Jefferies India initiates coverage on HAL, Data Patterns, stays positive on BEL

Global geo-political tensions and India’s rising focus on self-reliance is fueling order flow and revenue growth for domestic defence companies

Jefferies India has initiated coverage on Hindustan Aeronautics (HAL) and Data Patterns with 'buy' tags and remained positive on Bharat Electronics (BEL). It has set a price target of Rs 3,900 for HAL (up 18 percent from current market price), Rs 3,545 for Data Patterns (up 45 percent), and Rs 260 for BEL (up 29 percent).

Data Patterns is a top player in defence and aerospace electronics, expected to see nearly 5x revenue growth from FY24 to FY30 due to indigenisation and export opportunities, a Jefferies report said. HAL's revenue is mainly service-based, but the product business is set to grow with government support for domestic aircraft manufacturing. BEL dominates domestic defence electronics, with most revenue from the navy and the army. Its debt-free status and strong working capital position it well for defence opportunities, it said.

India ranks among the top three global defence spenders but trails significantly behind the US and China. Despite its sizable coastline and land area, defence spending remains comparatively low. India is the second-largest importer of defence equipment with a focus on capital expenditure, expected to maintain a 7-8 percent CAGR.

The indigenisation efforts will drive domestic defence spending growth, with exports expected to reach $7 billion by FY30. Major export destinations include Italy, Egypt, the UAE, and Saudi Arabia, with the Middle East offering significant opportunities, particularly in Qatar and Saudi Arabia, the Jefferies report said.

"Global geo-political tensions and India’s rising focus on self-reliance is fuelling the order flow and revenue growth for domestic defence companies. Government focus on building country-to-country relations to promote exports is icing on the cake. A 2x growth in domestic defence spend in FY24-30 should continue to drive stock upside," the report added.

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