Defence Stocks To Buy: 2 Navratna PSU BEL & HAL,1 Midcap Data Patterns Liked By Jefferies, Sees 40% Upside

Aerospace and defence stocks are trending as global brokerage Jefferies remained positive in the sector. On April 2nd, the two largest Navratna PSU defence stocks Bharat Electronics (BEL) and Hindustan Aeronautics (HAL) touched new all-time highs, while another midcap stock Data Patterns rose as much as 10% in a single day. The reason is that Jefferies has suggested buying the three stocks.

The brokerage overall expects a 45% potential upside in these three stocks. For Data Patterns, Jefferies expects the company's revenue to skyrocket by 5 times from FY24-FY30E.

Further in its report, for the three stocks, Jefferies explained that geopolitical tensions and India's focus on self-reliance are boosting order flow and revenue growth for domestic defence companies. Meanwhile, the Indian government's agenda on country-t0-country relationship building is another bolstering factor.

Jefferies expects 2x times growth in domestic defence spending from FY24 to FY30, which will drive these defence players' stock prices.

For HAL, the brokerage believes GE tie-ups are indicating potential upside going forward in the OEM among global defence companies. Also, Jefferies expects medium-term EPS CAGR visibility at 22% for FY24E-30E, which is likely to be the key driver.

Further, on BEL, Jefferies believes the company is well-placed to benefit from opportunities in the Indian defence segment, as its 70-75% revenue is shored up from the navy and army deals followed by air-force orders. Also, BEL is extra favourable due to its zero-debt and healthy working capital position.

Bharat Electronics (BEL) Share Price:

On BSE, BEL shares ended at Rs 221.05 apiece, up by 4.64% with a market cap of Rs 1,61,582.66 crore. In the trading hours of April 2nd, BEL shares touched a new 52-week high to record Rs 222.65 apiece.

Currently, BEL shares are up by 132% from its 52-week low of Rs 95.30 apiece.

BEL also reported that its turnover came in at Rs 19,700 crore in FY24, which is at an all-time high. The turnover stood at Rs 17,333 crore.

In the fiscal year 2023-24, BEL successfully secured orders worth around Rs. 35000 Cr. Among the notable defence orders obtained during the year were Electronic Fuzes, EW Systems, Communication Systems for naval warships, Fire Control Systems, Akash Prime Weapon Systems, Radars, Sonars, Software Defined Radios, Night Vision Devices, Tactical Communication Systems and other projects in Non-defence sector.

As of April 1, the company's order book stands at Rs 76,000 crore.

Also, BEL shares recently turned ex-dividend for a second interim dividend of Rs 0.70/- (70%) per equity share of Rs 1/- each fully paid up for the financial year 2023-24. Earlier, BEL paid its first interim dividend of also Rs 0.70 apiece or 70% for FY24. In FY23, the payout was 180% amounting to Rs 1.8% per share.

Jefferies has maintained BUY on BEL while raising its target price to Rs 260 per share from earlier Rs 225 per share. The outlook is positive.

Hindustan Aeronautics (HAL) Share Price:

HAL share price also touched a new 52-week or all-time high of Rs 3,584.85 apiece before ending at Rs 3,543.80 apiece up by 4.13% on BSE with a market cap of Rs 2,37,000.48 crore. Yet another Navratna PSU, HAL is the largest defence company in India in terms of market value.

Currently, HAL's share price has surged by 165.5% from its 52-week low of Rs 1,335.00 apiece.

Just like BEL, HAL also recorded its highest-ever revenue from operations of over Rs 29,810 crores (provisional and unaudited) for FY24, registering a double-digit growth of around 11% as against 9% in the previous financial year. The corresponding figure for the previous year was Rs. 26,928 crores.

C. B. Ananthakrishnan, CMD(Addl Charge), HAL said, "Despite the major supply chain challenges arising due to geopolitical issues, the Company has met the expected revenue growth with improved performance for the entire year. As of March 31, 2024, the Company's order book stands over Rs 94,000 crores with additional major orders expected during FY 2024-25."

FY2023-24 was very eventful for HAL and was dotted with high-profile visits and achievements that made the year special on various fronts such as customer satisfaction, branding & recognition and building stakeholder trust and confidence.

The defence player also turned ex-dividend recently in February for an interim dividend of Rs 22 per share or 440% for FY24. In FY23, the company paid dividends up to 550% amounting to Rs 55 per share.

Maintaining BUY on HAL, Jefferies has set a target price of Rs 3900/share with a positive outlook.

Data Patterns Share Price:

Also engaged in aerospace and defence business, Data Patterns (India) surged as much as 10% to hit an intraday high of Rs 2,811.40 apiece on BSE before ending at Rs 2,713.95 apiece up by 6% with a market cap of Rs 15,193.77 crore.

Data Patterns is a vertically integrated Defence and Aerospace electronics solutions provider catering to the indigenously developed defence products industry.

For 9MFY24, the company's total revenue was at Rs 371.26 crore, an increase of 36% over the 9-month revenue of Rs 273.75 crore in FY 2022-23. Operational EBITDA increased by 31% from Rs 98.47 crore in the 9 months ended December 31, 2022, to Rs 128.60 crore in the corresponding period ended December 31, 2023. Profit After Tax (PAT) increased by 61% from Rs. 68.65 crore in the 9 months ended December 31, 2022, to Rs. 110.59 crore in the 9 months ended December 31, 2023.

As of December 2023, the company's orders on hand were at Rs 975.40 crore.

Jefferies also maintained a buy on Data Patterns for a target price of Rs 3545/sh with a Positive outlook.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.