Best Defence Stocks in India: Which Stock Among Them Has the Highest Dividend Yield?

Best Defence Stocks in India: An Overview

Following Russia's attack on Ukraine, India's defense stocks have come to the fore. Aftermath the war, the stock markets have stayed in a bear market, but contrary to the trend, few defense stocks have continued their bullish rally. This can prove to be a lucrative opportunity, specifically for real-time investors in India.

Additionally, many other countries have increased their defense budgets, and as a result, defense stocks have outperformed the market, even in the downtrend the market is facing currently. Not only that, but as of 2020, India has been one of the world's top five defense spenders. According to the Stockholm International Peace Research Institute (SIPRI), global military spending has risen by 2.6% year on year since 2019. This reflects how all countries around the world prioritize defense, which makes defense stocks a must-have in your portfolio in 2023.

Let us look at some of the fundamentals of the defense business in India before we delve into the best defense stocks that you can choose to invest in.

Defence Sector in India

Despite the fact that the pandemic has had an impact on the Indian economy, the government has increased defense spending in the recent Budget 2023 from Rs. 5.25 lakh crore to Rs. 5.94 lakh crore. This is a strategic move because other countries are constantly updating their military systems with new technology, and India needs to keep up. 

Recently, India announced in its Budget 2023 that 75% of defense-related goods would be earmarked for Indian companies. In other words, only 25% of projects would be outsourced. This will allow Indian defense companies to win more contracts and generate more revenue. All of this will raise the value of defense stocks to greater levels, in return generating higher returns for the investors at the same time.

Best Defense Stocks in India

Below are some of the top companies that are listed in the Indian stock market and are highly considered due to their viable performance in the business. Please note the mentioned details of the following companies have been updated till October 2022.

Bharat Electronics Ltd.

Bharat Electronics Limited (BEL) was founded in 1954 in collaboration with France. It was established to meet the Indian Defense Services' need for electronic equipment. It is a government-owned aerospace and defense firm. It specializes in the production of advanced electronics for ground and aerospace applications.

BEL invests 7.5% of its total revenue in research and development (R&D). This makes the company the highest R&D spender in the Defense Public Sector Undertaking (PSU) sector.

Let us now take a look at the key financial ratios of Bharat Electronics Ltd. 

• Market Cap (Cr): Rs. 70,502 Cr.
• EPS: Rs. 3.77
• ROCE (%): 27.1
• Debt to Equity: 0.00
• Stock PE: 25.6
• ROE (%): 20.5
• Dividend Yield (%): 4.67
• Promoter’s Holdings (%): 51.1

Bharat Earth Movers Limited (BEML)

BEML's primary business is the manufacture of a diverse variety of heavy earthmoving equipment. It is also involved in the production of railway and metro coaches. The firm is also a leading manufacturer of defense equipment, supplying the Indian Army and other armed forces. Research and development consume 4% of the company's revenue (R&D).

Let's take a look at Bharat Earth Movers Limited's key financial ratios.

• Market Cap (Cr): Rs. 5,040 Cr.
• EPS: Rs. 32.1
• ROCE (%): 8.58
• Debt to Equity: 0.35
• Stock PE: 37.7
• ROE (%): 5.61
• Dividend Yield (%): 0.83
• Promoter’s Holdings (%): 54.0 

Solar Industries Ltd. 

Solar Industries is a global leader in the production of bulk and packaged explosives. In 2010, the company entered the defense sector and diversified its operations into two major segments -Explosives for industrial use and military hardware. The company has also formed a partnership with the Indian Space Research Organization (ISRO), which will help the company's ammunition business grow. It has also put Rs. 14.7 crores into Skyroot Aerospace. 

Let's take a look at Solar Industries Ltd's key financial ratios.

• Market Cap (Cr): Rs. 34,069 Cr.
• EPS: Rs. 79.46
• ROCE (%): 27.1
• Debt to Equity: 0.45
• Stock PE: 47.4 ROE (%): 25.3
• Dividend Yield (%): 0.20
• Promoter’s Holdings (%):  73.2

Hindustan Aeronautics Ltd. 

Hindustan Aeronautics Ltd. is the Indian air force's backbone. It produces cutting-edge technology, such as lightweight fighter aircraft and helicopters. Aside from manufacturing, it can also repair these machines. This makes it the only Indian company that specializes not only in aircraft manufacturing but also in equipment repair. The company was ranked 45th in the world's top 100 defense companies. Hindustan Aeronautics, like BEL, is a debt-free organization.

Let us examine Hindustan Aeronautics Ltd's key financial ratios.

• Market Cap (Cr): Rs. 90,644 Cr.
• EPS: Rs. 182.47
• ROCE (%): 30.5
• Debt to Equity: 0.00
• Stock PE: 14.9
• ROE (%): 29.4
• Dividend Yield (%): 1.84
• Promoter’s Holdings (%): 75.2 

MTAR Technologies

MTAR is a new stock listing on the Indian stock exchange in 2022. The company was founded in 1970. Since its inception, the nuclear segment has generated about 29% of the company's revenue, the space and defense segment has generated about 21%, and the clean energy business has generated 50%. The company produces a wide range of machine equipment, assemblies, subassemblies, and spare parts for the energy, nuclear, space, aerospace, defense, and other engineering industries.

Following are some of the financial metrics of the company:

• Market Cap (Cr): Rs. 5,287 Cr.
• EPS: Rs. 30.28
• Book Value: Rs. 183
• ROCE (%): 15.7
• Debt to Equity: 0.18
• Stock PE: 56.74
• ROE (%): 11.9
• Dividend Yield (%): 0.18
• Promoter’s Holdings (%): 47.2

(All the above data as of 6th March 2022)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

Top Defence Stocks in India

Now let us take a look at some of the current trending defense stocks in the Indian stock exchange as per 20 October 2022.

(Share price as of 20th October 2022)
Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

The defense industry is massive. It comprises the army, navy, and air force. The air force segment accounted for the majority of the defense budget as of 2021. The government focused on modernizing aircraft and other equipment in the air force segment. Furthermore, many defense companies have launched their own startups to manufacture Unmanned Ariel Vehicles (UAVs). Based on the factors listed above, it is safe to say that whether in normal or difficult times, every country will spend a significant amount of money strengthening and updating its military. As a result, it would not be incorrect to state that investing in defense stocks will always be trendy. However, it is advised you must carefully analyze these stocks as per your financial goals and risk appetite before making an investment decision.

This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.