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The Indian government is going aggressive with its Defence companies. In a surprise move, it has asked public sector Defence companies to go on a road show in Dubai and Abu Dhabi to attract investors.
Generally, a company goes on a road show when it needs money, or it feels that the stock is undervalued. Defence stocks have had a good run, with Bharat Dynamics and Hindustan Aeronautics both posting 115 percent returns over the last 12 months and Bharat Electronics increasing by 65 percent during the same period. Other public sector Defence stocks too have given good annual returns.
However, despite the strong performance, they are still not expensive on a valuation basis and taking into account the visibility by way of order books and delivery schedules. Most public sector Defence stocks are trading at a lower double-digit price to earnings ratio. Through these roadshows, the government probably is prepping these companies for a possible dilution later in the year.
Public sector Defence companies have benefited from the government’s Aatmanirbhar policy. Indian Defence exports have increased from Rs 1,940 crore in 2015 to Rs 13,000 crore in 2021. The government has targeted Defence exports to hit Rs 35,000 crore by 2025 and is confident of approaching it with exports of missiles and Tejas aircraft.
The government is betting big on the Defence sector and intends to take it from the present level of Rs 85,000 crore to Rs 1.75 lakh crore by 2025. The sector is expecting orders worth over Rs 5 lakh crore to be placed soon, with Mazagon Dock Shipbuilders alone expecting orders of Rs 1.59 lakh crore for submarines and stealth-guided missile frigates.
With the commissioning of the aircraft carrier Vikrant and through a combination of public-private partnerships, Indian Defence industry has demonstrated its capabilities. In the past four years, nearly 2,500 patents have been applied for in the Defence space.
Apart from hardware supplies, the Indian Defence industry is also showcasing its IT and service capabilities. Using quantum computing communication, the Indian Defence sector has ensured that its system cannot be hacked over 150 km as compared to the global limit of 90 km.
In terms of service, the US Sealift Command has started sending its warships to an Indian shipyard for repairs and maintenance, in turn opening up a huge opportunity for the sector.
The war between Russia and Ukraine and the growing tension across the globe is resulting in an arms race. The Indian government, sensing the opportunity, has also asked Indian Defence companies to open offices abroad. Indian companies have increased their participation in international Defence shows.
The roadshow in the Middle East is not only a potential fundraising exercise, but also an opportunity to demonstrate India’s Defence might.
Whether it translates into orders is a different matter, but the fact that Indian companies are capable of delivering international grade weapons exposes them to a huge global arms market that has been dominated by a few advanced countries.
While the Defence sector is playing its part in strengthening India’s position, the central bank has a fight on its hands. Inflation has again raised its head and the central bank has its job cut out in controlling it through tough decisions, argues Manas Chakravarty here, especially at a time when growth momentum is slowing.
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Shishir Asthana
Moneycontrol Pro
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