How Investors Can Make Most Of Defence Opportunity, Explains Edelweiss AMC's Trideep Bhattacharya
Edelweiss AMC's Trideep Bhattacharya expects several defence manufacturers to go the IPO way in the years to come.
India's defence sector is a decadal opportunity for investors, according to Trideep Bhattacharya of Edelweiss Asset Management Co.
As long as steps taken by the government to boost the indigenisation of defence remain consistent, the sector is bound to flourish, Bhattacharya, chief investment officer-equities at Edelweiss AMC, told BQ Prime's Niraj Shah.
"In that context, the capabilities of the companies, the ecosystem is not fully developed. Watch this space, a lot of companies will either go [the] IPO [route], or join the bandwagon overall. At the moment, we have fairly limited opportunities in the listed space we can play with," Bhattacharya said.
While every segment has its day under the sun, what matters most from minority shareholders' perspective "is that same opportunity gets captured with better profitability, along with higher growth and higher return ratios", he said.
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Among the companies that are part of the defence theme, Bhattacharya is bullish on the ones that can "maintain the profitability, despite government being the customer".
"They have a decent amount of pricing power in the way they go about marketing their offerings—there is a niche—rather than making a commodity offering. And I suppose, they are on the right side of the orderbook... which covers 2-3 years. As long as these takes are there, I would be bullish on those names on a multi-year timeframe," said Bhattacharya.
There is a shortage of choice in terms of players present in the sector, said the Edelweiss CIO.
"But the place I would like to be are those companies which can be capitalised in the way they go about doing their business... Some companies may need to invest significant amount of money building the capacity ahead of time before the revenues come in. There would be other (companies) who get built along the way," he said.
"Both areas will see benefits, but from a profitability standpoint, the second category is more interesting." This kind of capital-light framework is how investors can play this theme, he said.