Shield Your Portfolio This Diwali With Defence Stocks; L&T, Hindustan Aeronautics To Light Up

Defence stocks are among the top performers of 2023 so far. On the back of a strong order pipeline and upcoming deal wins along with supplying key equipment in major aerospace projects have made defence stocks attractive to further buying. With traders now looking to add wealth-creating stocks in their portfolio this Diwali which will commence this week, JM Financial listed out two defence stocks that could light up going forward. These are Larsen & Toubro (L&T) and Hindustan Aeronautics (HAL).

Here's what JM Financial say about these two major defence stocks:

Larsen & Toubro (L&T): (Target Price: Rs 3,430)

According to Brokergae, Larsen & Toubro's robust order intake, improved execution and reduced asset intensity are driving a strong earnings outlook. Order win prospects remain strong led by a sustained push in infrastructure, renewed vigour in defence procurement (record intake in FY23) and recovery in industrial capex.

Further, it highlighted that L&T stock trades on order inflow expectations. The last 12-18 months of L&T's performance is attributed to its strong order inflow and market expectations that L&T's guidance on order inflow will be continuously raised. L&T saw 19% yoy order inflow growth in FY23, and momentum is likely to continue in FY24.

"We expect EPS CAGR of 27% over FY23-25 for L&T's P&M business. Asset intensity continues to reduce which along with strong growth and push from increased cash distribution to shareholders bodes well for ROE expansion to the targeted level of 18%," JM's note said.

Hindustan Aeronautics: (Target Price: Rs 2,230)

Hindustan Aeronautics is likely to be a key beneficiary of changing structural trends in the Indian defence sector.

In its note, JM said, "We believe structural earnings drivers in place as an increasing capital outlay in defence with indigenisation has been the focus area of government considering the requirement of armed forces of faster procurement of modern equipment."

For HAL, the key growth drivers would be --- Only sole primary supplier of India's military aircraft; Big beneficiary of Government focus on developing indigenous defence aircraft; Strong technological capabilities due to the development of more advanced platforms such as Tejas and Advanced Medium Combat Aircraft; and Strong Order Book provides good earnings visibility (At present it has Rs.818 bln with a strong pipeline over Rs.2 trillion).

Also, recent Earnings are steady due to strong sales and better operational performance. We believe HAL is well placed to tap growth with its focus on strengthening its R&D and its recent pact with GE Aerospace and France-based Safran Aircraft Engines augers well. It is also stepping up international business with its indigenous range of light combat aircraft Tejas, advanced light helicopters, light utility helicopters, and light combat helicopters.

Among the key risks, JM highlighted were stiff competition, any delay in the execution of orders, and a slower pace of fresh order intake - Any delay in Passing over costs due to high input costs would add pressure on margins.

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.