2021

Thriving defence industry

inviting investors...

There is one industry that is budding and budding quickly, Indian defence
industry is on the verge of a major boom. Govt. is encouraging the
indigenisation of defence equipment for the armed forces. Foreign direct
investment has been increased to 74 %, this initiative has fueled the
international companies to form a joint venture with the Indian companies in
the sector and also bought new technology advancements for Indian
companies as they get to work with state-of-the-art defence firms around
the world.

Several new measures in this direction include ----

 The advent of a new Procurement process of defence equipment’s

leverage procurement of equipments from Indian companies rather
than the imports which were unlikely a few years ago.

 Escalation of defence budget by 10%.

 To promote ‘Make in India’ in the defence sector, a list of 101 defence

items was notified in August 2020 as a negative list which armed
forces are prohibited from importing from foreign countries,
while Defence Acquisition Procedure 2020 was unveiled in September
2020. Rs 52,000 crore budget was earmarked for indigenously made
defence equipment in 2020-21

As a result, The increased partnership with the private sector has led to a
substantial rise in defence exports. The value of total defence exports rose 11/27/2021

from Rs 1,941 crore in 2014-15 to Rs 9,116 crore in 2019-20. Also, for the first
time, India figured in the list of defence equipment exporting nations, as
the exports expanded to more than 84 countries.
 Some companies that can be worth considering for investing…

Hindustan Aeronautics Limited(HAL)

1. It is the major public sector unit that supplies equipment to Indian defense forces. The
company has a good amount of reserve amounting 15000 crores and bears a minute debt of
around 60 crores, the company has generated an average profit of 17.6 % in the past 3
years, this shows that the company is fundamentally strong, Moreover, as per recent
annual reports the profits during the year 2020-2021 have increased by 8%, despite being
severely affected by Covid-19 as there were difficulties in cash flows, interruptions in
operations due to workmen shortage.

 The profit-to-earnings ratio stays at 14.2% which is worth considering as the defence
reforms will surely pave a way for future growth resulting in an even lower p/e ratio,
though the p/e ratio of 14.2% is still not a bad one.

 In the last three years, Hindustan Aeronautics grew its EPS by 15% per year. HAL
maintained stable EBIT margins over the last year, all while growing revenue at 14% to
₹226 billion.

 The prospects seem to be on the positive side as it is eyeing some major contracts from
Indian Air Force in the span of 5-6 years

 HAL also plans to expand the production lines across the country, as it is working on 3
fighter jet programs simultaneously which the air force has already promised to procure,
recently an order for mission simulators has been awarded to HAL by govt , after the
contract stock of company gained over 2%

 Long-term investment is recommended as the company can yield very good returns for
patient investors.
Centum Electronics Limited

2. The firm has recently won a major bid for manufacturing radar, it is worth noting that the
bid exclusively mentioned the use of Gallium nitride technology in radars which is the
latest technological breakthrough in the industry

 This proves the point that reforms have induced private companies to invest in
manufacturing state of the art equipment.The company is good for short-term investors
eyeing a quick gain in the market.