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Defence stocks: GRSE, BDL, BEL, HAL surge up to 9% day ahead of Budget 2025

Shares of BEL, for instance, soared 5 per cent to Rs 292.10 on the back of two-fold jump in average trading volumes after the company reported a healthy December 2024 quarter

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Deepak Korgaonkar Mumbai

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Shares of defence companies were in focus on Friday, with frontline stocks surging up to 9 per cent on the BSE in the intraday trade, on expectations of strong order inflows going ahead.
 
Garden Reach Shipbuilders & Engineers (GRSE), BEML, Mazagon Dock Shipbuilders (MDL), Bharat Dynamics (BDL), Bharat Electronics (BEL), Cochin Shipyard, Hindustan Aeronautics (HAL), Apollo Micro Systems, and Data Patterns (India) were trading higher in the range of 4 per cent to 9 per cent. In comparison, the BSE Sensex was up 0.63 per cent at 77,242 at 11:18 AM.
 
Shares of BEL, for instance, soared 5 per cent to Rs 292.10 on the back of two-fold jump in average trading volumes after the company reported a healthy December 2024 quarter (Q3FY25) with a 52.5 per cent year-on-year (Y-o-Y) growth in consolidated profit at Rs 1,311 crore, driven by strong operational performance.
 
 
Revenue increased by 38.6 per cent Y-o-Y (up 25.3 per cent quarter-on-quarter (Q-o-Q)) to Rs 5,771 crore in Q3FY25 as execution remained healthy. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin also improved by 316 bps Y-o-Y (down 147bps Q-o-Q) to 28.9 per cent.
 
Execution during the quarter remained strong and better than expectations. Order inflow stood at around Rs 11,000 crore during 9MFY25 but the management maintained its full year order inflow guidance of Rs 25,000 crore, which implies strong order flows in the next two months.
 
BEL's management shared a bullish ordering outlook, in anticipation of base order inflows of Rs 15,000 crore per year including AMC/spare contracts, orders worth Rs 25,000-30,000 crore for quick reaction surface-to-air missile (QRSAM) in FY26, orders worth Rs 15,000 crore in FY27 for Medium Range Surface to Air Missile (MRSAM) system and Mutli-Function Surveillance and Threat Alert (MFSTAR) Radar system for next-generation corvette (NGC), and multiple derivative orders worth Rs 8,000-10,000 crore for radars, electronic warfare, communications and missile systems over FY25-FY27 from naval/aero platforms. Brokerage firm Nomura, hence, expects order inflows worth Rs 85,000 crore for BEL between FY25-FY27F.
 
"The Management is confident of over Rs 25,000 crore inflow in FY26; led by a few large programs like QRSAM, Next generation corvettes etc. Order backlog already stands strong at Rs 71,100 crore as of December 2024 (~3x TTM revenue) which provides healthy revenue growth visibility," said those at ICICI Securities in a note.
 
Among other individual stocks, GRSE surged 9 per cent to Rs 1,649 in the intraday trade. In the last four days, Graden Reach share price has rallied 13 per cent, after the company has signed a Memorandum of Understanding (MoU) with Apollo Micro Systems to establish a strategic collaboration for the joint development and supply of Advanced Weapons and Electronic Systems.
 
Meanwhile, analysts at Elara Capital expect ordering flow to rise sharply in the January to March quarter (Q4FY25) for the defence sector given that defence capex is set to be met in FY25. Allocation to domestic companies stands at 75 per cent of the total budgeted defence capex, with the Navy’s budget up 18 per cent YoY in FY25BE.
 
As per Ministry of Defence (MoD), the actual defence capex stands at Rs 1.7 trillion in FY25 versus Rs 1.72 trillion in FY25BE, given that the share of defence spend in April-October at 36 per cent was lower by 700bps Y-o-Y. So, expect large order inflows to be announced in Q4FY25, including imports of Rafale-M (USD 4bn) and MQ-9B drones (USD 3bn) along with domestic orders for next-generation Corvettes (Rs 36,000 crore), the brokerage firm had said in December.
 
In FY23, MoD awarded Rs 60,000 crore inflows on a single day (29 March 2023). Also, domestic AoN approved through FY23-December 2024 is cumulatively INR 8.3tn. Domestic Acceptance of Necessity (AoN) approved through FY13-22 was Rs 5.4 trillion. So, cumulative AoN in the ~past 2.75 years exceeded that in the past decade (FY13-22) by a staggering 53 per cent, the brokerage firm said.
 
Indigenisation, a primary theme for India’s defence story, continues as domestic capex allocation as a percentage of the total defence capex is pegged at 75 per cent in FY25BE or Rs 1.05 trillion, the highest level ever (versus 74 per cent share in FY24BE and 50 per cent share in FY20), it added.
 

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First Published: Jan 31 2025 | 12:29 PM IST

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