In terms of the Indian Defence Sector, it is indeed the most remunerative of investment portfolios these days, following India’s government focus on developing and strengthening national security through internal manufacturing. Currently, shares in this field are quite attractive to many investors. Today, let’s try to explore the following four defence stocks-Bharat Dynamics Ltd or BDL, Solar Industries, BEML, and Astra Microwave. Let’s examine their technical charts, growth potential, pros, cons, and so forth-investing insights in the short and long term.
DISCLAIMER: Our post is only for educational purpose only. Not an investment advice. Consult your financial advisor before investing.
1. Bharat Dynamics Ltd (BDL): A Strategic Stock in the Defence Sector
Current Price: ₹1150
All-time High (ATH): ₹1794
Bharat Dynamics Ltd (BDL) is one of the largest players in India’s defense sector. The company majorly manufactures missiles, associated components, and defense products. Let’s have a look at the technical chart of the stock and the growth prospects:
Technical Analysis:
BDL is currently trading at ₹1150, showing a strong price action with strong support at ₹903. It recently broke its trendline with good volume, and hence the strength in upward momentum is confirmed. Strength in the RSI by closing above the 60 upper limit adds confidence to the bullish outlook.
The stock can bounce back down to the 1025-1040 zone area. In case BDL bounces from this area of retracement, in the near term, one can see a move northwards up to ₹1150, ₹1260, and even ₹1388. The critical zones of support lie at the ₹880-900 level. Below these levels, if the stock breaks out, we shall see some weakness in the market conditions.
Pros:
- Debt-Free Status: BDL has almost cleared debt and is almost debt free, which makes its financial posture more robust.
- Healthy Dividend Payout: The company has maintained a healthy dividend payout ratio of 36.9%, which is a very attractive element in terms of income for investors.
Cons:
- Overvalued: The stock is trading at 11.3 times its book value, which is something to think about for the value investor.
- Poor Sales Growth: The company has experienced a negative sales growth of -5.05% over the past five years, which indicates some challenges in generating revenue over the years.
Conclusion:
BDL still remains an excellent investment idea in the defence sector considering the potential upside from its retracement levels. In spite of this drawback in respect of sales growth, the other fundamentals are extremely strong while the technical pattern is even more attractive to suggest some good performance within the short to medium time frame.
2. Solar Industries: A High-Growth Stock in the Defence and Explosives Industry
Current Price: ₹10680
All-time High (ATH): ₹13298
Solar Industries is one of the prominent companies India’s defense and explosives sector. Explosives and related accessories for mining as well as defense industries are manufactured by this company. Let’s analyze the technical and growth potential in this stock:
Technical Analysis:
Solar Industries currently has a price of ₹10680. Here, the double bottom pattern is forming in the form of a W-pattern that projects a potential trend reversal toward the upside. If this retraces toward ₹10100-10280 levels then it becomes an excellent trading entry to the upward shift. Thereafter, all the probable targets could go up to ₹10597, ₹11119 and ₹11761 within near term.
The strong support is present at ₹9630. Below this level, the critical supports at ₹9480-9440 need to be observed well. If the stock holds above that level, it will further continue its upward move. The ATH for Solar Industries was ₹13298. As long as the double bottom formation plays out correctly, the stock could see a future level near ₹16900. what do you think?
Pros:
- Profit Growth: Solar Industries has posted a strong 28.2% CAGR profit growth over the last five years, evidencing a promising growth curve.
- Strong Return on Equity (ROE): This company has been recording very good 3-year ROE of 30.8%, indicating good profitability as well as proper management control.
Cons:
- High Valuation: The stock is currently trading at a price of 25.5 times book value. This premium may deters some value-conscious investors.
Conclusion:
The double bottom pattern shall be confirmed. Solar Industries does have attractive growth with such a scenario. Besides that, strong earnings and rock solid ROE support such long-term growth. And any retracement levels should immediately make investors look for positions once the stock starts making that bounce.
3. BEML Ltd: A Robust Player in the Defence and Heavy Equipment Sector
Current Price: ₹4240
All-time High (ATH): ₹5480
BEML Ltd is an established name in the defence, aerospace, and heavy equipment arenas. The company has a diversified product base for the defence and mining sectors. Let’s analyze stock performance and see if there is a better long-term prospect.
Technical Analysis:
Currently, BEML is quoting at ₹4240. The stock has broken into lower low, lower high formation as well, in which sometimes a downtrend may establish. But some chances may be there through an inversion of head and shoulder for a trend turnaround.
If the stock again tests the ₹3680-3900 mark, this would be a nice buy. The medium term potential is at ₹4384, ₹4855, and ₹5343. This stock has high support at ₹3400, with critical support around ₹3100-3280. Any breakage here will lead to additional fall; hence, trading here must be done carefully.
Pros:
- Profit Growth: BEML has delivered a 34.8% CAGR profit growth over the last five years, which is an indication of good earnings growth.
- Dividend Payout: The company has maintained a healthy 29.8% dividend payout, which is good for long-term investors seeking income.
Cons:
- Valuation Concerns: The valuation concerns are that the stock is trading at 6.53 times its book value, which might seem to be slightly overvalued from the fundamental analysis perspective.
- Low ROE: The company BEML also is trading at low ROE of 7.76%.This indicates profits generated but not being really capital-effective.
Conclusion:
BEML seems to be a good trend with very high profit growth and having high dividend yield, making the stock attractive to long-term investors. There’s nice reversal pattern on this chart, so it’s quite interesting for a bounce-back, and keep an eye on retracement levels and support zones for optimal entry.
4. Astra Microwave Products Ltd: A High-Growth Stock in the Microwave and Defence Electronics Sector
Current Price: ₹800
All-time High (ATH): ₹1059
A Leader in the microwave and radar space solution, important place of business in the defense electronics. Let’s dive in-technical outlook and the basics of business:
Technical Analysis:
Astra Microwave: ₹800, A tight support at ₹697 end. Before resuming its upward move, it can easily correct to the ₹740-762 range. In the short term, we might see targets at ₹804, ₹846, and ₹889.
The stock’s all-time high (ATH) stands at ₹1059, and if the retracement levels hold, then there is a possibility that Astra Microwave might test or break through those levels in the future.
Pros:
- Profit Growth: Astra Microwave has given excellent 105% CAGR profit growth in the last five years, which is a testimony to its robustness.
- Healthy Dividend Payout: The company is giving a dividend payout of 22.5% and hence is an ideal income-generating stock for investors.
Cons:
- Valuation: The stock trades at 7.74 times its book value. This might be an area of concern for the value investor.
- Low Promoter Holding: The promoter holding is at low 6.54% that may reflect lesser confidence of the insiders
- High Debtors: Debtors are high, as the debtor days are at 203 days, which would give some concern to investors seeking work capital management.
Conclusion:
Astra Microwave’s impressive profit growth in the last five years has augmented its strong growth prospects. However, high valuation and low promoter holding in the stock warrant caution. If retracement holds, Astra Microwave can be a strong performer in coming sessions.
Conclusion:
Out of the four stocks listed above, one is of each BDL, Solar Industries, BEML, and Astra Microwave. All these stocks present a different opportunity with differing risk factors. Defence sector stocks have good growth prospects on strong fundamentals as well as on governmental initiatives. At the same time, many others are faced with challenges as far as valuation and other market-related issues are concerned.
They must watch the key support and resistance levels, as well as the overall market trends, before making an investment.
Do not forget to stay tuned for the next series of stocks in the defense sector, where we would discuss more investment opportunities.
Note: This analysis is for informational purposes and should not be considered as investment advice. Always conduct your own research or consult a financial advisor before making any investment decisions.
