We believe the government has taken multiple steps over the last few years to help develop the defence sector in India. Steps like the development of two defence corridors, 74% FDI under automatic route and negative list of 101 defence items will further help in pushing the ‘Make in India’ case that the government has been promoting,” analysts at Antique Stock Broking said.
The Defence Minister in a tweet said that the embargo on imports will be progressively implemented between 2020 to 2024, with an aim to apprise the Indian defence industry. “Specifically the mandate of import embargo would aid efficient supply chain development in India, which then result in continuous business inflows for smaller companies like Centum Electronics, Astra Microwave, Apollo Micro Systems. These smaller companies could have the comfort to invest in R&D or capacity with better business visibility,” Umesh Raut, Analyst – Institutional Equities, YES Securities, said in a note. Raut further added that in the short term, this could have a positive or negative impact on procurement costs for all the large players like Bharat Electronics, HAL, Bharat Dynamics and GRSE.
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1. Bharat Electronics Ltd: BEL has launched fully indigenised Maareech Integration facility for manufacturing, integration and testing of Anti Torpedo Defence System Maareech which has been designed by DRDO. “We revised up the target price of Bharat Electronics from Rs 110 to Rs 140, as we raise P/E multiple to 18x (from 14x) led by improving growth visibility,” Edelweiss said in a report. It has given a ‘buy’ rating to the stock with a 29 per cent upside.
2. Bharat Forge: Edelweiss has maintained a buy rating to the stock and revised its target price to Rs 500 from Rs 370 earlier, ‘factoring peak cycle multiple of 30x given robust class 8, improving prospects for defence business, etc’.
3. Garden Reach Shipbuilders & Engineers: According to the Ministry of Defence, under modernisation of facilities, GRSE has enhanced the capability at its RajaBagan Dockyard to meet the production requirement for the ongoing prestigious P17A project. “GRSE is already placed favourably with a strong order book of Rs 266 bn. Most of the future warship programs have been included in the list of import embargoes. Hence, we expect faster clearances & finalization of defence contracts in future,” Yes Securities said in a note.
4. Mishra Dhatu Nigam: MIDHANI has set up a state-of-the-art skill development centre and christened it as Center of Excellence – Special Materials. This facility will primarily focus on promoting applied research for the development of special materials used in aerospace, defence, nuclear, space and other strategic areas. “Over the years, Midhani’s capability of supplying niche steel/alloys to the defence sector has been its key strength. Thus, we believe ordering prospects for Midhani would increase multifold with an increase in defence manufacturing activities in India,” Yes Securities said.
5. LT, Cochin Shipyard: According to ICICI Direct Research, companies like L&T, Bharat Electronics (BEL) and Cochin Shipyard having strong indigenous capabilities are likely to benefit from this policy in the long run. “However, the intent on the paper is good but the execution on the ground in terms of rapid indigenisation, pick-up in ordering, allocation of funds to defence capital expenditure would be key monitorable,” it said.
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