InCred cautiously optimistic on defence space; assigns ‘add’ rating to 4 stocks including HAL, Bharat Electronics

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Bharat Electronics (BEL), HAL (Hindustan Aeronautics Limited), Data Patterns, and BDL (Bharat Dynamics). An ‘add’ rating typically suggests that the stocks are recommended for purchase, but investors are advised to exercise some caution. The brokerage expects a steady performance from Data Patterns (+43 percent YoY), BEL (+22 percent YoY), HAL (+9 percent YoY) and BDL (+55 percent YoY) as execution usually picks up in the second half.

However, it warned that delays in order finalisation and the possibility of slower-than-expected execution of projects are some major concerns. These risks underline the need for investors to closely monitor developments in the aerospace and defence sector, as any delays or hiccups in the execution of orders could impact the financial performance of the companies mentioned. Hindustan Aeronautics: After the ₹26,500 crore order inflow in FY23, Hindustan Aeronautics or HAL’s new orders may remain muted in 9MFY24F, predicts the brokerage.

Q3FY24F sales may be driven primarily by the Repair and Overhaul (R&O) segment & some manufacturing revenue from platforms such as Light Combat Aircraft (LCA) and Advanced Light Helicopter (ALH). It expects HAL's EBITDA margin to be at 22 percent, up YoY, due to a favourable product mix. Higher other income YoY because of a strong net cash position will lift PAT growth, it added.

Bharat Electronics: After a strong order inflow of ₹15,400 crore in 1HFY24, the new order win momentum continued in Q3FY24 ( ₹11,200 crore). InCred expects a 22 percent YoY growth in sales, primarily driven by increased execution of significant orders and fulfillment of delayed 2Q dispatches. The EBITDA margin is expected to remain consistent compared to the previous year.