Multinational investment firm Goldman Sachs initiated coverage on eight Indian defence stocks, placing bullish share price targets on all but one.
In the report, analysts Amit Dixit and Kumari Rishika, have said that their picks are beneficiaries of three key themes: increase in the estimated domestic defence market share potential by more than sixfold to Rs 10 lakh crore over the next 20 years, scope for indigenisation at the bottom of the technology pyramid like in components and processed materials where local players have been under-represented, and higher defence exports.
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Out of the eight, PTC Industries Ltd. and Astra Microwave Products Ltd. are seen to have the most upside potential.
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According to the Goldman Sachs' note, PTC's return on equity is likely to improve to more than 30% by financial year 2028. Astra Microwave's RoE is likely to be aided by improving profit margins even as capex intensity may decline.
Bharat Dynamics is the only outlier in the new coverage list getting a 'Sell' rating. Analysts have cited steep valuations for this call with the share price target implying a downside potential of 11% over previous close.
Defence PSU Hindustan Aeronautics Ltd.'s upside potential is seen to be in single-digit as execution challenges offset attractive valuation.
Solar Industries Ltd.'s ROE could be better than comparable companies, according to Goldman Sachs.
Data Patterns Ltd.'s net profit margin is likely to remain better compared to peers, analyst said. On the other hand, capex intensity may taper off.
Azad Engineering Ltd.'s huge markety share potential and robust order book will drive sustained high growth, analysts said.
For Bharat Electronics, Goldman Sachs see the defence PSU as well positioned to be a leading supplier of defense systems. Moreover, diversification offers downside support.
Goldman Sachs Price Targets
Solar Industries — Initiate 'Buy' with price target of Rs 18,215, implying upside potential of 36% over previous close.
PTC Industries — Initiate 'Buy' with price target of Rs 24,725, implying upside potential of 58% over previous close.
Astra Microwave — Initiate 'Buy' with price target of Rs 1,455, implying upside potential of 45% over previous close.
Data Patterns — Initiate 'Buy' with price target of Rs 3,640, implying upside potential of 38% over previous close.
Azad Engineering — Initiate 'Buy' with price target of Rs 2,055, implying upside potential of 28% over previous close.
Bharat Electronics — Initiate 'Buy' with price target of Rs 455, implying upside potential of 12% over previous close.
Hindustan Aeronautics — Initiate 'Neutral' with price target of Rs 5,255, implying upside potential of 9% over previous close.
Bharat Dynamics — Initiate 'Sell' with price target of Rs 1,375, implying downside potential of 11% over previous close.
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