After the Ministry of Defense (MoD) signed contracts with state-owned and private businesses worth more than Rs 35,000 crore, defense stocks on the BSE gained as much as 8% in intraday trading on Friday.
On March 30, 2023, the Ministry of Defense (MoD) entered into contracts with Indian Shipyards, Bharat Dynamics, Bharat Electronics, and BrahMos Aerospace Pvt to acquire various pieces of defense equipment totaling more than Rs 35,000 crore.
Bharat Electronics and Cochin Shipyard’s shares both gained 8%, reaching Rs 98.30 and Rs 496.10. Bharat Dynamics (BDL) gained 5% to Rs 1,010, Garden Reach Shipbuilders & Engineers gained 3% to Rs 1,399, and Data Patterns (India) gained 3% to Rs 1,399 on the BSE. The S&P BSE Sensex, on the other hand, was up 1.1% at 58,610 at 09:34 AM.
With BEL, the MoD has signed 12 separate contracts totaling Rs 8,194 crore. Two of these are for the Indian Air Force (IAF): an Annual Maintenance Contract (AMC) for the Akash missile system and 90 Electronic Warfare (EW) suite equipment for medium lift helicopters.
These are major projects that demonstrate the indigenous design and manufacturing capabilities of the Indian defense industry, which are being led by BEL and involve other MSMEs, the private sector, and the public sector. According to a press release from BEL, these projects will add yet another milestone to the Government of India’s “Atmanirbhar Bharat Abhiyan” and “Make in India” initiatives.
BEL’s total order inflow for FY23 is estimated to be around Rs 20,200 crore with these contracts, which is largely in line with the management’s guidance for the entire year. The execution period is anticipated to last between two and four years, as stated in some contract details. In a note, ICICI Securities stated that strong revenue visibility is provided by the estimated current order backlog of Rs 62,200 crore (3.5x TTM revenue).
Under the takeover (IndianIDDM) category, the Ministry of Defense has signed a contract with Goa Shipyard (GSL) and Garden Reach Shipbuilders and Engineers (GRSE) for 11 next generation offshore patrol vessels (NGOPVs).
GRSE stated in an exchange filing that it has signed a contract with the Ministry of Defense to build four Next Generation Offshore Patrol Vessels. The four GRSE ships are estimated to have a total project cost of Rs 3,500 crore.
The order backlog for this contract is estimated to be around Rs 24,400 crore (9.7 times TTM revenue), and it includes substantial orders for four large survey vessels, eight anti-submarine warfare corvettes, and three P-17A frigates. Strong revenue visibility is provided by a healthy order pipeline and a large backlog, including large contracts worth approximately Rs 22,500 crore for five vessels of the next generation of corvettes.
In the meantime, BDL and the Ministry of Defense agreed to produce and supply the Indian Army with Akash Weapon Systems under a contract worth Rs 8,161 crore. In addition, BDL received a Rs 261 crore order for CMDS for MLH helicopters.