Best Defence Sector Stocks in India for 2023 – Make in India in Defence Sector Industry
In continuation to the previous series of stocks & bonds, today we are going to pick the Best Defence Sector Stocks in India for 2023. To set the context right, we will start with the Defence sector industry and how make-in-India players are making entries into the sector. Finally, the best stocks from the defence sector we are going to check out!
Defence Sector Industry
India has one of the world's most powerful military forces. Which is strategically important to the Indian government. Military fixed-wing aircraft, naval vessels and surface combatants, and missile defence systems are the top three largest market segments in India's defence sector.
Currently, there is the dominance of government companies in the defence industry. However, due to the growing demand for defence equipment, there is a boost in this sector. To meet this demand, the Government of India has revised the FDI limit to 74%. Above all, it opened the door to the private player and encourages domestic players to become a part of this initiative. Therefore, it helps in strengthening national security. As there is constant stress at country borders from Pakistan and China. India is among the top importers of defence equipment to fight back against these rival countries.
Major players in defence sectors are Hindustan Aeronautics Ltd, Bharat Earth Movers and Bharat Electronics Ltd. But now the door is getting open for private sectors with that scope widening and giving hope to equity investors also.
Make in India in Defence Sector Industry
The government is taking several initiatives to encourage 'Make in India' activities through policy support initiatives. Therefore, it helps in modernising its armed forces and reduces reliance on external defence procurement. The government of India has recognised the defence and aerospace sector as key areas for Aatmanirbhar Bharat. This will reduce our imports and boost the self-reliant India mission.
As of date, India spends 2.15% of the country's total GDP on defence. It is estimated government plans to spend $130bn across armed services. With the Atmanirhbhar Bharat Abhiyan in place, it encourages India's private players to manufacture hi-tech defence equipment. It emphasizes domestic players shaking hands with the global manufacturer for big-ticket contracts,
As per facts, 74% of the army contracts have been offered to Indian vendors over global players. With the support of the government, India now has 194 defence tech startups to build innovative tech solutions.
Under the Make in India scheme, the centre has approved three lists of projects:
Make I: 90% of the Government funded schemes rolled out to Indian vendors via the tenders route. In this scheme, there are four army projects: Indian Light tanks, a Terminal end secrecy device, a tactical communication system and a futuristic infantry combat vehicle. These projects are circulated to meet the requirements Indian armed forces.
Make II: This category of projects involves the manufacturing prototypes, systems and subsystems to substitute the import. Under this scheme, the government will put up a proposal and specify the basis of its requirements so that domestic players can present their ideas and prototypes. Currently, with the Indian defence force, there are 68 projects ongoing. These are for the manufacturing of spare parts, detection system, instrumentation parts, radar system and light trucks.
Make III: In this category of project, domestic vendors can join hands with foreign manufacturers for designing and developing defence equipment to reduce dependency on imports.
The establishment of defence corridors in Uttar Pradesh and Tamil Nadu, as well as the testing of indigenous defence products like the Agni-5, BrahMos, Pinaka Mk-I (Enhanced) Rocket System (EPRS), and Pinaka Area Denial Munition (ADM) rocket systems, as well as the helicopter-launched Anti-Tank Guided Missile "HELINA," are among the major projects covered by this programme.
Best Defence Sector Stocks in India for 2023
Now we know what this defence sector constitutes so it will be easier for us to pick the right stocks for 2023. Here is the list of curated stocks from this sector:
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Hindustan Aeronautics Ltd:
HAL manufactures and provides maintenance services for aircraft & helicopters. It is the only Indian company that specialised in aircraft manufacturing and provides maintenance services. Promoter stakes are as high as 74% with healthy cash balances of Rs.14000 crore and an almost debt-free company. Has given a good return on equity for 3 consecutive years at 25%. The company is giving a dividend payout of 32.1% only con I see for this company is poor sales growth of 6.52% over the past 5 years.
Bharat Dynamics Ltd:
It's a government-owned company engaged in the manufacturing of missiles and allied defence equipment. BDL also joined hands with DRDO for smart anit airfield weapons as a production agency. They are anticipating orders of Rs15000 crore. It has got a promoter stake of 74.93% plus DIIs and FIIs of 15.88%. Giving a healthy dividend payout of 37.6% is reducing debt every year and soon will become debt free.
Mazagon Dock Shipbuilders Ltd:
This is a leading player in the manufacturing and maintenance of ships, submarines and various types of vessels. Govt of India has a high stake of 84.83%. Giving dividend of 37.6% year on year. Have reduced their debtor's days to 64 days from 86 days which is a good sign and almost a debt-free company and expected to give good returns.
It is in the business of defence and aerospace electronics solutions. And a legacy of three decades in this sector. The company is focusing heavily on innovation since the beginning and has a strong order book of 581.3 crores. Promoter stakes are decent enough at 45.76% and quality health cash flow of 168 crores and given a CAGR of 163% in the last 5 years. Almost debt-free and expected to give good quarter results.
Other than these 4 stocks, you can also consider Paras Defence, BEL and MTAR technologies if you are tilted toward this sector.
As we can see, the prices of these defence stocks have increased by an average of 100%. So what are you waiting for go and grab the opportunity?