HAL is a multi-year growth story with significant growth potential: ICICI Direct

Defence companies set to gain from this huge opportunity; HAL, BDL top picks

We believe HAL has a big opportunity in both manned and unmanned combat aerial vehicles, helicopters and aero engines. With development of Kaveri engine variants for different UCAVs, manufacturing of other aircraft engines and maintenance, repair and overhaul (MRO) of these aircraft and engines, we believe HAL is a multi-year growth story with significant growth potential. Current order backlog at 3.2x TTM revenues and healthy orders pipeline gives strong visibility.

BDL also witnesses significant opportunity with the need for new generation missiles from armed forces. The current order book is already strong at 3.8x TTM revenues with healthy pipeline or orders in new missiles & torpedoes. High indigenisation level of 80-85% in most missiles and torpedoes offer export opportunities also.

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.