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Fresh Capital Acquisition Proposals: Shot in the arm for a few

As per media reports (quoting the Defence Ministry) (Link), the Defence Acquisition Council (DAC) has accorded approval for Acceptance of Necessity (AoN) for 24 Capital Acquisition Proposals worth Rs843bn spread across Air Force, Navy, Army and Coast Guard. At this stage, the details pertaining to category-wise break up, timelines and contract details are not available; however, we believe given the recent skirmish on the North-Eastern border, the execution is likely to be expeditious.

In our view, the primary beneficiaries (among coverage companies) could be Bharat Dynamics (ADD; TP: Rs1,100), Solar Industries (BUY; TP: Rs4,760) and GRSE (SELL; TP: Rs390) led by focus on missile systems, explosives and next generation offshore patrol vessels (NGOPV). Besides, companies into radar systems and telemetry such as BEL (BUY; TP: Rs125) are also likely to benefit from capital spending on surveillance systems.

* AoN for Capital Acquisition Proposals covers all services and different segments: Defence Acquisition Council has accorded approval for the Acceptance of Necessity (AoN) for 24 Capital Acquisition Proposals which include 6 for the Indian Army, 6 for Indian Air Force, 10 for Indian Navy and 2 for Indian Coast Guard for Rs843bn. The split across various services/segments is: 1) Indian Army: Futuristic Infantry Combat Vehicles (FICV), light tanks, mounted gun system and upgraded-level ballistic helmets; 2) Indian Navy and Coast Guard: Naval anti-ship missiles, multi-purpose vessels, high endurance autonomous vehicles and NGOPV for Coast Guard; and 3) Indian Air Force: New range of missile system, long range guided bombs, range augmentation kit for conventional bombs and advanced surveillance systems. In our view, these items are not having very high gestation period and given the recent skirmish on the North-Eastern border, the execution could be expeditious.

* Companies benefitted: At this stage, we don’t have details of contract value, timelines or further category-wise break up; however, we believe among our coverage companies, the benefit is likely to be the most for 1) Bharat Dynamics and Solar Industries for missile systems and long range guided bombs (explosives); 2) GRSE for NGOPV; and 3) BEL for surveillance systems. Besides, L&T is likely to benefit from light tank and TASL and Bharat Forge from FICV orders.

* Outlook- await details but benefits in store for a few companies: In our view, the items covered under the AON for 24 Capital Acquisition Proposals do not have a high gestation period and the execution might be expeditious in light of the recent skirmish in the North East. Among coverage companies, we see maximum benefit for Bharat Dynamics (ADD; TP: Rs1,100), Solar Industries (BUY; TP: Rs4,760) and GRSE (SELL; TP: Rs390). However, in case of GRSE, NGOPVs might not be of high value. We also see benefit for companies engaged in radar systems and telemetry such as BEL (BUY; TP: Rs125).

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