Defence stocks trading at valuations comparable to consumer sector firms. Should you Buy, Sell or Hold the stocks?

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Hindustan Aeronautics Ltd, Cochin Shipbuilders, Mazagaon Docks, Bharat Dynamics, ZEN Technlogies ltd, Astra Microwave products, Mishra Dhatu Nigam and others have seen sharp rise in share prices, of up to 250% during past one year. On an average12 defence companies have given returns of 105 % during last one year as per Bloomberg.

However after sharp run up in the share prices, the stocks are commanding high valuations too. Astra Microwave Products, Mishra Shatu Nigam, MTAR Technologies, Data patterns India, Solar Industries India shares are trading at Price to earnings ratio of 55-68 times FY24 price to consensus earnings estimates as per Bloomberg.

Bharat Dynamics while is trading at 45.12 times FY24 price to earnings ratio, Cochin Shipyards, Bharat Electronics , Hindustan Aeronautics, Mazagaon docks are trading at more than 30 times FY24 price to earnings. These valuations are comparable to valuations commanded by Fast moving consumer companies.

Hindustan Unilever, Colgate Palmolive, Britannia Industries are trading at 50-55 times FY24 estimated price to consensus earnings ratio as per Bloomberg, Marico is trading at 45 times PE. Also Read- SBI locked at 3% upper circuit to 52-week high after SC order on electoral bonds What justifies the run up in defence sector stock prices and valuations is the fact that earnings visibility remains strong said Deepak Jasani , Head of Research at HDFC Securities Ltd .

The order book is strong and is likely to rise regularly, Book to Bill ratio is favorable; Government focus in Atmanirbhar Bharat will help keep driving order book , further the export sales are rising with higher export opportunities. The factors favorable for Public sector undertakings in defence sector are also that