Brokerage firm Nomura is showing strong confidence, in the promising future of the Indian defence industry. They are pointing to policy changes and the governments increased emphasis on production as key factors. Nomura has started covering two companies. Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd (BEL). Giving them a “recommendation”.
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Key Drivers of Growth
Support of the Indian government’s “Make in India” program becomes a blessing for the local defense companies, such as HAL and BEL. The rectification of the defence produce self-dependency nurtures the companies’ development. In addition, India as a strategic location and the necessity to support the regional security problem situations compel the rise of national defense spending and modernization.
Due to this, manufacturers also obtain significant development prospects satisfying the requirements. Nomura recommends that there is still an opportunity for Indian companies to increase financing through protectionism and trading. The suggestion is that local companies retain significant potential to export and expand market share, thus strengthening their segment’s position further.
HAL: Strong Growth Trajectory and Re-rating Potential
Nomura is bullish on HAL, arguing that it has achieved a lot lately. HAL signed an MoU with GE for F414 fighter jet engines and the government cleared a few projects for it. The brokerage anticipates HAL’s revenue, Ebitda and PAT to witness strong growth over the next three years. This technology transfer enhances their capacity to produce high-tech engines, an essential precondition for indigenous programs. Additionally, their association with Airbus for commercial aircraft maintenance is a good source of income for HAL.
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BEL: Premium Valuations Supported by Strong Fundamentals
Nomura believes BEL will be a strong performer, with a considerable order backlog and an increasing share in pertinent long-term defence deals backing robust revenue, Ebitda, and PAT growth over the next three years.
Key factors supporting BEL’s premium valuations:
- BEL is currently dominating the market with a considerably higher order inflow, essentially providing BEL with a source of long-term growth.
- BEL is evolving from just a component production entity to a system integration entity. Nomura is predicting growth in BEL’s return on equity.
- This target price gives BEL investors room to make a potential 30% gain.
About Author
This Article has been written by Ms Sayani Mondal, who is a Defense and security enthusiast with interest in geopolitical analysis and cyber threats. She is skilled researcher with a passion for applying academic knowledge to real-world national security challenges.
