Bharat Electronics Ltd (BEL) might benefit the most from the recent orders of the Ministry of Defence (MoD), followed by Bharat Dynamics Ltd (BDL), believes brokerage house ICICI Securities Ltd.
The MoD approved a number of orders during the final week of FY23, which benefit public service undertakings (PSUs) like Bharat Electronics, Bharat Dynamics, Garden Reach Shipbuilders & Engineers Ltd, Cochin Shipyard Ltd, and Goa Shipyard Ltd.
"Most of these orders are under the Indian-IDMM category, in line with the government’s focus on indigenisation, hence, we expect consequential benefits for downstream companies in radars, instrumentation and surveillance systems such as BEL and Data Patterns. The orders comprise the much-awaited backlog for BDL, BEL and Shipyards," said the brokerage.
According to the brokerage, Bharat Electronics stands additional chances to receive orders from Akash Weapon System (AWS), NGOPV, and NGMV, besides direct orders bagged worth a value of ₹118.3 billion. On the back of this, the brokerage has Bharat Electronics Ltd as its top pick in the defence sector, with a 'buy' rating and an unchanged target price of Rs. 125.
"The orders placed by the MoD in the past one week are likely to benefit Bharat Electronics the most, in our view. We believe the street’s concerns around the orderbook of Bharat Electronics languishing at two-year low level in Q3FY23 may be assuaged considerably as direct and consequential benefits are likely to ensure order inflow of ₹200 billion in FY23. Furthermore, these orders are expected to be the key enabler in the company maintaining its revenue growth of 15% per annum over the next few years," said the brokerage in its report.
Given the better earnings outlook, the brokerage increased the target price for Bharat Dynamics by 23% from its previous level of ₹955 to ₹1,175. Additionally, the stock's recommendation was raised from 'Add' to 'Buy'.
"In case of Bharat Dynamics, a key overhang of the delay in ordering of AWS 3rd and 4th regiment has been removed. We believe that with MRSAM, AMOGHA-III and HELINA/NAG orders likely in H1FY24, orderbook may double from the current level of ₹117 billion, and the revenue guidance of ₹38 billion for FY24 is achievable. Akash 3rd and 4th regiment orders worth ₹81.6bn placed on the company have an overall indigenous content of 82%, which will be increased to 93% by FY27," said the brokerage.
Bharat Dynamics shares gained by almost 10% in a week, while Bharat Electronics shares increased by 5.6%.
Further, in the case of shipyards, the brokerage sees the awarding of NGOPV as a respite for both Garden Reach Shipbuilders & Engineers and Goa Shipyard as delivery is expected from September 2026, according to the report.
Garden Reach Shipbuilders & Engineers has been given a ‘reduce’ rating with a target price of ₹385 by the brokerage firm, and Mazagon Dock Shipbuilders Ltd has been given a ‘sell’ rating with a target price of ₹600. Cochin Shipyard, Goa Shipyard and Data Patterns are not rated by the brokerage.
