It has been raining orders for defence-related companies, be it HAL or Mazgaon Dock or Cochin Shipyard etc. Till recently, the stocks had refused to move up, something that most marketpersons thought would be a consequence of large order flows.
But there is an area within the defence pocket which seems to be doing rather well, as far as price action is concerned. This is the area of defense electronics, an area seldom examined in detail.
The Technology Perspective and Capability Roadmap is the place to look at for knowing where the action is in defence. Part of this was the new Sudarshan Chakra Project, devoted to radars, satellites, sensors etc along with weapons. This project, scheduled for completion in 2035, envisages an investment of Rs 4 lac crore. Now imagine this in the light of India's entire defence budget for 2026 being Rs 1.8 lac crores!
This project is one of the largest Indian defence modernisation projects conceived till date and it is focused on electronics and digital systems rather than conventional hardware.
Defence electronics stocks like BEL, Data Patterns and Astra Microwave are at the centre of this new focus of the govt and that could explain the strong price action seen on the charts of these companies.
Notwithstanding the large flow of order to the traditional Defence companies, it should be understood that they operate in a low margin area (say, 8-12% Ebitda) and most of their work is leveraging labour and materials. However, the defence electronics companies are much higher margin plays (all the three named above are in the 25-30% Ebitda zone). So, the market is valuing them not as infrastructure contractors but more like technology companies operating in defence!
See the clearcut out performance of BEL and Data Patterns compared to popular stocks like Mazagaon Dock and HAL. Clear evidence that the market smells out such opportunities well in advance and acts on it!
If we take BEL and look at the current order flows so far (and expected in the near future), these total upto around Rs 70,000 crore over giving it a clear visibility across next few years. The fact that BEL is a PSU should ensure stickiness of government orders. BEL has already created a high level of indigenization of their components and hence, are buffeted against global chip and semiconductor shortages.
This is probably why BEL has the best-looking chart among the three good performers in defence.
The reason why Astra Micro chart seems to be lagging the others could be owing to the fact that its business almost piggy-backs on BEL's. In the sense that for every order that BEL gets, Astra gets to dip its beak into that a bit as the company manufactures components that go into nearly every radar system India produces, whether it's BEL's air defence radars, HAL's airborne fire control radars, or DRDO's long-range surveillance systems.
Since all of the companies are currently doing well, it is easy to conclude that Astra Micro should have a good time ahead. On the charts, this seems like a breakout buy in the waiting from a consolidation zone.
As far as Data Patterns is concerned, Sudarshan Chakra alignment is particularly strong for Data Patterns. The company's expertise in electronic warfare, radar systems, and sonar places it squarely in the 224 electronics-focused programs outlined in TPCR-2025. There is high level of import substitution that happens in what Data Patterns is doing and once these are part of the client's business, it tends to remain a stick business.
Markets seem to like what it sees in companies like Data Patterns and has created a good trend in the chart which should continue into the future.
Investors need to balance their selections between the more visible order-based companies and the more niche-driven companies.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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