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Best Defence Stocks to Buy in India

The defence industry is strategically important for India as it helps in strengthening its security system and accounts for a portion of the exports.

For the past few years, the government has been encouraging domestic manufacturing in this industry by imposing restrictions on imports, indigenisation, and the 'Make in India' policy.

This led defence manufacturing companies to develop military products locally at a competitive price. As a result, the defence exports jumped sixfold from Rs 15 bn to Rs 90 bn in the last five years.

Now that several governments have been ramping up their defence budget, the demand for military products is increasing.

India is in a sweet spot as it has well-established companies in this space expanding their capacities to meet the growing demand.

Hence investors can consider adding these defence stocks to their watchlist. But before you make a call, make sure you check the fundamentals of these companies.

Here's a list of defence stocks you can consider for further analysis:

Hindustan Aeronautics

The company manufactures and maintains aircraft and helicopters for the Indian Airforce, Indian Army, ISRO, Indian Navy, and Indian Coast Guard, among others.

As of February 2022, the company had a strong order book of Rs 800 bn. It expects it to cross Rs 1 tn by the end of next year, which will last for the next 10-12 years.

Hindustan Aeronautics also has an order from ISRO along with L&T to build the polar satellite launch vehicle.

The company has also signed a pact with Safran, a French firm, to explore opportunities for new helicopter engines.

It has 20 manufacturing and 10 R&D facilities in India. It's also setting up a facility in Karnataka to manufacture helicopters.

Bharat Electronics

Bharat Electronics manufactures electronic equipment for the Indian defence forces. The company has diversified into non-defence products and software.

It has a reputed customer base that includes DRDO, ISRO, Railways, and All India Radio.

The company has orders from the air force, army, navy, and non-defence category worth Rs 230 bn for the financial year 2022 providing enough revenue visibility for the next three years.

It has nine manufacturing facilities and two R&D facilities in India.

Cochin Shipyard

Cochin Shipyard is India's first greenfield shipyard that builds and maintains vessels such as tankers, defence ships, passenger ships, and bulk carriers. The company also diversified into inland, coastal, fishing, cruise, and ferry markets.

Some of its clients include the Indian Navy, Shipping Corporation of India, Indian Coast Guard, and National Petroleum Construction Company (Abu Dhabi).

It has a strong order book and has Rs 100 bn worth of orders from the Indian Navy. The company also has secured orders from European and Middle-East companies.

The company has a shipbuilding capacity of 110,000 deadweight tonnage (DWT) in India. It also has five repair facilities in India with a total repair capacity of 125,000 DWT.

Mazagon Dock Shipbuilders

Mazagon Dock Shipbuidlers builds and repairs different vessels, including ships and submarines.

It builds passenger ships, cargo ships, destroyers, warships, water tankers, submarines, fishing trawlers and corvettes for the Indian Navy and Indian Coast Guard.

It has a pipeline of orders worth Rs 800 bn to be executed in the next three to five years. It has also partnered with Zvesda, a Russian shipbuilding firm, to build commercial ships.

Currently, it has a shipbuilding capacity of 4,000 DWT. It is expanding its capacity by developing a greenfield project in Navi Mumbai.

Bharat Dynamics

It's the prime production agency for guided weapon systems for the Indian defence sector.

The company manufactures guided missiles and allied defence equipment for the Indian armed forces. It also offers product life cycle support and refurbishment for vintage missiles.

Bharat Dynamics product portfolio includes indigenously developed missiles, surface-to-air missiles, anti-tank guided missiles, and torpedoes.

Its unexecuted order book stands at Rs 114 bn as of February 2022. The company also secured an order worth Rs 303 bn from the Indian Army to be executed in the next three years.

Currently, the company has four state-of-the-art manufacturing facilities in India. It's also setting up another unit in Maharashtra to cater to the growing demand.

Also check out all the list of defence stocks in the market.

You can also checkout our playlist on Defence Stocks on Equitymaster's YouTube channel.

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FAQs

Which are the top defence companies in India?

Based on marketcap, these are the top defence companies in India:

You can see the full list of defence stocks here.

And for a fundamental analysis of the above companies, check out Equitymaster’s Indian stock screener which has a separate screen for best defence stocks in India.

When should you invest in the defence sector?

The best time to invest in the defence sector is when valuations of defence companies are attractive.

Where can I find a list of defence stocks?

The details of listed defence companies can be found on the NSE and BSE website. For a curated list you can check out our list of defence stocks.

What are the metrics used to evaluate defence companies?

Two commonly used financial ratios in the valuation of defence stocks are:

Price to Earnings Ratio (P/E) - One can also use Price to Earnings ratio (P/E) which compares a firm's market capitalization to its with its earnings per share. The higher the P/E ratio, the more overvalued the stock and vice versa.

To find stocks with favourable P/E ratios, check out our list of defence stocks with their P/E ratios.

Price to Book Value Ratio (P/BV) - One can also use Price to Book Value Ratio (P/BV) which compares a firm's market capitalization to its book value. The lower the ratio, the more undervalued the stock is and vice versa.

To find stocks with favourable P/BV ratios, check out our list of defence stocks with their P/BV ratios.

What are the top gainers and top losers within the defence sector today?

Within the Defence sector, the top gainers were BHARAT DYNAMICS (up 5.0%) and KAYNES TECHNOLOGY (up 5.0%). On the other hand, RELIANCE NAVAL & ENG. (down 4.6%) and SOLAR INDUSTRIES (down 0.1%) were among the top losers.