HAL To BEL: 5 Defence Stocks To Buy Amid DAC Nod For Rs 1.45 Trn Worth Proposals For Indian Armed Forces

For investors searching for defence stocks, Antique Stock Broking Ltd (ASBL) offered a fantastic opportunity. Garden Reach Shipbuilders & Engineers, Bharat Dynamics, Bharat Electronics, Hindustan Aeronautics, and Mazagon are among the stocks that the broking has recommended buying. This followed the Defence Acquisition Council's (DAC) approval of bids totalling Rs 1.4 trillion to improve the Indian Armed Forces and Costal Guard's operational capacities.

As per ASBL, the proposal includes the procurement of a) Future-ready combat vehicles (FRCV) (Bharat Forge, Mahindra Defence, Tata Advanced Systems), b) Air defence fire control radars (BEL), c) Forward repair team (Tracked) (Armoured Vehicle Nigam Ltd.), d) Dornier-228 aircraft (HAL), e) Next generation fast patrol vessels (MDL, GRSE, Cochin), f) Next generation offshore patrol vessels (MDL, GRSE, Cochin). Of the total cost of AoNs, 99% is from indigenous sources under Buy (Indian) and Buy (lndian-indigenously designed, developed, and manufactured) categories.

Defence Sector Growth

With a defence budget of $74.7 billion, India became the fourth-largest country in the world in 2024. A corpus of US$ 12.0 billion (Rs. 1 lakh crore) was set aside for Deep Tech in the Interim Budget 2024-25, which would provide long-term loans to tech-savvy Indian companies. Of these, US$ 2.9 billion (Rs. 23,855 crore) was allotted to DRDO. The Department of Military Affairs and the Ministry of defence have released five positive indigenisation lists including 509 products that are to be made nationally for the defence sector, rather than being supplied through imports, as part of the Atma Nirbhar Bharat Initiative. As of 2022, India ranked fourth in the world for defence expenditure.

By 2028-2029, the country aims to export defence products valued at US$ 6.02 billion (about Rs. 50,000 crore) annually. The Union Budget 2022-2023 allocates 25% of its defence R&D funds to startups and the private sector, which will encourage the development of innovative defensive technology in India. For FY24, the Ministry of Defence seeks to export defence products valued at US$ 2.41 billion (around Rs. 20,000 crore). With a score of 0.0979 on the Global Power Index, the Indian defence sector is ranked fourth in terms of weaponry. By 2025, the Indian government aims to produce $25 billion worth of defence equipment.

Which Defence Stocks To Buy?

"The Defence Acquisition Council (DAC) has approved proposals worth INR 1.4 trn to enhance the operational capabilities of the Indian Armed Forces. The government, in FY24, accorded Acceptance of Necessity (AoN) to proposals worth approximately INR 3.61 trn under various categories of capital procurement, which promotes domestic manufacturing as per DAP-2020. The total share of domestic procurement has seen a phenomenal improvement from 54% in FY19 to 75% in FY24 and is expected to improve further," said ASBL in a report.

"This should be feasible as +99% of the announced proposals are to be sourced from the domestic industry under Buy (Indian) and Buy (indigenously designed, developed, and manufactured) categories. This is a tremendous opportunity for Indian defence manufacturers like HAL, BEL, Mazagon, GRSE and other defence players. Hence, we maintain BUY rating on these defence PSUs under our coverage with a TP of INR 6,145 (HAL), INR 381 (BEL), INR 1,579 (BDL), INR 5,486 (Mazagon), and INR 2,092 (GRSE)," the broking firm further added.

"With approval for INR 1.45 trn worth of projects in YTDFY25, we believe defence PSUs have strong growth opportunities in the near to long term. Hence, we maintain BUY rating on these companies with a target price of INR 6,145 (45x 1HFY27E EPS) for HAL, INR 381 (45x 1HFY27E EPS) for BEL, INR 1,579 (45x 1HFY27E EPS) for BDL, INR 5,486 (45x 1HFY27E EPS) for Mazagon, and INR 2,092 (45x 1HFY27E EPS) for GRSE; and HOLD rating on Cochin with a target price of INR 1,622 (45x 1HFY27E EPS)," Antique Stock Broking has stated.