Top 4 Defence Stocks that Could Benefit from Iran-Israel War

India's foreign policy balancing act in the Middle East has come under scrutiny following the country's arms shipments to Israel during the recent Gaza conflict.

Although India may be reaping technological benefits due to deepening its ties with Israel, it is equally significant to think that by exporting arms, India risks straining relations with Arab countries and Iran.

Saudi Arabia, a crucial economic partner for India, might view these exports as contradictory to its foreign policy and regional stability goals.

Amid the escalating tensions in the Middle East, India sent three Naval Warships to Iran. The three Indian Naval Warships arrived in Iran during a long-range training deployment in the Persian Gulf.

India's decision to send naval ships to Iran amidst rising regional tensions reflects the complexities of its foreign policy. As a nation with deep ties to both Israel and Iran, India must carefully balance its strategic interests.

While India supports Israel in its fight against terrorism, it also has crucial energy and defence ties with Iran.

Now, all of this has a direct impact on the Indian stock market as well.

Let's take the recent conflict as an example to see how geopolitical tensions impact a country's stock market...

Last month, Indian share markets were trading very close to their all-time high and following the geopolitical events in the Middle East with Iran firing more than 180 missiles into Israel, the sentiment has soured and benchmark index BSE Sensex fell almost 6% in 6 days.

For investors looking to profit amid this unrest, there are at least 14 listed Indian companies that have a presence in the troubled territory of Israel.

The impact could be positive for some companies, and vice versa. But one sector that always thrives during times like these is defence.

Keeping that in mind, in today's article, let's look at the top defence companies that could benefit from the Israel-Iran conflict.

#1 Premier Explosives

Premier Explosives is a company that caters to the demand for explosives in the mining, infrastructure, defence, and aerospace industries.

The company is well-positioned to benefit from the high demand for explosives, which is expected to increase after the Isreal -Iran conflict and with the Indian government's rising budgetary allocation towards defence.

Premier is the only qualified Indian company for countermeasures and the only Indian company that specializes in the exports of fully assembled rocket motors. In addition to the rocket motor, warheads -- Premier has also entered into manufacturing and exports.

The company exports to countries like Israel, Greece, Jordan, Turkey, Nepal, Thailand, Philippines, Indonesia, and Djibouti.

According to reports, Premier Explosives manufactures solid propellants for Barak missiles, which may be used in the conflict. The company has confirmed exports to Israel.

At the moment, Premier Explosives has an order book of Rs 8.9 billion (bn), out of which 85% or Rs 7.6 bn is filled with defence orders.

For the first quarter of FY25, the company's revenue came in at Rs 830 million (m) compared to Rs 620 m in the same quarter last year.

Operating profit for the same period came at Rs 160 m compared to Rs 170 m in the year ago period.

Going ahead, Premier is expected to receive new orders from the Ministry of Defence (MoD) and Israel at regular intervals.

Premier has entered into the manufacturing of mines and ammunition as well through the Atmanirbhar Bharat initiative.

The company is expected to incur a capex for setting up defence explosives, raw materials, and ammunition plants in 3 phases in Rayagada District with a total investment of about Rs 8.6 bn.

To know more, check out the financial factsheet of Premier Explosives.

#2 Solar Industries

Solar Industries is one of the largest domestic manufacturers of bulk and cartridge explosives, detonators, detonating cords, and components that find applications in the mining, infrastructure, and construction industries.

The company manufactures high-energy explosives, delivery systems, ammunition filling and pyros fuses for the defence sector.

Solar Industries is expecting the growth in defence segment to continue with the help of much-awaited Pinaka rocket orders and other orders to commercialise. It is looking to expand its presence in 2 new countries, Kazakhstan and Thailand, very soon.

In March 2024, Solar Industries received export orders worth Rs 4.5 bn for the supply of products over the next two years for use in defence platforms. With this order, the company's order book is estimated to be at Rs 36.5 bn (including a defence backlog of Rs 23 bn consisting of both domestic and exports).

In July 2024, Solar Industries acquired a 73.9% stake in Problast (South Africa), through its South African subsidiary (Solar Mining Services). The acquisition of Problast, South Africa is in line with the company's intent to expand its operation in the international markets.

In the first quarter of FY25, the company achieved its highest-ever quarterly EBITDA and net profit at Rs 4.7 bn and 3 bn.

The domestic explosives volume for the quarter grew by 16% YoY basis.

The government budget for FY25, with the increased capital outlay and greater emphasis on infrastructure development, housing, and roads, and the Israeli-Iran conflict is bound to increase demand for explosives.

The company's liquidity remains strong, driven by cash accrual of Rs 9 to 10 bn per annum against an annual capital expenditure of Rs 8 bn.

Going forward, Solar Industries is looking to expanding into advanced markets of ammunition and the space sector.

To know more, check out the financial factsheet of Solar Industries.

#3 Data Patterns (India) Ltd.

Data Patterns (India) is one of the fastest-growing companies in the defence and aerospace electronics sector in India. It is among the few vertically integrated defenceand aerospace electronics solutions providers catering to the indigenously developed defence products industry.

The company benefits from India's import bans on 780 defence items, creating opportunities to fill supply gaps.

Recently, the Defence Research & Development Organisation (DRDO) sanctioned a new project to Data Patterns under the technology development fund scheme. The project relates to the development of a radar signal processor with an active antenna array simulator. For the financial year 2024, Data Patterns' total revenue stood at Rs 5.6 bn as against Rs 4.6 bn last year. This revenue growth was contributed by an increase in order inflow and timely execution of the same.

Revenue from all product categories showed a good growth during the year. Radar and electronic warfare products contributed Rs 3.1 bn to the revenue as against Rs 2.6 bn for the previous year.

The company has a robust order book of 11.4 bn.

The company aims to capitalise on various opportunities, including focus on flight control radars, expand radars and smaller radars for UAVs, ensuring cost competitiveness with in-house IP in radars, develop electronic warfare products to meet the requirements of Army, Air Force, and Navy, and provide military radios, radio relays, and other required equipment .

With a strong focus on radar, electronic warfare, and Government initiatives, Data Patterns anticipates securing projects worth Rs 20-30 bn in the next 3-4 years.

The company expects 20-25% revenue growth and an additional Rs 10 bn in orders for FY25.

To know more, check out the financial factsheet of Data Patterns.

#4 Hindustan Aeronautics Limited (HAL)

Hindustan Aeronautics (HAL) is an aerospace and defence company that designs, develops, manufactures, and maintains aircraft, helicopters, engines, and related components.

Hindustan Aeronautics has been in focus under Prime Minister Narendra Modi's push for self-reliance (Atmanirbhar Bharat), helping the company bag major defence and manufacturing orders.

As of FY24, the order book stood at Rs 940 bn compared to Rs. 820 bn in FY22, with additional major orders expected during FY25. The order book is further bolstered by a Rs 260 bn order for 240 aero engines of Su-30 MKI aircraft and would stand at Rs 1,200 bn, delivery of which should begin from FY26 onwards.

HAL is committed to delivering 30 engines annually, with the complete supply of 240 engines slated for completion over the next eight years.

The company incurred a capex of Rs 21.6 bn in FY24 mainly towards the Green Field Helicopter project at Tumakuru.

It's planning an average capex of Rs 30 bn each year up to FY30. The company is expecting orders totalling around Rs 1,600 bn to 1,700 bn in the next 3 years.

For the first quarter of FY25, HAL reported a consolidated net profit of Rs 14.3 bn, a sharp jump of 76.5% from Rs 8.1 bn in the same quarter last fiscal.

HAL is shifting its focus from licensed production to developing its indigenous products.

To know more, check out HAL's financial factsheet.

Conclusion

While the defence sector holds significant potential, it is essential to weigh certain factors before making investment decisions.

Though India exports defence related equipment to 42 countries, the major exports, so far, are limited to a few countries namely Myanmar (46%), Sri Lanka (25%) and Mauritius (14%).

The Ministry of Defence has introduced scheme to promote defence exports. Also, funds have been allocated for export promotion to another 34 countries.

These dedicated defence export related policies and funding for setting up export linked defence capacities could help India's defence export to reach even higher levels.

If India's defence exports go the Israel way, there could be significant reason to hold on to defence stocks for much longer.

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...