Defence stocks rally up to 8% ahead of Budget. Should you buy?

Shares of Bharat Electronics were the top gainers in today’s trade as the stock surged 8% to Rs 96.3 apiece, while shares of Astra Micro, Cochin Shipyard, Hindustan Aeronautics and Mazagon Dock Shipbuilders rose about 4% each. Bharat Dynamics and Bharat Forge are also trading with gains.

"Defence sector, as every year before the Budget has a wishlist, out of which the important one is the outlay for emphasis on indigenisation, which means an emphasis on local production. This year we expect them to announce a significant budget for the space and research, electronic equipment and advancement on further localization," Ashwin Patil, Senior Research Analyst at LKP Securities, said.

"On PLI schemes, we would say that the GOI is fostering healthy competition in the defence space through launching various PLI schemes. This would surely improve the quality of defence products and services and further enhance the defence sector," Patil added.

Should you buy defence stocks?

Bharat Electronics
"We remain positive on the long-term growth story of BEL, given the strong order backlog and order pipeline, diversification in newer business verticals, focus on export markets and government focus on product indigenization etc. We expect revenue and PAT CAGR of 16.6%/19.1% between FY22-FY25E. We maintain Buy with TP of Rs 125," Amit Anwani – Research Analyst at Prabhudas Lilladher, said.

Meanwhile, brokerage house ICICI Securities said, "Despite order-books at a two-year low, we see upcoming opportunities across all segments -- defence, civil and exports, to propel BEL’s growth. We maintain BUY on BEL with an unchanged TP of Rs 125/share on 25x FY24E EPS. Slower-than-expected order-book build-up is the key risk to our thesis."

Mazagon Dock Shipbuilders
Domestic brokerage ICICI Securities has a sell rating on Mazagon Dock Shipbuilders with a target of Rs 600.

"While we believe MDL has a good order pipeline, visibility on order-book accretion remains low. Taking cognisance of impressive Q3FY22 performance, we raise our FY23E/FY24E EBITDA by 59%/16%, respectively. As a result, our revised TP works out to Rs 600 (earlier: Rs 575)," ICICI Securities said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times)