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DAC approves proposals worth INR 78bn: Benefit for BEL and Astra

The Defence Acquisition Council (DAC) has provided Acceptance of Necessity (AoN) to various proposals envisaging investment of INR 78bn across the Armed Forces (Link). These encompass all the three services and are aimed at improving survivability, manoeuvrability and combat effectiveness. Among the companies under our coverage, we believe BEL and Astra Microwave could benefit from installation of electronic warfare (EW) suite on MI-17 V5 helicopters. In addition, AoN has been given for ground-based autonomous system for mechanised infantry and armoured regiments, light machine gun (LMG), bridge-laying tank (BLT), Ruggedized laptops and tablets under Project Shakti and procurement of weapons for MH-60R helicopters. Maintain BUY on BEL (TP: INR 150) and Astra Microwave (TP: INR 425).

AoN for proposals worth INR 78bn granted

The DAC has granted AoN for proposals worth INR 78bn for all the three services. Key points: 1) Indian Air Force – Procurement and installation of EW suite on MI-17V5 helicopters under ‘buy’ (India-IDDM) category from BEL. We expect trickle-down benefits to companies such as Astra Microwave as well. 2) Indian Army – Procurement of ground-based autonomous system for mechanised infantry and armoured regiments to enable swift manoeuvrability, 7.62x51 mm LMG to enhance fighting capability, BMT to enhance faster movement and ruggedized laptops and tablets under Project Shakti. 3) Indian Navy – Procurement of weapons, possibly via Foreign Military Sales route for weapons (estimated at INR 24bn) for MH-60R helicopters. In our view, these weapons are likely to include AGM-114 Hellfire missiles (precision-guided), MK 54 lightweight torpedoes (anti-submarine warfare weapon). While these AoNs are expected to translate into orders in 18-24 months, we see a focused approach by the government to enhance capabilities of all the Armed Forces, even in a pre-election year. Hence, defence spending is unlikely to take a backseat, ensuring that orderbooks of the relevant companies remain robust.

Among covered companies, BEL and Astra likely to benefit

Our view that BEL is best placed among our covered companies is bolstered by the company’s direct or indirect participation in almost every major platform for which orders have been placed or AoN issued. In the current proposal worth INR 78bn, we peg BEL’s share at INR ~28-30bn from EW suite and others. In addition, we believe Astra Microwave is likely to benefit due to the EW products it has developed. Furthermore, Astra Microwave has also received orders worth INR 1.58bn for supply of satellite sub-systems, airborne radar and sub-systems of radar and EW projects from DRDO, ISRO and DPSUs. We believe these orders are likely to be margin-accretive for the company. Maintain BUY on BEL (TP: INR 150) and Astra Microwave (TP: INR 425).

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