10 Indian Government Stocks Set for Explosive Growth in 2025

2024 has been a rollercoaster ride marked by significant volatility.

Small-cap and mid-cap stocks soared as if there were no limits, with some rising dramatically, but the last few months have witnessed a considerable correction in many of these stocks.

The public sector undertakings (PSU) segment has been particularly affected, experiencing corrections of as much as 30-50%.

Now, investors are left wondering whether they are holding onto stocks that lack a solid foundation and were simply caught up in the PSU frenzy.

Contrary to the popular belief that PSUs have limited growth potential, recent trends suggest a paradigm shift.

Some government-backed giants have demonstrated impressive resilience and are emerging as key beneficiaries of India's economic growth and infrastructure expansion.

Here are 10 Indian government stocks poised for explosive growth in 2025, given their ambitious plans and extremely positive outlook.

#1 Hindustan Aeronautics

First on this list is Hindustan Aeronautics, the premier government-owned defence company in India.

The company is engaged in the design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures.

It's also one of the few companies of strategic importance for the defence of India.

The company has shown good financial performance, and the price has followed suit.

In FY24, revenue increased 12.82% to Rs 303.8 billion (bn), up from Rs 269.3 bn in the previous year.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins saw a dramatic rise from 25% to 32% in just a year.

Management has provided a positive outlook for the company's future, anticipating continued growth and expansion.

The management expects to sustain a double-digit revenue growth rate from FY25 onwards. This is supported by a strong order book and plans to deliver new platforms, including the LCA Mark 1A and Light Utility Helicopters.

The company has a healthy order book of around Rs 940 bn, representing an increase of Rs 120 bn from the previous year. This order book provides revenue visibility for the next five to six years.

Hindustan Aeronautics is expanding into the civil MRO (Maintenance, Repair, and Overhaul) business at its Nashik facility.

The company is also seeking to increase its exports, aligning with the Indian government's target of increasing defence exports from Rs 200 bn to Rs 600 bn.

The key risk in such asset-heavy and order book-dependent businesses is of cost overruns because of order execution delays. Investors should keep an eye out on how this order book execution pans out.

#2 SBI Life Insurance

Next on the list is SBI Life Insurance, SBI Life is a prominent player in the Indian life insurance sector. The company is a subsidiary of the State Bank of India (SBI), leveraging the vast network and customer base of its parent bank for distribution the company has steadily grown over the years.

SBI Life has consistently achieved strong premium growth, maintaining its leadership position among private players in the Indian life insurance market.

In FY24, the company recorded new business premium (NBP) growth of 29%, reaching Rs 382.4 bn and gross written premium (GWP) growth of 21%, reaching Rs 814.3 bn.

SBI Life reported a profit after tax (PAT) of Rs 18.9 bn in FY24, representing a 10% growth over the previous year.

The company's value of new business (VNB) stood at Rs 55.5 bn in FY24, with a 9% growth over the previous year. VNB margin for FY24 was 28.1%.

Embedded value, a key measure of the value of a life insurance company's business, increased 27% to RS 582.6 bn in FY24.

Asset under management (AUM) grew by 27% to Rs 3,889.2 bn in FY24, reflecting the company's strong asset base. The company has achieved a strong persistency ratio, with 13th month persistency at 86.8% in FY24.

SBI Life is targeting Annualized Premium Equivalent (APE) growth in the range of 18% to 20% for FY25.

The management expects to sustain a high single-digit to 10% growth in the Banca channel for the full year. It also anticipates VNB growth in the range of 12% to 15% for FY25 and a VNB margin around 28% in the long term.

SBI Life intends to prioritize the growth of its protection business, which is expected to positively impact margins.

The company is investing in digital platforms and data analytics to enhance its Banca channel, with a focus on customer-initiated journeys on SBI's YONO platform.

SBI Life aims to maintain a 60-40 product mix between ULIP and other products.

#3 Bharat Heavy Electricals (BHEL)

Third on the list is BHEL.

BHEL is a leading integrated power plant equipment manufacturer.

The company specializes in design, engineering, manufacturing, erection, testing, commissioning, and servicing a diverse range of products for essential sectors of the economy.

This includes power generation, transmission, industry, transportation, renewable energy, oil and gas, and defence. BHEL is owned and controlled by the government of India.

BHEL's revenue grew 2.26% year on year to Rs 238.9 bn from Rs 233.6 bn and its profit margin declined to 3% from 4%. Although the past performance of BHEL has been flat, the future looks promising.

BHEL received a record order inflow of Rs 779 bn during the year resulting in an outstanding order book of Rs 1,600 bn.

BHEL achieved a 100% market share in the Indian thermal power market in FY24, securing orders worth 9.6 GW.

The management anticipates continued opportunities in thermal power due to the government's plan to increase the country's thermal power generation capacity to approximately 280 GW by 2032.

The company has received record orders from the non-fossil sector, including defence, transportation, and transmission.

Growth in the hydro and nuclear power segments is expected to continue, driven by the government's target of increasing non-fossil fuel-based electricity to 50% of total installed power capacity by 2030.

The after-sales service business continues to generate a steady stream of orders.

BHEL entered the coal-to-chemicals business through a joint venture with Coal India, focusing on coal gasification technology. BHEL is diversifying into new areas, including hydrogen, battery energy storage, and e-mobility.

Kothagudem unit 12 (800 MW) commissioned by BHEL, achieved the highest plant load factor (PLF) of 85.5% and operating availability (OA) of 94.4% among BHEL-supplied supercritical sets.

Such numerous new initiatives and the revival of dormant business sub-segments are setting the stage for explosive growth at BHEL in the coming years. Investors should keep an eye on how these developments unfold.

#4 HUDCO

Next on list is Housing and urban development corporation (HUDCO) an Indian public sector enterprise under the Ministry of Housing and Urban Affairs that primarily focuses on financing housing and urban infrastructure projects.

As a "Navratna" company, it enjoys significant autonomy and is recognized for its strong performance.

The majority of HUDCO's funding has historically gone to state governments and public sector agencies, particularly for housing initiatives, but now HUDCO is transitioning from an HFC to an NBFC-IFC (Infrastructure Finance Company).

HUDCO expects this transition to lead to a significant increase in business operations and aims to increase its balance sheet size from Rs 920 bn in FY24 to Rs 1.5 trillion by FY26 and Rs 3 trillion by FY30.

For the current financial year, disbursements are expected to be between Rs 320 bn and 350 bn. Next year, disbursements are expected to be between Rs 400 bn and 450 bn.

The majority of disbursements are expected to come from the road, water, affordable housing, power and energy sectors.

HUDCO expects its NIM and spreads to improve in the next two years. This is due to their expansion into bankable projects.

Current spreads are in the range of 1.6% to 1.8%, and the NIM target is around 3.3% to 3.4%. If HUDCO can manage its risk well and keep bad debts in control this PSU can show huge growth.

#5 Bharat Dynamics

Coming fifth on the list is Bharat Dynamics (BDL) an Indian defence company.

It manufactures and supplies a wide array of weapons and defence equipment, including surface-to-air missiles (SAMs), anti-tank guided missiles (ATGMs), torpedoes, and allied defence equipment.

The company is a government-owned enterprise operating under the ministry of defence.

Bharat Dynamics' financial performance in FY24 was marked by significant growth in profitability, despite a slight dip in revenue. The company's profit after tax (PAT) soared to Rs 6,130 m representing a remarkable 74% increase from the previous year.

Despite the profit increase, revenue decreased by 5% to Rs 23.6 bn, compared to Rs 24.9 bn in the previous year. This decline was due to challenges in the supply chain for certain critical input materials, a consequence of the ongoing geopolitical situation in Europe and the Middle East.

The company's financial health remains robust, characterized by zero debt and a healthy cash position. The operating profit margin increased to 20% from 13% in the previous year, while the net profit margin jumped from 14% to 26%.

As of 30 September 2024, Bharat Dynamics had a substantial order book of Rs 188.5 bn. This suggests a strong revenue stream for the next few years. Moreover, the company expects orders worth approximately Rs 200 bn in the next 2-3 years.

Bharat dynamics benefits significantly from the Indian government's "Aatmanirbhar Bharat Abhiyan", which prioritizes domestic defence manufacturing. It is actively expanding its presence in the international market. As of 30th September 2024, the export order position stands at around Rs 24.5 bn.

The company has secured orders for products like the Akash weapon system, ATGMs, and torpedoes from various countries. Continued success in the export market could contribute significantly to future growth.

As part of its diversification strategy, Bharat Dynamics is venturing into the space technology sector, which is projected to experience significant growth.

This strategic move opens new revenue streams and growth avenues for the company, reducing reliance on its traditional defence market.

#6 NLC India

The sixth contender on our list is NLC India a leading public sector enterprise in India's energy and mining sectors.

The company operates lignite mines in Tamil Nadu and coal mines in Odisha and Jharkhand, which fuel its thermal power generation plants supplying electricity to several Indian states.

Additionally, NLCIL provides consultancy services in mining and power generation, leveraging its expertise to support other entities, such as UPRVUNL in coal block development.

On a consolidated basis, the total revenue for FY24 was Rs 130 bn, compared to Rs 161 bn in FY23, a decrease of about 19.6%.

While this may look bad, investors should look at these numbers in the light of a challenging operating environment. The company generated 2,508.94 million units (MU) less power in FY24 than the preceding year.

Revenue from lignite sales also fell, mainly due to the absence of open sales in Mine IA during FY24.

But the future of this company may look significantly different than its past due to its big expansion in renewable energy. NLCIL is investing approximately Rs 500 bn in its renewable energy portfolio.

The company aims to grow its renewable energy capacity from the current 1.43 GW to 10.11 GW by 2030, ensuring that renewable energy constitutes 50% of its total planned power generation capacity by 2030.

This aligns with India's ambitious 'Net Zero' emissions target by 2070 and underscores the company's commitment to a sustainable energy future.

NLC India has set a vision to halt the development of new conventional fossil fuel assets beyond 2030, further emphasizing its transition to cleaner energy sources.

NLC India has formed two wholly owned subsidiaries to spearhead these initiatives NLC India Renewables (NIRL) and NLC India Green Energy (NIGEL).

NIRL will focus on monetizing the company's existing renewable energy assets through an IPO, potentially by the second or third quarter of the next financial year.

NIGEL is dedicated to developing new renewable energy projects. The subsidiary is expected to establish projects with a capacity of 6 GW by 2030.

NLC India is actively expanding its mining capacity in both lignite and coal. The company plans to increase its lignite mining capacity from the current 30.1 MTPA to 41.35 MTPA by FY30.

NLC India has set a target to increase its coal mining capacity from 20 MTPA to 62 MTPA by FY30.

While these developments paint a positive picture of NLC India's growth prospects, it's important to acknowledge potential risks.

The company has faced challenges with land acquisition for its mining operations, particularly in Neyveli. Continued difficulties in securing land could impact the company's expansion plans and operational performance.

#7 Gujarat Gas

Next on the list is Gujarat Gas.

It is the largest city gas distribution company in India, operating in 27 geographical areas across six states and one union territory.

The company holds a dominant position in the natural gas value chain, alongside its parent company, Gujarat State Petroleum Corporation (GSPC), the second-largest natural gas trading company in India, and Gujarat State Petronet Limited (GSPL), the second-largest natural gas transmission company in India.

The company boasts an extensive infrastructure, including 27 City Gas Distribution (CGD) authorizations, a gas pipeline network spanning over 41,700 km and 820 CNG stations.

In the past year, the company faced a drop in revenue due to competition from propane in the industrial segment.

This impacted Gujarat Gas's volumes and profit margins, especially in the Morbi region, where customers shift to propane when its prices are lower than those of natural gas.

Also, the reduction in the allocation of cheaper administered price mechanism (APM) gas by approximately 50% has forced Gujarat Gas to source more expensive gas, impacting margins.

But these are all cyclical headwinds. The Indian government has set ambitious targets for increasing natural gas consumption, aiming to triple it by 2030. This push for a gas-based economy creates a supportive environment for CGD companies like Gujarat Gas.

Given the significant tailwind, the company expects capex to range from Rs 12-15 bn going forward.

The management anticipates adding 1 million metric standard cubic meters per day (mmscmd) of volume in the coming years, driven by the growth of the FDODO (franchisee-owned dealer operated) CNG station model.

It is targeting setting up 200+ CNG stations in the next 2-3 years, including 25-30 stations in FY25.

#8 NBCC

Coming eighth on the list is NBCC, a leading construction company in India.

NBCC provides Project Management Consultancy (PMC), undertakes redevelopment projects, and engages in real estate development.

Project management consultancy segment makes up 92% of NBCC's revenue and includes institutional, housing, industrial, redevelopment of government colonies, and overseas work.

NBCC has a self-sustaining redevelopment business model. The company demolishes old structures and construct new sites with modern amenities, generating funds through commercial exploitation of the redeveloped properties.

This unique model sets NBCC apart from other PSU/Government entities.

As of September 2024, the consolidated order book is Rs 844 bn. The standalone order book is Rs 704 bn, with 55% in PMC/EPC and 45% in redevelopment projects.

Looking at what lies ahead, in FY25, NBCC targets a consolidated revenue of Rs 130 bn, reflecting a 25% growth rate. This growth is expected to continue, with a 20-25% increase projected for the next year.

In the long-term, NBCC aims for a revenue of Rs 250 bn by FY28.

The company anticipates a robust order inflow of around Rs 250 bn next year. Over the next 4-5 years, the order book is expected to reach Rs 2,000 bn, driven by new project acquisitions and the conversion of existing orders into execution.

NBCC expects to achieve a PAT margin of 6-7% in the current financial year. This is projected to increase to 8-9% by FY28.

Real estate projects, with profit margins of 20-25%, will also contribute to the increase in profitability.

Currently, around Rs 220 bn of the consolidated order book is under execution. Execution is expected to accelerate in the coming years as projects secure necessary approvals and move into the construction phase.

#9 Garden Reach Shipbuilders & Engineers

Next on the list is Garden Reach Shipbuilders an Indian shipbuilding company that primarily builds warships for the Indian Navy and Indian Coast Guard.

In addition to shipbuilding, the company is involved in ship repairs, portable steel bridges, and green shipping initiatives, such as the construction of electric ferries for the government of West Bengal. It is also actively involved in developing autonomous platforms for the Indian Navy.

The company has been consistently reporting positive financial results with increasing revenue from operations for the past seven quarters.

As of 30 September, 2024, the company had an orderbook of Rs 242 bn, with 90% coming from shipbuilding, including projects such as the P17 alpha, anti-submarine shallow watercraft, large survey vessel, and next-generation ocean green patrol vessels.

Garden Reach is also expanding into commercial shipbuilding, with a focus on European clients, and has secured an order for eight multipurpose vessels from a German client.

The company anticipates that its revenue will grow by 25-30% in both FY25 and FY26.

Thus, in the two-year period of FY25 and FY26, the company could be expected to generate between roughly Rs 101 bn and roughly Rs 108 bn in revenue.

The management has stated that the company will likely need to receive new orders worth at least Rs 200-250 bn by FY26 to sustain its revenue growth beyond FY27.

#10 Engineers India

Last but not least on the list is Engineers India, the company provides design, engineering, procurement, construction, and project management services for refineries and petrochemical plants.

It also provides post-execution services for the maintenance and monitoring of the operation of plants in various industries.

After a long lull period in the refineries and petrochemical industry, there has been a resurgence in capex in this industry and Engineers India is the key beneficiary of this boom.

As of 30 September, 2024, Engineers India order book was worth Rs 111.5 bn. This consists of Rs 65 bn in the consultancy segment and Rs 46.5 bn in the LSTK segment.

During the first half of FY25, the company had an order inflow of Rs 51.4 bn. The company anticipates reaching Rs 80-85 bn in order intake for fFY25.

Management is targeting an annual turnover of Rs 50 bn within the next two years. The company aims to maintain a consultancy segment profit margin of 20-25%, and LSTK/OBE margin of 5-6%. These developments bode well for future earnings.

Conclusion

The potential for explosive growth in Indian Public Sector Undertakings (PSUs) presents an exciting opportunity for investors seeking long-term returns.

While investing in PSUs requires an understanding of their inherent risks, such as regulatory changes and execution challenges, the promising growth trajectory of these stocks cannot be overlooked.

As always, investors should conduct thorough research and seek professional advice when necessary.

Happy investing!

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