2024-07-04 13:25:02
Antique Stock Broking in its June quarter earnings preview note said the combined sales of eight defence companies including Mazagon Dock Shipbuilders Ltd, Cochin Shipyard Ltd, Bharat Dynamics Ltd (BDL), BEML Ltd, Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), PTC Industries Ltd and Garden Reach Shipbuilders & Engineers Ltd may jump 27 per cent YoY, given the improvement in supply chain and swifter execution, supported by all-time high order book of multiple companies.
The brokerage sees its defence universe to report a 29 per cent YoY increase in profit before tax and a 30 per cent rise in profit after tax for the quarter. At an aggregate level, margin performance across companies would be the key monitorable, it said.
“In 1QFY25, we expect revenue of our coverage universe to register 27% YoY growth given the improvement in supply chain and swifter execution supported by all-time high order book of multiple companies. We expect shipyard companies to report margin contraction, change in revenue mix and margin of players such as BEL (up 157 bps YoY), HAL (down 267 bps YoY) may lead to merely 15 bps expansion in Ebitda margin to 15.3 per cent,” it said.
The defence sector is currently enjoying a favorable environment, marked by government focus on defence indigenisation under the ‘Make in India’ initiative.
This, Antique said, has led to ordering activity remaining healthy with multiple large ticket orders being finalized during the year helping companies to further bolster their order book and setting the stage for FY25.
“Atmanirbhar Bharat provides a big boost to domestic defence companies and the Ministry of Defence is clearly focused on harnessing the domestic defence ecosystem through multiple initiatives like imposing an embargo on the import of 101 defence items to boost indigenization of defence production, increasing the FDI limit to 74 per cent from 49 per cent earlier, and encouraging foreign OEMs to set-up ‘manufacturing/ maintenance entities’ through subsidiaries in India,” it said.
With a strong business outlook and all-time high order book with most defence companies, Antique Stock Broking expects execution to further improve and translate into profitability. The geopolitical situation has affected the supply chain for product manufacturers of certain players, however, we believe FY25 will witness normalisation in the supply chain leading to improved revenue booking,” it said.
Antique Stock Broking suggested HAL, Bharat Dynamics, BEL and Mazagon Dock as its four stock picks from the sector.
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