ICICI Direct Initiates "Buy" On 5 Quality Defence Sector Stocks, Sees Up To 35% Potential Gains

ICICI Direct in its recent report on the Defense sector published on April 03, 2023, picks 5 stocks with "Buy" calls for high returns. These 5 stocks include Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Bharat Dynamics (BDL), Cochin Shipyard (CSL), and Data Patterns (DPIL). Check below to know more:

Hindustan Aeronautics Ltd. (HAL)

The brokerage assigns a "Buy" on HAL with Rs 3,300/share target price. The stock can fetch 22% returns. The stock last traded at Rs 2,712.40/share.

Its 52 week low is Rs 1,410/share and 52 week high is Rs 2,914/share. It gave 77.94% return in 1 year, 412.21% in 3 years and 140.33% in 5 years, respectively.

According to the brokerage, Revenue is expected to grow significantly from FY25E onwards in manufacturing contracts led by execution of Tejas Mk1A contract. "We expect HAL to deliver revenue and EBITDA CAGR of 10.3% and 14.8%, respectively, in FY22-25E. PAT is likely to grow at ~12% CAGR (FY22-25E). Increase in profitability with strong asset turnover is expected to result in healthy return ratios over FY23-24E. We continue to remain positive on HAL and retain our BUY rating on the stock with a target price of Rs 3300 (valuing at 20x PE on FY25E EPS)," the brokerage has said.

Bharat Electronics Ltd. (BEL)

ICICI Direct estimated a target price of Rs 130/share to the stock of BEL with a "Buy" call for 35% returns if purchased at the current market price. The stock's current market price is Rs 96.60/share.

Its 52 week low is Rs 68.92/share and 52 week high is Rs 114.65/share. The stock has given 34.73% return in 1 year, 314.3% in 3 years and 97.48% in 5 years, respectively.

According to the brokerage, Major orders expected in FY24E are Quick Reaction Surface-to-Air Missile (QRSAM) worth Rs 20,000 crore and Medium Range Surface to Air Missile (MRSAM) worth Rs 15,000-20,000 crore.

"With the strong order backlog and healthy pipeline, we expect revenue, EBITDA to grow at a CAGR of 17.9%, 18.9%, respectively, in FY22-24E aided by sustained margins in the range of ~22%. We remain positive on BEL and retain our BUY rating on the stock with a target price of Rs 130 (valuing at 25x P/E on FY25E EPS)," the brokerage has said.

Bharat Dynamics Ltd. (BDL)

The brokerage has assigned a target price of Rs 1,215/share to BDL with a "Buy" call. The stock is likely to give up to 24% return. The stock last traded at Rs 986.25/share.

Its 52 week high is Rs 1,026.95/share and 52 week low is Rs 538/share. In 1 year it has given 73.45% positive return. It gave 436.15% return in 3 years, and 151.43% in 5 years, respectively.

ICICI Direct said, "We see a huge opportunity for BDL in exports also (Akash SAM, ATGMs, Astra, Torpedoes) driven by rising interest from friendly countries and lower cost on high indigenisation levels. We expect BDL to deliver revenue and EBITDA CAGR of 20.4% and 19.9%, respectively, in FY22-25E. PAT is likely to grow at 23.5% CAGR (FY22- 24E)."

It added, "Increase in profitability with strong asset turnover is expected to result in healthy return ratios over FY23-24E. We retain BUY on BDL with a revised target price of Rs 1215 (valuing at 24x P/E on FY25E EPS)."

Cochin Shipyard Ltd. (CSL)

ICICI Direct sees a potential upside of 29% with the given target price of Rs 620/share. The stock of CSL last traded at Rs 480.80/share on NSE.

The stock traded its 52 week low at Rs 293/share and 52 week high at Rs 687/share, respectively. It gave 58.76% positive return in 1 year and 99.58% in 3 years, respectively. It has fallen 5.41% in 5 years.

The brokerage said, "We estimate ~18%, ~19% CAGR in revenues, EBITDA, respectively, over FY23E25E. PAT is expected at 17.5% CAGR over the same period. We maintain our BUY rating on the stock with a target price of Rs 620 (valuing at 13x P/E on FY25E EPS)."

Data Patterns (India) Ltd. (DPIL)

ICICI Direct assigns a target price of Rs 1,670/share to DPIL, claiming an upside of up to 18% from its current level. The stock last traded at Rs 1,424.40/share.

It traded its 52 week high at Rs 1,540/share and 52 week low at Rs 607.75/share, respectively. It gave 90.81% positive return in 1 year. Since its listing on 24 December 2021, it gave 88.66% positive return.

The brokerage said, "We estimate revenue, EBITDA and PAT CAGR of 32.6%, 27.8% and 30.2%, respectively, over FY22-25E. Increase in profitability with strong asset turnover is expected to result in healthy return ratios over FY23-24E. However, given the rich valuations, we retain our BUY rating on the stock with a target price of Rs 1670 (valuing at 45x on FY25E EPS)."

Disclaimer - The stocks have been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.