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ICICI Securities Report
The defence sector in June 2023 was abuzz with twin events:
Memorandum of Understanding between ThyssenKrupp Marine System of Germany and Mazagon Dock Shipbuilders Ltd. to jointly bid for P-75I project; and
MoU between GE Aerospace and Hindustan Aeronautics Ltd. to produce F-414 fighter jet engines for Tejas Mk2, including transfer of technology to the extent of 80%.
Close on the heels of these MoUs, we saw further developments with-
Hanwha Ocean (South Korea) expressing interest in participating in RFP for P-75I project; and
Safran offering full transfer of technology for co-development of a new 110KN high thrust jet engine to power the Advanced Medium Combat Aircraft Mk-2 stealth jet.
Apart from these, the two agreements currently under discussion pertaining to the Security of Supply Arrangement and the Reciprocal Defence Procurement Agreement are likely to benefit domestic companies such as Mishra Dhatu Nigam Ltd.
On ordering front, Bharat Electronics Ltd. received orders worth Rs 80 billion, Mazagon Dock Shipbuilders received a contract of Rs 27.5 billion for Medium Refit and Life Certification of SSK Class submarine from Ministry of Defence and MIDHANI has received a contract for Kanchan armour module from AVANI.
In Q2 FY24E, we expect BEL's orderbook to be further boosted by long-term fuses order from the Indian Army. Besides, we expect further progress on Smart Anti-Airfield Weapon, project Zorawar and development of air-launched variant of Amogha-III ATGM, benefitting Bharat Dynamics Ltd.
We also believe Astra Microwave Products Ltd. is likely to experience the tickle down benefits from the orders to BEL and Bharat Dynamics.
We maintain 'Buy' on BEL (target price: Rs 150), Bharat Dynamics (target price: Rs 1,325) and Astra Mircowave (target price: Rs 425) and recommend them as our key picks in defence space.
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