ICICI Securities: India’s Defence Sector PSUs Can Benefit From Likely Order Activity

ICICI Securities Report

Ministry of Defence, in successive weeks, has announced drafts of new Defence Acquisition Policy 2020, Defence Production and Export Promotion Policy 2020 and now an import ‘embargo’ list on 101 weapons and military platforms progressively till CY25. We do believe public sector undertakings are best placed to get incremental order inflows.

Key takeaways from the flurry of Defence Ministry announcements:

1. Priority of order allocation to defence public sector enterprises will continue, private sector role continues to be limited at best

2. Majority of embargoed items can be categorised in a) already under production, b) to be bulk produced in the near future, c) recently imported or d) to be imported in the near future till the embargo sets in – thereby, doesn’t impact order inflow or earnings expectations

3. Current border standoff with China increased expectation of a ‘defence cess’, ‘segregation of pension bills into the central budget’ et all to increase/sustain defence budget; the expectations were fanned by a timely Defence Acquisition Council meeting clearing procurement of certain platforms i.e. Tejas, light combat helicopter, land attack cruise missile.

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