Indian defence firms skyrocket after Pakistan skirmish
Summary
Companies like BEL, BDL, and Solar Industries, whose equipment dealt a crushing blow to the Pakistani airbases, saw strong price action after the PM's address.
The 62% rise in Chinese jet maker Avic Chengdu, following the four-day Indo-Pak air skirmishes through 10 May, grabbed headlines globally. But, not to be left behind, Indian defence companies vaulted to record highs, after Prime Minister Narendra Modi, in an address to the nation on Monday, underscored the ability of the Indian air defence systems to target the Pakistani airbases with precision during the 7-10 May hostilities.
However, market experts cautioned that most of the good news was priced in the shares of these companies , given their current valuations, and that investors should make informed decisions before entering such counters.
Warship and submarine maker Mazagon Dock and missile guidance systems company Bharat Dynamics Ltd (BDL) surged to record highs on Wednesday, while radar specialist Bharat Electronics Ltd (BEL) and drone maker Solar Industries surged to all-time highs on Thursday when markets hit a seven-month high.
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BEL and Solar Industries surged 1.9% and 1.6% each to hit record highs of ₹351 apiece and ₹13,950 on Thursday. A day earlier, Mazagon Dock rallied almost 5% to an all-time high of ₹3,230 apiece while BDL surged 3% to a record high of ₹1,820.90.
What's more, on Thursday, all these stocks closed at all-time highs. BEL closed up 1.8% to ₹350.30; Solar Industries gained 1.1% to ₹13,880; Mazagon Dock rallied 3% to close at ₹3,182.40, and BDL rose 2.3% to ₹1,806.50.
Should Investors buy
Nilesh Shah, managing director, Kotak Mahindra AMC, believes that most of the good news was "in the price" and cautioned that flawless order execution with scale would influence share prices over the long term.
"Indian defence equipment has performed in an exemplary way during the recent air skirmishes, which could result in companies making such equipment getting orders from across the world," Shah said. "However, much of the good news is priced in, and for making money from here, the companies will require flawless execution and enhanced scale."
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To be sure, the companies trade well above historic averages. For instance, Mazagon Dock on Thursday traded at a price-to-earnings ratio of 66.27 times against a five-year average of 24.83 times. Corresponding figures for BEL stand at 64.29 times trailing 12-month earnings against an historic average of 31 times, BDL at 108 times (44 times), and Solar at a whopping 150 times (72 times).
The 18-constituent thematic Nifty India Defence index, of which these companies are a part, traded 55 times to trailing twelve-month earnings compared with a historic average of 38 times, reflecting elevated valuations.
According to independent market analyst Ambareesh Baliga, the recent price action is attributable to the "Make in India" theme and to impressive earnings in a few cases. He said a correction would be a good point to enter these counters for the long term, as market sentiment remains positive.
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For instance, in the third quarter of FY25, Mazagon Dock posted revenue of ₹3,100 crore and a net profit of ₹807 crore, which were 1.6% and 14% above Bloomberg estimates, respectively.
BEL reported Q3FY25 revenue of ₹5,770 crore and net profit of ₹1,311 crore, which beat Bloomberg estimates by 15% and 39%, each.
