India's leading defence stocks by orderbook; HAL, Cochin Shipyard, BEL among top contenders

The Indian defence sector is currently undergoing significant growth, influenced by government spending and efforts to increase domestic production. With the return of the National Democratic Alliance to power, there is an expectation of continued investment in defence, as highlighted by Defence Minister Rajnath Singh's target to reach ₹50,000 crore in defence exports within the next five years.

This development offers potential investment opportunities, particularly in defence stocks with substantial order books, indicating strong future revenue streams. As India aims to reduce its dependence on foreign imports, the focus on domestic defence manufacturing is creating new opportunities for companies with large order books and established contracts with the Indian defence forces.

Here are the 5 leading defence stocks in India ranked by order book value.

Hindustan Aeronautics Ltd (YTD return:71%)

Order book as of May 17, 2024, stands at ₹94,000 crore.

Order book as of May 17, 2024, stands at ₹94,000 crore and is expected to increase to ₹1,20,000 crore by the end of the fiscal year.

Expected contracts for the LCA Mark 1A, Light Combat Helicopters, Advanced Light Helicopters, Dornier Aircraft, and Utility Helicopter Marine are anticipated to total around ₹1,60,000 to ₹1,70,000 crore over the next 18 months to 3 years. The company plans to keep its manufacturing lines occupied until 2032.

Bharat Electronics Ltd (YTD return:67.9%)

The company maintains a revenue growth guidance of 15% for the full year and expects an order inflow of ₹25,000 crore. Major orders received include BMP-2 Upgrade, TR Modules for Thales, MPR Radar for ITR Chandipur, etc. From Future Growth and Opportunities the company is expecting a total order inflow of ₹50,000 crores for the current year and next year.

The company is anticipating substantial orders from programs such as ADFT, EW suites for Mi-17 V5, security and surveillance systems for the army, mountain radar, and MFRX band radar for ships. Additionally, it is exploring new export opportunities, including potential orders from L&T, Airbus, Thales, Reliance Defense Systems, and others.

Mazagon Dock Shipbuilders Ltd (YTD return: 86.7%)

The company expects its revenue targets for FY25 to surpass the previous year's performance. Management anticipates maintaining similar margins for existing projects, barring any unforeseen liabilities. This fiscal year, the company aims to achieve three significant deliveries: one destroyer, one frigate, and one submarine.

Ongoing negotiations and bidding are in progress for new projects, including eight next-generation corvettes and export orders. The management remains optimistic about maintaining strong performance and margins, supported by ongoing projects and a healthy order book.

Garden Reach Shipbuilders & Engineers Ltd (YTD return:106%)

The order book comprises mostly shipbuilding orders, with a significant focus on:

• P17 Alpha Project: 3 warships for the Indian Navy.
• 8 Anti-Submarine Shallow Water Crafts.
• 3 Survey Vessels Large, and 4 Next Generation Ocean Going Patrol Vessels.
• Additional projects include an Oceanographic Research Vessel and 4 export projects (including a dredger and patrol boats).

The project execution strategy and strong order book position are expected to support sustained revenue growth. However, management notes that revenue growth may not translate into a proportional increase in margins due to the competitive nature of shipbuilding bids.

On the risk front, the current crisis in Bangladesh is expected to have minimal impact, as orders from that region account for only about 1.2% of the total order book. Management remains optimistic about future growth, driven by a robust order pipeline and ongoing government initiatives to enhance domestic shipbuilding capabilities.

Cochin Shipyard Ltd (YTD retun: 206%)

Incorporated in the year 1972, Cochin Shipyard Limited(CSL) is a leading player in the construction of all kinds of vessels, repairs and refits of all types of vessels including periodic upgradation and life extension of ships.

New Orders

• Signed a contract with a European client for the design and construction of a Hybrid Service Operation Vessel (Hybrid SOV) with delivery expected in 2026.
• Secured another contract from the same client for additional Hybrid SOVs.
• A wholly-owned subsidiary, UCSL, secured orders for Bollard Pull Tugs for Polestar Maritime Limited and Ocean Sparkle Limited.
• CSL secured an order for ASD Tugs for Industrial Handling Private Limited.

The company is expecting orders for green vessels from the European market and is optimistic about orders for green tugs in the Indian market.