BEL, HAL, BEML: Defence stocks rally as Centre clears ₹1.10 lakh crore military procurement; check top beneficiaries

Shares of defence equipment manufacturers such as Hindustan Aeronautics (HAL), Bharat Electronics (BEL), and BEML, were trading with impressive gains on Tuesday, September 8.

This is because the defence ministry on Monday approved acquisition of military hardware for the three services including radars, advanced light helicopters and mechanical mine layers at an estimated cost of ₹1.10 lakh crore to boost the military's overall combat prowess.

The procurement proposals were cleared by the Defence Acquisition Council (DAC) headed by Defence Minister Rajnath Singh.

"The DAC accorded Acceptance of Necessity (AoN) that is in-principle administrative approval to various acquisition proposals of the defence forces at an estimated cost of about ₹1,10,000 crore," the ministry said.

"For the Indian Army, approval was granted for the procurement of Chemical Biological Radiological and Nuclear (CBRN) recce vehicles, high mobility vehicles (HMVs), self-propelled mechanical mine layers (MML), advanced light helicopters (ALHs), trawl tanks and Sarvatra bridge system," it said.

The CBRN recce vehicles will be capable of detecting, identifying, monitoring and marking of areas contaminated with CBRN agents.

How defence stocks were performing in early trade on September 8

At 09:30 AM, the NIFTY INDIA DEFENCE index traded 1.13% higher at 9,864.70 levels, with 14 constituents trading in the green.

HAL shares were up 2.68% at ₹4,985.10 apiece on the NSE, while Bharat Electronics was up over 1.5% at ₹410.25. BEML Ltd shares were trading nearly 4% higher at ₹2,177.80 apiece, and Data Patterns (India) Ltd was up over 4% at ₹4,786.80.

Bharat Dynamics Ltd was up 0.58% at ₹1,248.90 on the NSE.

Details to know

"The ALHs will execute complex missions across all terrains and operational situations for the Indian Army and the Indian Air Force. The trawl tanks and bridge system will be utilised to provide composite crossings to fighting formations during operations in varied terrains," the ministry said.

For the Indian Navy, AoN was accorded for the procurement of Arudhra radars, design and development and subsequent procurement of Marine Gas Turbines (MGT).

Arudhra radars will replace the existing Air Route surveillance radars at various Naval Air Stations, and MGT, a warship propulsion system, is expected to reduce dependency on foreign vendors.

For the Indian Air Force, approval was granted to various proposals to enhance the war-fighting capability of fighters, transports and helicopters. Approval was accorded for procuring Ground-Based Multi-Purpose Jammer (GBMPJ) and installing Defence Forces Secure Access Card system, according to the ministry.

The GBMPJ will provide effective jamming against radars of adversaries, it said in a statement.

Of the total AoNs accorded, approximately 98% of procurements will be made from the Indian industry, it added.

What leading analysts said on the development

Jefferies believes India's defence spending could grow at a double-digit CAGR over the medium term, against the backdrop of rising global geopolitical tensions.

The investment firm expects the government's focus on domestic manufacturing and building a stronger private-sector defence supply chain to support sustained growth across the sector.

Private sector to see strong growth: Jefferies expects private-sector defence companies to have visible growth prospects of more than 20%, supported by increased government focus on domestic manufacturing and the development of a private-sector supply chain.

It is positive on three stocks, namely, Solar Industries, Astra Microwave, and Bharat Dynamics.

Goldman Sachs on India Aerospace and Defence

Defence procurement: The Defence Acquisition Council (DAC) has approved defence procurement proposals worth ₹1.1 lakh crore for the Indian armed forces, with the proposals largely focused on requirements of the Indian Army. About 98% of the procurement is expected to be sourced from domestic industry, reinforcing the government's push towards indigenous defence manufacturing.

Advanced Light Helicopters: Goldman Sachs estimates that the Advanced Light Helicopter (ALH) order could be worth ₹25,000–30,000 crore. This makes Hindustan Aeronautics (HAL) a key beneficiary, given its role as the manufacturer of the ALH.

Key beneficiaries: BEL, HAL and BEML are seen as the key beneficiaries of the latest procurement proposals.

HAL has direct exposure through the ALH programme, while BEL could benefit from the proposed procurement of Arudhra radars and electronic-warfare equipment.

BEML has exposure to the Army's requirements for high-mobility vehicles and the Sarvatra Bridge System.

Focus areas: The latest proposals are aimed at strengthening the armed forces' capabilities across surveillance, counter-measures and deterrence platforms, including radars, electronic-warfare systems, helicopters and other mobility and combat-support equipment.

The increased focus on domestic procurement is also expected to support greater participation by private-sector defence companies.

CLSA on HAL

CLSA said the DAC's approval to procure 138 Advanced Light Helicopters (ALH) from HAL could add around 13% to the company's existing US$27 billion backlog, apart from adding about US$600 million in cash through advances.

CLSA sees HAL's decadal order pipeline remaining healthy at around US$48 billion. The investment firm sees the start of Mk 1A deliveries in the second half of the year and visibility on a GE engine production deal as key catalysts.

CLSA also believes HAL remains the cheapest pure-play defence stock, despite its sector-leading position, and trades at a justified premium to global aerospace peers given its Make-in-India pipeline and market access.