20% CAGR for defence stocks visible to us in terms of order inflows: Harshit Kapadia

“PSUs are the first set of beneficiaries. These include Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics and even GRSC. We are trying to push a basket of defence PSUs followed by the private industry,” says Harshit Kapadia, Vice President, Consumer Durable & Electrical and Capital Goods, Elara Securities India

We are talking about a 20% CAGR when it comes to the defence sector. How sustainable is this really going to be because we are still seeing high commodity prices and supply chain issues at play?

The defence industry has now come to stand about where we are going to see an influx of growth, driven by indigenisation and export push. A 20% CAGR is certainly visible to us in terms of order inflows and then possible that given the PSUs first benefit, they are going to see a strong execution as well. The push which the government is doing for the private sector as well that run rate could even be much higher for the private defence industry.

Is it a good time to make a basket of top three PSU defence companies – Mazagon Dockyard, BEL, even BEML? Just make a basket of these two, three stocks?

Certainly, when we look at the way the government is developing its strategy, the defence PSUs are the first set of beneficiaries and some of the names which you rightly pointed out are Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics and even GRSC. We are trying to push a basket of defence PSUs followed by the private industry.

Pre-Covid the stock price of BEL was Rs 70-80. Mazagon Shipyard is almost at a new high. Any stock which has got two things in common– PSU and a prefix or a suffix defence, that stock is at a new high?

Absolutely. Even at these levels, we have a very strong order inflow opportunity both on the domestic side and the exports of defence goods. That is also opening extremely well for these defence PSUs hence we are preferring the stock even at these high levels.

What is the pecking order of your favourite bets?

The indigenisation list has come out and the first set of beneficiaries will be the defence PSUs because they are the platform integrators and this will be followed by the component and subsystem makers which are largely your small and midcap private defence companies. We like Bharat Dynamics, Hindustan Aeronautics and GRSC followed by Bharat Electronics as our pick within the defence PSU space and within the private space we like Data Patterns.