Defense shares in focus; Cochin Shipyard, Garden Reach, MTAR gain up to 14%

Ratings agency Icra expects business opportunities worth Rs 2.75 trillion to open up for Indian defence entities during FY24 and FY25

Shares of defense related companies were in focus as they rallied up to 14 per cent on the BSE in Tuesday's intraday trade, in an otherwise subdued market, on the back of heavy volumes on healthy business outlook.

Among individual stocks, Cochin Shipyard surged 14 per cent to Rs 1,123, Garden Reach Shipbuilders & Engineers rallied 8 per cent to Rs 863.55, followed by MTAR Technologies (6 per cent at Rs 2,541), Mazagon Dock Shipbuilders (6 per cent at Rs 2,285), Zen Technologies (5 per cent at Rs 791), Astra Microwave Products (5 per cent at Rs 436.50), and Bharat Dynamics (4 per cent at Rs 1,040). In comparison, the S&P BSE Sensex was down 0.07 per cent at 65,974 at 02:53 PM.

Under the Atmanirbhar Bharat initiative, the Government has facilitated the development of the Indian industry to reduce the defense import as well as dependence on the foreign OEMs. Various initiatives of the Government of India (GoI) in recent days have given thrust on the indigenisation and indigenous procurement of defense equipment. Over the next 5 -10 years, such reforms will equally help Defense PSUs and private industry to put a firm step towards achieving a self-sustaining Defense industry in the country.

In the year 2023-24, revenues of Aerospace & Defense companies are expected to remain largely stable or grow as military programs continue to be critical to national security for many countries, especially considering rises in geopolitical tensions globally. Global defense spending is expected to grow as major world powers are likely to continue to strengthen their militaries in response to geopolitical tensions, according to Hindustan Aeronautics.

As per reports, quoting ratings agency Icra, business opportunities worth Rs 2.75 trillion are expected to open up for Indian defence entities during FY24 and FY25, and private sector entities are expected to capture 22 per cent of this (Rs 60,000 core).

This is largely in-line with expectations of increasing defence procurement budget for domestic companies including PSUs and the

private sector, said a note by ICICI Securities. Defence procurement budget for domestic companies stands at Rs 1 trillion for FY24 (75 per cent of total procurement budget of Rs 1.33 trillion) with allocation for private players kept at 25 per cent of domestic (i.e Rs 25,000 crore). 

"With the defence procurement budget for FY25 expected to be higher by 10-15 per cent, total business opportunity of Rs 2.75 trillion for Indian players (including Rs 60,000 core for private players) is possible considering government's strong focus on indigenisation," the brokerage firm said.

All defence PSUs (Hindustan Aeronautics, Bharat Electronics, Bharat Dynamics, Mazagon Dock, Cochin Shipyard, Garden Reach) and private players (like Data Patterns, Solar Industries, Astra Microwave, MTAR, Premier explosives etc) are the beneficiaries, it added.