Current defense sector mania is very similar to infra mania in 2000’s, basically same wine in a different bottle. Low free float in PSU defense stocks is a cherry on top and adding further fuel to the rally. Marketcap/sales ratio of PSU shipbuilding stocks is obnoxious, even higher than high ROE, sustainable growth sectors like IT, FMCG.
Management of Mazagoan, GRSE have mentioned in concalls that they are likely to see peak revenues in FY25 or FY26 and they see 20-25%CAGR revenue from FY24-FY26. This shows that current order book size while large, the execution will happen over a period of years and peak growth is more than factored in current valuations.
Like infra, defense is also cyclical. Apart from may be HAL, Midhani, BEL, its important to note that R&D spend, IP of Indian defense stocks is nothing to boast about. In case of most companies, most of the technology is insourced from Indian entitities like DRDO, or some foreign entity.
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