Despite formidable stock returns of ~70% on average over a year, we believe there is further steam left in the sector on the back of robust orderbooks and improving earnings quality. We maintain HAL (BUY; TP: Rs3,170), BEL (BUY; TP: Rs125) and Astra Microwave (BUY; TP: Rs380) as our preferred picks in the space. We maintain SELL on MDSL (TP: Rs575) and GRSE (TP: Rs390) owing to earnings peaking out by FY25

The Navy’s big projects in pipeline give a longer term visibility to defence shipyard companies like Mazagon Dock, Cochin Shipyard and Garden Reach. Moreover, the need of new aircraft for INS Vikrant like twin engine deck based fighter (TEDBF) to be manufactured by HAL. With these new high tech aircraft & warships, players like Bharat Electronics & Data Patterns will also benefit significantly in the future.

Companies like BDL (CMP INR 988, Mcap INR 18,105 cr) , HAL (CMP INR 2501, Mcap 83,640 cr) and BEL ( CMP INR 108, Mcap INR 78,836 cr) among PSU’s and PTC Industries (CMP INR 2859, Mcap INR 3,745 cr), Paras Defense (CMP INR 639, Mcap INR 2,490 cr), Data Patterns (CMP INR 1335, Mcap INR 6,930 cr) and SOLAR industries (CMP INR 3935, Mcap INR 35,611 cr) among private companies are better placed to exploit the upcoming opportunity