Top 4 Defence Exporting Stocks to Add to Your Watchlist

India's defence sector is roaring with the engines of self-reliance. For the first time ever, defence exports have shattered the Rs 210 bn mark, reaching a phenomenal Rs 210.8 bn in FY 2023-24.

This explosive 32.5% growth, as announced by Defence Minister Rajnath Singh, is a testament to India's transformation into a major defence exporter.

India has achieved significant success in bolstering its domestic production of defence equipment. This increased capacity has not only strengthened national security but also paved the way for a flourishing export industry.

Products like the LCA-Tejas light combat aircraft, light combat helicopters, and even aircraft carriers are attracting growing interest from across the globe. This global appeal is further fuelled by India's ability to offer sophisticated defence systems like 155 mm Advanced Towed Artillery Guns and Brahmos Missiles.

Media reports indicate that India is currently exporting its defence products to over 85 countries, showcasing the growing prowess of its domestic defence industry. Over 100 Indian firms are actively involved in exporting these sophisticated systems.

Here are the top 4 major defence PSU companies that contributed to the above exports.

#1 Hindustan Aeronautics

First on the list is Hindustan Aeronautics.

Hindustan Aeronautics Ltd (HAL) is an aerospace and defence company, owned by the government of India.

Established on 23 December 1940, HAL is one of the oldest and largest aerospace and defence manufacturers in the world.

The company develops, designs, manufactures, and supplies aircraft, helicopters, avionics, and communications equipment for military and civil markets.

It is aggressively pursuing exports by leveraging its range of indigenous products, particularly highlighting the capabilities and safety of platforms like LCA Tejas.

It is eyeing exports to countries including Argentina, Nigeria, Egypt and the Philippines, which are interested in the light combat aircraft (LCA) Mk-1A and the advanced light helicopter (ALH).

HAL recently came close to winning a US$ 920 million (Rs 75.1 bn) contract to supply 18 fighter jets to Malaysia but was pipped by Korea Aerospace Industries earlier this year.

Argentina appears to be a frontrunner for the LCA Tejas and ALH, while Nigeria and Egypt have shown interest in the LCA. The Philippines, on the other hand, has expressed a potential need for the ALH helicopters.

Argentine Air Force teams have visited HAL and flown both LCA and ALH, the Indian officials held discussions with Nigerian president Bola Ahmed Tinubu on the possible sale of fighter jets to the African country during his visit to Delhi for the G20 Summit in September.

As a continuation of its focus on expansion, the company is looking for partners from around the world and even opening up export offices in specific places.

Second, the company's focus on upgrading aircraft for defence customers is another ace up its sleeve.

This includes changes like giving planes a tech makeover, which is called an avionics upgrade and integrating new weapon systems.

This expertise is expected to be a key driver in the company's success story moving forward.

For more, check out our detailed editorial on HAL.

#2 Bharat Electronics

Second on the list is Bharat Electronics.

Established in 1954 in association with CSF France, the company is now a government aerospace and defence company.

It manufactures a range of specialised electronic products for military as well as non-military use.

Bharat Electronics' product portfolio is broadly classified into defence & non-defence, which includes a slew of simple and complex products such as batteries, radars, electronic voting systems, and encryptors.

Apart from catering to the domestic market, it exports its products to several countries, including Botswana, Indonesia, Sri Lanka, Russia, the US, and South Africa.

Bharat Electronics Limited (BEL) heavily relies on the Indian defence sector, constituting about 87% of its revenue. This high dependence poses vulnerability to shifts in defence policies or significant spending cuts.

To address this, BEL is actively diversifying its revenue sources by increasing non-defence earnings and exploring defence equipment exports to friendly nations.

Its focus on regions like Southeast Asia, Europe, the Middle East, Africa, and North and South America underscores its commitment to expanding its global footprint.

BEL's electronics are integrated into various Indian-made defence platforms like fighter jets, warships, submarines, and communication networks. The global appeal of these platforms indirectly translates to increased demand for BEL's electronics as part of the export package.

Beyond supplying domestic platforms, BEL also directly exports its range of electronic defence equipment. This includes radars, communication systems, and electronic warfare suites, catering to the specific needs of foreign militaries.

BEL's consistent investment towards R&D has helped create a strong competitive moat by enabling it to develop the latest generation products and services and gradually increasing the indigenisation of its product offerings, this will further help the company gain international market share.

It expects revenue and net profit CAGR of 21% and 20% over FY24 - FY26E.

For more details, see the Bharat Electronics company fact sheet and quarterly results.

#3 Bharat Earth Movers

Third on the list is Bharat Earth Movers.

Bharat Earth Movers formerly known as BEML is a prominent public sector undertaking (PSU) in India that specialises in manufacturing a diverse range of heavy equipment for various sectors, including mining, construction, defence, rail, and metro transportation.

It contributes significantly to India's defence capabilities and explores aerospace opportunities. This particular sector involves the creation of heavy equipment for mining and construction activities.

The company directly exports its defence equipment to various countries. Their proven track record and focus on indigenisation (domestic production) make BEML products cost-effective and reliable options for foreign buyers.

BEML's high mobility vehicles and bridge systems are often integrated into India's indigenously developed armoured fighting vehicles and other military platforms. The success of these platforms in the export market translates to increased demand for BEML's components.

BEML is optimistic about enhancing the share of its Defence Business, expecting it to reach around 30% of the total company's revenue during the current year.

Collaborations with other DPSUs and the private sector for the supply of High Mobility Vehicles and missile Programmes will help it strengthen its presence in the export market.

For more details, see the BEML company fact sheet and quarterly results.

#4 Mazagon Dock Shipbuilders

Fourth on the list is Mazagon Dock Shipbuilders.

Mazagon Dock Shipbuilders holds a unique position as the sole company in India, specialising in building conventional submarines and destroyers for the Indian Navy.

The company's offerings span a diverse range, from naval ships and submarines to ferries and cargo vessels.

The company currently has a large library of designs for a variety of items for both domestic and foreign customers. MDL has constructed 801 vessels since 1960, including 27 warships, advanced destroyers, missile boats, and 7 submarines.

The company is expecting to receive some orders from the export market in the next two months.

Mazagon Dock had forayed into the export market in 2019 and as of the end of financial year 2023, exports contributed only 3% to the company's overall topline.

The company is in talks with Sri Lanka, Brazil, and South America for exports and will collaborate with the private sector on emerging technologies.

The company is actively exploring joint ventures abroad for both exports and establishing shipyards.

To increase, Mazagon Dock is eyeing international markets through an enhanced focus on exports.

Despite the challenges posed by a highly competitive market, the company is making dedicated efforts to establish a presence on the global stage.

For more details, see the Mazagon Dock Shipbuilder company fact sheet and quarterly results.

What are Some Other Defence Exporting Proxies to Keep An Eye On?

In addition to these companies, more than 50 companies are contributing to defence exports.

Here are a few...

Company	1-Year Share Price Growth (%)
MTAR Technologies	21.6
Data Pattern	85.7
Nibe	295.2
Paras Defence	46.0
Zen Technologies	216.9

Conclusion

India has set a defence export target of Rs 350 bn by 2024-25. This drive for increased exports aligns with a significant emphasis on the indigenisation of weaponry and systems.

These include imposing phased bans on the import of weapons, creating a separate budget for buying locally made military hardware, increasing foreign direct investment from 49% to 74% and improving ease of doing business.

India is eyeing a turnover of Rs 1.8 trillion (tn) in defence manufacturing by 2024-25.

On 4 October, India slapped an import ban on 98 weapons and systems, including futuristic infantry combat vehicles, ship-borne unmanned aerial systems, medium-range precision kill systems, radars, sensors, and equipment for fighter jets, maritime surveillance planes, warships, helicopters and tanks.

The fifth positive indigenisation list, released by Defence Minister Rajnath Singh, took the number of major defence items placed under an import ban during the past three years to 509.

All being said, the stock market is a tricky place. Top Defence sector stocks, like other sectors, are influenced by economic conditions and market fluctuations.

You need to look out for a fundamentally strong defence company to make the most of the current opportunity.

Get started by using Equitymaster's stock screener to filter the best defence stocks in India.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...