How HAL To Bharat Dynamics Stand To Gain From $110-Billion Defence Pipeline, Explains PhillipCapital

PhillipCapital lists how defence sector companies stand to benefit:

• Bharat Dynamics Ltd. has established a strong foothold in the industry as the exclusive manufacturer and supplier of surface-to-air missiles, anti-tank guided missiles, and torpedoes to the Indian armed forces.

• The company recently launched Astra, an offering that has broadened its addressable market to 61% of India's $24.5-billion missile demand spanning 2017 to 2026.

• While the company faced muted order inflows between fiscal years 2016 and 2022, primarily due to delays in finalising major orders, it recently secured a highly anticipated contract worth Rs 82 billion for the Akash Weapon System in March.

• The company has an order backlog of Rs 208 billion, backed by a robust pipeline worth over Rs 300 billion. These orders are expected to be finalised over the next three to five years.

• The brokerage firm projects a compound annual growth rate of 32% and 47% for the company's revenue and profit after tax, respectively, from fiscal years 2023 to 2026.

• Bharat Electronics Ltd.'s virtuous cycle of growth will be driven by a combination of order visibility and swift execution.

• Operating in the highly specialised defence-electronics sector, the company commands a market share of 60%.

• The company stands to potentially secure orders worth over Rs 250 billion annually for the next four years.

• With an order backlog of Rs 607 billion, the company has revenue visibility over the next three years. It also has a strong pipeline of Rs 700–800 billion.

• The brokerage firm expects to witness a compound annual growth rate of 15% and 18% in the company's revenue and profit after tax, respectively, from fiscal years 2023 to 2026.

• Data Patterns (India) Ltd. has experienced significant growth in the niche sector of defence electronics, demonstrating a healthy growth rate in recent years. This growth is visible in its order book CAGR of 39% from fiscal years 2018 to 2023.

• As of FY23, the company's order book stands at Rs 9.2 billion.

• In the next two to three years, the company anticipates radar orders worth Rs 10 billion.

• The company aims to execute nearly 95% of its current order backlog within the next two years. Some equipment-related tasks may extend to three to four years.

• The brokerage expects the company's earnings CAGR to be 39% over from fiscal years 2023 to 2026.

• Hindustan Aeronautics Ltd. is poised to witness a substantial boost in manufacturing revenue, driven by the execution of the Tejas light combat aircraft Mk-1A.

• In the previous fiscal year, the share of manufacturing revenue bottomed at 15% compared to 44% in fiscal year 2019.

• The company has an order pipeline of $48 billion over the next 10 years for products that it has already developed.

• The company holds a dominant position in India's aerospace defense sector, with approximately 80% of the defense forces' fleet being either supplied or serviced by Hindustan Aeronautics.

• The brokerage expects a revenue compound annual growth rate of 14% from fiscal years 2023 to 2026.

• MTAR Technologies Ltd. has established itself as a player in highly specialised sectors, catering to organisations such as the Indian Space Research Organisation, National Payments Corporation, Defence Research and Development Organisation, and Bloom Energy.

• Clean energy accounts for approximately 77% of the overall revenue.

• The management targets achieving a revenue of Rs 30 billion by FY28, representing a substantial increase from Rs 5.7 billion in FY23.

• Despite a lack of new build orders, MTAR continues to find opportunities in the refurbishment and spare-parts sector.

• The company's revenue CAGR was 30% over FY18–23 and the brokerage expects it to accelerate to 41% over FY23–26.

• Solar Industries India Ltd. is a dominant player in industrial explosives market, controlling a significant one-fourth share of the market in India.

• PhillipCapital expects the company to continue to maintain its dominant position in the niche explosives segment due to the absence of other contenders with a similar scale, stringent regulations and a high level of repeat business due to the sensitive nature of the product.

• Expanding its manufacturing capabilities overseas has been a key growth driver for the company, leading to a significant increase in revenue.

• The brokerage expects the company to achieve a compound annual growth rate of 10% and 17% in revenue and profit after tax, respectively, from fiscal years 2023 to 2026.