Shares of Hindustan Aeronautics Ltd. and Bharat Electronics Ltd. gained as Morgan Stanley sees them to benefit from India's push for local defence manufacturing.
The research house maintained ‘overweight/in line' rating on both stocks and raised its target prices for them.
According to Morgan Stanley, local defence manufacturing is a powerful theme--much like production-linked incentive schemes--due to increased opportunities from import bans. The order books of the two companies already provide multi-year revenue/earnings visibility, it said in a report, adding that there is a scope for increasing exports and diversifying revenue.
Shares of HAL gained for the ninth straight session, while Bharat Electronics advanced over 1%.
HAL's order book worth Rs 84,800 crore provided visibility for seven years, Morgan Stanley said. The ordering from under-development pipeline such as LCA MK2, AMCA, IMRH will add to ordering momentum, after three years.
The research house revised its FY23-25E earning estimates for HAL by 1-4% and long-term earnings CAGR (FY25-42E) to 13% from 12%.
It raised its FY23-25E earnings estimates for BEL by 16%. The company's order book of Rs 59,400 crore provided growth visibility for three years. BEL's products that have been added to the indigenisation list could have Rs 1.9 lakh crore of prospects over five years, the report said.
On Aug. 28, the defence ministry had approved the third positive indigenisation list of 780 strategically important line replacement units/sub-systems/components with a timeline beyond which they will only be procured from the domestic industry.
This was in continuation of two such lists approved earlier in December 2021 and March 2022. The three lists contain 2,500 items that are already indigenised and 458 items which will be indigenised within the timelines.
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