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Defence Sector – Focus on indigenous manufacturing continues with Rs 1 lakh cr AoNs approval

ICICIdirect Research 04 Jul 2025 DISCLAIMER

Defence ministry has accorded Acceptance of Necessity (AoN) worth Rs 1.05 lakh crore for 10 platforms, which includes two large platforms like QRSAM systems (Quick Reaction Surface to Air Missile) worth ~Rs 30,000 crore and MCMVs (Mine Counter Measure Vessels) worth ~Rs 44000 crore.

Other platforms include Armoured Recovery Vehicles, Submersible Autonomous Vessels, SRGM (Super Rapid Gun Mount), EW (Electronic Warfare) systems and Integrated Common Inventory Management Systems.

In QRSAM, companies like Bharat Electronics (BEL), Bharat Dynamics (BDL) and Astra Microwave will be the key beneficiaries. In MCMVs, defence shipyards like Mazagon Dock, GRSE, Cochin Shipyard & L&T Shipyard are likely to participate. In SRGMs, L&T and BHEL are likely to participate. Apart from this, procurement of EW and Inventory management systems are likely to see participation from Data Patterns & Astra Microwave apart from BEL.

With these approvals, AoNs (Acceptance of Necessities) worth ~Rs 10.5 lakh crore have been accorded by the govt over the last 3.5 years (FY23 onwards) as compared to ~Rs 8.5 lakh crore worth of AoNs given over the prior ten-year period (FY13-22).

This solid growth in approvals over the last 3.5 years indicates a strong order potential for defence companies in the coming years. In FY25 alone, total orders worth Rs 2.09 lakh crore were given by the Govt; which was almost double of orders worth Rs 1.08 lakh crore given in FY24.

Considering the strong focus on increasing capital outlay for indigenised platforms, we maintain our positive view on the sector as this would further create cumulative domestic procurement opportunity of Rs 7-8 lakh crore over the next 5 years.

However, we remain selective in stocks and recommend Hindustan Aeronautics (target price of Rs 6100), Astra Microwave (target price of Rs 1270) and Midhani (target price of Rs 530)

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